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 September 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)
1691 Michigan Ave., Suite 435, Miami, FL 33139
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (305) 534-3383
28101 N Ballard Dr., Suite F, Lake Forest, IL 60045
(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 November 1, 2003, 34,636,908 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)
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2003 2002
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 5,335,058 $ 4,147,164
Prepaid expenses 76,148 104,333
------------ ------------
Total current assets 5,411,206 4,251,497
Leasehold improvements and equipment, net of
accumulated amortization of $131,378 and $1,162,247 75,875 262,921
Patent issuance costs, net of accumulated amortization
of $98,215 and $46,100 1,700,464 1,097,341
Intangible assets, net of accumulated amortization
of $214,209 and $137,710 148,942 226,441
------------ ------------
TOTAL ASSETS $ 7,336,487 $ 5,838,200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 549,024 $ 698,120
Accrued compensation -- 124,480
Current portion of note payable 268,388 382,122
------------ ------------
Total current liabilities 817,412 1,204,722
Long-term portion of note payable 115,948 347,845
------------ ------------
Total Liabilities 933,360 1,552,567
Stockholders' equity/(deficit):
Preferred stock, $.001 par value. Authorized
4,600,000 shares; none issued and outstanding -- --
Series C convertible preferred stock,
$.05 par value. Authorized 200,000 shares;
none issued and outstanding -- --
Series B convertible preferred stock,
$.05 par value. Authorized 200,000 shares;
124,126 and 117,118 issued and outstanding
at liquidation value 12,412,607 11,711,822
Common stock, $.001 par value. Authorized
100,000,000 shares; 34,809,250 and 26,794,642
issued, 34,636,908 and 26,622,300 outstanding 34,637 26,795
Additional paid-in capital 67,226,357 61,315,985
Common stock held in escrow, none and
375,498 shares -- 436,812
Unearned compensation (6,637) (50,148)
Deficit accumulated during the development stage (72,795,570) (68,687,366)
------------ ------------
6,871,394 4,753,900
Less:
Treasury stock, at cost, 172,342 shares (468,267) (468,267)
------------ ------------
Total Stockholders' Equity 6,403,127 4,285,633
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,336,487 $ 5,838,200
============ ============
See accompanying condensed notes to condensed consolidated financial
statements.
2
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Cumulative from
Nine Months February 15, 1985
Ended September 30, (date of inception)
2003 2002 to September 30, 2003
Revenue:
SBIR contract revenue $ -- $ -- $ 100,000
Expenses:
SBIR contract
research and development -- -- 86,168
Proprietary research
and development 1,923,515 2,401,600 22,002,263
General and
administrative (includes
$960,514 in non-cash
stock compensation in 2003) 2,013,674 1,817,802 19,434,496
Write-off of acquired in-process
research and development -- -- 10,181,000
Severance costs 130,712 748,598 911,960
------------ ------------ ------------
Total operating expenses 4,067,901 4,968,000 52,615,887
------------ ------------ ------------
Loss from operations (4,067,901) (4,968,000) (52,515,887)
Equity in net income (loss)
of joint ventures -- 787,275 (22,179,091)
Interest income 14,284 87,139 3,585,580
Interest expense (4,948) (7,923) (363,201)
Other income (expense), net (49,639) -- 213,250
------------ ------------ ------------
Net loss (4,108,204) (4,101,509) (71,259,349)
Preferred stock dividends (700,785) (1,195,657) (7,024,471)
------------ ------------ ------------
Net loss available to common
stockholders $ (4,808,989) $ (5,297,166) $(78,283,820)
============ ============ ============
Basic and diluted
net loss per share
available to common
stockholders $ (0.17) $ (0.25)
Basic and diluted
weighted average common
shares outstanding 27,750,852 21,179,037
See accompanying condensed notes to condensed consolidated financial statements.
3
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months
Ended September 30,
2003 2002
Revenue:
SBIR contract revenue $ -- $ --
Expenses:
SBIR contract
research and development -- --
Proprietary research
and development 786,847 326,162
General and
administrative (includes
$80,100 in non-cash stock
compensation 3rd Quarter 2003) 287,730 220,605
Severance costs -- 118,598
------------ ------------
Total operating expenses 1,074,577 665,365
------------ ------------
Loss from operations (1,074,577) (665,365)
Equity in net income of
joint ventures -- 20,041
Interest income 4,287 20,795
Interest expense (840) (100)
Other expense, net (55,072) --
------------ ------------
Net loss (1,126,202) (624,629)
Preferred stock dividends (236,162) (402,932)
------------ ------------
Net loss available to common
stockholders $ (1,362,364) $ (1,027,561)
============ ============
Basic and diluted
net loss per share
available to common
stockholders $ (0.05) $ (0.05)
Basic and diluted
weighted average common
shares outstanding 28,966,059 21,520,812
See accompanying condensed notes to condensed consolidated financial statements.
4
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Cumulative Period
Nine Months February 15, 1985
Ended September 30, (Inception) to
2003 2002 September 30, 2003
------------- ------------- ------------------
OPERATING ACTIVITIES:
Net Loss ....................................... $ (4,108,204) $ (4,101,509) $(71,259,348)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization ................. 209,526 229,420 2,118,127
Gain on the sale of marketable securities...... -- -- (110,244)
Non-cash stock compensation .................. 960,514 -- 2,079,070
Equity in net income(loss)
of joint ventures .......................... -- (787,276) 22,179,091
Amortization of fair value of warrants ....... -- -- 3,307,546
Net Loss on sale of assets ................... 49,639 -- 45,109
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 ................. -- (23,706) --
Prepaid expenses ............................ 28,185 12,210 (72,126)
Accounts payable and accrued expenses ....... (149,096) (856,496) 494,068
Accrued compensation ........................ (124,480) 844 --
Due to joint ventures ....................... -- (151,315) (1,635,466)
------------ ------------ ------------
Net cash used in operating activities .......... (3,133,916) (5,677,828) (32,233,448)
INVESTING ACTIVITIES:
Cash received in acquisition of CTD, net ....... -- -- 1,392,108
Patent issuance cost ........................... (324,351) (130,552) (1,712,342)
Investment in joint ventures ................... -- -- (3,638,171)
Organizational costs incurred .................. -- -- (135)
Purchases of leasehold improvements and
equipment .................................... (22,662) (83,972) (1,892,860)
Proceeds from assets sold ...................... 80,157 -- 84,947
Purchases of marketable securities ............. -- -- (11,004,080)
Proceeds from sale of marketable
securities ................................... -- -- 11,114,324
------------ ------------ ------------
Net cash used in investing activities .......... (266,856) (214,524) (5,656,209)
FINANCING ACTIVITIES:
Net proceeds from issuance of
common stock ............................... 4,791,178 -- 43,542,646
Proceeds from exercise of options .............. 143,119 -- 560,211
Proceeds from borrowings under
line of credit .............................. -- -- 1,150,913
Repayment of amounts under line of credit ...... (113,734) (29,794) (1,177,238)
Repayment of note payable ...................... (231,897) -- (231,897)
Proceeds from 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 ......................... 4,588,666 (29,794) 43,224,715
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents ............................. 1,187,894 (5,922,146) 5,335,058
Cash and cash equivalents at beginning
of period .................................... 4,147,164 9,942,053 --
------------ ------------ ------------
Cash and cash equivalents at end
of period .................................... $ 5,335,058 $ 4,019,907 $ 5,335,058
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest ....................... $ 4,948 $ 7,924
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Issuance of preferred stock
dividends in kind ......................... $ 700,785 $ 1,195,657
Issuance of common stock for patent
licenses and vendor payments .............. $ 330,887 --
Issuance of note payable to
settle joint venture liabilities .......... -- $ 579,742
Non-cash compensation on variable
stock options ............................. $ 960,514 --
See accompanying condensed notes to condensed consolidated financial statements.
5
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED
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 ended December 31, 2002. In our opinion, 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. Certain prior year amounts have been
reclassified to conform to the current period presentation, specifically the
severance expense as presented as a line item in the statement of operations in
the three and nine months ended September 30, 2002, rather than components of
proprietary research and development and general and administrative costs.
NET LOSS PER SHARE
Net loss per share is presented in the Condensed Consolidated Statements of
Operations in accordance with Statement of Financial Accounting Standards (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. 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.
We have potential common stock equivalents related to our outstanding stock
options. These potential common stock equivalents were not included in diluted
loss per share because the effect would have been anti-dilutive. Accordingly,
basic and diluted loss per common share and the weighted average number of
shares used in the computations are the same the periods presented. There were
7.5 million and 3.7 million options outstanding at September 30, 2003, and 2002
respectively.
Had compensation cost been determined based upon the fair value at the grant
date for awards under the stock option plans based on the provisions of SFAS No.
123, our pro forma net loss and net loss per share would have been as follows:
STOCK-BASED COMPENSATION
Three Months Nine Months
Ended September 30, Ended September 30,
2003 2002 2003 2002
Net loss applicable to common
stockholders as reported $(1,362,364) $(1,027,561) $(4,808,989) $(5,297,166)
Stock-based compensation
as reported 80,100 -- 960,514 --
Stock-based employee compensation
expense determined under fair
value based method (101,700) -- (1,361,814) --
------------ ------------ ------------ ------------
Pro forma net loss $(1,383,964) $(1,027,561) $(5,210,289) $(5,297,166)
============ ============ ============ ============
Net loss per share:
as reported, basic and diluted $ (0.05) $ (0.05) $ (0.17) $ (0.25)
pro forma, basic and diluted $ (0.05) $ (0.05) $ (0.19) $ (0.25)
6
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 also granted options to employees and directors that were conditional upon
stockholder approval of an amendment to our 1995 omnibus option plan, which
occurred September 15, 2003. Accordingly, a measurement date did not exist until
that approval occurred, and on a quarterly basis through the measurement date,
we recorded expense or reversal of expense based on the difference between the
exercise price and the current market price.
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 consolidated 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 nine months ended September
30, 2003, our total actual expense for severance included an additional
$130,712. This has been recorded as an expense in the first quarter 2003.
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 September 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 the making of significant judgments.
7
RELATED PARTY TRANSACTIONS
On July 18, 2003, we entered into subscription agreements for a private
placement of 6,796,919 shares of Common stock at $0.796 per share for total
gross proceeds of $5,410,395. Closure of this placement was contingent on
shareholder approval, which we received at our September 15, 2003 annual
meeting. In connection with the private placement, we agreed to issue warrants
to purchase 248,814 shares of our Common Stock to Evan Myrianthopoulos, a member
of our Board of Directors, and to pay Mr. Myrianthopoulos $62,025, both in
consideration for placement services rendered. In addition, Mr. Steve H. Kanzer,
a member of our Board of Directors, purchased 125,628 shares of Common Stock and
warrants to purchase 125,628 shares of Common Stock for $100,000, on the same
terms and conditions as were offered to the other subscribers in this private
placement.
8
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
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. Except as
expressly required by the federal securities laws undertake no obligation to
publicly update or revise any forward-looking statements to reflect events or,
circumstances or developments occurring subsequent to the filing of this Form
10-QSB with the SEC or for any other reason and you should not place undue
reliance on these forward-looking statements. 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 development stage pharmaceutical company specializing in the clinical
development of drugs for unmet medical needs. 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.
Our lead pharmaceutical product is orBec(R), an oral locally acting
corticosteroid, that is currently in a pivotal Phase III clinical trial for the
treatment of intestinal graft-vs.-host disease ("iGvHD"), a life threatening
complication of bone marrow transplantation. We are also planning a Phase II
program using orBec(R) to extend the indications beyond treatment of iGvHD into
prevention of iGvHD. In addition, data generated in animal models suggests that
there may be utility in using Beclomethasone Dipropionate, the active ingredient
in orBec(R)) for the treatment of a subgroup of patients with irritable bowel
syndrome. Based on this data we are planning to conduct a proof of principle
study in this indication in the near future. In October 2003, we signed a
license agreement with the University of Texas for the rights to a patent
application covering the use of Beclomethasone Dipropionate and other
anti-inflammatories for the treatment of 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 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) solicit government support for our biodefense;
(3) identify and acquire rights to new therapeutic compounds; (4) market
biodefense vaccine products directly to the U.S. and European military and
governmental agencies and; (5) sell or out-license therapeutic products that
have reached an advanced state of development or no longer meet our strategic
criteria.
9
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. To advance our
product candidates, we utilize subsidiary companies such as 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; 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), LPE(TM), and PLP(TM) drug
delivery systems. 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 have entered into a sponsored research agreement with Thomas Jefferson
University for one year of research, for our botulinum vaccine program in
exchange for $300,000, payable by us quarterly beginning in July 2003.
Additionally, 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 a ricin vaccine, for $200,000 of our common stock and
certain future licensee payments. 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.
During the 2003 third quarter, our ricin program and our platform delivery
technology were the subject of $2.7 million in grants from the National
Institutes of Health, $2.6 million of which is being funded to the exclusive
licensor of our non-toxic ricin vaccine technology, the University of Texas
Southwestern Medical Center.
In September 2003, we moved our principal executive offices from Lake Forest,
Illinois to a 2,400 square foot facility in Miami, Florida.
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
and expenses, 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 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 of patents, as well
as amounts paid allowing us to license additional methods of vaccine delivery
through the Southern Research Institute patents, shares issued to acquire Elan's
interest in the Innovaccine's Joint Venture, 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. These 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.
10
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 September 30, 2003, we had a net loss of $1,126,202
which was an increase of $501,573, or 80%, as compared to a net loss of $624,629
for the same period in 2002. For the nine month period ended September 30, 2003,
we had a net loss of $4,108,204, which was approximately the same as the net
loss of $4,101,509 for the nine months ended September 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 $488,177 or 9%, to $4,808,989, or $0.17 per share, for the first nine
months of 2003 compared with $5,297,166, or $0.25 per share, for the same period
of the prior year.
Research and development expenditures increased $460,685, or 141%, to $786,847,
for the three months ended September 30, 2003, compared with $326,162 for the
corresponding period ended September 30, 2002. Research and development
expenditures decreased $478,085, or 20%, to $1,923,515, for the nine months
ended September 30, 2003, compared with $2,401,600 for the corresponding period
ended September 30, 2002. The third quarter increase in research and development
spending reflects our increased expenditures in our Phase III clinical trial and
manufacturing costs of orBec(R) as well as additional spending for our Ricin and
Botulinum Toxin vaccine programs, while the decrease on a year to date basis
comes from the reduction in the number of early stage programs we are working on
in the first half of 2002. For the near term, we expect research and development
costs to remain in line with our third quarter 2003 expense.
General and administrative expenses increased $67,125, or 30%, to $287,730 for
the three months ended September 30, 2003 as compared to $220,605 for the three
months ended September 30, 2002. General and administrative expenses increased
$195,872, or 11%, to $2,013,674 for the first nine months of 2003 as compared to
$1,817,802 for the nine months ended September 30, 2002. This increase was due
to non-cash stock compensation of $80,100 for the three months ended September
30, 2003 and $960,514 for the first nine months of 2003. This expense resulted
from non-cash charges associated with options granted to employees, directors,
and consultants that did not have a measurement date until approval by
stockholders at our September 15, 2003 annual meeting, as described in the
footnotes to the condensed consolidated financial statements included in this
quarterly report.
Severance costs decreased $118,598, or 100%, to $0 in the three months ended
September 30, 2003 as compared to $118,598 for the same period in 2002.
Severance costs decreased $617,886 or 83% to $130,712 for the nine months ended
September 30, 2003 compared to 748,598 for the nine months ended September 30,
2002. The severance cost in 2002 was due to a substantial restructuring in June
2002, while 2003 costs represent a single employee and some residual costs
associated with the prior year's restructuring.
Interest income for the three months ending September 30, 2003 was $4,287, a
decrease of $16,508, or 79%, compared to $20,795 for the same period in 2002.
Interest income for the nine months ending September 30, 2003 was $14,284, a
decrease of $72,855, or 84%, compared to $87,139 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 the first
nine months of 2003.
FINANCIAL CONDITION AND LIQUIDITY:
On September 30, 2003, we had cash and cash equivalents of $5,335,058, compared
to $4,147,164 at December 31, 2002. Working capital was $4,593,794 at September
30, 2003, compared to $3,046,775 at December 31, 2002.
11
For the first nine months of 2003, we lowered our cash burn rate by $1,949,594,
or 33%, to $3,972,552 compared to $5,922,146 for the same period in 2002. We had
an operating loss of $4,067,901, of which $960,514 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.
On July 18, 2003 we entered into subscription agreements for a private placement
of 6,796,919 shares of Common Stock at $0.796 per share for total gross proceeds
of $5,410,395. In addition, each investor received a warrant to purchase a share
of Common Stock for $0.8756 along with each share purchased in the placement. We
also paid a commission to our placement agent of $393,068 in cash and warrants
to purchase 1,359,382 shares of Common stock at $.8756 per share. Closure of
this private placement was contingent on stockholder approval, which we received
at our September 15, 2003 annual meeting.
Based on our current cash burn rate our cash and cash equivalents of $5,335,058
at September 30, 2003 should be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for the next 12 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 12 month period, if any remaining
cash balances and any cash generated from operations are insufficient to satisfy
our liquidity requirements, we may need to raise additional funds through public
or such financings, 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. The terms of any debt financing may contain
restrictive covenants which limit our ability to pursue certain courses of
action. 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,
respond to competitive pressures or continue in existence.
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ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Controller (our principal executive officer and
principal financial officer, respectively) concluded, based on an evaluation of
our disclosure controls and procedures performed by our management with
participation of our Chief Executive Officer and Controller, that as of
September 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.
There was not any change in our internal control over financial reporting during
the quarter ended September 30, 2003 that has materially affected or is
reasonably likely to materially affect, our internal control over financial
reporting.
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PART II. - OTHER INFORMATION.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 18, 2003 we entered into subscription agreements for a private placement
of 6,796,919 shares of Common Stock at $0.796 per share for total gross proceeds
of $5,410,395. In addition, each investor received a warrant to purchase a share
of Common Stock for $0.8756 for each share purchased in the placement. We also
paid a commission to our placement agent of (i) $393,068 in cash and (ii)
warrants to purchase 1,359,382 shares of Common stock at $.8756 per share. This
placement was done pending stockholder approval, which we received at our
September 15, 2003 annual meeting. We issued these securities 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 parties that acquired the
securities represented to us that it was an "accredited investor" under Rule
501(a) of Regulation D.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
An annual meeting of stockholders was held on September 15, 2003.
Our stockholders voted as follows with respect to a proposal to elect eight
directors to serve until the next annual meeting of stockholders until their
successors are duly elected and qualified:
AUTHORITY
DIRECTORS FOR WITHHELD
-------------------------------------- ---------- ---------
Alexander M. Haig Jr. 21,601,488 1,578,521
Steve H. Kanzer 21,601,516 1,578,493
Ralph M. Ellison 21,601,502 1,578,507
Paul D. Rubin(1) 21,601,510 1,578,499
Larry Kessel 21,601,516 1,578,493
Arthur Asher Kornbluth 21,601,516 1,578,493
Evan Myrianthopoulos 21,601,516 1,578,493
Peter Salomon 21,601,502 1,578,507
(1) Dr. Rubin declined his appointment to the board after being elected
The Company's stockholders voted as follows with respect a proposal to approve
an amendment to our Amended and Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 50,000,000 to
100,000,000;
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
--- ------- ----------- ----------
21,478,501 265,865 1,435,643 n/a
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The Company's stockholders voted as follows with respect to a proposal to
approve the sale and issuance of (i) 6,796,919 shares of Common Stock at $0.796
per share and (ii) warrants exercisable for 6,796,919 shares of Common Stock, to
selected institutional and accredited investors, in a private placement exempt
from registration under the Securities Act of 1933;
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
--- ------- ----------- ----------
11,162,828 157,708 1,443,193 10,383,609
The Company's stockholders voted as follows with respect to a proposal to
approve an amendment to our Amended and Restated 1995 Omnibus Incentive Plan to
increase the number of shares of Common Stock available for issuance under the
1995 Plan from 4,708,257 to 10,000,000 shares of Common Stock and increase from
750,000 to 2,500,000 the maximum number of shares of Common Stock for which any
participant may receive options or separately exercisable stock appreciation
rights in the aggregate per calendar year;
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
--- ------- ----------- ----------
10,862,501 408,551 1,491,677 10,383,609
The Company's stockholders voted as follows with respect to a proposal To ratify
the appointment of Ernst and Young LLP as our independent auditors for the year
ending December 31, 2003.
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
--- ------- ----------- ---------
21,711,668 10,294 1,458,047 n/a
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
3.1 Amended and Restated Certificate of Incorporation.
10.1 Amended and Restated 1995 Omnibus Incentive Plan.
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 Principal Financial 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
--------------
REPORTS ON FORM 8-K:
We filed a Current Report on Form 8-K on July 18, 2003 to report our entering
into definitive agreements for the sale of securities in a private placement to
selected institutional and accredited investors for gross proceeds of
approximately $5.4 million (Item 5 of Form 8-K).
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.
November 14, 2003 /s/ Ralph M. Ellison
--------------------
Ralph M. Ellison
Chief Executive Officer and President
November 14, 2003 /s/ William D. Milling
----------------------
William D. Milling
Controller
(principal financial and accounting officer)
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