SEC SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the Quarterly Period Ended June 30, 2003
( ) 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. 1-14778
---------------------------
DOR BIOPHARMA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1505029
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
28101 BALLARD DRIVE, SUITE F, LAKE FOREST, IL 60045
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (847) 573-8990
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act during the past 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 [ ]
At August 1, 2003, 27,622,379 shares of the registrant's common stock (par
value, $.001 per share) were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
PART I. - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2003 2002
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 1,567,026 $ 4,147,164
Prepaid expenses 61,313 104,333
------------ ------------
Total current assets 1,628,339 4,251,497
Leasehold improvements and equipment, net of
accumulated amortization of $264,039 and $1,162,247 192,725 262,921
Patent issuance costs, net of
accumulated amortization
of $72,860 and $46,100 1,362,520 1,097,341
Intangible assets, net of accumulated amortization
of $189,376 and $137,710 174,775 226,441
------------ ------------
TOTAL ASSETS $ 3,358,359 $ 5,838,200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 568,487 $ 698,120
Accrued compensation 27,720 124,480
Current portion of long-term debt 306,291 382,122
------------ ------------
Total current liabilities 902,498 1,204,722
Long-term liabilities:
Long-term portion of note payable 115,948 347,845
------------ ------------
Total long-term liabilities 115,948 347,845
------------ ------------
Total Liabilities 1,018,446 1,552,567
Stockholders' equity/(deficit):
Preferred stock, $.001 par value. Authorized
4,600,000 shares; none issued and outstanding -- --
Series B convertible preferred stock,
$.05 par value. Authorized 200,000 shares;
119,428 issued & outstanding at liquidation value 12,176,446 11,711,822
Common stock, $.001 par value. Authorized
50,000,000 shares; 27,622,379 issued,
and 27,450,037 outstanding 27,622 26,795
Additional paid-in capital 62,276,679 61,315,985
Common stock held in escrow, 0 and
375,498 shares 436,812
Unearned compensation (3,199) (50,148)
Deficit accumulated during the development stage (71,669,368) (68,687,366)
------------ ------------
2,808,180 4,753,900
Less:
Treasury stock, at cost, 172,342 shares (468,267) (468,267)
------------ ------------
Total Stockholders' Equity 2,339,913 4,285,633
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,358,359 $ 5,838,200
============ ============
See accompanying condensed notes to financial statements
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Cumulative from
Six Months February 15, 1985
Ended June 30, (date of inception)
2003 2002 to June 30, 2003
Revenue:
SBIR contract revenue $ -- $ -- $ 100,000
Expenses:
SBIR contract
research and development -- -- 86,168
Proprietary research
and development 1,136,668 2,243,989 21,383,967
General and
administrative (includes
$880,414 in non cash
stock compensation in 2003) 1,725,944 2,058,646 19,759,463
Write-off of acquired in-process
research and development -- -- 10,181,000
Severance Costs 130,712 -- 130,712
------------ ------------ ------------
Total operating expenses 2,993,324 4,302,635 51,541,310
------------ ------------ ------------
Loss from operations (2,993,324) (4,302,635) (51,441,310)
Equity gains/(losses)in
joint ventures 767,234 (22,179,091)
Other income 5,433 -- 268,323
Interest income 9,997 66,344 3,581,293
Interest expense (4,108) (7,823) (362,361)
------------ ------------ ------------
Net loss (2,982,002) (3,476,880) (70,133,146)
Preferred stock dividends (464,624) (792,725) (6,788,310)
------------ ------------ ------------
Net loss applicable to common
stockholders $ (3,446,626) $ (4,269,605) $(76,921,456)
============ ============ ============
Basic and diluted
net loss per share
available to common
stockholders $ (0.13) $ (0.20)
Basic and diluted
weighted average common
shares outstanding 27,176,773 21,179,037
See accompanying condensed notes to financial statements.
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months
Ended June 30,
2003 2002
Revenue:
SBIR contract revenue $ -- $ --
Expenses:
SBIR contract
research and development -- --
Proprietary research
and development 748,767 1,105,188
General and
administrative (includes
$599,165 non-cash in
stock comp. reversed in 2003) (177,221) 1,301,493
Write-off of acquired in-process
research and development -- --
Severance Costs -- --
----------- -----------
Total operating expenses 571,546 2,406,681
----------- -----------
Loss from operations (571,546) (2,406,681)
Equity gains/(losses)in
joint ventures 854,177
Other income 5,433 --
Interest income 3,325 28,176
Interest expense (1,096) (925)
----------- -----------
Net loss (563,884) (1,525,253)
Preferred stock dividends (233,596) (398,552)
----------- -----------
Net loss applicable to common
stockholders $ (797,480) $(1,923,806)
=========== ===========
Basic and diluted
net loss per share
available to common
stockholders $ (0.03) $ (0.09)
Basic and diluted
weighted average common
shares outstanding 27,282,768 21,520,812
see accompanying condensed notes to financial statements.
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Cumulative Period
Six Months February 15, 1985
Ended June 30, (Inception) to
2003 2002 June 30, 2003
------------ ------------ -----------------
OPERATING ACTIVITIES:
Net Loss: .................................... $ (2,982,002) $ (3,476,880) $(70,133,146)
Adjustments to reconcile net loss in
cash used in operating activities:
Depreciation and amortization .............. 164,340 149,257 2,072,941
Gain on the sale of market securities ........ -- -- (110,244)
Non-cash stock compensation ................ 880,414 -- 1,998,970
Non-cash stock payments to Vendors ......... 130,000 130,000
Equity (gains)/losses in joint ventures .... -- (767,234) 22,179,091
Amortization of fair value of warrants ..... -- -- 3,307,546
Gain on sale of assets ..................... (5,433) -- (9,963)
Write off patent issuance costs ............ -- -- 439,725
Write off of acquired research
and development .......................... -- -- 10,181,000
Changes in operating assets and liabilities:
Receivable from third party ............... -- 9,462 --
Prepaid expenses .......................... 43,020 (40,131) (57,291)
Accounts payable and accrued expenses ..... (129,633) 239,941 513,531
Accrued compensation ...................... (96,760) 255,827 27,720
Due to joint ventures ..................... -- (695,857) (1,635,466)
------------ ------------ ------------
Net cash used in operating activities ........ (1,996,054) (4,325,615) (31,095,586)
INVESTING ACTIVITIES:
Cash received in acquisition of CTD, net ..... -- -- 1,392,108
Patent issuance cost ......................... (302,224) (125,858) (1,690,215)
Investment in joint ventures ................. -- -- (3,638,171)
Organizational costs incurred ................ -- (135)
Purchases of leasehold improvements and
equipment .................................. -- (83,793) (1,870,198)
Proceeds from assets sold .................... -- -- 4,790
Purchases of marketable securities ........... -- -- (11,004,080)
Proceeds from sale of marketable
securities ................................. -- -- 11,114,324
------------ ------------ ------------
Net cash provided by (used in)
investing activities ......................... (302,224) (212,651) (5,691,577)
FINANCING ACTIVITIES:
Net proceeds from issuance (costs incurred
related to issuance) common stock ......... (114,626) -- 38,636,842
Proceeds from exercise of options ............ 140,494 -- 557,586
Proceeds from borrowings under
line of credit ............................ -- 52,290 1,150,913
Repayment of amounts under line of credit ... (307,728) (18,190) (1,371,232)
Proceeds from refinancing of due to
joint venture payable ..................... -- -- --
Repayment of long-term note receivable ...... -- -- 50,315
Repayment of note payable issued in
exchange for legal service ................ -- (71,968)
Purchase and retirement of common stock ..... -- -- (130,000)
Purchase of common stock for
treasury stock ............................ -- -- (468,267)
------------ ------------ ------------
Net cash provided by (used in)
financing activities ....................... (281,860) 34,100 38,354,189
------------ ------------ ------------
Net increase (decrease) in cash and
Cash equivalents ........................... (2,580,138) (4,504,166) 1,567,026
Cash and cash equivalents at beginning
of period .................................. 4,147,164 9,942,053 --
------------ ------------ ------------
Cash and cash equivalents at end
of period .................................. $ 1,567,026 $ 5,437,887 $ 1,567,026
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW:
Cash paid for interest................ $ 4,108 $ 7,823
NON-CASH TRANSACTIONS
Issuance of preferred stock
Dividends in kind.................... $ 464,624 $ 792,725
Issuance of note payable to
Settle joint venture liabilities.... $ 579,742
The accompanying notes are an integral part of the
consolidated financial statements
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO FINANCIAL STATEMENTS
These unaudited interim consolidated financial statements of DOR BioPharma,
Inc. ( "we" or "us") were prepared under the rules and regulations for reporting
on Form 10-QSB. Accordingly, we omitted some information and footnote
disclosures normally accompanying the annual financial statements. You should
read these interim financial statements and notes in conjunction with our
audited consolidated financial statements and their notes included in our annual
report on Form 10-KSB for the year ending December 31, 2002. It is our opinion
that the consolidated financial statements include all adjustments necessary for
a fair statement of the results of operations, financial position and cash flows
for the interim periods. All adjustments were of a normal recurring nature. The
results of operations for interim periods are not necessarily indicative of the
results for the full fiscal year.
NET LOSS PER SHARE
Net loss per share is presented in the Consolidated Statements of Operations
in accordance with SFAS No. 128 for the current and prior periods. We had a net
loss for all periods presented, which resulted in diluted and basic earnings per
share being the same for all of those periods presented. The potential impact of
warrants and stock options outstanding was not included in the calculation
because their inclusion would have been anti-dilutive.
STOCK BASED COMPENSATION
We have stock-based employee compensation plans. Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
encourages, but does not require companies to record compensation cost for
stock-based employee compensation plans at fair value. We have chosen to
continue using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, in accounting for our stock option plans.
Had compensation cost been determined based upon the fair value at the grant
date for awards under the plans based on the provisions of SFAS No. 123, our pro
forma net loss and net loss per share would have been as follows:
SIX MONTHS ENDED JUNE 30, 2003 2002
Net loss applicable to common stockholders:
as reported $(3,446,626) $(4,269,605)
Stock-based employee compensation
expense determined under fair value based method (460,714) (31,692)
Stock-based compensation as reported 880,414 --
----------- -----------
Pro forma net loss $(3,026,926) $(4,301,297)
=========== ===========
Net loss per share:
as reported, basic and diluted $ (0.13) $ (0.20)
pro forma, basic and diluted $ (0.11) $ (0.20)
The fair value of options in accordance with SFAS 123 was estimated using the
Black-Scholes option-pricing model and the following weighted-average
assumptions: dividend yield 0%, expected life of four years, volatility of 148%
and 105% in 2003 and 2002, respectively, and average risk-free interest rates of
4.0% and 4.5% in 2003 and 2002, respectively. Stock compensation expense for
options granted to non-employees has
been determined in accordance with SFAS 123 and Emerging Issues Task Force
(EITF) 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services," and
represents the fair value of the consideration received, or the fair value of
the equity instruments issued, whichever may be more reliably measured. For
options that vest over future periods, the fair value of options granted to
non-employees that vest over future periods is periodically remeasured over the
vesting period.
We have also granted options to employees and directors that are conditional
upon stockholder approval of an amendment to our 1995 omnibus option plan.
Accordingly, a measurement date does not yet exist, and on a quarterly basis we
record expense or reversal of expense based on the difference between the
exercise price and the current market price. We will continue to record such
expense until the amendment to the plan is approved.
SEVERANCE COSTS
In June 2002, the Board of Directors authorized management to restructure the
Company and implement a cost reduction program to reduce future operating costs
and preserve the Company's existing working capital. As a result, we reduced
headcount from 22 to 5 employees. The Company communicated all severance
benefits to employees before June 30, 2002.
Severance charges recorded in the statement of operations during the year ended
December 31, 2002 totaled $781,248, which was based on management's best
estimate of probable costs to be incurred under severance agreements with the
terminated employees. During the six months ended June 30, 2003, our total
estimate was increased to $812,053 with the increase being recorded as an
expense. As of June 30, 2003, severance payments of $784,333 have been made and
$27,720 is currently recorded on our balance sheet as accrued compensation.
LICENSES AND PATENT COSTS
Patent costs, principally legal fees, are capitalized and, upon issuance of the
patent, are amortized on a straight-line basis over the shorter of the estimated
useful life of the patent or the regulatory life. Licenses of technology with
alternative future use are capitalized and are amortized on a straight-line
basis over the shorter of the estimated useful life or the regulatory life.
Licenses of technology with no alternative future use are expensed as incurred.
The useful lives of licenses and patent costs at June 30, 2003 ranged from 15 to
17 years.
IMPAIRMENT OF LONG-LIVED ASSETS
Equipment, leasehold improvements, licenses and patent costs, and amortizable
intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected undiscounted cash flows is less than the carrying value of
the related asset or group of assets, a loss is recognized for the difference
between the fair value and the carrying value of the related asset or group of
assets. Such analyses necessarily involve significant judgment.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis provides information to explain our
results of operations and financial condition. You should also read our
unaudited consolidated interim financial statements and their notes included in
this Form 10-QSB, and the Company's audited consolidated financial statements
and their notes and other information included in our Annual Report on Form
10-KSB for the year ended December 31, 2002. This report contains
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, which are subject to the safe-harbor created
by that Section. Forward-looking statements within this Form 10-QSB are
identified by words such as "believes," "anticipates," "expects," "intends,"
"may," "will" "plans" and other similar expressions. However, these words are
not the exclusive means of identifying such statements. In addition, any
statements that refer to expectations projections, or other characterizations of
future events or circumstances are forward-looking statements. These
forward-looking statements are subject to significant risks, uncertainties and
other factors, including those identified in Exhibit 99.1 "Risk Factors" filed
with this Form 10-QSB, which may cause actual results to differ materially from
those expressed in, or implied by, these forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements to reflect events or circumstances occurring subsequent to the filing
of this Form 10-QSB with the SEC. You should carefully review and consider the
various disclosures the Company makes in this report and our other reports filed
with the SEC that attempt to advise interested parties of the risks,
uncertainties and other factors that may affect our business.
OVERVIEW:
We are a pharmaceutical company specializing in the clinical development of
drugs for niche indications. In addition we have a biodefense program focused on
the development of vaccines against potential bioterror agents. Currently we are
working on vaccines against Ricin Toxin and Botulinum Toxin. As part of this
initiative we are developing a proprietary oral and nasal vaccine delivery
technology called the Microvax(TM) system.
Our lead pharmaceutical product is orBec(R), an oral locally acting steroid,
that is currently in a pivotal Phase III clinical trial for the treatment of
intestinal graft-vs.-host disease (GvHD), a life threatening complication of
bone marrow transplantation. Also, using orBec(R), we are planning a Phase II
program to extend the indications beyond GvHD into such areas as Crohn's Disease
and irritable bowel syndrome. We have developed oral drug delivery systems,
named LPM(TM), PLP(TM), and LPE(TM) systems, for the delivery of proteins and
water insoluble drugs. We have preclinical animal data demonstrating the oral
delivery of the drug leuprolide, an FDA approved injectable anticancer product.
We also have preclinical animal data demonstrating the oral delivery of the drug
Paclitaxel, an FDA approved injectable anticancer product.
PLAN OF OPERATION:
Our business strategy is to (1) enhance the value of in-licensed
technologies through research and development, specifically preclinical and
clinical testing towards regulatory approval; (2) identify and, acquire rights
to new therapeutic compounds; (3) market biodefense vaccine products directly to
the U.S. and European military and governmental agencies and; (4) sell or
out-license therapeutic products that have reached an advanced state of
development or no longer meet our strategic criteria.
We have assembled an experienced management team that oversees the human
clinical trials necessary to establish preliminary evidence of effectiveness and
seeks partnerships with pharmaceutical and biotechnology companies for
late-stage development and marketing of our product candidates. We supplement
our management team through a network of consultants and contractors. By
operating in this manner, we believe we can efficiently utilize our capital
resources to advance our drug and vaccine products to market. We operate through
various subsidiary companies: DOR Vaccines, Inc., which is the successor in
interest to InnoVaccines Corporation, our former joint venture, and forms the
basis of our biodefense business initiative; and Enteron Pharmaceuticals, Inc.
and Oradel Systems, Inc., which together form the
basis of our biotherapeutics initiative. Enteron is a subsidiary which holds the
intellectual property relating to orBec(R). Oradel is a subsidiary which holds
the intellectual property relating to the LPM(TM) drug delivery system. We plan
to continue to develop our later stage product opportunities while seeking to
manage our earlier stage product pipeline through collaborative licensing
arrangements.
We entered into Subscription Agreements dated as of July 18, 2003, to sell
an aggregate of (i) 6,796,919 shares of our Common Stock and (ii) warrants
exercisable for 6,796,919 shares of our Common Stock at an exercise price of
$0.8756, to selected institutional and accredited investors. The net proceeds
from this private placement will, upon satisfaction of all the requirements of
the private placement, including stockholder approval of this private placement
and of an amendment to our certificate of incorporation to increase the
authorized shares of our common stock, be approximately $4,900,000. After the
satisfaction of all the requirements of the private placement and the issuance
of the shares of Common Stock, we would have 34,451,621 shares of Common Stock
outstanding. The receipt of the net proceeds from this placement will bring us
back into compliance with the minimum listing requirements of the AMEX. As more
fully described in exhibit 99.1 (risk factors), however, our stock may not
remain listed on the American Stock Exchange. The shares of Common Stock and
warrants have been offered in transactions exempt from registration under the
Securities Act of 1933 in reliance upon Rule 506 of Regulation D under Section
4(2) of the Securities Act, as transactions not involving a public offering.
Each of the subscribers represented to us that it was an "accredited investor"
under Rule 501(a) of Regulation D.
In May 2003, we contracted to exclusively license, from Thomas Jefferson
University, issued U.S. Patent No. 6,051,239 and corresponding international
patent applications broadly claiming the oral administration of nontoxic
modified botulinum toxins as vaccines. The intellectual property also includes
patent applications covering the inhaled and nasal routes of delivery of the
vaccine. Upon execution in May 2003 of the license agreement, we paid a license
fee of $160,000, payable in $130,000 of our common stock and $30,000 in cash. We
have also entered into a sponsored research agreement with Thomas Jefferson
University for one year of sponsored research in exchange for $300,000, payable
quarterly beginning in July 2003. We also intend to enter into a consulting
agreement with Dr. Lance Simpson, the inventor of the botulinum toxin vaccine,
for a period of three years under which Dr. Simpson would receive options to
purchase 100,000 shares of our common stock, vesting over three years.
In July 2003, we executed a worldwide exclusive license for patent
applications with the University of Texas Southwestern Medical Center for the
injectable rights to the ricin vaccine, for $200,000 of our common stock.
Additionally we have an option agreement with the University of Texas
Southwestern Medical Center for the exclusive rights to nasal, pulmonary and
oral uses of a non-toxic ricin vaccine.
CRITICAL ACCOUNTING POLICIES:
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
expense, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate these estimates and judgments. Currently, the most
significant estimate or judgment that we make is whether or not to capitalize or
expense patent and license costs. We make this judgment based on whether the
technology has alternative future uses, as defined in SFAS 2, "Accounting for
Research and Development Costs". Based on this consideration, we capitalized all
outside legal and filing costs incurred in the procurement and defense of
patents, as well as amounts paid allowing us to license additional routs of
administration through the Southern Research patents, and amounts paid to
University of Texas Southwestern Medical Center allowing us the ability to
license certain patents related to a vaccine protecting against ricin toxin.
MATERIAL CHANGES IN RESULTS OF OPERATIONS:
We are a development stage company and to date have not generated any
material revenues from operating activities. Although our product portfolio
includes a phase III drug that we believe may be attractive to potential
pharmaceutical partners, we have no active discussions under way with any such
potential partners.
For the three months ended June 30 2003, we had a net loss of $563,884 which
was a decrease of $961,369, or 63%, as compared to $1,525,253 for the same
period in 2002. For the six month period ended June 30, 2003, had a net loss, of
$2,982,002, which was a decrease of $494,878, or 14%, as compared to a net loss
of $3,476,880 for the six months ended June 30, 2002. After giving effect to
dividends on preferred stock, which are paid-in-kind in the form of additional
shares of preferred stock, net loss available to common stockholders decreased
$822,979 or 19%, to $3,446,626, or $0.13 per share, for the first six months of
2003 compared with $4,269,605, or $0.20 per share, for the prior year period.
Research and development expenditures decreased $356,421, or 32%, to
$748,767, for the three months ended June 30, 2003, compared with $1,105,188 for
the corresponding period ended June 30, 2002. Research and development
expenditures decreased $1,107,321, or 49%, to $1,136,668, for the six months
ended June 30, 2003, compared with $2,243,989 for the corresponding period ended
June 30, 2002. These decreases reflected our planned reduction of expenditures
associated with earlier stage programs, which were the exclusive subject of
research and development expenditures during the first half of 2002, offset in
part by an increase in the cost and enrollment of phase III clinical trials of
orBec(R) during the first half of 2003.
General and administrative expenses decreased $1,478,714, or 136%, to
$(177,221) for the first three months of 2003 as compared to $1,301,493 for the
three months ended June 30, 2002. The credit balance was mainly caused by stock
compensation expense reversed for our stock option plan that are variable until
Stockholder approval of the amendment to our amended and restated stock option
plan. General and administrative expenses decreased $332,702, or 16%, to
$1,725,944 for the first six months of 2003 as compared to $2,058,646 for the
six months ended June 30, 2002. These decreases were due primarily to the
extensive cost cutting measures we implemented in 2002, including cutting
headcount from nine administrative employees down to two. This cost reduction
was partially offset by non-cash stock compensation of $(599,165) for the three
months ended June 30, 2003 and $880,414 for the first six months of 2003. This
expense resulted from non-cash expenses associated with options granted to
employees, directors, and consultants that have not yet reached their record
date, as described in the footnotes to the financial statements included in this
quarterly report.
Interest income for the three months ending June 30, 2003 was $3,325, a
decrease of $24,851, or 88%, compared to $28,176 for the same period in 2002.
Interest income for the six months ending June 30, 2003 was $9,997, a decrease
of $56,347, or 85%, compared to $66,344 for the same period in 2002. These
decreases were due to decreases in interest rates on investment instruments
versus the prior year, as well as lower cash balances in 2003.
FINANCIAL CONDITION:
On June 30, 2003, We had cash, cash equivalents and marketable securities of
$1,567,026, compared to $4,147,164 at December 31,2002. Working capital was
$725,841 at June 30, 2003, compared to $3,046,775 at December 31, 2002.
For the first six months of 2003, we lowered our rate of cash expenditures,
our cash burn rate, by $1,924,028, or 43%, to $2,580,138 compared to $4,504,166
for the same period in 2002. We had an operating loss of $2,982,002, of which
$880,414 represented non-cash stock compensation. The overall reduction in our
cash burn was attributable to a substantial reduction in payroll and operating
expenses, coupled with the granting of options as opposed to cash to attract and
retain qualified personnel.
Based on our current cash burn rate, which we intend to maintain, our cash,
cash equivalents and marketable securities of $1,567,026 at June 30, 2003 would
not be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for the next 12 months. However, we expect to receive
approximately $4.9 million in net proceeds from our July 2003 private placement,
upon stockholder approval of an amendment to our certificate of incorporation
and of the financing at our annual meeting scheduled for September 15, 2003. The
financing is currently closed to subscriptions, and all proceeds are being held
in escrow and will be released when the required stockholder approval is
received. We believe that our current cash position as supplemented by the
private placement funds will be sufficient to meet our anticipated cash needs
for at least the next 18 months. However, within this period we may decide to
seek additional capital in the private and/or public equity markets to support a
higher level of growth, to respond to competitive pressures, to develop new
products and services and to support new strategic partnership expenditures.
After that 18 month period, if any cash generated from operations are
insufficient to satisfy our liquidity requirements, we may need to raise
additional funds through public or private financing, strategic relationships or
other arrangements. If we receive additional funds through the issuance of
equity or equity-linked securities, stockholders may experience significant
dilution and these equity securities may have rights, preferences or privileges
senior to those of our common stock. Further, we may not be able to obtain
additional financing when needed or on terms favorable to our stockholders or
us. If we are unable to obtain additional financing when needed, or to do so on
acceptable terms, we may be unable to develop our products, take advantage of
business opportunities or respond to competitive pressures.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Controller (our principal executive officer
and principal financial officer, respectively) have concluded, based on an
evaluation of our disclosures controls and procedures performed by our
management with participation of our Chief Executive Officer and Controller,
that as of June 30, 2003 our disclosures, controls, and procedures were
effective to provide reasonable assurance that information required to be
disclosed by us in the reports we filed or submit by under the Securities
Exchange Act of 1934, is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms.
Any control system, no matter how well designed and operated, can provide
only reasonable (not absolute) assurance that its objectives will be met.
Furthermore, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected.
PART II. - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) 3.1 Amended and Restated By-Laws
31.1 Certification of Chief Executive Officer pursuant to
Exchange Act rule 13(a)-14(a) (under Section 302 of the
Sarbanes-Oxley Act of 2002).
31.2 Certification of Chief Executive Officer pursuant to
Exchange Act rule 13(a)-14(a) (under Section 302 of the
Sarbanes-Oxley Act of 2002).
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
99.1 Risk Factors
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REPORTS ON FORM 8-K:
We did not file any reports on Form 8-K during the second quarter of 2003.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DOR BIOPHARMA, INC.
August 14, 2003 /s/ Ralph M. Ellison
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Ralph M. Ellison
Chief Executive Officer and President
August 14, 2003 /s/ William D. Milling
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William D. Milling
Controller
(principal financial and accounting officer)