sec document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF
1934
For the quarterly period ended June 30, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to _____________
Commission file number: 333-105793
CEPTOR CORPORATION
--------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 11-2897392
-------------------------------------------- ----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
200 International Circle, Suite 5100
Hunt Valley, Maryland 21030
-------------------------------------------- ----------------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number: (410) 527-9998
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 |_|
As of August 11, 2005, there were 9,452,944 shares of the issuer's common
equity outstanding.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
Table of Contents
-----------------
Page
----------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).................................1
Condensed Balance Sheets - June 30, 2005 and December 31, 2004
Condensed Statements of Operations for the three months ended
June 30, 2005 and 2004, for the six months ended June 30, 2005
and 2004 and for the period from August 11, 1986 (date of
inception) to June 30, 2005
Condensed Statement of Changes in Stockholders' (Deficiency)
Equity for the six months ended June 30, 2005
Condensed Statements of Cash Flows for the six months ended
June 30, 2005 and 2004 and for the period from August 11, 1986
(date of inception) to June 30, 2005
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation.......17
Item 3. Controls and Procedures.........................................19
PART II OTHER INFORMATION
Item 1. Legal Proceedings...............................................20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.....20
Item 4. Submission of Matters to a Vote of Security Holders.............20
Item 6. Exhibits........................................................21
i
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CEPTOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
June 30, 2005 December 31, 2004
(Unaudited)
----------------- ---------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,281,831 $ 1,331,513
Prepaid expenses and other current assets 235,012 107,729
------------- -------------
Total current assets 2,516,843 1,439,242
Property and equipment, net 60,999 60,615
Security deposit 18,511 18,511
------------- -------------
TOTAL ASSETS $ 2,596,353 $ 1,518,368
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 367,747 $ 58,266
Accrued expenses 546,178 315,237
Common stock subject to repurchase under variable shares put right - 1,637,325
------------- -------------
Total current liabilities 913,925 2,010,828
Convertible notes 157,701 56,821
------------- -------------
TOTAL LIABILITIES 1,071,626 2,067,649
------------- -------------
Commitments and contingencies
Stockholders' (Deficiency) Equity:
Preferred stock, $0.0001 par value; authorized 20,000,000 shares, issued and
outstanding - 382.65 and 145.07 shares of Series A Convertible Preferred
Stock at June 30, 2005 and December 31, 2004, respectively; liquidation
preference - $9,566,250 and $3,626,750, respectively 9,566,250 3,626,750
Common stock, $0.0001; authorized 100,000,000 shares, issued and outstanding
- 9,142,944 at June 30, 2005 and 10,539,161, net of 401,305 shares subject to
put right at December 31, 2004 914 1,054
Subscriptions receivable on common stock (31) (303)
Deferred compensation (630,359) (624,750)
Additional paid-in capital 22,128,051 12,294,648
Treasury stock, 145,070 shares, at December 31, 2004, at cost - (362,675)
Deficit accumulated during the development stage (29,540,098) (15,484,005)
------------- -------------
Total stockholders' (deficiency) equity 1,524,727 (549,281)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIENCY) EQUITY $ 2,596,353 $ 1,518,368
============= =============
(See Notes to Condensed Financial Statements)
1
CEPTOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
Cumulative
August 11,
1986
Three Months Ended Six Months Ended (Date of
June 30, June 30, Inception) to
------------ ------------ ------------ ------------ June 30,
2005 2004 2005 2004 2005
------------ ------------ ------------ ------------ -------------
REVENUES:
Other income $ - $ - $ - $ - $ 75,349
OPERATING EXPENSES:
Research and development 2,185,876 204,101 2,814,364 277,061 5,408,220
In-process research and development - - - 5,034,309 5,034,309
General and administrative 528,684 403,531 1,970,454 2,600,132 8,523,087
Gain on extinguishment of debt (311,281) - (311,281) - (311,281)
Non-cash interest expense 189,817 257,333 412,161 257,333 1,730,736
Interest expense, net of interest income 2,391 21,131 5,895 27,934 41,346
------------ ------------ ------------ ------------ ------------
Total operating expenses 2,595,487 886,096 4,891,593 8,196,769 20,426,417
------------ ------------ ------------ ------------ ------------
NET LOSS (2,595,487) (886,096) (4,891,593) (8,196,769) (20,351,068)
Preferred dividends - - (9,164,500) - (10,100,616)
------------ ------------ ------------ ------------ ------------
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $ (2,595,487) $ (886,096) $(14,056,093) $ (8,196,769) $(30,451,684)
============ ============ ============ ============ ============
Basic and diluted loss per common share $ (0.22) $ (0.21) $ (1.23) $ (2.02)
Weighted-average common shares outstanding 11,559,324 4,198,273 11,388,833 4,049,072
(See Notes to Condensed Financial Statements)
2
CEPTOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIENCY) EQUITY
Preferred Stock Common Stock Subscrip- Deferred
----------------- ------------------- tion Compen-
Shares Amount Shares Amount Receivable sation
------ ------ ------ ------ ---------- ------
BALANCE, JANUARY 1, 2005 145.07 $ 3,626,750 10,539,161 $ 1,054 $ (303) $ (624,750)
Preferred stock and warrants issued pursuant to units sold
on January 5, 2005 in a private placement ($25,000) 48.35 1,208,750
Deemed dividend of beneficial conversion feature of units
sold January 5, 2005 in private placement
Acquisition January 5, 2005 of treasury stock under put
right ($2.50)
Preferred stock and warrants issued pursuant to units sold
on January 18, 2005 in a private placement ($25,000) 76.25 1,906,250
Deemed dividend of beneficial conversion feature of units
sold January 18, 2005 in private placement
Acquisition January 18, 2005 of treasury stock under put
right ($2.50)
Common stock issued January 2005 in connection with
payment of legal fees ($3.04) 23,000 2
Common stock issued January 2005 pursuant to amendment
of placement agent agreement ($2.50) 150,000 15
Common stock issued February 2005 to advisors for past
services ($6.25) 7,500 1
Preferred stock and warrants issued pursuant to units sold
on February 3, 2005 in a private placement ($25,000) 224.48 5,612,000
Deemed dividend of beneficial conversion feature of units
sold February 3, 2005 in private placement
Acquisition February 3, 2005 of treasury stock under put
right ($2.50)
Preferred stock and warrants issued pursuant to units sold
on February 11, 2005 in a private placement ($25,000) 17.50 437,500
Deemed dividend of beneficial conversion feature of units
sold February 11, 2005 in private placement
Acquisition February 11, 2005 of treasury stock under put
right ($2.50)
Common stock issued February 2005 pursuant to cashless
exercise of option ($3.05) 100,191 10
Common stock issued March 2005 upon conversion of
preferred shares ($2.50) (44.00) (1,100,000) 440,000 44
3
Deficit
Accumulated Total
Additional Treasury Stock During the Stockholders'
Paid-in ------------------- Development (Deficiency)
Capital Shares Amount Stage Equity
------- ------ ------ ----- ------
BALANCE, JANUARY 1, 2005 $ 12,294,648 145,070 $ (362,675) $ (15,484,005) $ (549,281)
Preferred stock and warrants issued pursuant to units sold
on January 5, 2005 in a private placement ($25,000) (159,359) 1,049,391
Deemed dividend of beneficial conversion feature of units
sold January 5, 2005 in private placement 1,208,750 (1,208,750) -
Acquisition January 5, 2005 of treasury stock under put
right ($2.50) 48,350 (120,875) (120,875)
Preferred stock and warrants issued pursuant to units sold
on January 18, 2005 in a private placement ($25,000) (252,624) 1,653,626
Deemed dividend of beneficial conversion feature of units
sold January 18, 2005 in private placement 1,906,250 (1,906,250) -
Acquisition January 18, 2005 of treasury stock under put
right ($2.50) 76,250 (190,625) (190,625)
Common stock issued January 2005 in connection with
payment of legal fees ($3.04) 69,998 70,000
Common stock issued January 2005 pursuant to amendment
of placement agent agreement ($2.50) (15) -
Common stock issued February 2005 to advisors for past
services ($6.25) 46,874 46,875
Preferred stock and warrants issued pursuant to units sold
on February 3, 2005 in a private placement ($25,000) (851,447) 4,760,553
Deemed dividend of beneficial conversion feature of units
sold February 3, 2005 in private placement 5,612,000 (5,612,000) -
Acquisition February 3, 2005 of treasury stock under put
right ($2.50) 224,480 (561,200) (561,200)
Preferred stock and warrants issued pursuant to units sold
on February 11, 2005 in a private placement ($25,000) (250,613) 186,887
Deemed dividend of beneficial conversion feature of units
sold February 11, 2005 in private placement 437,500 (437,500) -
Acquisition February 11, 2005 of treasury stock under put
right ($2.50) 17,500 (43,750) (43,750)
Common stock issued February 2005 pursuant to cashless
exercise of option ($3.05) (10) -
Common stock issued March 2005 upon conversion of
preferred shares ($2.50) 1,099,956 -
(See Notes to Condensed Financial Statements) (continued)
3A
CEPTOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIENCY) EQUITY
Preferred Stock Common Stock Subscrip- Deferred
----------------- ------------------- tion Compen-
Shares Amount Shares Amount Receivable sation
------ ------ ------ ------ ---------- ------
Payments received for common stock issued December
2004 pursuant to exercise of options granted under
spinoff agreement 272
Common stock issued March 2005 pursuant to exercise of
warrants ($1.25) 5,000 1
Common stock issued April 2005 upon conversion of
preferred shares ($2.50) (15.00) (375,000) 150,000 15
Common stock issued May 2005 pursuant to financing letter
agreement ($3.00) 25,000 2
Common stock issued May 2005 upon conversion of
preferred shares ($2.50) (41.00) (1,025,000) 410,000 41
Common stock issued June 2005 upon conversion of
preferred shares ($2.50) (29.00) (725,000) 290,000 29
Capital contribution for repurchase of common stock
pursuant to Stock Purchase Agreement
Common stock repurchased June 2005 pursuant to Stock
Repurchase Agreement ($0.80)
Retirement of treasury shares (3,398,213) (340)
Reverse common stock subject to repurchase under variable
shares put right at December 31, 2004 401,305 40
Stock option-based compensation for investor relation
services rendered (439,900)
Stock option-based compensation for employees and
directors (293,231)
Fair value adjustment of stock options previously granted to
non-employees 22,400
Amortization of deferred compensation 705,122
Net loss
------ ----------- --------- ------ ------ ----------
BALANCE, JUNE 30, 2005 382.65 $ 9,566,250 9,142,944 $ 914 $ (31) $ (630,359)
====== =========== ========= ====== ====== ==========
4
Deficit
Accumulated Total
Additional Treasury Stock During the Stockholders'
Paid-in ------------------- Development (Deficiency)
Capital Shares Amount Stage Equity
------- ------ ------ ----- ------
Payments received for common stock issued December
2004 pursuant to exercise of options granted under
spinoff agreement 272
Common stock issued March 2005 pursuant to exercise of
warrants ($1.25) 6,249 6,250
Common stock issued April 2005 upon conversion of
preferred shares ($2.50) 374,985 -
Common stock issued May 2005 pursuant to financing letter
agreement ($3.00) 74,998 75,000
Common stock issued May 2005 upon conversion of
preferred shares ($2.50) 1,024,959 -
Common stock issued June 2005 upon conversion of
preferred shares ($2.50) 724,971 -
Capital contribution for repurchase of common stock
pursuant to Stock Purchase Agreement 424,818 424,818
Common stock repurchased June 2005 pursuant to Stock
Repurchase Agreement ($0.80) 2,886,563 (2,734,068) (2,734,068)
Retirement of treasury shares (4,012,853)(3,398,213) 4,013,193 -
Reverse common stock subject to repurchase under variable
shares put right at December 31, 2004 1,637,285 1,637,325
Stock option-based compensation for investor relation
services rendered 439,900 -
Stock option-based compensation for employees and
directors 293,231 -
Fair value adjustment of stock options previously granted to
non-employees (22,400) -
Amortization of deferred compensation 705,122
Net loss (4,891,593) (4,891,593)
------------ ----------- ---------- -------------- ------------
BALANCE, JUNE 30, 2005 $ 22,128,051 - $ - $ (29,540,098) $ 1,524,727
============ =========== ========== ============== ============
(See Notes to Condensed Financial Statements)
4A
CEPTOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF CASH FLOWS
Cumulative
August 11, 1986
For the Six Months Ended (Date of Inception)
June 30, to
----------------------------- June 30,
2005 2004 2005
------------ ------------ ------------------
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $ (4,891,593) $ (8,196,769) $(20,351,068)
Adjustments to reconcile net (loss) to net cash used in operating
activities:
Depreciation and amortization 8,665 3,867 21,948
Write-off of in-process research and development - 5,034,309 5,034,309
Charge for stock option issued pursuant to spinoff agreement - 2,082,500 2,082,500
Stock-based compensation to employees and directors 80,122 - 80,122
Stock-based compensation to nonemployees 671,875 - 3,584,306
Stock-based component of payment of legal fees 70,000 - 70,000
Stock-based component of litigation settlement - - 422,000
Gain on extinguishment of debt (311,281) - (311,281)
Non-cash interest expense 412,161 257,333 1,730,736
Changes in assets and liabilities:
Prepaid expenses & other current assets (52,283) (3,251) (160,012)
Other assets - (18,511) (18,511)
Accounts payable and accrued expenses 540,422 34,275 937,583
------------ ------------ ------------
Net cash used in operating activities (3,471,912) (806,247) (6,877,368)
------------ ------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment (9,049) (68,769) (82,947)
------------ ------------ ------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuances of common stock 6,250 - 1,136,502
Collections of subscriptions receivable 272 - 272
Net proceeds from issuances of preferred stock 7,650,457 - 10,454,697
Acquisition of treasury stock under put right (916,450) - (1,279,125)
Acquisition of treasury stock under purchase agreement (2,309,250) - (2,309,250)
Distribution to shareholders - - (4,260)
Capital contributed by Xechem International, Inc. - 300,310 350,310
Proceeds from issuance of bridge loans - 1,100,000 1,375,000
Expense of issuance of long term debt - (132,000) (132,000)
Principal payments on bridge loans - - (350,000)
------------ ------------ ------------
Net cash provided by financing activities 4,431,279 1,268,310 9,242,146
------------ ------------ ------------
Net increase in cash and cash equivalents 950,318 393,294 2,281,831
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 1,331,513 68,374
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 2,281,831 $ 461,668 $ 2,281,831
============ ============ ============
(See Notes to Condensed Financial Statements)
5
CEPTOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
Cumulative
August 11, 1986
For the Six Months Ended (Date of Inception)
June 30, to
----------------------------- June 30,
2005 2004 2005
------------ ------------ ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Deemed dividend of the beneficial conversion feature
of units sold in private placement $ 9,164,500 $ - $ 10,100,616
Issuance of 1,290,000 shares of common stock upon
conversion of preferred shares 3,225,000 - 3,225,000
Issuance of 7,500 shares of common stock as compensation
for past services 46,875 - 46,875
Issuance of 25,000 shares of common stock as compensation
for financial planning 75,000 - 75,000
Issuance of 23,000 shares of common stock in payment of
accrued legal fees 70,000 - 70,000
Capital contribution for repurchase of common stock
pursuant to Stock Purchase Agreement 424,818 - 424,818
Issuance of 36,000 shares of common stock as debt
issuance costs - - 90,000
Issuance of 451,597 shares of common stock to bridge loan
investors and placement agent - - 550,000
Issuance of 167,610 shares up on conversion of
convertible notes - - 209,512
Issuance of convertible notes in exchange for bridge
loans and long-term debt plus accrued interest - - 1,111,240
(See Notes to Condensed Financial Statements)
6
NOTE 1 - BASIS OF INTERIM FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited Condensed Financial Statements of CepTor Corporation
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and the instructions to
Form 10-QSB. Accordingly, they do not include all the information and footnotes
required by accounting principles generally accepted in the United States for
complete financial statements. In the opinion of management all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows for all periods
presented have been made. The results of operations for the six-month period
ended June 30, 2005 are not necessarily indicative of the operating results that
may be expected for the entire year ending December 31, 2005.
NOTE 2 - THE COMPANY
ORGANIZATION
The financial statements presented are those of CepTor Corporation (the
"Company"), incorporated in August 1986 in the state of Delaware. CepTor
Corporation is a biopharmaceutical company engaged in the research and
development of therapeutic products for neuromuscular, neurodegenerative and
other diseases with a focus on orphan diseases (defined as those which affect
less than 200,000 people). Since its inception, the Company has devoted its
efforts and resources to the development of its receptor mediated drug-targeting
platform for neuromuscular and neurodegenerative diseases, and to raising the
funds necessary to continue this research.
The Company is a development stage enterprise which has a limited history of
operations and has not generated any material revenues since its inception. The
Company has received a limited amount of funding through grants and
collaborative research efforts in connection with developing its products. The
Company does not have any products that are approved for commercial distribution
at the present time. As a development stage enterprise, the Company is subject
to all of the risks and uncertainties that are associated with developing a new
business.
MERGER OF XECHEM INTERNATIONAL, INC. AND CEPTOR CORPORATION
On January 27, 2004, the former shareholders of the Company received shares of
preferred stock of Xechem International, Inc. ("Xechem") in connection with the
merger of the Company into a wholly-owned subsidiary of Xechem. For financial
reporting purposes, the effective date of the merger was designated January 1,
2004. The results of operations from January 1 to January 27, 2004 were not
significant. The merger was accomplished through a reverse triangular merger
whereby CepTor Acquisition, Inc., a wholly-owned subsidiary of Xechem, was
merged into the Company and the Company was the surviving entity.
Following the acquisition of the Company by Xechem, the board of directors of
Xechem determined that Xechem lacked the resources to fully fund the development
and regulatory approval of the Company's technology. As a result, the board of
directors of Xechem determined that is was in the best interest of Xechem's
stockholders to effect a spin-off of the Company from Xechem, providing the
Company with an independent platform to obtain financing and develop its
technology. As a result the Company, Xechem, and William Pursley, Chairman and
CEO of the Company, entered into an agreement dated March 31, 2004, amended July
23, 2004 and November 17, 2004, (the "Spinoff Agreement"), to provide for the
separation of the Company from Xechem. The Spinoff Agreement provided for the
Company's separation from Xechem under a transaction structured to include (i)
the Company's redemption of a portion of it shares held by Xechem out of the
proceeds of future financing under the Redemption Obligations described below,
(ii) the issuance and allocation of additional shares of common stock to Mr.
Pursley under the Founders' Plan described below and (iii) the Company's reverse
merger into a public shell. The spin-off of the Company from Xechem concurrent
with Mr. Pursley's exercise of his stock option and the Company's reverse merger
into Medallion was completed on December 8, 2004.
MERGER OF MEDALLION CREST MANAGEMENT, INC. AND CEPTOR CORPORATION
Medallion Crest Management, Inc., a Florida corporation ("Medallion") acquired
all of the common stock of the Company on December 8, 2004. Medallion was an
inactive public shell at the time of acquisition. The Company's shareholders
prior to the merger became the majority shareholders of Medallion after the
merger; accordingly the transaction was accounted for as a recapitalization. The
accompanying financial statements preceding the date of the acquisition have
been retroactively restated to give effect to this transaction.
7
NOTE 3 - LIQUIDITY AND FINANCIAL CONDITION
The Company's net loss for the six-month period ended June 30, 2005 amounted to
$4,891,593, which includes $922,877 of non-cash special charges primarily
associated with the Company's issuance of stock and common stock purchase
warrants and options to non-employees for services, gain on the extinguishment
of debt, and non-cash interest expense. The Company used net cash flows in its
operating activities of $3,471,912 during the six-month period ending June 30,
2005. The Company's development stage accumulated deficit amounted to
$29,540,098 at June 30, 2005. The Company expects to continue incurring losses
for the foreseeable future due to the inherent uncertainty that is related to
establishing the commercial feasibility of pharmaceutical products. The Company
will require substantial additional funding to support the development of its
proposed products and fund its operations while it continues its efforts to
execute its business plan. The Company estimates that it currently does not have
sufficient liquidity to sustain operations beyond December 31, 2005.
The Company's working capital at June 30, 2005 amounted to $1,602,918. During
the six-month period ended June 30, 2005, the Company received net proceeds of
$4,431,279 from financing activities, including (i) $7,650,457 (gross proceeds
of $9,164,500 net of transaction expenses of $1,514,043) from the sale of
preferred stock and common stock purchase warrants ("Units") in a private
placement transaction (see Note 10), (ii) $6,250 from the exercise of warrants,
and (iii) $272 from subscriptions receivable pursuant to the restricted shares
issued under the Company's Founders' Plan during December 2004. From the net
proceeds of the sale of the Units, the Company repurchased 3,253,143 shares of
its common stock, par value $0.0001 per share from Xechem for $3,225,700
comprised of (i) $916,450 for 366,580 shares of its common stock pursuant to the
terms of a redemption obligation (see Note 7) and (ii) $2,309,250 and the
forfeiture of an option held by the Company's CEO to purchase 43 million shares
of common stock of Xechem with a fair value of $424,818, for an additional
2,886,563 shares of its common stock. The Company is continuing to seek
additional capital through equity and debt offerings, collaborative
partnerships, joint ventures and strategic alliances both within the United
States and abroad in an effort to accelerate the development of its proposed
products. There are currently no firm commitments in place for new capital nor
has the Company identified any prospective joint venture partners or
participants with which it could enter into any new strategic alliance
arrangement.
For the foreseeable future, the Company's primary efforts will be on moving its
lead product, Myodur, into phase I/II clinical trials for Duchenne's muscular
dystrophy. The Company plans to use its available cash resources to continue the
pre-clinical development of its technologies, which primarily includes the
manufacture of Myodur, conducting pre-clinical tests and toxicology studies,
compiling, drafting and submitting an investigational new drug application
("IND") for Myodur, and initiating phase I/II human clinical trials, if allowed
by the Food and Drug Administration ("FDA"). As resources allow, the Company may
also fund other working capital needs. The Company presently expects to file its
IND for Myodur in 2005, and initiate human clinical trials for Myodur during the
quarter ending March 31, 2006.
The Company expects to incur significant expenditures during the next twelve
months for the cost to manufacture the Company's product Myodur for use in
clinical and other testing. The Company does not have, and does not intend to
establish, its own manufacturing facilities to produce its product candidates in
the foreseeable future. The Company plans to outsource the manufacturing of its
proposed products to contract manufacturers. Following placement of an initial
purchase order for its proposed product in 2004, the Company has since
determined that the quantity and delivery time of the clinical materials it
requires would cause the actual manufacturing costs of its proposed product to
exceed its initial estimates. Accordingly, the Company modified its estimated
liquidity needs to include the additional capital that will be required to fund
its manufacturing effort. On April 18, 2005, the Company entered into an
exclusive manufacture and supply agreement with Bachem AG ("Bachem") whereby
Bachem is entitled to receive royalty payments in the amount of the lesser of 5%
of "net sales" (as defined in the agreement) or $10 million, $15 million or $25
million in the first, second and third (and thereafter) years of the agreement,
respectively. During the six-month period ended June 30, 2005, the Company paid
approximately $1.1 million for the proposed product and related materials. As of
June 30, 2005, the Company has purchase commitments over the next nine months of
an additional $2.8 million for the manufacture and delivery of product materials
required for the Company's pre-clinical and toxicology programs and initial
clinical trials.
Further, if the Company receives regulatory approval for any of its products in
the United States or elsewhere, it will incur substantial expenditures to
develop manufacturing, sales, and marketing capabilities and/or to subcontract
8
or joint venture these activities with others. There can be no assurance that
the Company will ever recognize revenue or profit from any such products. In
addition, the Company may encounter unanticipated problems, including
developmental, regulatory, manufacturing, or marketing difficulties, some of
which may be beyond its ability to resolve. The Company may lack the capacity to
produce its products in-house and there can be no assurances that it will be
able to locate or retain suitable contract manufacturers or be able to have them
produce products at satisfactory prices.
As described in Note 10, the Company entered into a Securities Purchase
Agreement with Xechem on June 17, 2005 pursuant to which it elected to
repurchase 2,886,563 shares of its common stock from Xechem, for a purchase
price of $2,309,250 effectively reducing the total outstanding shares of common
stock of the Company. As additional consideration for the transaction, the
Company's CEO agreed to forfeit an option to purchase 43 million shares of
Xechem, which the Company has recorded as a contribution of capital and a cost
of the treasury shares. Xechem retained 500,000 shares of common stock of the
Company but agreed that it would only sell such shares subject to the volume
restrictions of Rule 144, regardless of whether or not such volume limitations
are applicable at the time of such sale. Additionally, the Securities Purchase
Agreement terminated the Spinoff Agreement. Due to the substantial amounts that
the Company has expended for the manufacture of its proposed product and the
repurchase of shares of its common stock on June 17, 2005 from Xechem, the
Company has determined that its available capital resources are not sufficient
to sustain its planned operations beyond December 31, 2005. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that may result from the
outcome of this uncertainty.
There can be no assurance that management's plans to obtain additional financing
to fund operations will be successful or that the successful implementation of
the business plan will actually improve the Company's operating results.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company is a development stage enterprise. Accordingly, the Company has
included its cumulative statements of operations and cash flows for the period
of August 11, 1986 (date of inception) to June 30, 2005 in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 7 "Accounting and
Reporting by Development Stage Enterprises."
The Company's net loss available to common shareholders as reported in its
statement of operations for the period of August 11, 1986 (date of inception) to
June 30, 2005 is $30,451,684 whereas the deficit accumulated during its
development stage as reported on its balance sheet at June 30, 2005 is
$29,540,098. The difference is a result of the acquisition of the Company by
Xechem and the restatement of its assets and liabilities to fair value, which
resulted in the Company's accumulated deficit, net of distributions, from
inception through December 31, 2003 (the date of merger for financial reporting
purposes) being reclassified to additional paid-in capital, net of a deemed
dividend to the preferred shareholders.
ACCOUNTING FOR STOCK BASED COMPENSATION
As permitted under SFAS No. 148 "Accounting for Stock-Based Compensation -
Transition and Disclosure," which amended SFAS No. 123 "Accounting for
Stock-Based Compensation," the Company has elected to use the intrinsic value
method of accounting for its stock-based compensation arrangements as defined by
Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued
to Employees," and related interpretations including Financial Accounting
Standards Board ("FASB") Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation," an interpretation of APB No. 25.
The cost of stock-based compensation awards issued to non-employees for services
are recorded at either the fair value of the services rendered or of the
instruments issued in exchange for such services, whichever is more readily
determinable, using the measurement date guidelines enumerated in Emerging
Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."
9
The following table summarizes the pro forma operating results of the Company
had compensation expense for stock options granted to employees been determined
in accordance with the fair market value based method prescribed by SFAS No.
123. The Company has presented the following disclosures in accordance with SFAS
No. 148.
For the Three-Month Period Ended
June 30,
---------------------------------
2005 2004
------------- ------------
Net loss available to common stockholders $ (2,595,487) $ (886,096)
Adjust: Stock-based employee compensation
determined under the fair value method (15,485) -
------------- ------------
Pro forma net loss $ (2,610,972) $ (886,096)
============= ============
Net loss per share available to common stockholders:
Basic and diluted, as reported $ (0.22) $ (0.21)
Basic and diluted, pro forma $ (0.23) $ (0.21)
For the Six-Month Period Ended
June 30,
---------------------------------
2005 2004
------------- ------------
Net loss available to common stockholders $ (14,056,093) $ (8,196,769)
Adjust: Stock-based employee compensation
determined under the fair value method
(28,799) (5,497,358)
-------------- ------------
Pro forma net loss $ (14,084,892) $(13,694,127)
============== ============
Net loss per share available to common stockholders:
Basic and diluted, as reported $ (1.23) $ (2.02)
Basic and diluted, pro forma $ (1.24) $ (3.38)
The pro forma amounts that are disclosed in accordance with SFAS No. 123 reflect
the portion of the estimated fair value of awards that were earned for the
three-month and six-month periods ended June 30, 2005.
ACCOUNTING FOR WARRANTS ISSUED IN CONNECTION WITH SALE OF UNITS
The Company accounts for the issuance of common stock purchase warrants issued
in connection with sales of its Units in accordance with the provisions of EITF
Issue No. 00-19 "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock." Based on the provisions of EITF
Issue No. 00-19, the Company classifies as equity any contracts that (i) require
physical settlement or net-share settlement or (ii) gives the company a choice
of net-cash settlement or settlement in its own shares (physical settlement or
net-share settlement). The Company classifies as assets or liabilities any
contracts that (i) require net-cash settlement (including a requirement to
net-cash settle the contract if an event occurs and if that event is outside the
control of the Company) or (ii) give the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share
settlement).
NET (LOSS) PER SHARE
Net loss per share is presented under SFAS No. 128 "Earnings Per Share." Under
SFAS No. 128, basic net loss per share is computed by dividing net loss per
share available to common stockholders by the weighted average shares of common
stock outstanding for the period and excludes any potential dilution. Diluted
earnings per share reflect the potential dilution that would occur upon the
exercise or conversion of all dilutive securities into common stock. The
computation of loss per share for the three-month and six-month periods ended
June 30, 2005 excludes potentially dilutive securities because their inclusion
would be anti-dilutive.
10
Shares of common stock issuable upon the conversion or exercise of potentially
dilutive securities are as follows:
June 30,
--------------------------
2005 2004
----------- -----------
Series A Preferred Stock 3,826,500 -
Warrants 4,239,900 -
Options 607,695 3,031,943
Convertible Notes 1,269,171 -
----------- -----------
Total 9,943,266 3,031,943
=========== ===========
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This interpretation of Accounting
Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements," provides
guidance for identifying a controlling interest in a variable interest entity
("VIE") established by means other than voting interest. FIN 46 also required
consolidation of a VIE by an enterprise that holds such controlling interest. In
December 2003, the FASB completed its deliberations regarding the proposed
modifications to FIN 46 and issued Interpretation Number 46R, "Consolidation of
Variable Interest Entities - an Interpretation of ARB 51" ("FIN 46R"). The
decisions reached included a deferral of the effective date and provisions for
additional scope exceptions for certain types of variable interests. Application
of FIN 46R is required in financial statements of public entities that have
interests in VIEs or potential VIEs commonly referred to as special-purpose
entities for periods ending after December 15, 2003. Application by public small
business issuers' entities is required in all interim and annual financial
statements for periods ending after December 15, 2004.
The adoption of this pronouncement did not have an effect on the Company's
financial statements.
In December 2004, the FASB issued SFAS No. 123R, "Share Based Payment." This
statement is a revision of SFAS Statement No. 123, "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related implementation guidance. SFAS No. 123R addresses all
forms of share based payment ("SBP") awards including shares issued under
employee stock purchase plans, stock options, restricted stock and stock
appreciation rights. Under SFAS No. 123R, SBP awards result in a cost that will
be measured at fair value on the awards' grant date, based on the estimated
number of awards that are expected to vest and will result in a charge to
operations for stock-based compensation expense. SFAS No. 123R is effective for
public entities that file as small business issuers as of the beginning of the
first interim or annual reporting period that begins after December 15, 2005.
The Company is currently in the process of evaluating the effect that the
adoption of this pronouncement will have on its financial statements.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets." SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The provisions of SFAS No. 153 are effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005.
Earlier application is permitted for nonmonetary asset exchanges occurring in
fiscal periods beginning after December 16, 2004. The provisions of SFAS No. 153
should be applied prospectively.
The adoption of this pronouncement did not have an effect on the Company's
financial statements.
In EITF Issue No. 04-8, "The Effect of Contingently Convertible Instruments on
Diluted Earnings Per Share," the EITF reached a consensus that contingently
convertible instruments, such as contingently convertible debt, contingently
convertible preferred stock, and other such securities should be included in
diluted earnings per share (if dilutive) regardless of whether the market price
trigger has been met. The consensus is effective for reporting periods ending
after December 15, 2004.
11
The Company's adoption of this pronouncement did not have an effect on the
Company's financial statements.
NOTE 5 - PREPAID EXPENSES AND GRANT RECEIVABLE
Prepaid expenses and grant receivable principally consists of amounts due from
the National Institutes of Health for amounts expended by the Company for work
on its grant of approximately $82,000, unamortized premiums paid to carriers for
insurance policies, and the fair value of common stock and nonrefundable
retainer paid as compensation for ongoing financial consulting.
NOTE 6 - ACCRUED EXPENSES
Accrued expenses at June 30, 2005 are as follows:
Financial investor relations fees $ 288,278
Research expenses, miscellaneous 48,281
Clinical development expenses 116,593
Legal fees 42,875
Interest on convertible notes 50,151
---------
Total $ 546,178
=========
In connection with the sale of Units in a private placement, pursuant to the
placement agent agreement, the Company had agreed to spend up to 3% of the gross
proceeds from its private placement on financial and investor relations
activities, all of which was accrued and charged to additional paid-in capital
upon each closing of the private placement.
NOTE 7 - COMMON STOCK REPURCHASED UNDER VARIABLE SHARES PUT RIGHT AND SHARE
PURCHASE AGREEMENT
On January 27, 2004, the former shareholders of the Company received shares of
preferred stock of Xechem in connection with the merger of the Company into a
wholly-owned subsidiary of Xechem. Following the acquisition of the Company by
Xechem, the board of directors of Xechem determined that Xechem lacked the
resources to fully fund the development and regulatory approval process of the
Company's technology. As a result, the board of directors of Xechem determined
that it was in the best interest of Xechem's stockholders to effect a spin-off
of the Company from Xechem, providing the Company with an independent platform
to obtain financing and develop its technology. As a result the Company, Xechem,
and William Pursley, Chairman and CEO of the Company, entered into an agreement
dated March 31, 2004, as amended July 23, 2004 and November 17, 2004, (the
"Spinoff Agreement"), to provide for the separation of the Company from Xechem.
The Spinoff Agreement, as amended, provides for the Company to redeem, out of
the proceeds of future financing transactions, an aggregate of $2,000,000 of
shares of common stock of the Company held by Xechem (the "Variable Shares Put
Right"). Pursuant to the terms of the Variable Shares Put Right, the Company is
obligated to use the first 25% (adjusted to 10% of the proceeds from the
Company's private placement initiated in December 2004 and concluded in February
2005) of the gross proceeds received in such financing transactions to redeem an
equivalent number of shares of common stock held by Xechem, that is derived by
dividing such proceeds by the price per share of common stock of the Company at
which such financing transaction is consummated. If there is any remaining
Variable Shares Put Right on March 31, 2006, Xechem will have the right to put
the remaining portion of the shares held for sale back to the Company at $2.50
per share to cover any deficiency. Through February 11, 2005, the Company
redeemed 511,650 shares of its common stock for $1,279,125, which represents 10%
of the gross proceeds that the Company received from the sale of Units in the
private placement transactions that were initiated in December 2004 and
completed February 11, 2005.
On June 17, 2005, the Company entered into a Securities Purchase Agreement with
Xechem pursuant to which the Company repurchased 2,886,563 shares of common
stock from Xechem, for a purchase price of $2,309,250. As additional
consideration, William Pursley, the Company's Chairman and Chief Executive
Officer, agreed to surrender options to purchase 43,000,000 shares of common
stock of Xechem for which the Company recorded as a contribution to capital and
12
which was included in the cost of the treasury stock. Xechem retained 500,000
shares of common stock of the Company but agreed that it would only sell such
shares subject to the volume restrictions of Rule 144, regardless of whether or
not such volume limitations are applicable at the time of such sale.
Additionally, the Securities Purchase Agreement terminated the Spinoff
Agreement.
The Company accounted for its redemptions of the aforementioned shares as
treasury stock transactions, at cost. Effective June 17, 2005, the Company
retired the shares of common stock it held in treasury acquired under the
Variable Shares Put Right and purchased pursuant to the Securities Purchase
Agreement.
NOTE 8 - CONVERTIBLE NOTES
Pursuant to an offer dated October 22, 2004 as amended November 15, 2004, made
to the holders of the Company's convertible notes, the Company issued $1,111,240
of its convertible notes due December 8, 2005 which are convertible into shares
of the Company's common stock at $1.25 per share in amounts equal to the
outstanding principal under the notes cancelled, plus accrued interest at 10%
through the date of conversion (the "Convertible Notes"). Since the fair value
of the Company's common stock on the date of exchange was $2.50 per share, the
Company recorded an original issuance discount equal to the principal balance of
the notes, which represents the intrinsic value of this beneficial conversion
feature. The intrinsic value of the beneficial conversion feature was being
amortized as non-cash interest expense over the term of the Convertible Notes
through December 8, 2005. During the three-month and six-month periods ended
June 30, 2005, the Company amortized $32,116 and $254,460, respectively, of the
intrinsic value of the beneficial conversion feature which is included in
non-cash interest expense in the accompanying statement of operations.
In April 2005, the Company renegotiated certain terms of the Convertible Notes
(the "Amended Notes") to extend the maturity date until July 3, 2006. In
exchange the Company (1) increased the contractual interest rate on the Amended
Notes effective December 8, 2005 to 12% and (2) reduced the conversion rate to
$0.75 from $1.25 per share. In addition, the Company's right to call the Amended
Notes was eliminated. The Company accounted for the issuance of the Amended
Notes in accordance with the guidelines enumerated in EITF Issue No. 96-19
"Debtor's Accounting for a Modification or Exchange of Debt Instruments." EITF
96-19 provides that a substantial modification of terms in an existing debt
instrument should be accounted for like, and reported in the same manner as, an
extinguishment of debt. Further, EITF 96-19 indicates that the modification of a
debt instrument by a debtor and a creditor in a non-troubled debt situation is
deemed to have been accomplished with debt instruments that are substantially
different if the present value of the cash flows under the terms of the new debt
instrument is at least 10 percent different from the present value of the
remaining cash flows under the terms of the original instrument at the date of
the modification.
The Company evaluated its issuance of the Amended Notes to determine whether the
increase in interest rate, extension of the maturity date, and reduction in the
conversion price resulted in the issuance of a substantially different debt
instrument. The Company determined that after giving effect to the changes in
these features, including the substantial increase in the intrinsic value of the
beneficial conversion feature that resulted from reducing the conversion price
that it had issued a substantially different debt instrument that resulted in a
constructive extinguishment of the original debt instrument. Accordingly, the
Company recorded a gain on the extinguishment of debt in the amount of $311,281
that is included in the accompanying statements of operations for the
three-month and six-month periods ended June 30, 2005.
Since the fair value of the Company's common stock on the date of amendment was
$4.00 per share, the Company recorded an original issuance discount equal to the
intrinsic value of this beneficial conversion feature, limited to the principal
balance of the Amended Notes. The intrinsic value of the beneficial conversion
feature is being amortized as non-cash interest expense over the term of the
Amended Notes through July 3, 2006. During the three-month and six-month periods
ended June 30, 2005, the Company amortized $157,701 of the intrinsic value of
the beneficial conversion feature which is included in non-cash interest expense
in the accompanying statement of operations.
13
NOTE 9 - COMMITMENTS AND CONTINGENCIES
MANUFACTURING AND SUPPLY AGREEMENT
Effective April 11, 2005, the Company entered into an exclusive manufacture and
supply agreement to purchase its product requirements from Bachem. The Company
intends to use these clinical materials to conduct pre-clinical studies,
toxicology tests and initial human clinical trials during the next nine months.
The estimated cost of producing all of the materials that the Company will
require under the manufacture and supply agreement is approximately $7,000,000.
The agreement also provides for Bachem to receive royalty payments in the amount
of the lesser of 5% of "net sales" (as defined in the agreement) or $10 million,
$15 million or $25 million, in the first, second and third (and thereafter)
years of the agreement, respectively.
To date, the Company has made payments to Bachem in the aggregate of
approximately $1.9 million to fund the production of certain compounds for
initial pre-clinical and toxicology studies that are required steps in the
Company's drug validation process. The Company charged the aforementioned
payments to research and development expenses during the year ended December 31,
2004 (approximately $0.8 million) and the six-month period ended June 30, 2005
(approximately $1.1 million). Balances remaining on the purchase commitments
made through June 30, 2005 are approximately $2.8 million with terms calling for
payment through the quarter ending March 31, 2006.
NOTE 10 - EQUITY TRANSACTIONS
During the six-month period ended June 30, 2005, the Company issued the
following unregistered securities.
PRIVATE PLACEMENT
On January 5, 2005 and January 18, 2005 the Company held closings pursuant to
the terms of a Confidential Private Placement Memorandum dated October 22, 2004,
as supplemented November 16, 2004 and received gross proceeds of $1,208,750 and
$1,906,250, respectively, from the sale of 48.35 and 76.25 Units to 75 and 34
investors, respectively. On January 31, 2005 and February 3, 2005 the Company
held additional closings under the Private Placement and sold an aggregate of
224.48 Units to 86 investors and received gross proceeds of $5,612,000, and on
February 11, 2005 sold 17.50 Units to 4 investors and received gross proceeds of
$437,500. Each Unit consists of one share of Series A Preferred Stock and a
three-year warrant to purchase common stock, par value $0.0001 per share of the
Company at $2.50 per share. Each share of Series A Preferred Stock is
convertible into 10,000 shares of common stock and each warrant entitles the
holder to purchase 5,000 shares of common stock.
The Company issued warrants to purchase 1,832,900 shares of common stock as a
component of the Unit. The Company determined that the 366.58 shares of Series A
Preferred Stock issued during the quarter ended March 31, 2005, was issued with
an effective beneficial conversion feature for which it recorded deemed
dividends of $9,164,500 based upon an allocation of the proceeds to the relative
fair values of the Series A Preferred Stock and the warrants. The Company
calculated the fair value of the warrants using an option pricing model.
Pursuant to the placement agent agreement, the Company issued 150,000 shares of
common stock and warrants to purchase up to an aggregate of 366,580 shares of
common stock to the placement agent in connection with the private placement
transactions closed during the quarter ended March 31, 2005. Each warrant
entitles the placement agent to purchase the stated number of shares of common
stock at an exercise price of $1.25 per share and will expire five years after
its issue date.
The Company accounts for the issuance of common stock purchase warrants issued
in connection with sales of its Units in accordance with the provisions of EITF
Issue No. 00-19 "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock".
The Company issued the aforementioned warrants with registration rights which
provide, among other things, that the Company will file a registration statement
under the Securities Act on or before a date which is sixty days after the
closing time. The Company filed a "resale" registration statement with the
Securities and Exchange Commission on February 11, 2005, within the required
timeframe. Substantially all of the Company's warrants are exercisable by the
holders at any time irrespective of whether the registration statement has been
14
declared effective. In addition, the Company is not (and never is) precluded
from delivering unregistered stock to any warrant holder who elects to exercise
their warrants in the event that the Company's registration statement with
respect to the stock issuable pursuant to such warrants has not been declared
effective.
Since the Company (i) is not precluded from issuing unregistered shares in the
event of its failure to cause a registration statement to be declared effective,
(ii) is permitted to net share settle its warrants by issuing unregistered
shares, and (iii) has met all of the other criteria for equity classification
under EITF Issue No. 00-19, it has classified its warrants as equity
instruments.
COMMON STOCK ISSUED UPON CONVERSION OF SERIES A PREFERRED STOCK
During the six month period ended June 30, 2005, 1,290,000 shares of common
stock were issued upon conversion of 129 shares of Series A Preferred Stock.
ISSUANCES OF WARRANTS
On March 16, 2005, as a result of an amendment to the private placement to
increase the maximum offering amount to $12.0 million from $6.0 million, the
Company granted the original shareholders of Medallion Crest Management, Inc.
five-year warrants to purchase 925,000 shares of common stock at $1.25 per
share.
OPTIONS AND WARRANTS GRANTED PURSUANT TO 2004 INCENTIVE STOCK PLAN
During November 2004, the Company granted an option to an employee to purchase
shares of common stock in an amount equal to 1/2% of its common stock
outstanding upon the closing of the Company's private placement. Pursuant to the
terms of the 2004 Incentive Stock Plan under which these options were granted,
the options have an exercise price of $2.50 per share, the fair market value on
the date of grant and such options vest over four years. Upon completion of the
Company's private placement on February 11, 2005, the Company determined that
78,195 shares of common stock were subject to this option. The Company accounted
for this option using variable plan accounting in accordance with APB No. 25
since the number of shares of common stock subject to this option was not known
at the date of grant. Accordingly, the Company recorded deferred compensation of
$293,231 for the excess of the fair value of the common stock over the exercise
price of which $48,872 was amortized through June 30, 2005.
On February 10, 2005, the Company issued a fully-vested, non-forfeitable
five-year warrant to purchase 37,500 shares of its common stock at $6.50 per
share for 12,500 shares, $8.00 per share for 12,500 shares and $9.50 per share
for 12,500 shares, to an investor relations firm for services provided during
the three-month period ended March 31, 2005. The Company's common stock must
trade at or above $8.00 per share for ten consecutive days in order for the
holder to exercise their right to purchase the shares underlying the warrant. In
addition, if the Company's common stock trades at less than $0.67 per share, the
holder of the warrants may request a buyout of the warrant for a $10,000
payment. The Company recorded a $172,750 charge to operations for the fair value
of these warrants.
On February 11, 2005, the Company issued an option to purchase 12,000 shares of
its common stock for $6.25 per share to one of its directors pursuant to its
2004 Incentive Stock Plan. The right to exercise this option vests as to 25% on
the six-month anniversary of award, as to 25% on the one-year anniversary of
award and as to 25% on each of the two-year and three-year anniversaries of
award.
On March 7, 2005, the Company issued a three-year warrant to purchase 50,000
shares of its common stock at $4.75 per share to a financial relations firm for
services provided during March 2005. The Company recorded a $205,500 charge to
operations for the fair value of this warrant.
On March 7, 2005, the Company issued a three-year warrant to purchase 15,000
shares of its common stock at $5.00 per share to a financial relations firm for
services provided during March 2005. The Company recorded a $61,650 charge to
operations for the fair value of this warrant.
COMMON STOCK ISSUED UPON CASHLESS EXERCISE OF WARRANTS
On February 15, 2005, a warrant holder exercised their right to purchase 187,500
shares of the Company's common stock at $3.05 per share through a cashless
exercise whereby in exchange for the exercise price of $571,875, the Company
15
withheld from issuing 87,309 shares of common stock issuable upon exercise of
this warrant based upon a fair market value of $6.55 per share on the date of
exercise. Consequently, the Company issued 100,191 shares of common stock to the
warrant holder.
COMMON STOCK ISSUED IN PAYMENT OF LEGAL FEES
On January 10, 2005, as payment for $70,000 of certain legal fees in connection
with its private placement, the Company issued 23,000 shares of common stock to
its law firm.
COMMON STOCK ISSUED TO ADVISORS FOR PAST SERVICES
On February 11, 2005 the Company issued 2,500 shares of restricted common stock
to a former director and 5,000 shares of restricted common stock to a director
of the Company as compensation for past services to the Company. The Company
recorded a $46,875 charge to operations for the intrinsic value of these
restricted shares of common stock. The restrictions lapse six months from the
date of issuance.
COMMON STOCK ISSUED UPON EXERCISE OF WARRANTS
On March 15, 2005, the Company issued 5,000 shares of common stock upon exercise
of a warrant at an exercise price of $1.25 per share.
COMMON STOCK ISSUED FOR FINANCIAL SERVICES
Pursuant to a letter agreement dated May 20, 2005, the Company issued 25,000
shares of common stock as initial compensation for financial consulting services
to be provided the Company. The fair value of these shares, which amounts to
$75,000 at date of issuance, is characterized as a prepaid expense in the
accompanying balance sheet at June 30, 2005.
TREASURY SHARES ACQUIRED AND RETIRED
Pursuant to the Variable Shares Put Right obligation contained in the Spinoff
Agreement with Xechem, the Company repurchased 366,580 shares of its common
stock from Xechem during the three-month period ended March 31, 2005. In
addition, pursuant to a Securities Purchase Agreement entered into with Xechem
effective June 17, 2005, the Company repurchased 2,886,563 shares of its common
stock from Xechem. The Company accounted for these share repurchases as treasury
stock transactions, at cost. Xechem retained 500,000 shares of common stock of
the Company but agreed that it would only sell such shares subject to the volume
restrictions of Rule 144, regardless of whether or not such volume limitations
are applicable at the time of such sale. Additionally, the Securities Purchase
Agreement terminated the Spinoff Agreement.
Effective June 17, 2005, the Company retired all 3,398,213 shares of its common
stock held in treasury.
CONTINGENT CONSIDERATION
Pursuant to the terms of the acquisition of the Company by Xechem, Xechem agreed
to the future payment of additional consideration in shares of stock of Xechem
to the original shareholders of the Company upon the attainment of certain
defined development milestones. In connection with the Spinoff Agreement,
substantially all of the obligations for the issuance of shares as additional
consideration to the original shareholders of the Company have been assumed by
the Company, and Xechem has been released therefrom.
During the three-month period ended June 30, 2005, the Company obtained from
substantially all of the original shareholders a waiver of their rights with
respect to the contingent consideration and release of the Company from its
obligations there under. The Company agreed to the issuance of up to 100,000
shares of its common stock at fair market value to certain original shareholders
in connection with their releases.
NOTE 11 - SUBSEQUENT EVENTS
COMMON STOCK ISSUED UPON CONVERSION OF SERIES A PREFERRED STOCK
Subsequent to June 30, 2005, the Company issued 210,000 shares of common stock
upon conversion of 21 shares of Series A Preferred Stock.
16
LEGAL PROCEEDINGS
On July 26, 2005 Xmark Opportunity Fund, L.P. and Xmark Opportunity Fund, Ltd.
filed an action in the United States District Court for the Southern District of
New York (No. 05-CV-6696) against the Company and William Pursley, the Company's
Chief Executive Officer, alleging breach of contract, breach of the implied
covenant of good faith and fair dealing, detrimental reliance, and quantum
meruit/unjust enrichment related to the Company's registration of Common Stock
to be offered for sale by the plaintiffs and seeking damages under the
Securities Exchange Act of 1934, specific performance of plaintiff's
subscription agreement entered into in connection with the Company's private
placement of securities completed on February 11, 2005, damages in an
unspecified amount, punitive damages, interest, costs, and expenses. The Company
believes that the claims are without merit and intends to move for dismissal.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion of our plan of operation should be read in conjunction
with our Financial Statements and Notes thereto appearing elsewhere in this
document.
OVERVIEW
We are a development-stage biopharmaceutical company engaged in the discovery,
development, and commercialization of proprietary, cell-targeted therapeutic
products for the treatment of neuromuscular and neurodegenerative diseases with
a focus on orphan diseases. An orphan disease is defined in the United States as
a serious or life-threatening disease that affects less than 200,000 people and
for which no definitive therapy currently exists. We are seeking to create an
efficient orphan drug platform by taking advantage of the legislative,
regulatory and commercial opportunities common to these rare diseases. Our plan
of operation is to focus on developing and commercializing domestic orphan drug
candidates internally, while working to partner product development
opportunities for non-orphan drug candidates and foreign opportunities with
third parties. Presently our activities primarily include three proprietary
products, Myodur, Neurodur and C-301. In pre-clinical studies Myodur has
demonstrated efficacy in muscular dystrophy, Neurodur has demonstrated efficacy
in multiple sclerosis, and C-301 has demonstrated efficacy in epilepsy.
CAPITAL RESOURCES AND CASH REQUIREMENTS
In February 2005, we completed our private placement of an aggregate of
approximately $12.8 million of securities (approximately $9.2 million after
expenses of approximately $2.3 million and following the required repurchase of
common stock for approximately $1.3 million from our former parent as required
by our spinoff agreement) through the sale of 511.65 Units at $25,000 per unit,
with each Unit consisting of one share of Series A Preferred Stock and a
detachable transferable, three-year warrant to purchase shares of common stock.
Each share of Series A Preferred Stock is convertible initially into 10,000
shares of common stock at any time. The Unit warrants entitled the holder to
purchase 5,000 shares of common stock during the three-year period after the
date of issuance, at an exercise price of $2.50 per share.
In addition to 511,650 shares of Common Stock repurchased from Xechem pursuant
to our spinoff agreement for approximately $1.3 million, on June 17, 2005 we
elected to repurchase an additional 2,886,563 shares from Xechem for
approximately $2.3 million which reduced the number of shares issued and
outstanding at a per share price significantly below market value.
In April 2005 we entered into a manufacture and supply agreement to provide
materials for both our pre-clinical and toxicology studies and to initiate our
human clinical trials for our proposed product, Myodur, to treat muscular
dystrophy. We do not anticipate that we will have sufficient capital to purchase
materials necessary to continue our long-term toxicology studies or to complete
our initial human clinical trials for Myodur currently expected to commence in
2006. In addition, our planned activities for the foreseeable future will
require us to engage additional consultants and contract research organizations
to support our clinical development programs, and additional personnel,
including management, with expertise in areas such as preclinical testing,
clinical trial design and management, regulatory affairs, manufacturing and
marketing. We will need to raise substantial additional capital for these
purposes and to continue funding the development of Myodur and our other
17
products. In the absence of the availability of financing from additional sales
of our securities on a timely basis, we could be forced to materially curtail,
limit, or cease our operations.
After giving effect to our repurchase of shares of Common Stock from Xechem and
the additional commitments associated with our planned activities, our current
capital resources are not sufficient to allow us to execute our development
plans without raising substantial additional funds. These matters raise
substantial doubt about our ability to continue as a going concern.
RESEARCH, DEVELOPMENT, AND MANUFACTURING
Currently our primary efforts are moving our lead product, Myodur, into phase
I/II clinical trials for Duchenne's muscular dystrophy. We plan to use our
available cash to continue the pre-clinical development of our technologies,
which primarily includes the manufacture of Myodur, conducting pre-clinical
tests and toxicology studies, compiling, drafting and submitting an IND for
Myodur, and preparing for initiation of Phase I/II human clinical trials in
2006, if approved by the Food and Drug Administration ("FDA"). As resources
permit, we may also fund other working capital needs. We presently expect to
file our investigational new drug application ("IND") for Myodur before the end
of 2005, and initiate our human clinical trials during the first quarter of
2006.
We do not have, and do not intend to establish, our own manufacturing facilities
to produce ours product candidates in the near or mid-term. We outsourced the
manufacturing of our proposed product, Myodur, to contract manufacturers.
Following placement of an initial purchase order for product during the end of
2004, the Company learned that the quantity and delivery time of clinical
materials required would cause the manufacturing costs of its proposed product
to exceed initial estimates. As a result of discussions with its manufacturer
during the latter part of the first quarter of 2005, the Company has increased
its anticipated capital requirements that will need to be devoted to
manufacturing of its proposed product. On April 18, 2005, we entered into an
exclusive manufacture and supply agreement with Bachem AG ("Bachem") whereby
Bachem is, in addition to cash payments, entitled to receive royalty payments in
the amount of the lesser of 5% of "net sales" (as defined in the agreement) or
$10 million, $15 million or $25 million in the first, second and third (and
thereafter) years of the agreement, respectively. During the six month period
ended June 30, 2005, we paid approximately $1.1 million to Bachem and others for
the proposed product and related materials and as of June 30, 2005, we have
purchase commitments over the next nine months of an additional $3.8 million for
the manufacturer and delivery of product materials required for our pre-clinical
and toxicology programs and initial clinical trials. We expect to continue to
incur significant expenditures for the foreseeable future to manufacture our
proposed product Myodur.
We have also incurred expenses to initiate and expand our pre-clinical and
toxicology programs. We anticipate spending an additional $3.1 million for
ongoing and additional pre-clinical and toxicology studies and consulting
support through 2005.
EMPLOYEES
As of August 11, 2005, we had ten full-time employees, all of whom are full-time
employees, one of whom focuses on and coordinates our research program, five
that focus on and coordinate clinical and regulatory strategy and operations,
one in business and corporate development, and three in management, finance, and
administration. Three of our employees have doctorate and/or M.D. degrees. As
our current business strategy is primarily to coordinate research, clinical
developments, and manufacturing activities by third parties, we do not
anticipate hiring a significant number of additional employees over the next
twelve months.
PROPERTIES
We currently lease our executive offices in Hunt Valley, Maryland consisting of
approximately 5,200 square feet for approximately $6,500 per month, subject to a
3% annual rent escalation clause. This lease expires on December 31, 2006 and we
believe it should provide sufficient space for our clinical, regulatory, and
other administrative functions during the remaining term of the lease.
18
We plan to expand and secure laboratory facilities for our own internal research
activities. Suitable laboratory facilities have been identified and efforts are
underway to negotiate the lease and purchase of research equipment necessary to
continue our internal research activities. We are currently conducting research
in various academic settings, primarily at the State University of New York at
Stony Brook and the Health Science Center at Downstate Medical Center. Our plans
include continuing this practice in addition to expanding the use of third-party
research organizations and facilities to meet specific needs.
ITEM 3. CONTROLS AND PROCEDURES.
EVALUATION OF OUR DISCLOSURE CONTROLS AND INTERNAL CONTROLS
As of the end of the period covered by this Report, we carried out an evaluation
of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Securities Exchange Act of 1934 Rule 13-d-15(e) and
15d-15(e)). Based upon that evaluation and management's assessment of the
potential effects of the material weakness described below, our Chief Executive
Officer and Senior Vice President, Finance and Administration, concluded that as
of the end of the period covered by this Report, our disclosure controls and
procedures were adequate to enable us to record, process, summarize and report
information required to be included in our periodic SEC filings within the
required time period.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS
Disclosure controls are procedures that are designed with the objective of
ensuring that information required to be disclosed in our reports filed under
the Securities Exchange Act of 1934, as amended, such as this Report, is
recorded, processed, summarized, and reported within the time periods specified
in the SEC's rules and forms. Disclosure controls are also designed with the
objective of ensuring that such information is accumulated and communicated to
our management, including our Chief Executive Officer and Senior Vice President,
Finance and Administration, as appropriate, to allow timely decisions regarding
required disclosure. Internal controls are procedures which are designed with
the objective of providing reasonable assurance that our transactions are
properly authorized, recorded, and reported and our assets are safeguarded
against unauthorized or improper use, and to permit the preparation of our
financial statements in conformity with generally accepted accounting
principles.
Our company is not an "accelerated filer" (as defined in the Exchange Act) and
is not required to deliver management's report on control over our financial
reporting until our fiscal year ended December 31, 2006. Nevertheless, we
identified certain matters that would constitute material weakness (as such term
is defined under the Public Company Accounting Oversight Board Auditing Standard
No. 2) in our internal controls over financial reporting.
The first material weakness we identified relates to our limited segregation of
duties. Segregation of duties within our company is limited due to the small
number of employees that are assigned to positions that involve the processing
of financial information. This condition constitutes a material weakness in our
financial reporting system.
We believe any such risks are partially mitigated by the fact that our research
and development expenditures (which are significant to the business) and certain
other general and administrative-related expenditures are reviewed and approved
by employees who are knowledgeable of those matters. However, we acknowledge
that additional control procedures are necessary with respect to all
expenditures in order to ensure that our transactions are properly recorded.
Accordingly, we are currently evaluating what additional procedures may be
instituted to mitigate the risks associated with having a limited segregation of
duties. Such additional procedures may include, but not necessarily be limited
to, requiring dual approval of all expenditures by our Chief Executive Officer,
Senior Vice President, Finance and Administration, and/or applicable department
heads, and two authorized signatures with respect to expenditures in excess of
defined dollar amounts.
Although we are aware that segregation of duties within our company is limited,
we believe (based on our current roster of employees and certain control
mechanisms we do have in place), that the risks associated with having limited
19
segregation of duties are currently insignificant. Under these circumstances we
do not believe that at this time, it would be prudent for us to further
constrain our liquidity by allocating resources to hiring additional employees
as a corrective measure because the costs of increasing our staff (solely for
this purpose) exceeds the potential reduction in risk. We will periodically
reevaluate this situation to determine if these circumstances change. If the
situation changes and sufficient capital is secured, it is our intention to
increase staffing within our general administrative and financial functions.
The second material weakness we identified is in our ability to ensure that the
accounting for our equity-based transactions is accurate and complete. During
the year ended December 31, 2004 and the quarter ended March 31, 2005, we
consummated a series of complex equity transactions involving the application of
highly specialized accounting principles. The equity-based transactions that we
consummated during those periods specifically related to unique events including
our spin-off from Xechem, reverse merger with Medallion, settlement of certain
litigation, exchanges and conversions of notes for stock, and private placement
of preferred stock with detachable common stock purchase warrants. Although we
believe that these events are unique and that our equity-based transactions in
the future are likely to be substantially reduced, we are evaluating certain
corrective measures we may take including the possibility of hiring an outside
consultant to provide us with the guidance we need at such times that we may
engage in equity-based transactions.
We believe that, for the reasons described above, we will be able to improve our
disclosure controls and procedures and remedy the material weaknesses identified
above.
There have been no changes in our internal controls over financial reporting
during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 26, 2005 Xmark Opportunity Fund, L.P. and Xmark Opportunity Fund, Ltd.
filed an action in the United States District Court for the Southern District of
New York (No. 05-CV-6696) against our company and William Pursley, our Chief
Executive Officer, alleging breach of contract, breach of the implied covenant
of good faith and fair dealing, detrimental reliance, and quantum meruit/unjust
enrichment related to our registration of Common Stock to be offered for sale by
the plaintiffs and seeking damages under the Securities Exchange Act of 1934,
specific performance of plaintiff's subscription agreement entered into in
connection with our private placement of securities completed on February 11,
2005, damages in an unspecified amount, punitive damages, interest, costs, and
expenses. We believe that the claims are without merit and intend to move for
dismissal.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the period covered by this Report, we have not issued unregistered
securities which have not been "previously reported" as defined in Rule 12b-2 of
the Exchange Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains forward-looking statements (as
defined in Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934 (the "Exchange Act"). To the extent that any statements
made in this Report contain information that is not historical, these statements
are essentially forward-looking. Forward-looking statements can be identified by
the use of words such as "expects," "plans" "will," "may," "anticipates,"
believes," "should," "intends," "estimates," and other words of similar meaning.
These statements are subject to risks and uncertainties that cannot be predicted
or quantified and consequently, actual results may differ materially from those
20
expressed or implied by such forward-looking statements. Such risks and
uncertainties include, without limitation, our ability to raise capital to
finance the development of our products, the effectiveness, profitability and
the marketability of those products, our ability to protect our proprietary
information, general economic and business conditions, the impact of
technological developments and competition, including entry of newly-developed
alternative drug technologies, our expectations and estimates concerning future
financial performance and financing plans, adverse results of any legal
proceedings, the impact of current, pending or future legislation and regulation
on the healthcare industry, our ability to satisfy government and commercial
customers using our technology, our ability to develop manufacturing
capabilities or the inability to enter into acceptable relationships with one or
more contract manufacturers for our products and key components and the ability
of such contract manufacturers to manufacture products or components of an
acceptable quality on a cost-effective basis, the volatility of our operating
results and financial condition, our ability to attract or retain qualified
senior management personnel, including sales and marketing and scientific
personnel and other risks detailed from time to time in our filings with the
SEC. We do not undertake any obligation to publicly update any forward-looking
statements. As a result, you should not place undue reliance on these
forward-looking statements.
We also use market data and industry forecasts and projections throughout this
prospectus, which we have obtained from market research, publicly available
information and industry publications. These sources generally state that the
information they provide has been obtained from sources believed to be reliable,
but that the accuracy and completeness of the information are not guaranteed.
The forecasts and projections are based on industry surveys and the preparers'
experience in the industry, and the projected amounts may not be achieved.
Similarly, although we believe that the surveys and market research others have
performed are reliable, we have not independently verified this information.
Forecasts and other forward-looking information obtained from these sources are
subject to the same qualifications and the additional uncertainties accompanying
any estimates of future market size, revenue and market acceptance of products
and services.
ITEM 6. EXHIBITS
Exhibit
Number Description
------- -----------
2.1 Certificate of Ownership and Merger of CepTor Corporation into
CepTor Research and Development Company (incorporated by
reference herein to Exhibit 2.1 to the Company's Current Report
on Form 8-K dated January 31, 2005 (the "January 2005 8-K"))
3.1 Amended and Restated Certificate of Incorporation, dated January
27, 2005 (incorporated herein by reference to Exhibit 3.1 to the
January 2005 8-K)
3.2 Certificate of Correction to Amended and Restated Certificate of
Incorporation (incorporated herein by reference to Exhibit 3.1 to
the Company's Current Report on Form 8-K, dated February 10,
2005)
3.3 Amended and Restated By-laws (incorporated herein by reference to
Exhibit 3.2 to the January 2005 8-K)
4.1 Form of Common Stock Certificate (incorporated herein by
reference to Exhibit 4.1 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2004 (the "2004
10-KSB"))
4.2 CepTor Agreement, dated March 31, 2004 (the "CepTor Agreement"),
by and among William Pursley, Xechem and the Company
(incorporated herein by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K, dated December 9, 2004 (the "2004
Form 8-K"))
4.3 First Amendment to CepTor Agreement effective April 23, 2004, by
and among William Pursley, the Company and Xechem (incorporated
herein by reference to Exhibit 4.2 to the 2004 8-K)
4.4 Second Amendment to CepTor Agreement, dated December 9, 2004, by
and among William Pursley, the Company and Xechem (incorporated
by reference to Exhibit 4.3 to the 2004 8-K)
4.6 Form of Unit Warrant (incorporated by reference to Exhibit 4.4 to
the Company's Registration Statement on Form SB-2 as filed with
the SEC on February 11, 2005 (the "Form SB-2"))
21
4.7 Form of Amended and Restated Convertible Promissory Note
(incorporated herein by reference to Exhibit 4.7 to the 2004
10-KSB)
4.9 Form of Subscription Agreement (incorporated herein by reference
to Exhibit 4.6 to the Form SB-2)
4.10 Securities Purchase Agreement, dated June 17, 2005 by and between
the Company, Xechem and William Pursley (incorporated herein by
reference to Exhibit 99.01 to the Company's Current Report on
Form 8-K filed on June 20, 2005)
10.1 Employment Agreement, dated March 31, 2004, by and between
William H. Pursley and the Company (incorporated herein by
reference to Exhibit 10.1 to the Form SB-2)
10.2 Employment Agreement, dated April 26, 2004, by and between Norman
A. Barton, M.D., Ph.D. and the Company (incorporated herein by
reference to Exhibit 10.2 to the Form SB-2)
10.3 Employment Agreement, dated March 31, 2004, by and between Donald
W. Fallon and the Company (incorporated herein by reference to
Exhibit 10.3 to the Form SB-2)
10.5 Amended and Restated Founders' Plan (incorporated herein by
reference to Exhibit 10.5 to the 2004 10-KSB)
10.6 2004 Incentive Stock Plan (incorporated herein by reference to
Exhibit 10.6 to Form SB-2)
10.7 Deferred Stock Plan for Non-Employee Directors under the 2004
Incentive Stock Plan (incorporated herein by reference to Exhibit
10.7 to the 2004 10-KSB)
10.8 Sublease Agreement, dated March 4, 2004, by and between the
Company and Millennium Inorganic Chemicals, Inc. (incorporated
herein by reference to Exhibit 10.7 to the Form SB-2)
10.9 Exclusive License Agreement, dated September 15, 2004, between
the Company and JCR Pharmaceuticals Company, Ltd. (incorporated
herein by reference to Exhibit 10.8 to the Form SB-2)
10.10 Indemnification Agreement, dated June 1, 2004, by and between
William Pursley and the Company (incorporated herein by reference
to Exhibit 10.9 to the Form SB-2)
10.11 Indemnification Agreement, dated June 1, 2004, by and between
Norman W. Barton and the Company (incorporated herein by
reference to Exhibit 10.10 to the Form SB-2)
10.12 Indemnification Agreement, dated June 1, 2004, by and between
Donald W. Fallon and the Company (incorporated herein by
reference to Exhibit 10.11 to the Form SB-2)
10.13 Indemnification Agreement, dated June 1, 2004, by and between
Leonard Mudry and the Company (incorporated herein by reference
to Exhibit 10.12 to the Form SB-2)
10.14 Manufacture and Supply Agreement entered into as of April 18,
2005 by and among Peninsula Laboratories Inc., Bachem AG, Bachem
Americas and the Company (incorporated by reference herein to
Exhibit 10.14 to the Company's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 2005)
31.1* Section 302 Certification of Principal Executive Officer
31.2* Section 302 Certification of Principal Financial Officer
32.1* Section 906 Certification of Principal Executive Officer
32.2* Section 906 Certification of Principal Financial Officer
-----------------
* Filed herewith.
22
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.
CEPTOR CORPORATION
Dated: August 12, 2005 By: /s/ William H. Pursley
-----------------------------------------
William H. Pursley
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: August 12, 2005 By: /s/ Donald W. Fallon
-----------------------------------------
Donald W. Fallon
Chief Financial Officer, Senior Vice
President, Finance and Administration
and Secretary (Principal Financial Officer
and Principal Accounting Officer)
23