10QSB 1 protide030211_10qsb.txt PROTIDE PHARMACEUTICALS, INC. FORM 10QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (X) Quarterly report under Section 13 of 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended NOVEMBER 30, 2002 or ----------------- ( ) Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________. Commission file number 0-19866 ---------------------------- PROTIDE PHARMACEUTICALS, INC. (Exact name of small business issuer as specified in its charter) MINNESOTA 36-3384240 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1311 HELMO AVENUE, SAINT PAUL, MINNESOTA 55128 -------------------------------------------------- ----------------- (Address of principal executive offices) (Zip Code) Issuers telephone number, including area code: (651) 730-1500 Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the past 12 months (or for such shorter periods that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ State the number of shares outstanding of each the issuer's classes of common equity, as of the latest practicable date. THE NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OUTSTANDING ON ------------------------------------------------------------------------------ DECEMBER 31, 2002 WAS 4,029,134. -------------------------------- Transitional small business format disclosure: Yes ___ No _X_ 1 Table of Contents PROTIDE PHARMACEUTICALS, INC. ----------------------------- Report on Form 10-QSB for fiscal quarter ended November 30, 2002 PART I-- FINANCIAL INFORMATION Page ---- ITEM 1. Financial Statements Balance Sheet as of August 31, 2002 and November 30, 2002 3 Statement of Operations-- Three months ended November 30, 2002 and November 30, 2001 5 Statement of Changes in Shareholders' Equity for the year ended August 31, 2002 and the three months ended November 30, 2002 6 Statement of Cash Flows-- Three months ended November 30, 2002 and November 30, 2001 7 Notes to Financial Statements 8 ITEM 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations 9 PART II-- OTHER INFORMATION 13 2 PART I -- FINANCIAL INFORMATION ITEM 1 -- FINANCIAL STATEMENTS PROTIDE PHARMACEUTICALS, INC. BALANCE SHEET November 30, August 31, 2002 2002 --------- --------- ASSETS (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 165,473 $ 200,751 Certificates of deposit 80,934 80,934 Trade receivables 34,228 37,191 Accrued interest receivable 1,509 1,057 Inventories 57,085 56,997 Other 1,847 1,787 --------- --------- Total current assets 341,076 378,717 --------- --------- EQUIPMENT AND LEASEHOLD IMPROVEMENTS Laboratory and production equipment 226,937 226,937 Office furniture and equipment 94,822 94,822 Leasehold improvements 138,426 138,426 --------- --------- 460,185 460,185 Less accumulated depreciation (418,789) (412,012) --------- --------- 41,396 48,173 OTHER ASSETS Patents, net 43,950 44,828 --------- --------- TOTAL ASSETS $ 426,422 $ 471,718 ========= ========= See Notes to Financial Statements. 3 PROTIDE PHARMACEUTICALS, INC. BALANCE SHEET LIABILITIES AND SHAREHOLDERS' EQUITY November 30, August 31, 2002 2002 ----------- ----------- (Unaudited) CURRENT LIABILITIES Accounts payable $ 13,138 $ 23,427 Accrued liabilities 31,800 30,056 Bank note payable - current 71,498 71,498 ----------- ----------- Total current liabilities 116,436 124,981 ----------- ----------- SHAREHOLDERS' EQUITY Common stock issued and outstanding 40,291 40,291 Additional paid-in capital 5,832,291 5,832,291 ----------- ----------- 5,872,582 5,872,582 Accumulated deficit (5,562,596) (5,525,845) ----------- ----------- Total shareholders' equity 309,986 346,737 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 426,422 $ 471,718 =========== =========== See Notes to Financial Statements. 4 PROTIDE PHARMACEUTICALS, INC. STATEMENT OF OPERATIONS (Unaudited) -------------------------------------------------------------------------------- Three months ended November 30, 2002 2001 -------------------------------------------------------------------------------- REVENUES Net sales $ 121,160 $ 43,695 Cost of products sold 35,048 20,946 -------------------------------------------------------------------------------- GROSS MARGIN 86,112 22,749 -------------------------------------------------------------------------------- OPERATING EXPENSES Research and development 35,451 35,621 Marketing and sales 28,640 29,369 Administration 59,000 54,994 -------------------------------------------------------------------------------- Total operating expenses 123,091 119,984 OPERATING LOSS (36,979) (97,235) OTHER INCOME (EXPENSE) Interest and investment income 959 2,116 Interest expense (731) (1,022) -------------------------------------------------------------------------------- Total other income, net 228 1,094 NET LOSS ($ 36,751) ($ 96,141) ================================================================================ BASIC AND DILUTED LOSS PER COMMON SHARE ($ 0.01) ($ 0.03) WEIGHTED AVERAGE NUMBER OF 4,029,134 3,733,169 COMMON SHARES OUTSTANDING ================================================================================ See Notes to Financial Statements 5 PROTIDE PHARMACEUTICALS, INC. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
------------------------------------------------------------------------------------------------------------ Common Stock Additional ----------------------- Paid-in Accumulated Shares Amount Capital Deficit Total ------------------------------------------------------------------------------------------------------------ BALANCE AT AUGUST 31, 2002 4,029,134 $ 40,291 $5,832,291 ($5,525,845) $ 346,737 Net loss for the period (36,751) (36,751) ------------------------------------------------------------------------------------------------------------ BALANCE AT NOVEMBER 30, 2002 4,029,134 $ 40,291 $5,832,291 ($5,562,596) $ 309,986
6 PROTIDE PHARMACEUTICALS, INC. STATEMENT OF CASH FLOWS (Unaudited)
-------------------------------------------------------------------------------------------------------- Three months ended November 30, ------------------------ 2002 2001 -------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss for the period ($ 36,751) ($ 96,141) Adjustments to reconcile net loss to Net cash used in operating activities: Depreciation and amortization 7,655 7,975 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 2,963 3,012 Accrued interest receivable (452) 343 Inventories (88) (1,229) Other (60) (1,285) Increase (decrease) in: Accounts payable (10,289) (3,751) Accrued liabilities 1,744 (24,506 -------------------------------------------------------------------------------------------------------- Net cash used in operating activities (35,278) (115,582) -------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Maturity of bank certificates of deposit, net 0 40,000 Capital expenditures 0 0 -------------------------------------------------------------------------------------------------------- Net cash from investing activities 0 40,000 -------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING: Proceeds from issuing common stock subscriptions 0 25,004 Principal payments on bank note payable 0 (477) -------------------------------------------------------------------------------------------------------- Net cash provided by financing activities (35,278 24,527 Net increase (decrease) in cash and cash equivalents (35,278) (51,055) CASH AND CASH EQUIVALENTS: Beginning of period 200,751 197,200 -------------------------------------------------------------------------------------------------------- End of period $ 165,473 $ 146,145 ========================================================================================================
See Notes to Financial Statements. 7 PROTIDE PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS -- NOVEMBER 30, 2002 NOTE A - BASIS OF PRESENTATION The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The organization and business of the Company, accounting policies followed by the Company and other information is contained in the notes to the Company's financial statements filed as part of the Company's August 31, 2002 Form 10-KSB. This quarterly report should be read in connection with such annual report. NOTE B - CASH AND CASH EQUIVALENTS For purposes of reporting the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. NOTE C - SHORT-TERM INVESTMENTS As of November 30, 2002, the Company had investments of $80,934 in certificates of deposit. Certificates of deposit are made only with the highest rated banks. The Company also utilizes a money market fund, which is restricted by its charter to Tier 1 instruments, for a portion of its investments. At times throughout the year, the Company's cash, cash equivalents and certificates of deposit in financial institutions may exceed FDIC insurance limits. The Company has not experienced any losses in such accounts. NOTE D - NOTES PAYABLE BANK During April 1997 the Company borrowed $100,000 from a local bank with the proceeds used for financing a portion of the tenants' improvements in the Company's new facility. In February 2001 the loan was renegotiated with a different Bank. The new loan is secured by a certificate of deposit at this bank. The interest rate for this loan, currently 4%, is tied to the certificate of deposit rate. NOTE E - LOSS PER COMMON SHARE Basic loss per share is computed based upon the weighted average number of common shares outstanding during the period. Stock options for 307,000 shares were not included in the computation of diluted loss per share as the results were antidilutive. 8 ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION a. BACKGROUND AND PRODUCTS In January 2001 Celox Laboratories, Inc. and Protide Pharmaceuticals, Inc., merged with the surviving corporation named Protide Pharmaceuticals, Inc. Protide Pharmaceuticals, Inc. ("Protide" or the "Company") is a biotechnology company devoted to the discovery, development and commercialization of technologies and processes in clinical cell therapy and transfusion medicine, specifically in the areas of cancer, genetic disorders, cell engineering and transplantation. The focus of Protide is in the area of gene therapy, cell therapy and contract manufacturing for companies and educational institutions that are working in these areas. Celox Laboratories, Inc. will continue to market products that are sold for research purposes. Celox was formed in 1985 as a Company that researches, develops, manufactures, and markets cell biology products that are used in the propagation of cells derived from mammals, including humans, and other species. These specialized cell growth products are used primarily in academic, pharmaceutical and other commercial laboratories to improve the growth, productivity and quality of cell-derived medical and other biological products such as vaccines, monoclonal antibodies, interferons, and human growth factor. The Company has developed non-serum based products for the growth of human and other mammalian cells. The Company markets more than 16 different research products under the Celox Laboratories brand name. The Company's proprietary products consist of four different serum-free supplements and two cell freezing solutions. The Company also manufactures five basal media formulations, a series of buffered saline solutions, other cell biology reagents, and a variety of custom formulations. During the first quarter of fiscal 2001 the Company introduced the new product STEMSOL(TM). STEMSOL(TM) is a sterile filtered, USP Grade Dimethyl Sulfoxide (DMSO) used in a cryopreservation solution for, among other things, bone marrow, peripheral-blood stem cells and cord blood preservations. In addition, DMSO/Dextran was introduced in the first quarter of fiscal 2001 and is also used as a cryopreservative for these critical cells. These products are labeled for research use only, not for human use. The Company has received a Drug Master File classification from the Food and Drug Administration (FDA) for TCM(TM). This classification could expedite the FDA approval process for customers who want to use the Company's TCM(TM) product for manufacturing purposes. During the third quarter of fiscal 2000, the Company entered into an agreement to manufacture specialized solutions for the processing of pancreatic islet cells for transplants. These cells may be used instead of whole organ transplants. During the first quarter of fiscal 2002 an order was received from a second transplant center for these specialized solutions. The revenue from this order was reflected in the second quarter of fiscal 2002. Orders for these solutions have continued in fiscal 2003. 9 b. VIASTEM(TM) In March 1995, the Company filed a patent application for ViaStem(TM) in the U.S. Patent and Trademark Office. The Company received the U.S. Patent in early December 1996. This patent provides protection of the Company's ViaStem(TM) technology through March of 2015. A second U.S. Patent was received in August 1998. This second patent broadened the patented uses of ViaStem(TM) in bone marrow transplantation and related therapies. The Company has also filed the documents needed for an International Patent Application as required by the Patent Cooperation Treaty. In October 1998 the Company received notice from the New Zealand and Australian Patent Office that a patent on ViaStem(TM) had been granted by each of the respective countries. In March 2000 notice was received from the Patent Office in Canada that a patent had been issued for ViaStem(TM). The Company received notice from the Russian Patent Office in May 2000 of the official issue date for the patent for ViaStem(TM) in Russia. In March 2002 a patent for ViaStem(TM) was received from the Mexican Patent Office. Protide received notice from the Japan Patent Office that a patent on ViaStem(TM) had been granted in Japan. Initial reports from other countries that have reviewed the international patent application have been positive. Due to the unique nature of ViaStem(TM), the Company pursued the patent process for this product. On March 31, 2000, Protide Pharmaceuticals, Inc. (the then wholly owned subsidiary of Celox) entered into an agreement with Fairview-University Medical Center (FUMC), Minneapolis, MN. FUMC will provide collecting, processing and assaying of human peripheral blood stem cells as part of Protide's clinical investigation of ViaStem(TM). In the second quarter of fiscal 2002, the FUMC named a new Principal Investigator (PI) at the University of Minnesota to complete the additional information requested by the FDA after the departure of the original PI from the University. During May 2000 the Company submitted an application to the Food and Drug Administration (FDA) to initiate human clinical trials for ViaStem(TM). This was the first submission ever made by the Company to the FDA for testing in human subjects. In August 2000 the Company announced that it had received notice from the FDA that the clinical trial on had been placed on clinical hold pending further information. The Company intends to submit the additional requested information to the FDA in the near future. c. DISTRIBUTION/MARKETING The Company continues to sell its products on a direct basis to customers around the world. In addition the Company has formed the following distribution avenues: The Company has a nonexclusive worldwide distribution agreement with ICN Pharmaceuticals, Inc. (NYSE:ICN), Costa Mesa, CA. Under the agreement, ICN is marketing Celox' TCM(TM), TCH(TM), TM-235(TM) serum replacement products as well as Cellvation(TM). The Company has also entered into an agreement with ICN to custom manufacture certain of the Company's basal media and balanced salt solutions to ICN for worldwide distribution. ICN manufactures and markets a broad range of prescription and over-the-counter pharmaceuticals, medical diagnostic products and biotechnology research products in North and Latin America, Eastern and Western Europe and the Pacific Rim countries. In 1997, the Company began providing its proprietary products to Sigma Chemical Company (NASDAQ:SIAL), St. Louis, MO. under a private label distribution agreement for worldwide distribution. In 1997, the Company entered into a nonexclusive distribution agreement with TaKaRa Shuzo Co., Ltd., Biomedical Group, Kyoto, Japan. Under the agreement, TaKaRa will initially market Celox' proprietary product Cellvation(TM). TaKaRa's Biomedical Group leads the industry in several areas owing to the international scope of its research operations which span from the People's Republic of China to North America and Europe. TaKaRa will market Cellvation(TM) in Japan, Taiwan, Korea and People's Republic of China. 10 The Company also has distribution of its STEMSOL(TM) and DMSO/Dextran products in Europe and the Pacific Rim through various non-exclusive agreements with local distributors. In addition, the Company's product line is distributed in Japan through Funakoshi Co., LTD, a well-established Japanese distributor. RESULTS OF OPERATIONS During the quarter ended November 30, 2002, the Company had net sales of $121,160 which was an increase of $77,465 or 177% from $43,695 reported in the same quarter for the prior year. The increase between years results primarily from the amount and timing of custom orders, orders received from distributors and increased sales of the new products. The Company had a net loss of $36,751 for the quarter ended November 30, 2002 compared to a net loss of $96,141 for the same period in the previous year. The decreased loss results from substantially increased sales offset somewhat by a small increase in operating expenses. On a per share basis, the loss for the quarter ended November 30, 2002 equaled .009 which was rounded up to 1 cent versus a 3 cent loss in the comparable period in fiscal 2001. The cost of products sold was $35,048 or 29% of net sales for the three months ended November 30, 2002, as compared to $20,946 or 48% of net sales for the three months ended November 30, 2001. The decreased percentage for the current quarter results from substantially higher sales as well as the mix of products sold. An operating loss of $36,979 was generated for the quarter ended November 30, 2002 compared to an operating loss of $97,235 for the same period in the previous year. The decrease between years resulted from substantial sales increases along with decreases in marketing and sales and research and development expenses offset by increased administrative expenses. The Company received interest and investment income of $959 during the quarter ended November 30, 2002 as compared to $2,116 in the prior year. Investment income is derived primarily from the investment of the proceeds from recent private placements. The decrease in investment income during the quarter and the nine month reporting period as compared to the previous year results from significantly lower interest rates available for investment balances. Operating expenses increased $3,107 (3%) to $123,091 from $119,984 for the quarter ended November 30, 2002 as compared to the prior year. The increase for the reporting period as compared to the prior fiscal year results from an increase in administrative costs offset by lower marketing and sales expenses and lower research and development expenses. Research and development costs decreased by $200 to $35,451 from $35,621 in the current quarter as compared to the previous fiscal year. The small decrease between years results from lower expenditures in the areas of salaries and professional fees as compared to the prior year. The Company expects the costs of research and development to fluctuate based on the status of preclinical and clinical trials for ViaStem(TM). Marketing expenses decreased by $729 (2%) to $28,640 from $29,369 for the quarter ended November 30, 2002 as compared to the previous year. The decrease for the current quarter as compared to the prior fiscal year results from reduced expenditures in several areas in the marketing department. The Company expects that marketing and sales expenses will fluctuate based on introduction of new products, new studies, and as new advertising materials are developed. 11 Administrative expenses increased by $4,006 (7%) for the quarter ended November 30, 2002 compared to the previous fiscal year to $59,000 from $54,994 The increase for the three month reporting period is due to higher health insurance premiums as well as the amount and timing of legal and professional fees expended in connection with the introduction of new products, agreements and matters related to the advancement of ViaStem(TM). LIQUIDITY AND CAPITAL RESOURCES Capital resources on hand at November 30, 2002 include cash and short-term investments of $165,473 and net working capital of $224,640. This represents a decrease of $35,278 (18%) in cash and short-term investments and a decrease of $29,096 (11%) in net working capital as compared to August 31, 2002. The Company is leasing approximately 9,500 square feet of office, laboratory and warehouse space in St. Paul, MN under a seven year lease. The Company moved into the new facility during March 1997. As partial payment for tenant improvements in the new facility, the Company borrowed $100,000 from a local bank. In February 2000 the loan was renegotiated with a different bank. The new loan is secured by a certificate of deposit at this bank. The interest rate for this loan, currently 4%, is tied to the certificate of deposit rate. The loan is for a one year term with a maturity in February 2003. The balance of the tenant improvements over this amount was paid with Company funds. During the second quarter of fiscal 2001, 50,000 shares were issued as a result of a private placement participant exercising warrants. During the fourth quarter of fiscal 2001, the Company sold subscriptions for 157,659 units of common stock and a warrant at $0.47 per unit in a private offering. The Company sold additional subscriptions for 53,200 units of common stock and a warrant for $0.47 in the first quarter of fiscal 2002 and additional subscriptions for 85,106 units of common stock and a warrant for $0.47 in the second quarter of fiscal 2002. The Company intends to pursue additional financing, subject to prevailing market conditions. There is no guarantee however, that the Company will be able to successfully raise an adequate amount of additional funds with terms that are favorable to the Company. In addition, there can be no assurance that the Company will be able to obtain the necessary FDA approvals for ViaStem(TM). The Company anticipates spending approximately $30,000 during fiscal 2003 on capital expenditures. This does not include costs for clinical trials for ViaStem(TM). Through November 2002 the Company has made no capital expenditures. The Company believes that its capital resources on hand at November 30, 2002 together with revenues from product sales, will be sufficient to meet its cash requirements for the fiscal year. 12 FORWARD LOOKING INFORMATION Information contained in this Form 10-QSB contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "may", "will", "expect", "plan", "anticipate", "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. There are certain important factors that could cause results to differ materially from those anticipated by some of these forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. The factors, among others, that could cause actual results to differ materially include the Company's ability to obtain FDA approval for its clinical products, the ability of the Company to raise additional capital and the ability to execute its business plan. PART II -- OTHER INFORMATION ITEM I. -- LEGAL PROCEEDINGS The Company is not presently involved in any material legal proceedings. ITEM 2. -- CHANGES IN SECURITIES None ITEM 3. -- DEFAULTS UPON SENIOR SECURITIES None ITEM 4. -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. -- OTHER INFORMATION None ITEM 6. -- (A) EXHIBITS 99.1 906 Certifications (B) REPORTS ON FORM 8-K None 13 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PROTIDE PHARMACEUTICALS, INC. Dated: January 10, 2003 By: /S/ Milo R. Polovina --------------------------------- Milo R. Polovina, President & CEO (Principal Financial Officer) 14