UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2004
| ¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File No. 000-32877
PRO-PHARMACEUTICALS, INC.
| Nevada | 04-3562325 | |
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) | |
| 189 Wells Avenue, Newton, Massachusetts | 02459 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
(617) 559-0033
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES ¨ NO x
The number of shares outstanding of the registrant’s common stock as of May 6, 2004 was 25,315,411.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2004
| PAGE | ||||
| PART I – FINANCIAL INFORMATION | ||||
| ITEM 1. |
Unaudited Condensed Consolidated Financial Statements |
|||
| Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003 |
3 | |||
| 4 | ||||
| 5 | ||||
| Notes to Unaudited Condensed Consolidated Financial Statements |
6 | |||
| ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 | ||
| ITEM 3. |
16 | |||
| ITEM 4. |
16 | |||
| PART II – OTHER INFORMATION | ||||
| ITEM 1. |
18 | |||
| ITEM 6. |
18 | |||
| 21 | ||||
2
(A Development-Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 6,543,521 | $ | 7,607,818 | ||||
| Prepaid expenses and other current assets |
130,888 | 88,429 | ||||||
| Total current assets |
6,674,409 | 7,696,247 | ||||||
| PROPERTY AND EQUIPMENT - NET |
125,690 | 143,933 | ||||||
| INTANGIBLE ASSETS - NET |
157,664 | 134,844 | ||||||
| DEPOSITS AND OTHER ASSETS |
26,951 | 26,951 | ||||||
| TOTAL ASSETS |
$ | 6,984,714 | $ | 8,001,975 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 636,133 | $ | 143,749 | ||||
| Accounts payable - related party |
50,546 | 22,306 | ||||||
| Accrued expenses - related party |
6,100 | — | ||||||
| Other accrued expenses |
439,421 | 211,854 | ||||||
| Total current liabilities |
1,132,200 | 377,909 | ||||||
| CONTINGENCIES (Note 6) |
||||||||
| STOCKHOLDERS’ EQUITY: |
||||||||
| Common stock, $0.001 par value; 100,000,000 shares authorized, 24,079,300 issued and outstanding; Undesignated shares, $.01 par value; 5,000,000 shares authorized, none issued and outstanding |
24,079 | 24,079 | ||||||
| Additional paid-in capital |
20,432,547 | 20,376,051 | ||||||
| Deferred compensation |
(43,539 | ) | (69,711 | ) | ||||
| Deficit accumulated during the development stage |
(14,560,573 | ) | (12,706,353 | ) | ||||
| Total stockholders’ equity |
5,852,514 | 7,624,066 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 6,984,714 | $ | 8,001,975 | ||||
See notes to unaudited condensed consolidated financial statements.
3
(A Development-Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2004 AND 2003, AND CUMULATIVE PERIOD
FROM INCEPTION (JULY 10, 2000) TO MARCH 31, 2004
| Cumulative 2004 |
||||||||||||
| Three Months Ended March 31, |
||||||||||||
| 2004 |
2003 |
|||||||||||
| OPERATING EXPENSES: (a) |
||||||||||||
| Research and development |
$ | 851,507 | $ | 393,879 | $ | 5,278,540 | ||||||
| General and administrative |
1,022,055 | 562,577 | 7,173,328 | |||||||||
| Total operating expenses |
(1,873,562 | ) | (956,456 | ) | (12,451,868 | ) | ||||||
| INTEREST AND OTHER INCOME |
19,342 | 11,590 | 137,703 | |||||||||
| INTEREST AND OTHER EXPENSES: |
||||||||||||
| Amortization of debt discount on convertible notes |
— | — | 1,258,012 | |||||||||
| Debt conversion expense |
— | — | 503,019 | |||||||||
| Interest expense on convertible notes |
— | — | 485,377 | |||||||||
| Total interest and other expenses |
— | — | (2,246,408 | ) | ||||||||
| NET LOSS |
$ | (1,854,220 | ) | $ | (944,866 | ) | $ | (14,560,573 | ) | |||
| NET LOSS PER SHARE - BASIC AND DILUTED |
$ | (0.08 | ) | $ | (0.05 | ) | ||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED |
24,079,300 | 19,993,185 | ||||||||||
(a) The following summarizes the allocation of the stock-based compensation charge: |
||||||||||||
| Research and development |
$ | 2,571 | $ | — | $ | 137,723 | ||||||
| General and administrative |
80,097 | 46,961 | 816,457 | |||||||||
| Total |
$ | 82,668 | $ | 46,961 | $ | 954,180 | ||||||
See notes to unaudited condensed consolidated financial statements.
4
(A Development-Stage Company)
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2004 AND 2003, AND CUMULATIVE PERIOD
FROM INCEPTION (JULY 10, 2000) TO MARCH 31, 2004
| Three Months Ended March 31, |
Cumulative (July 10, 2000) |
|||||||||||
| 2004 |
2003 |
2004 |
||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
| Net loss |
$ | (1,854,220 | ) | $ | (944,866 | ) | $ | (14,560,573 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
| Depreciation and amortization |
22,743 | 16,846 | 167,755 | |||||||||
| Stock-based compensation expense |
82,668 | 46,961 | 954,180 | |||||||||
| Amortization of deferred extension costs through interest expense |
— | — | 167,497 | |||||||||
| Settlement of accrued interest through issuance of common stock |
— | — | 10,274 | |||||||||
| Amortization of debt discount on convertible notes |
— | — | 1,258,012 | |||||||||
| Writeoff of intangible assets |
— | — | 107,000 | |||||||||
| Debt conversion expense |
— | — | 503,019 | |||||||||
| Interest expense related to issuance of warrants to purchase common stock |
— | — | 235,987 | |||||||||
| Changes in current assets and liabilities: |
||||||||||||
| Prepaid expenses and other current assets |
(42,459 | ) | (25,213 | ) | (127,760 | ) | ||||||
| Deposits and other assets |
— | — | (26,951 | ) | ||||||||
| Accounts payable and accrued expenses |
754,291 | (52,124 | ) | 1,251,427 | ||||||||
| Net cash used in operating activities |
(1,036,977 | ) | (958,396 | ) | (10,060,133 | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
| Purchases of property and equipment |
— | (29,474 | ) | (272,359 | ) | |||||||
| Increase in patents costs and other assets |
(27,320 | ) | (15,496 | ) | (178,750 | ) | ||||||
| Net cash used in investing activities |
(27,320 | ) | (44,970 | ) | (451,109 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
| Net proceeds from issuance of common stock and warrants |
— | 1,232,750 | 15,811,133 | |||||||||
| Net proceeds from issuance of convertible notes payable |
— | — | 1,320,602 | |||||||||
| Repayment of convertible notes payable |
— | — | (86,000 | ) | ||||||||
| Proceeds from shareholder advances |
— | — | 9,028 | |||||||||
| Net cash provided by financing activities |
— | 1,232,750 | 17,054,763 | |||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS |
(1,064,297 | ) | 229,384 | 6,543,521 | ||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
7,607,818 | 1,921,233 | — | |||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 6,543,521 | $ | 2,150,617 | $ | 6,543,521 | ||||||
| SUPPLEMENTAL DISCLOSURE – Cash paid for interest |
$ | — | $ | — | $ | 18,779 | ||||||
| NONCASH FINANCING ACTIVITIES |
||||||||||||
| Issuance of warrants in connection with equity offerings |
$ | — | $ | — | $ | 2,605,574 | ||||||
| Conversion of accrued expenses into common stock |
— | 302,506 | 302,506 | |||||||||
| Cashless exercise of employee stock options |
— | — | 74,000 | |||||||||
| Conversion of convertible notes and accrued interest into common stock |
— | — | 1,219,602 | |||||||||
| Conversion of extension costs related to convertible notes into common stock |
— | — | 170,625 | |||||||||
| Issuance of warrants to induce conversion of notes payable |
— | — | 503,019 | |||||||||
| Issuance of stock to acquire Pro-Pharmaceuticals-NV |
— | — | 107,000 | |||||||||
See notes to unaudited condensed consolidated financial statements.
5
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | BASIS OF PRESENTATION |
The consolidated financial statements as reported in Form 10-Q reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position as of March 31, 2004 and the results of its operations and cash flows for the three months ended March 31, 2004 and March 31, 2003. All adjustments made to the interim financial statements included all those of a normal and recurring nature. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year.
The unaudited condensed consolidated financial statements of Pro-Pharmaceuticals, Inc. (the “Company”) should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2003.
As shown in the consolidated financial statements, the Company incurred net losses of $14,560,573 for the cumulative period from inception (July 10, 2000) through March 31, 2004. The Company’s net losses have resulted principally from costs associated with research and development expenses, including clinical trial costs, and general and administrative activities. As a result of planned expenditures for future research, discovery, development and commercialization activities, the Company expects to incur additional losses and use additional cash in its operations for the foreseeable future. From inception (July 10, 2000) through March 31, 2004, the Company has raised $17,131,735 in capital and used $10,060,133 in its operations. The capital was raised through (i) the issuance of convertible notes; (ii) the sale of common stock through a public offering; and (iii) the sale of common stock and warrants through private placements. On April 7, 2004, subsequent to the end of the quarter, the Company raised additional net proceeds of approximately $4,000,000 from the sale of 1,236,111 shares of common stock and 618,057 common stock warrants to certain institutional investors in a private equity offering – see Note 8. Based on the $6,543,521 of cash and cash equivalents on hand at March 31, 2004 and the net proceeds realized from the private offering on April 7, 2004, management believes the Company has sufficient cash to fund its operations through at least September 30, 2005.
The Company is subject to a number of risks similar to those of other development-stage companies, including dependence on key individuals, uncertainty of product development and generation of revenues, dependence on outside sources of capital, risks associated with clinical trials of products, dependence on third-party collaborators for research operations, need for regulatory approval of products, risks associated with protection of intellectual property, and competition with larger, better-capitalized companies. Successful completion of the Company’s development program and, ultimately, the attainment of profitable operations is dependent upon future events, including obtaining adequate financing to