UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 2002
|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _____ to _____
Commission file number 000-32877
PRO-PHARMACEUTICALS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 04-3562325
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
189 Wells Avenue, Suite 200, Newton, Massachusetts 02459
(Address of principal executive offices)
(617) 559-0033
(Issuer's telephone number)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.
Yes |_| No |_|
NOT APPLICABLE
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: The total number of shares of common
stock, par value $0.001 per share, outstanding as of November 1, 2002 was
17,868,897.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
TABLE OF CONTENTS
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets ................................. 3
Condensed Statements of Operations ....................... 4
Condensed Statements of Cash Flows ....................... 5
Notes to Condensed Financial Statements .................. 6
Item 2. Plan of Operation ............................................ 10
Item 3. Controls and Procedures ...................................... 15
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings ............................................ 16
Item 2. Changes in Securities ........................................ 16
Item 3. Defaults Upon Senior Securities .............................. 16
Item 4. Submission of Matters to a Vote of Security Holders .......... 16
Item 5 Other Information ............................................ 16
Item 6. Exhibits and Reports on Form 8-K ............................. 16
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PRO-PHARMACEUTICALS, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31,
ASSETS 2002 2001
CURRENT ASSETS:
Cash and cash equivalents $ 1,275,477 $ 1,491,172
Prepaid expenses and other current assets 10,478 80,769
Deferred convertible notes payable extension costs 41,437 --
----------- -----------
Total current assets 1,327,392 1,571,941
----------- -----------
PROPERTY AND EQUIPMENT, Net 165,815 111,540
PATENTS 76,892 56,115
DEPOSITS AND OTHER ASSETS 26,951 26,951
----------- -----------
Total assets $ 1,597,050 $ 1,766,547
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 229,333 $ 236,223
Accrued expenses 68,776 96,676
Convertible notes payable 115,000 195,000
Accrued interest related to convertible notes payable 18,815 22,803
----------- -----------
Total current liabilities 431,924 550,702
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value; 100,000,000 shares authorized,
--and 17,287,647 and 15,524,410 issued and outstanding
at September 30, 2002 and December 31, 2001, respectively 17,287 15,524
Deferred compensation (56,101) (91,575)
Stock subscription receivable (132,000) --
Additional paid-in capital 8,052,413 5,450,106
Deficit accumulated during the development stage (6,716,473) (4,158,210)
----------- -----------
Total stockholders' equity 1,165,126 1,215,845
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,597,050 $ 1,766,547
=========== ===========
See notes to condensed financial statements.
3
PRO-PHARMACEUTICALS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Period From
Inception
(July 10, 2000)
Three Months Ended September 30, Nine Months Ended September 30, To September 30,
2002 2001 2002 2001 2002
OPERATING EXPENSES:
Research and development $ 316,592 $ 334,435 $ 1,077,304 $ 489,976 $ 2,071,011
General and administrative 322,430 301,337 1,120,387 903,989 2,475,721
------------ ------------ ------------ ------------ -----------
Total operating expenses (639,022) (635,772) (2,197,691) (1,393,965) (4,546,732)
INTEREST INCOME 3,726 4,326 15,683 16,992 40,861
INTEREST EXPENSE (28,264) (557,864) (376,255) (1,816,348) (2,207,247)
------------ ------------ ------------ ------------ -----------
Net loss $ (663,560) $ (1,189,310) $ (2,558,263) $ (3,193,321) $(6,713,118)
============ ============ ============ ============ ===========
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.04) $ (0.09) $ (0.16) $ (0.24)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
Basic and diluted 15,990,355 13,883,404 15,726,838 13,072,422
============ ============ ============ ============
See notes to condensed finanical statements.
4
PRO-PHARMACEUTICALS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Period From
Inception
(July 10, 2000)
Nine Months Ended September 30, To September 30,
2002 2001 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,558,263) $(3,193,321) (6,713,118)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 29,691 2,572 41,847
Stock based compensation expense 65,364 -- 212,681
Non cash interest expense on convertible
notes payable 139,447 1,231,357 1,397,459
Expense related to issuance of warrants
to purchase common stock 235,987 -- 235,987
Writeoff of intangible assets -- -- 107,000
Debt conversion expense -- 503,019 503,019
Changes in current assets and
liabilities:
Prepaid and other expenses 70,290 (24,160) (10,479)
Deposits -- (26,951) (26,951)
Accounts payable (6,890) 211,188 229,333
Accrued expenses (27,900) 256,112 58,776
Accrued interest related to convertible
notes payable (3,988) -- 18,815
----------- ----------- -----------
Net cash used in operating activities (2,056,262) (1,040,184) (3,945,631)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (83,966) (96,800) (207,662)
Increase in patents costs and other assets (20,777) (38,650) (76,892)
----------- ----------- -----------
Net cash used in investing activities (104,743) (135,450) (284,554)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 1,925,310 -- 1,934,310
Return of placement fee 20,000 -- 20,000
Proceeds from sale of common stock and warrants -- 809,700 2,229,750
Net proceeds from convertible notes payable -- 1,026,102 1,320,602
Cash received from stock subscription receivable -- 1,000 1,000
----------- ----------- -----------
Net cash provided by financing activities 1,945,310 1,836,802 5,505,662
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (215,695) 661,168 1,275,477
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,491,172 204,745 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,275,477 $ 865,913 $ 1,275,477
=========== =========== ===========
NONCASH FINANCING ACTIVITIES
Conversion of convertible notes and accrued
interest to common stock $ 90,257 $ 1,185,733 $ 1,306,116
See notes to condensed financial statements.
5
PRO-PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
September 30, 2002
--------------------------------------------------------------------------------
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS
Pro-Pharmaceuticals, Inc. (the Company) was established in July 2000. The
Company is in the development stage and is engaged in developing technology that
will reduce toxicity and improve the efficacy of currently existing chemotherapy
drugs by combining the drugs with a number of specific carbohydrate compounds.
The carbohydrate-based drug delivery system may also have applications for drugs
now used to treat other diseases and chronic health conditions.
The Company is devoting substantially all of its efforts toward product
research and development and raising capital. Its product candidates are still
in the research and development stage, with one approved to commence clinical
trials. 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. To date, the Company has raised capital principally through the
issuance of convertible notes and the sale of $0.001 par value common stock
through private placements.
As of September 30, 2002, the Company had $1,275,477 in cash and working
capital of $895,468. The Company began a private placement of common stock in
September 2002 and had raised $2,093,360 as of November 1, 2002, of which
$1,483,360 was raised during the three months ended September 30, 2002.
The Company's financial statements have been presented on a going-concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company is in the development
stage, has incurred a net loss since inception of $6,713,118 and expects to
incur additional losses in the near future. These factors raise substantial
doubt about the Company's ability to continue as going concern. Successful
completion of the Company's development program and, ultimately, the attainment
of profitable operations is dependent upon future events, including maintaining
adequate financing to fulfill its development activities and eventual sales of
product adequate to support the Company's cost structure. The Company is
actively seeking additional financing to fund future operations and future
significant investments in the business. However, there can be no assurance that
the Company will be able to obtain financing.
BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. These condensed financial statements should be read in conjunction
6
with the financial statements and the notes thereto included in the Company's
latest annual report on Form 10-KSB.
The condensed financial statements, in the opinion of management, include
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the Company's financial position and the results of operations.
These results are not necessarily indicative of the results to be expected for
the entire year.
SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company in preparing
its financial statements are set forth in Note 1 to the financial statements
included in its Form 10-KSB for the year ended December 31, 2001. The Company
has made no changes to these policies during this quarter.
2. NET LOSS PER SHARE
Basic and diluted net loss per share is presented in conformity with
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share,
for all periods presented. In accordance with SFAS No. 128, basic and diluted
net loss per common share was determined by dividing net loss applicable to
common stockholders by the weighted average common shares outstanding during the
period, less shares subject to repurchase. Diluted weighted-average shares are
the same as basic weighted-average shares since the inclusion of 1,933,731 and
2,078,091 shares issuable pursuant to the exercise of stock options and warrants
and conversion of convertible debt as of September 30, 2002 and September 30,
2001, respectively, would have been antidilutive.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
September 30, 2002 December 31, 2001
------------------ -----------------
Property and equipment:
Computer and office equipment $ 62,583 $ 56,681
Furniture and fixtures 41,317 39,746
Leasehold improvements 103,762 27,269
--------- ---------
Total 207,662 123,696
Less accumulated depreciation (41,847) (12,156)
--------- ---------
Property and equipment - net $ 165,815 $ 111,540
========= =========
4. CONVERTIBLE NOTES PAYABLE
On May 9, 2002, the Company extended for one year the holders' right to
convert $195,000 of notes payable to common stock extending the maturity dates
to the first quarter of 2003. In consideration for the extension, the holders
were entitled to receive one-quarter of one share of the Company's common stock
for each whole dollar amount of principal, or 48,750 shares of common stock.
During the second quarter, the Company deferred $170,625 in costs associated
with the
7
extension, based on the fair value of the Company's common stock of $3.50 per
share. These deferred convertible notes payable costs will be amortized ratably
over the twelve month extended term of the notes, if the notes are held to
maturity, or expensed immediately upon conversion.
The Company issued 20,000 of these shares during the period ended June 30,
2002, and the remaining 28,750 in the quarter ended September 30, 2002. In June
2002, $80,000 principal amount of convertible notes payable and $5,128 in
related interest was converted into 45,128 shares of common stock. In addition,
$70,000 in deferred convertible notes payable extension costs was expensed
immediately upon conversion. In October 2002, the Company settled a convertible
note payable of $100,000 by repaying $86,000, converting the remaining $14,000
in principal into 7,000 shares of common stock pursuant to the original terms of
the note agreement, and paying accrued interest in the amount of $17,051.
5. EQUITY OFFERINGS
On December 13, 2001, the Company commenced a public offering of 1,428,572
shares of common stock at a price to the public of $3.50 per share. The Company
concluded the offering on June 11, 2002. The Company sold 185,999 shares of
common stock under this offering, for gross proceeds of $650,998, all in 2002.
In August 2002, the Company began a private placement of units of Series A
preferred stock and warrants to purchase common stock, exempt from registration
pursuant to Rule 506 of Regulation D under the Securities Act of 1933, in order
to raise up to $6,588,400 to cover its expenditures. The Company did not sell
any securities under this offering and has discontinued it.
In September 2002, the Company began a private placement of up to 10
million shares of common stock at $1.00 per share, exempt from registration
pursuant to Rule 506 of Regulation D under the Securities Act of 1933. During
the quarter ended September 30, 2002, the Company sold 1,483,360 shares under
this offering for gross proceeds of $1,483,360. Subsequent to quarter end,
through November 1, 2002, the Company sold an additional 610,000 shares at $1.00
per share for additional gross proceeds of $610,000. The Company agreed to
compensate a registered investment adviser with respect to shares purchased by
its clients based on the recommendation of the adviser. As of September 30,
2002, the adviser was entitled to receive 89,000 shares of common stock.
6. OPTIONS AND WARRANTS
Commencing as of March 1, 2002, under an agreement with a shareholder who
is also a board member, the Company compensates the shareholder for consulting
services rendered by making monthly grants to the shareholder of options to
purchase 2,000 shares of common stock. The options are granted on the first day
of the month following the month of service, vest immediately and expire in 10
years. In accordance with this agreement, options to purchase 2,000, 6,000 and
6,000 shares were granted during the three-month periods ended March 31, 2002,
June 30, 2002, and September 30, 2002, respectively. These options were valued
by the Company at $4,291, $12,873, and $12,726 respectively, or approximately
$2.14 per share. The fair value of these options was estimated at the date of
grant using a Black-Scholes option pricing model, based on the following
assumptions: a risk free interest rate range of 2.3 to 3.9%, a volatility factor
of 95%, a dividend rate of 0.0%, and a weighted-average expected life of three
years. The options were recognized as a general and administrative expense in
the statement of operations for the applicable period.
The Company had previously incurred a liability of approximately $50,000
to finders in connection with its 2001 debt offering. In the first quarter of
2002, in response to certain liquidity issues, the Company settled this
liability through the issuance of warrants to purchase 110,000 shares of common
stock. The warrants are exercisable immediately, have an exercise price of $3.50
per share and a 10 year life. These warrants were valued by the Company at
$235,987, and the
8
excess value of the warrants over the liability was recorded as interest expense
in the statement of operations for the period ended March 31, 2002.
7. RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial reporting
for the impairment or disposal of long-lived assets. SFAS 144 supersedes SFAS
121 and the accounting and reporting provisions of APB 30 related to the
disposal of a segment of a business. The adoption of this statement did not have
a significant effect on the Company's financial position or results of
operations.
9
Item 2. Plan of Operation
This quarterly report on Form 10-QSB contains, in addition to historical
information, forward-looking statements. These forward-looking statements are
based on management's current expectations and are subject to a number of
factors and uncertainties which could cause actual results to differ materially
from those described in such statements. We caution investors that actual
results or business conditions may differ materially from those projected or
suggested in forward-looking statements as a result of various factors
including, but not limited to, the following: uncertainties as to the utility
and market for our potential products; uncertainties associated with preclinical
and clinical trials of our drug delivery candidates; our lack of experience in
product development and expected dependence on potential licensees and
collaborators for commercial manufacturing, sales, distribution and marketing of
our potential products; possible development by competitors of competing
products and technologies; lack of assurance regarding patent and other
protection of our proprietary technology; compliance with and change of
government regulation of our activities, facilities and personnel; uncertainties
as to the extent of reimbursement for our potential products by government and
private health insurers; our dependence on key personnel; our history of
operating losses and accumulated deficit; and economic conditions related to the
biotechnology and biopharmaceutical industry, each as discussed in our Annual
Report on Form 10-KSB for the year ended December 31, 2001, filed with the
Securities and Exchange Commission. We cannot assure you that we have identified
all the factors that create uncertainties. Readers should not place undue
reliance on forward-looking statements.
Overview
We are currently in the development stage and have not yet generated any
operating revenues. Since our formation in July 2000, we have been engaged in
research and development activities in connection with identifying and
developing a biochemical technology that will reduce toxicity and improve the
efficacy of currently-used drug therapies, including cancer chemotherapies, by
combining the drugs with a number of carbohydrate compounds. We have identified
polysaccharides that could be utilized as a potential drug delivery system.
Polysaccharides are molecules consisting of one or more types of sugars.
Research and Development
Our drug development program is focused on novel drug delivery platforms
to upgrade the efficacy and reduce the toxicity of some of the proven, commonly
used anti-cancer drugs. We believe we can enhance the delivery of the
chemotherapeutic drugs by utilizing sugar-specific receptors found on cancer
cells. Our studies indicate that a polysaccharide with a suitable chemical
structure, in combination with a chemotherapy drug, would increase cellular
membrane fluidity and permeability, thereby assisting delivery of the drug.
The first group of drugs selected to go through our "upgrade programs" are
5-Fluorouracil, Adriamycin, Taxol, Cytoxan and Cisplatin. The two
patent-pending, drug delivery platforms, which we have identified and
trademarked, are as follows:
o DAVANAT(TM): A galactomannan derivative, which is a formulation
using oligomeric carbohydrates as the target vehicle for
chemotherapeutic drugs.
o UCLT(TM): UNIVERSAL CARBOHYDRATE LINKAGE TECHNOLOGY(TM), (UCLT(TM))
enhances the delivery of chemotherapeutic drugs by utilizing
carbohydrate specific receptors found on cancer cells.
10
DAVANAT(TM)-1
DAVANAT(TM) combined with 5-fluorouracil (5-FU), referred to as
DAVANAT(TM)-1 is our first drug combination that is advancing to human clinical
trials. DAVANAT(TM) was selected using animal models as the most promising
combination for 5-FU. Earlier this year, DAVANAT(TM)-1 was submitted to the FDA
and was approved as an investigational new drug application (IND), which
authorizes us to begin human clinical trials. We anticipate that human clinical
trials will start in December 2002. All of our pre-clinical studies are
conducted at independent accredited laboratories.
Toxicity Studies
Our initial toxicity studies in smaller animals, conducted in early 2001,
were performed to test the potential reduction of toxicity of anticancer drugs
in combination with certain of our polysaccharide compounds. Results of one
study demonstrated that one of our polysaccharide compounds, DAVANAT(TM), might
significantly decrease the toxicity of 5-FU. A second, similar study was
performed to test a potential reduction of toxicity of Adriamycin in combination
with each of two selected polysaccharide compounds. Results indicated that
DAVANAT(TM) might decrease the toxicity of Adriamycin. The fact that two
different cancer drugs with chemically unrelated structures showed a marked
reduction of their toxicity in combination with DAVANAT(TM) indicates that there
might be some fundamental underlying biological reasons related to this
polysaccharide, rather than to the drugs, for the reduction in toxicity. For
further information about these studies, please refer to our Quarterly Report on
Form 10-QSB for the quarter ended March 31, 2002, filed with the Securities and
Exchange Commission.
In subsequent pre-clinical experiments conducted in 2001 and 2002, we
studied on larger animals the toxicity reduction of DAVANAT(TM)-1, a DAVANAT(TM)
combination with 5-FU, which had demonstrated toxicity reduction in the prior
studies. These experiments were performed in accordance with FDA guidelines and
recommendations on rats (acute and long-term toxicity study) and dogs (acute and
long-term toxicity study) measuring the effect of the DAVANAT(TM)/5-FU
combination on blood structure and survival of these animals. Preliminary
results indicate that the DAVANAT(TM)/5-FU combination decreased toxicity,
resulting in lower animal mortality and decreased loss of blood structure
components in comparison to the results in animals which were administered 5-FU
alone. These studies were presented to the FDA as part of our IND submission.
We are presently conducting additional toxicity studies on rats using
escalating dosages of DAVANAT(TM) in support of our Phase I program.
Efficacy Studies
We undertook independent studies at Southern Research Institute and
Charles River Laboratories to test a potential change in the therapeutic
efficacy of DAVANAT(TM) in a combination with 5-FU, which had decreased toxicity
of the drug in healthy animals. Results of the studies demonstrated that
DAVANAT(TM), might also increase efficacy of 5-FU when administered into
cancer-carrying animals. The studies, conducted with two different human colon
tumors implanted into the test animals, demonstrated a decrease in tumor size
following administration of 5-FU alone, as well as a significant decrease with
the administration of the DAVANAT(TM)/5-FU combination.
11
Two of our efficacy studies were conducted to evaluate the compatibility
of DAVANAT(TM) with leucovorin, which is commonly used in cancer treatment with
5-FU. The studies showed that DAVANAT(TM) and leucovorin do not interfere with
each other when administered following standard procedure, and that the
DAVANAT(TM)/5-FU combination is superior, compared to 5-FU/leucovorin when both
are administered in tumor-bearing animals. Leucovorin is a folinic acid
derivative, which may enhance both the therapeutic and toxic effect of 5-FU in
cancer therapy. In these studies, the growth of the tumor was decreased
significantly by using a DAVANAT(TM)/5-FU combination compared to 5-FU.
We also conducted a study that involved injecting radiolabeled DAVANAT(TM)
(with and without 5-FU) into tumor-free and tumor-bearing animals. The study
provided extensive experimental data with respect to DAVANAT(TM) distribution in
organs and tissues (liver, kidney, lungs, plasma, and tumor) and the capacity of
such organs and tissue to clear DAVANAT(TM) after various time periods. The
study indicated that DAVANAT(TM) may protect the liver from a toxic effect of
5-FU yet increase the amount, and hence the therapeutic effect, of 5-FU in the
tumor. In other words, we have indications that DAVANAT(TM) may decrease
toxicity and increase efficacy of 5-FU.
In addition to DAVANAT(TM)-1, we are also conducting pre-clinical studies
for Adriamycin and Taxol, both in combination with DAVANAT(TM) and other
polysaccharide compounds.
Although the foregoing studies are encouraging, the results achieved in
preclinical studies with animals are often not duplicated in human patients.
Please see "Risk Factors that May Affect Results -- Our product candidates will
be based on novel technologies" in our 2001 Form 10-KSB.
Phase I Clinical Trials in Humans
We submitted an investigational new drug application to the FDA on May 26,
2002 based on the pre-clinical data obtained from our 5-FU studies. Following
discussions with the FDA, the application was accepted as of June 26, 2002 which
authorized us to begin Phase I clinical trials with humans. In Phase I we will
evaluate the ability of cancer patients to tolerate increasing doses of
DAVANAT(TM) while receiving a stable dose of 5-FU for treatment of colorectal
cancer. The Phase I study has two primary objectives: (1) to determine the
maximum dose of DAVANAT(TM) that can be tolerated when administered with a
stable dose of 5-FU, and (2) to define the dose-limiting toxicities of
DAVANAT(TM) in combination with 5-FU. We expect that up to 40 male and female
patients suffering from metastatic cancer, who failed the first line
chemotherapy treatment, to participate in the study. We are currently selecting
sites and conducting other planning activities for Phase I clinical trials. The
pharmaceutical company with which we contracted to produce DAVANAT(TM), a
certified GMP facility, has manufactured sufficient quantities for the doses
that will be needed for the forthcoming human clinical trials.
We are engaging an independent contract research organization to undertake
the clinical trials on our behalf. We have engaged a professional consultant to
serve as medical director of our clinical trials.
UCLT(TM)
As detailed above, we are currently developing a variety of formulations
of carbohydrates chemically linked to anti-cancer drugs. We have chemically
synthesized a few novel products that are carbohydrate derivatives of
Adriamycin, and have conducted pre-clinical animal experiments, studying both
toxicity (on healthy animals) and efficacy (on cancer-carrying animals).
Preliminary results of these experiments indicate that all of the synthesized
carbohydrate-Adriamycin compounds, and particularly one, named Galactomycin,
were significantly less toxic compared to
12
the original Adriamycin, and demonstrate therapeutic efficacy as well. In the
case of Galactomycin, the preliminary results, compared to control animals,
indicated a therapeutic efficacy more than twice as high as that for the parent
Adriamycin, particularly with repeated administrations. Unlike repeated
injections of Adriamycin, which result in a cumulative toxic effect,
Galactomycin, at repeated injections, apparently increases its therapeutic
effect while retaining low toxicity.
Intellectual Property Protection
We have three regular utility patent applications pending in the United
States. The patent applications cover methods and compositions for reducing side
effects in chemotherapeutic formulations, and improving efficacy and reducing
toxicity of chemotherapeutic agents. In addition, international patent
applications corresponding to two of our U.S. applications have been filed under
the Patent Cooperation Treaty.
We filed with the U.S. Patent and Trademark Office (PTO) applications to
register the following trademarks/service marks: ADVANCING DRUGS THROUGH
GLYCOSCIENCE; GLYCO-UPGRADE; PRO-PHARMACEUTICALS, INC.; DAVANAT; UCLT; UNIVERSAL
CARBOHYDRATE LINKER TECHNOLOGY and CARBOSOME. In February 2002, the PTO issued
Notices of Allowance for the marks ADVANCING DRUGS THROUGH GLYCOSCIENCE and
GLYCO-UPGRADE; in March 2002 the PTO issued a Notice of Allowance for the mark
PRO-PHARMACEUTICALS, INC.; in October 2002, the PTO issued a Notice of Allowance
for the mark DAVANAT and the mark UCLT was published in the PTO's Official
Gazette; and in November 2002, UNIVERSAL CARBOHYDRATE LINKER TECHNOLOGY was
published in the Official Gazette. If no objection to the marks UCLT or
UNIVERSAL CARBOHYDRATE LINKER TECHNOLOGY are timely filed, Notices of Allowance
will issue for the marks in due course. We filed for extensions of time to
provide evidence of use for the marks ADVANCING DRUGS THROUGH GLYCOSCIENCE and
GLYCO-UPGRADE, and the PTO has issued approvals for both extensions. In order to
obtain registrations for these marks, the next deadline for filing evidence of
use or requests for extension of time to file evidence of use is February 5,
2003. We filed for an extension of time to provide evidence of use for the mark
PRO-PHARMACEUTICALS, and the PTO has issued an approval for this extension. In
order to obtain a registration for this mark, the next deadline for filing
evidence of use or a request for extension of time to file evidence of use is
March 26, 2003. In order to obtain a registration for DAVANAT, we must file
evidence of use or file for an extension of time to provide evidence of use by
April 22, 2003.
Plan of Operation
As discussed in our 2001 Form 10-KSB, our Massachusetts predecessor
corporation was established in July 2000. Our present corporation was
incorporated in Nevada in January 2001 for the purpose of effecting a business
combination with the Massachusetts predecessor. The transaction included a
merger in which we are the surviving corporation. We are a development-stage
company and have not generated any revenues to date. Our common stock commenced
to
13
trade on the Over-the-Counter Bulletin Board in September 2002. In connection
with the start of public trading of our common stock, we hired a Vice President
of Investor Relations.
In August 2002, we began a private placement of units of Series A
preferred stock and warrants to purchase Common Stock, exempt from registration
pursuant to Rule 506 of Regulation D under the Securities Act of 1933 in order
to raise up to $6,588,400 to cover our expenditures. We did not sell any
securities under this offering and have discontinued it.
In September 2002, we began a private placement of up to 10 million shares
of common stock at $1.00 per share, exempt from registration pursuant to Rule
506 of Regulation D under the Securities Act of 1933. During the quarter ended
September 30, 2002, we sold 1,483,360 shares under this offering for gross
proceeds of $1,483,360. Subsequent to quarter end, through November 1, 2002, we
sold an additional 610,000 shares at $1.00 per share for additional gross
proceeds of $610,000.
As of September 30, 2002, we had $1,275,477 in cash and working capital of
$895,468. We intend to dedicate the proceeds of our September 2002 private
placement to research and development, including expenses of Phase I/II clinical
trials of our drug candidate for which the FDA approved our investigational new
drug application, and general and administrative expenses.
With the capital we have raised to date, and the additional capital that
we are attempting to raise under the private placement of our common stock
discussed above, we believe that we will be able to proceed with our current
plan of operations and meet our obligations for approximately the next twelve
months. If we do not raise the additional funds, we would reduce our research
and development expenditures. However, since we outsource most of our research
and development activities, our business structure is flexible, enabling us to
slow or halt our activities and still remain viable until adequate funding
becomes available.
Our financial statements have been presented on a going-concern basis,
which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business. We are in the development stage, have incurred a
net loss since inception of $6,713,118 and expect to incur additional losses in
the near future. These factors raise substantial doubt about our ability to
continue as a going concern. Successful completion of our development program
and, ultimately, the attainment of profitable operations is dependent upon
future events, including maintaining adequate financing to fulfill our
development activities and achieving a level of sales adequate to support our
cost structure. We are actively seeking additional financing to fund future
operations and future significant investments in the business. However, there
can be no assurance that we will be able to obtain financing.
During the next twelve months, we anticipate that our research and
development activities will include commencement of a Phase I first-in-man
clinical trial as discussed above under " -- Research and Development -- Phase I
Clinical Trials in Humans," as well as continuing preclinical animal experiments
to study toxicity and efficacy of 5-FU and other cancer chemotherapies both in
combination with our polysaccharide compounds and, in the case of Adriamycin, as
chemically modified with sugar residues via "linkers" of a certain chemical
structure that are our proprietary technology.
We do not anticipate building in-house research or development facilities,
or hiring staff to conduct those activities. Consequently, we do not expect to
make any purchases or sales of plant or significant equipment during the next
twelve months. We currently have seven employees, all full-time. We do not
expect to make significant additions to our employee headcount.
14
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on his
evaluation as of a date within 90 days prior to the filing date of this
Quarterly Report on Form 10-QSB, our principal executive officer and principal
financial officer has concluded that our disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934) are effective to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
In September 2002, we began a private placement of up to 10 million shares
of common stock at $1.00 per share, exempt from registration pursuant to Rule
506 of Regulation D under the Securities Act of 1933. During the quarter ended
September 30, 2002, we sold 1,483,360 shares under this offering for gross
proceeds of $1,483,360. Subsequent to quarter end, through November 1, 2002, we
sold an additional 610,000 shares at $1.00 per share for additional gross
proceeds of $610,000. We agreed to compensate a registered investment adviser
with respect to shares purchased by its clients based on the recommendation of
the adviser. As of November 1, 2002, the adviser is entitled to receive 154,000
shares of common stock.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Dr. Mildred Christian, a member of our Scientific Advisory Board, was
elected to our Board of Directors effective October 1, 2002. Dr. Christian, an
experienced toxicologist, and founder and executive with research laboratories,
has participated in hundreds of developmental ("teratology"), reproductive and
general toxicology evaluations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibits filed as part of this Form 10-QSB are listed on the Exhibit
Index immediately preceding such Exhibits, which Exhibit Index is incorporated
herein by reference.
(b) Reports on Form 8-K
We filed a report on Form 8-K with the SEC, pursuant to Item 5, on
September 5, 2002, as amended and filed with the SEC as Form 8-K/A on September
18, 2002, concerning termination of a private placement offering and
commencement of a new private placement offering.
16
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on November 14, 2002.
PRO-PHARMACEUTICALS, INC.
Registrant
By: /S/ DAVID PLATT
-----------------------------
Name: David Platt
Title: President, Chief Executive
Officer, Treasurer and
Secretary (Principal
Executive Officer and
Principal Financial and
Accounting Officer)
17
CERTIFICATION
I, David Platt, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Pro-Pharmaceuticals, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: November 14, 2002 /S/ DAVID PLATT
-----------------------------
Name: David Platt
Title: President, Chief Executive
Officer, Treasurer and Secretary
(Principal Executive Officer)
18
CERTIFICATION
I, David Platt, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Pro-Pharmaceuticals, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: November 14, 2002 /S/ DAVID PLATT
-----------------------------
Name: David Platt
Title: President, Chief Executive
Officer, Treasurer and Secretary
(Principal Financial and
Accounting Officer)
19
EXHIBIT INDEX
Exhibit
Number Description of Document
------- -----------------------
3.1 Articles of Incorporation of the Registrant, dated January 26, 2001 *
3.2 Amended and Restated By-laws of the Registrant **
10.1 Assignment and Assumption Agreement, dated April 23, 2001, by and between Developed *
Technology Resource, Inc. and DTR-Med Pharma Corp.
10.2 Stock Exchange Agreement, dated April 25, 2001, by and among Developed Technology *
Resource, Inc., DTR-Med Pharma Corp., Pro-Pharmaceuticals, Inc. (Massachusetts) and the
Shareholders (as defined therein)
10.3 Pro-Pharmaceuticals, Inc. 2001 Stock Incentive Plan **
16 Letter from Scillia Dowling & Natarelli LLC to the Commission, dated February 25, 2002, ***
concerning change in certifying accountant
21 Subsidiaries of the Registrant None
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Incorporated by reference to the Registrant's Registration Statement on
Form 10-SB, as filed with the Commission on June 13, 2001.
** Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB for the period ended September 30, 2001, as filed with the
Commission on November 14, 2001.
*** Incorporated by reference to the Registrant's Current Report on Form 8-K
as filed with the Commission on February 25, 2002.
20