UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] Amendment No. 1 to quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2001
[_] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _____ to _____
Commission file number 000-32877
PRO-PHARMACEUTICALS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 04-3562325
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
189 Wells Avenue, Suite 200, Newton, Massachusetts 02459
(Address of principal executive offices)
(617) 559-0033
(Issuer's telephone number)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes [_] No [_]
NOT APPLICABLE
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: The total number of shares of Common
Stock, par value $0.001 per share, outstanding as of September 30, 2001, was
14,727,226.
Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]
This amendment on Form 10-QSB of Pro-Pharmaceuticals, Inc. incorporates certain
revisions to historical financial data and related descriptions but is not
intended to update other information presented in this report as originally
filed, except where specifically noted. The amendment reflects the restatement
of the Registrant's condensed consolidated financial statements for the three
and six months ended September 30, 2001 included in its Form 10-QSB filed on
November 14, 2001. See note 10 to our financial statements for detailed
discussion of the matter.
TABLE OF CONTENTS
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements..............................................1
Review Report of Independent Accountants.......................1
Balance Sheets (As Restated)...................................2
Statements of Operations (As Restated).........................4
Statement of Changes in Stockholders' Equity
(As Restated).................................................5
Statements of Cash Flows (As Restated).........................6
Notes to Financial Statements (As Restated)....................8
Item 2. Plan of Operation................................................15
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings................................................21
Item 2. Changes in Securities............................................21
Item 3. Defaults Upon Senior Securities..................................21
Item 4. Submission of Matters to a Vote of Security Holders..............21
Item 5 Other Information................................................21
Item 6. Exhibits and Reports on Form 8-K.................................22
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
And Shareholders of
Pro-Pharmaceuticals, Inc.
Newton, Massachusetts
We have reviewed the accompanying balance sheets of Pro-Pharmaceuticals, Inc. as
of September 30, 2001 and the related statements of operations, changes in
deficiency in assets, and cash flows for the three and nine-month periods then
ended and for the period from inception (July 10, 2000) through September 30,
2001. These financial statements are the responsibility of the Corporation's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such financial statements for them to be in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, certain conditions raise
substantial doubt about the Corporation's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
that note.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Pro-Pharmaceuticals, Inc. and subsidiaries as of
December 31, 2000, and the related statements of operations, changes in
deficiency in assets and cash flows for the year then ended (not presented
herein); and in our report dated December 4, 2001, except as to Note 7, as to
which the date is April 10, 2002, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying balance sheet as of December 31, 2000 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
/s/ Scillia Dowling & Natarelli LLC
Scillia Dowling & Natarelli LLC
Hartford, Connecticut
October 30, 2001, except for Note 1 as to which the date is April 10, 2002
1
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
BALANCE SHEETS (AS RESTATED)
September 30, December 31,
2001 2000
----------- -----------
(unaudited) (As Restated)
(As Restated)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 865,913 $ 204,745
Other current assets 2,228 --
----------- -----------
868,141 204,745
----------- -----------
PROPERTY AND EQUIPMENT, at cost 96,800 --
Less accumulated depreciation (2,572) --
----------- -----------
94,228 --
----------- -----------
OTHER ASSETS
Patent 47,345 8,695
Contractual rights 107,000 --
Debt issuance costs, net of accumulated
amortization of $8,583 and $0 at June 30, 2001
and December 31, 2000, respectively 5,000 14,500
Deposit 48,883 --
----------- -----------
208,228 23,195
----------- -----------
$ 1,170,597 $ 227,940
=========== ===========
2
September 30, December 31,
2001 2000
----------- -----------
(unaudited) (As Restated)
(As Restated)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 290,317 $ 79,129
Accrued expenses 189,690 23,238
Other current liabilities 10,029 --
----------- -----------
Total current liabilities 490,036 102,367
CONVERTIBLE NOTES PAYABLE ,
net of discount of $0 and $205,255 at
September 30, 2001 and December 31, 2001,
respectively 195,000 79,245
----------- -----------
Total liabilities 685,036 181,612
----------- -----------
STOCKHOLDERS' EQUITY
Common voting shares, $0.001 par value,
100,000,000 shares authorized,
13,576,560 and 12,354,670 shares
issued and outstanding at September 30, 2001
and December 31, 2000, respectively 14,728 12,355
Undesignated shares, $0.01 par value,
5,000,000 shares authorized, none issued -- --
Private placement units of common
stock and warrants 883,200 --
Private placement units subscription receivable (73,500)
Additional paid-in capital 3,042,391 221,910
Deficit accumulated during development stage (3,381,258) (187,937)
----------- -----------
485,561 46,328
----------- -----------
$ 1,170,597 $ 227,940
=========== ===========
See notes to financial statements. 3
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
STATEMENTS OF OPERATIONS (AS RESTATED)
Period from
Inception
For the Three For the Nine (July 10, 2000)
Months Ended Months Ended through
September 30, 2001 September 30, 2001 September 30, 2001
------------------ ------------------ ------------------
(unaudited) (unaudited) (unaudited)
(As Restated) (As Restated) (As Restated)
REVENUE $ -- $ -- $ --
------------ ------------ ------------
RESEARCH AND DEVELOPMENT
Consulting fees and salaries 248,295 339,146 430,396
Laboratory fees 86,140 150,830 159,830
------------ ------------ ------------
334,435 489,976 590,226
------------ ------------ ------------
GENERAL AND ADMINISTRATIVE
Legal fees 2,108 221,478 228,127
Consulting fees 50,036 133,365 172,115
Salaries 84,501 130,335 130,335
Accounting fees 24,230 113,746 121,246
Office expenses 3,393 71,856 77,627
Marketing 28,575 54,962 54,962
Rent 27,781 40,941 40,941
Travel and entertainment 8,670 27,179 30,909
Payroll taxes and benefits 16,111 24,599 24,599
Miscellaneous 16,507 17,697 17,697
Depreciation and amortization 23,870 33,572 33,572
Telephone and utilities 9,914 14,637 18,937
Repairs and maintenance 3,501 12,032 12,032
Contributions -- 5,100 5,100
Insurance 2,140 2,490 2,490
------------ ------------ ------------
301,337 903,989 970,689
------------ ------------ ------------
NET LOSS FROM
OPERATIONS (635,772) (1,393,965) (1,560,915)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 4,326 16,992 17,253
Interest expense (557,864) (1,816,348) (1,834,241)
Amortization debt discount -- -- --
------------ ------------ ------------
(553,538) (1,799,356) (1,816,988)
------------ ------------ ------------
NET LOSS $ (1,189,310) $ (3,193,321) $ (3,377,903)
============ ============ ============
LOSS PER SHARE
Basic and diluted $ (0.09) $ (0.24)
============ ============
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 13,883,404 13,072,422
============ ============
See notes to financial statements. 4
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (AS RESTATED)
Private Private
Placement Placement
Units of Units
Common Voting Shares Common Common
------------------------- Stock and Subscription
Shares Amount Warrants Receivable
----------- ----------- ----------- -----------
Issuance of Common Stock of
Pro-Pharmaceuticals, Inc. 12,354,670 $ 12,355 $ -- $ --
Beneficial conversion feature
& Common Share Grants
embedded in convertible notes -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 2000 12,354,670 12,355 -- --
Beneficial conversion feature
& Common Share Grants
embedded in convertible notes -- -- -- --
Issuance of Stock to Acquire
Contractual Rights, and
Payment of Stock
Subscription Receivable 1,221,890 1,222 -- --
Sale of Private Placement
Units, beginning June 2001 -- -- 883,200 (73,500)
Warrants issued to induce
conversion of notes payable -- --
Conversion of Notes Payable 1,150,666 1,151 -- --
to common stock
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at September 30, 2001
(unaudited) 14,727,226 $ 14,728 $ 883,200 $ (73,500)
=========== =========== =========== ===========
Deficit
Accumulated
Additional in the
Paid-in Development Stockholders'
Capital Stage Equity
----------- ----------- -----------
Issuance of Common Stock of
Pro-Pharmaceuticals, Inc. $ -- $ (3,355) $ 9,000
Beneficial conversion feature
& Common Share Grants
embedded in convertible notes 106,778 -- 221,910
Net loss -- (184,582) (184,582)
----------- ----------- -----------
Balance at December 31, 2000 221,910 (184,582) 46,328
Beneficial conversion feature
& Common Share Grants
embedded in convertible notes 1,026,102 -- 1,026,102
Issuance of Stock to Acquire
Contractual Rights, and
Payment of Stock
Subscription Receivable 106,778 -- 108,000
Sale of Private Placement
Units, beginning June 2001 -- -- 809,700
Warrants issued to induce
conversion of notes payable 503,019 -- 503,019
Conversion of Notes Payable 1,184,582 -- 1,185,733
to common stock
Net loss -- (3,193,321) (3,193,321)
----------- ----------- -----------
Balance at September 30, 2001
(unaudited) $ 3,042,391 $(3,381,258) $ 485,561
=========== =========== ===========
See notes to financial statements. 5
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS (AS RESTATED)
Period from
Inception
For the Three For the Nine (July 10, 2000)
Months Ended Months Ended through
September 30, 2001 September 30, 2001 September 30, 2001
------------------ ------------------ ------------------
(unaudited) (unaudited) (unaudited)
(As Restated) (As Restated) (As Restated)
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(1,189,310) $(3,193,321) $(3,377,903)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 23,600 33,572 33,572
Non cash interest expense 503,019 1,734,376 1,751,031
Changes in assets and liabilities:
Debt issuance cost (819) (2,228) (2,228)
Accounts payable 250,544 436,300 515,139
Accrued expenses (2,601) -- --
----------- ----------- -----------
Net cash used in
operating activities (415,567) (991,301) (1,080,389)
----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Patent costs (38,650) (38,650) (47,345)
Deposit (21,933) (48,883) (48,883)
Purchase of property,
plant and equipment (80,988) (96,800) (96,800)
----------- ----------- -----------
Net cash used in
investing activities (141,571) (184,333) (193,028)
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from the sale
of private placement units 676,700 809,700 809,700
Proceeds from the issuance
of common stock -- -- 9,000
Proceeds from convertible
notes payable -- 1,026,102 1,310,602
Increase in due to Stockholder -- -- 9,028
Cash received from stock
subscription receivable -- 1,000 1,000
----------- ----------- -----------
Net cash provided by
financing activities 676,700 1,836,802 2,139,330
----------- ----------- -----------
NET INCREASE IN CASH 119,562 661,168 865,913
----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, Beginning 746,351 204,745 --
----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, Ending $ 865,913 $ 865,913 $ 865,913
=========== =========== ===========
See notes to financial statements 6
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- OPERATIONS
Nature of Operations
Pro-Pharmaceuticals, Inc. (the "Company") was established in July 2000. The
Company is in the development stage and is engaged in developing technology that
will reduce toxicity and improve the efficacy of currently existing chemotherapy
drugs by combining the drugs with a number of specific carbohydrate compounds.
The carbohydrate-based drug delivery system may also have applications for drugs
now used to treat other diseases and chronic health conditions.
The Company is devoting substantially all of its efforts toward product research
and development and raising capital. Its product candidates are still in the
research and development stage, with none yet in clinical trials. The Company is
subject to a number of risks similar to those of other development-stage
companies, including dependence on key individuals, uncertainty of product
development and generation of revenues, dependence on outside sources of
capital, risks associated with clinical trials of products, dependence on
third-party collaborators for research operations, lack of experience in
clinical trials, need for regulatory approval of products, risks associated with
protection of intellectual property, and competition with larger,
better-capitalized companies. To date, the Company has raised capital
principally through the issuance of convertible notes and the sale of common
stock through a private placement.
The Company's financial statements have been presented on a going-concern basis,
which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business. The Company is in the development stage, has
incurred a net loss since inception of $3,377,903 and expects to incur
additional losses in the near future. Successful completion of the Company's
development program and, ultimately, the attainment of profitable operations is
dependent upon future events, including maintaining adequate financing to
fulfill its development activities and achieving a level of sales adequate to
support the Company's cost structure. The Company is actively seeking additional
financing to fund future operations and future significant investments in the
business. However, there can be no assurance that the Company will be able to
obtain financing on acceptable terms, or at all.
7
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Reverse Merger Transaction
On May 15, 2001, Pro-Pharmaceuticals, Inc., a Nevada corporation organized in
January 2001 and formerly known as DTR-Med Pharma Corp.
("Pro-Pharmaceuticals-NV"), issued 12,354,670 shares of its common stock to the
stockholders of Pro-Pharmaceuticals, Inc., a Massachusetts corporation organized
in July 2000 ("Pro-Pharmaceuticals-MA"), in exchange for all of the outstanding
shares of the common stock of Pro-Pharmaceuticals-MA. Such exchange diluted the
ownership percentage of the prior Pro-Pharmaceuticals-NV stockholders to
approximately 9% and resulted in the prior stockholders of
Pro-Pharmaceuticals-MA owning approximately 91% of Pro-Pharmaceuticals-NV's
outstanding shares. Following the exchange of stock, Pro-Pharmaceuticals-MA, as
a wholly owned subsidiary, merged with Pro-Pharmaceuticals-NV, which is the
surviving corporation in the merger.
At the time of the merger, the common shares issued to the stockholders of
Pro-Pharmaceuticals-NV represented a majority of the Company's common stock,
enabling them to retain voting and operating control of the Company. The merger
was treated as a capital transaction and was accounted for as a reverse merger
in which Pro-Pharmaceuticals-MA was the accounting acquirer. The historical
results presented are those of Pro-Pharmaceuticals-MA, the accounting acquirer.
Information concerning common stock in 2000 has been restated on an
equivalent-share basis.
NOTE 2 -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month and nine
month periods ended September 30, 2001, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001. For further
information, refer to the financial statements and footnotes which were filed
with the Securities and Exchange Commission by the Company in a registration
statement on Form 10-SB (General Form for Registration of Securities of Small
Business Issuers) (File No. 000-32877), which registration became effective as
of August 13, 2001.
8
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 -- NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 141
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations (SFAS 141). This
statement addresses financial accounting and reporting for business combinations
and supersedes APB Opinion No. 16 Business Combinations, and FASB Statement No.
38, Accounting for Preacquisition Contingencies of Purchased Enterprises. All
business combinations in the scope of this statement are to be accounted for
using one method, the purchase method.
Statement of Financial Accounting Standards No. 142
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS 142). Upon adoption of SFAS 142, intangible assets with finite lives will
be amortized over those lives and assets with infinite lives will be tested for
impairment at least annually.
NOTE 4 -- PRIVATE PLACEMENT
The Company began on May 25, 2001, a private placement of securities exempt from
registration pursuant to Rule 506 of Regulation D of the Securities Act of 1933
in order to raise $5,145,000. The securities consist of 1,470,000 units offered
at $3.50 each of one share of its common stock and one four-year warrant
exercisable at $6.50 to purchase one share of common stock. The warrant is
subject, following written notice, to acceleration if either (i) the Company
files a "New Drug Application" with the Food and Drug Administration; or (ii)
the Company's stock is listed on an exchange and its closing price exceeds
$11.00 on any 10 trading days within a period of 20 consecutive trading days, or
if the Company's stock is quoted on the NASDAQ National Market System or Small
Cap Market, or over-the-counter, and the average of the closing bid and asked
prices thereon exceeds $11.00 on any 10 trading days within a period of 20
consecutive trading days.
As of September 30, 2001, the Company had received proceeds of $809,700 from the
sale of the securities offered in the private placement representing 250,400
units. Such purchases will result in the Company issuing 250,400 shares of
common stock and warrants to purchase 250,400 shares of its common stock. In
addition, the Company has a subscription receivable totaling $73,000 which would
result in the sale of the securities offered in the private placement
representing approximately 21,000 units. Such purchases will result in the
Company issuing 21,000 shares of common stock and warrants to purchase 21,000
shares of its common stock.
9
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 -- WARRANTS
As part of the Private Placement the Company issued 339,200 and 550,100 warrants
to purchase common stock at $6.50 and $5.00 per share, respectively. All of the
warrants are exercisable immediately and expire through December 2005. The
Company, upon giving written notice, may accelerate the exercise of the warrants
and effect an early termination thereof in the event of either of the following:
(i) the Company files an NDA with the Food and Drug Administration or (ii) the
market price exceeds $11.00 and $10.00 for warrants with exercise prices of
$6.50 and $5.00, respectively, on any 10 trading days within a period of 20
consecutive trading days, as defined. In the event of acceleration, the
unexercised warrants automatically terminate without payment by the Company upon
the thirtieth day following the written notice. The Company valued the warrants
at $886,328 using the Black-Scholes option-pricing model, based on a deemed fair
market value of the Company's common stock of $2.28 per share, an assumed
volatility of 95%, a risk-free interest rate of 3.9%, a weighted-average
expected life of three years, and a dividend rate of 0.0%.
NOTE 6 -- PER SHARE DATA
The shares of common stock issuable upon exercise of the warrants issued
pursuant to the May 2001 private placement of the Company have not been included
in the calculation of loss per share of common stock as the effect of such an
inclusion would be anti-dilutive reducing the loss per share.
The outstanding shares have been restated to reflect the shares outstanding as
of each period based upon the reverse acquisition transactions (see Note 1).
10
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 -- RELATED PARTY TRANSACTIONS
The Company has paid consulting fees as follows, to a corporation controlled by
a person who is also a stockholder, director and officer of the Company for
financing and business development services classified as a general and
administrative expense in the financial statements, to a stockholder for
strategic advisory services also classified as general and administrative
expense, and to a corporation controlled by a stockholder formerly an officer of
the Company for research and development services.
Period from
Inception
For the Three For the Nine (July 10, 2000)
Months Ended Months Ended through
September 30, 2001 September 30, 2001 September 30, 2001
------------------ ------------------ ------------------
General and administrative fees $ 70,711 $147,063 $159,563
Research and development 16,143 67,038 92,038
-------- -------- --------
$ 86,854 $214,101 $251,601
======== ======== ========
NOTE 8 -- COMMITMENTS AND CONTINGENCY
Litigation
SafeScience, Inc. (SafeScience), a prior employer of David Platt, Ph.D., founder
of the Company, issued a demand letter dated February 15, 2001 alleging that Dr.
Platt directly and indirectly, through his activity in the Company, is engaged
in a business competitive with SafeScience in violation of a non-competition
covenant binding on Dr. Platt. In a letter dated February 19, 2001, Dr. Platt
denied any violation because the Company is involved in drug delivery technology
rather than new drug development. Counsel for SafeScience indicated a
willingness to resolve these matters but attempts to set up a meeting were
unsuccessful. No determination has been made of the likelihood of a substantive
favorable or unfavorable outcome, nor has any estimate been made as to the
amount or range, if any, of potential loss. The Company intends to contest the
allegations vigorously if SafeScience takes further action.
Financial Consulting Agreement
In August 2001, the Company retained I.W. Miller Group, Inc. of Irvine,
California, for two years to provide the Company with financial public relations
and consulting services. This engagement was terminated on September 21, 2001.
11
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Private Placement
On August 22, 2001, the Company sold 133,400 units of the offered securities
described in Note 3 for $400,200 to one subscriber willing to make a substantial
investment. The aggregate purchase price for such securities represents a
reduction of the unit price from $3.50 to $3.00. In addition, the holder's
exercise price under the warrant is reduced from $6.50 to $5.00, and the
Company's exercise acceleration rights occur at $10.00 rather than $11.00 (see
Note 3 for detail). The Company also granted this subscriber an option to
purchase an additional 200,000 units of the offered securities upon the same
terms at any time until after 30 days after the Company notifies the investor
that an investigational new drug application of the Company filed with the Food
and Drug Administration has become effective with respect to any one compound.
The Company notified each previous purchaser of such securities of such event.
This could result in the Company agreeing to refund some or all of the previous
investments.
Subsequent to September 30, 2001, the Company issued 285,400 shares of common
stock related to the private placement.
Consulting Arrangements
The Company has entered into consulting arrangements, each terminable on thirty
days' notice, with (i) a corporation controlled by a person who is a
stockholder, director and officer of the Company for financing and business
development services in consideration of $10,000 per month and expense
reimbursement, (ii) a corporation controlled by a person who is a stockholder
and former officer of the Company for research and development services in
consideration of $5,000 per month and expense reimbursement, (iii) an individual
otherwise unaffiliated with the Company with respect to product development
services in consideration of $2,000 per month and expense reimbursement, and
(iv) an individual who is a stockholder of the Company for management consultant
services in consideration of $5,000 per month and expense reimbursement.
12
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 -- CONVERTIBLE NOTES PAYABLE
In August 2001, the Company requested that the holders of its outstanding
convertible notes convert them, in accordance with their terms, to shares of its
common stock prior to the notes' maturity dates. In order to encourage early
conversion by September 7, 2001, the Company offered to issue each noteholder
who converts a common stock purchase warrant identical to the warrant offered in
its ongoing private placement. In the case of a noteholder who accepts the
Company's offer, the warrant issued would be exercisable to purchase such number
of shares as is equal to the number of shares of the Company's common stock that
the holder receives as of the conversion of the note. On September 7, 2001,
holders of notes with an aggregate principal amount of $1,115,602 and related
accrued interest totaling $70,131, elected to accept the Company's early
conversion offer. In total 1,150,666 shares of common stock were issued to these
note holders.
NOTE 10 -- SUBSEQUENT EVENTS
Stock Incentive Plan
On October 18, 2001, the Company's Board of Directors adopted the
"Pro-Pharmaceuticals, Inc. 2001 Stock Incentive Plan" which permits awards of
incentive and non-qualified stock options and other forms of incentive
compensation to employees and non-employees such as directors and consultants.
The Board reserved 2,000,000 of the Company's shares of common stock for awards
pursuant to such plan, all of which reserved shares could be awarded as
incentive stock options. The Board agreed to recommend such plan to the
Company's stockholders for approval at the next annual or special meeting of
stockholders.
NOTE 11 -- RESTATEMENT
Subsequent to the issuance of the Company's condensed financial statements for
the nine-months ended September 30, 2001, management has revised its best
estimate of the fair value of the Company's stock. Management believes that the
estimated value of the Company's stock at the time of the issuances of the
convertible debt was understated. Had the higher estimate been used, the
proceeds from convertible debt issued in 2000 and the nine-month period ended
September 30, 2001 would have been allocated to two equity features--an embedded
beneficial conversion feature and shares received. The valuation of these
features results in an allocation to additional paid in capital and a discount
to debt that will be amortized over the term of the debt. Management believes
that the updated estimates and restated financial statements better reflect the
economic substance of the financing transactions. Management has also revised
its estimate of the value of warrants issued as an inducement to convert their
notes by September 7, 2001, resulting in the recognition of a debt conversion
expense in the quarter ended September 30, 2001.
13
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Management has also determined that salaries and consulting expenses that were
originally recorded as an expense in 2001 related to services that were
performed in 2000, and therefore should be recorded as a liability and an
expense in 2000. As a result, the 2000 financial statements have been restated
from the amounts previously reported to reflect these changes.
The significant effects of the restatement are as follows:
As
Previously
Reported As Restated
At September 30, 2001:
Additional paid in capital 1,288,005 3,039,036
Deficit accumulated during development stage (1,626,872) (3,377,903)
For the three months ended September 30, 2001:
Interest expense (54,845) (557,864)
Net Loss (686,291) (1,189,310)
Loss per share (Basic and diluted) (0.05) (0.09)
For the nine months ended September 30, 2001:
Research and Development 531,226 489,976
General and Administrative 917,739 903,989
Interest expense (81,972) (1,816,348)
Net Loss (1,513,945) (3,193,321)
Loss per share (Basic and diluted) (0.12) (0.24)
Period from Inception (July 10, 2000) through September 30, 2001:
Interest expense (83,210) (1,834,241)
Net Loss (1,626,872) (3,377,903)
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Item 2. Plan of Operation
This quarterly report on Form 10-QSB contains, in addition to historical
information, forward-looking statements as such term is defined in the Private
Securities Litigation Reform Act of 1995. The forward-looking statements are
based on management's current expectations and are subject to a number of
factors and uncertainties which could cause actual results to differ materially
from those described in such statements. We caution investors that actual
results or business conditions may differ materially from those projected or
suggested in forward-looking statements as a result of various factors
including, but not limited to, the following: uncertainties as to the utility
and market for our potential products; uncertainties associated with preclinical
and clinical trials of our drug delivery candidates; our lack of experience in
product development and expected dependence on potential licensees and
collaborators for commercial manufacturing, sales, distribution and marketing of
our potential products; possible development by competitors of competing
products and technologies; lack of assurance regarding patent and other
protection of our proprietary technology; compliance with and change of
government regulation of our activities, facilities and personnel; uncertainties
as to the extent of reimbursement for our potential products by government and
private health insurers; our dependence on key personnel; our history of
operating losses and accumulated deficit; and economic conditions related to the
biotechnology and biopharmaceutical industry, each as discussed in our
Registration Statement on Form 10-SB filed with the Securities and Exchange
Commission. We cannot assure you that we have identified all the factors that
create uncertainties. Readers should not place undue reliance on forward-looking
statements. We have no obligation to publicly update forward-looking statements
we make in this Form 10-QSB.
Overview
We are currently in the development stage and have not yet generated any
operating revenues. Since the formation in July 2000 of our predecessor,
Pro-Pharmaceuticals, Inc., a Massachusetts corporation, we have been engaged in
research and development activities in connection with identifying and
developing a technology that will reduce toxicity and improve the efficacy of
currently-used drug therapies, including cancer chemotherapies, by combining the
drugs with a number of carbohydrate compounds. Our preliminary studies have
identified certain mannans, a group of polysaccharides, that could be utilized
as a potential drug delivery system. Polysaccharides are molecules consisting of
one or more types of sugars. In the case of mannans, the principal component is
the sugar mannose, which is similar to glucose. We believe that a mannan having
a suitable chemical structure and composition, when attached to or combined with
the active agent of a chemotherapy drug, would increase cellular membrane
fluidity and permeability, thereby assisting delivery of the drug.
Preclinical Animal Experiments
During 2001 we conducted preclinical animal experiments to study the
reduction of toxicity of two widely-used anti-cancer drugs, 5-Fluorouracil
(5-FU) and Adriamycin, in combination with mannan compounds we selected for the
studies. Preliminary results of studies in which toxicity was measured based on
animal survival rates, indicate that one of the mannan compounds may
significantly decrease the toxicity of 5-FU, and another mannan may
significantly decrease the toxicity of Adriamycin. In another preclinical
experiment, we studied toxicity reduction of 5-FU in combination with the same
mannan that demonstrated toxicity reduction in the previous 5-FU study. In this
experiment, toxicity was measured by effect on blood count. Preliminary results
indicate that the mannan decreased toxicity of 5-FU by this measure as well,
since the 5-FU/mannan combination resulted in decreased loss of hemoglobin,
platelets and red blood cells compared to the loss resulting from administration
of 5-FU alone.
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This year we also conducted preclinical animal experiments to study the
efficacy of 5-FU in combination with the same mannan that demonstrated toxicity
reduction. Our objective was to determine whether the desirable toxicity
reduction of the 5-FU/mannan combination occurs at the expense of diminished
drug efficacy. Preliminary results of these experiments indicate that such
combination results in a significant increase in efficacy of the drug when
administered into cancer-carrying animals. More specifically, the 5-FU/mannan
combination in animal experiments results in a significant delay of tumor
enlargement and an increase of average survival time.
We are currently developing formulations of carbohydrates linked to
anti-cancer drugs. We have chemically synthesized two novel products that are
carbohydrate derivatives of Adriamycin, and have conducted preclinical animal
experiments, studying both toxicity (on healthy animals) and efficacy (on
cancer-carrying animals). Preliminary results of these experiments indicate that
both of the synthesized carbohydrate-Adriamycin compounds are significantly less
toxic compared with the original Adriamycin, and demonstrate therapeutic
efficacy as well. We engaged independent laboratories to conduct all of the
foregoing studies.
We believe that the results of our studies show promise for
carbohydrate-based anti-cancer drug delivery systems. We have no products and
have not yet conducted any clinical trials. We have initiated large-scale
production of our mannan for use in forthcoming clinical trials.
Intellectual Property Protection
We have two pending utility patent applications and one provisional patent
application in the United States. The patent applications cover methods and
compositions for reducing side effects in chemotherapeutic formulations, and
improving efficacy and reducing toxicity of chemotherapeutic agents. One of our
utility patents is filed worldwide under the Patent Cooperation Treaty (PCT).
We have three pending trademark applications filed in the United States.
Business Combination and Ownership
We were incorporated as "DTR-Med Pharma Corp." under Nevada law in January
2001 for the purpose of acquiring all the outstanding stock of our predecessor,
Pro-Pharmaceuticals, Inc., which was a Massachusetts corporation engaged in a
business we desired to acquire. From our incorporation until just before the
acquisition, we were a wholly-owned subsidiary of Developed Technology Resource,
Inc., a Minnesota corporation whose common stock is publicly traded on the
Over-the-Counter Bulletin Board. In exchange for 1,221,890 shares of our common
stock, Developed Technology transferred to us contractual rights that are
described in our registration statement on Form 10-SB under "Item 1. Description
of Business -- Business of Pro-Pharmaceuticals -- Cancer Detection Technology."
As part of that process, Developed Technology distributed its holdings of our
common stock to its shareholders of record as of May 7, 2001. In anticipation of
the acquisition of the Massachusetts company, we changed our name to
"Pro-Pharmaceuticals, Inc."
On May 15, 2001, we acquired all of the outstanding common stock of the
Massachusetts company. We acquired these shares in exchange for 12,354,670
shares of our common stock. As a result, that company became our wholly owned
subsidiary, and its shareholders through an exchange became owners of
approximately 91% of the outstanding shares of our common stock, with the
Developed Technology shareholders owning the remaining 9%. After the
acquisition, we merged with the Massachusetts company and are the surviving
corporation following the merger. The merger was treated as a capital
transaction and was accounted for as a reverse merger in which
Pro-Pharmaceuticals (Massachusetts) was the accounting acquirer.
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Concurrent with the acquisition, all of our original officers and directors
resigned and were succeeded by the officers and directors of the predecessor
Massachusetts company. The financial statements of the Massachusetts company
were audited by different independent accountants than the accountants whom we
engaged since our inception. The change in accountants did not occur by
resignation or dismissal in connection with a disagreement over any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
As required by the stock exchange agreement that effected the acquisition,
we filed a registration statement in June 2001 on Form 10-SB with the Securities
and Exchange Commission in order to register our common stock under the
Securities Exchange Act of 1934. The registration of our common stock under the
Exchange Act became effective on August 13, 2001.
Facilities
We entered into a 5-year sublease commencing June 1, 2001 for approximately
2,830 square feet for our executive offices located at 189 Wells Avenue, Suite
200, Newton, Massachusetts 02459. The rent for the first year is $87,730 ($7,311
per month) and is subject to increase in subsequent years. The sublease is a
so-called "triple net" lease, meaning that we must pay our proportionate share
of items such as property taxes, insurance and operating costs. The sublease
required us to provide a security deposit of $48,883, of which up to $24,442
could be in the form of a letter of credit. We paid $26,950 in cash and provided
the remainder of the security deposit in the form of a letter of credit.
Consulting Arrangements
We have entered into consulting arrangements directly and indirectly with
an officer and certain advisors, in order to utilize their expertise at this
stage of our corporate development. Each of the following agreements is
terminable on thirty days' notice.
Extol International Ltd., a company controlled by James Czirr, our
Executive Vice President of Business Development and a director, has agreed to
provide financing and business development services. This agreement provides for
a monthly payment of $10,000 and reimbursement of expenses. Mr. Czirr owns more
than 5% of our outstanding common stock.
MIR International, Inc., a company controlled by Anatole A. Klyosov, Ph.D.,
a member of our Scientific Advisory Board and formerly our Senior Vice President
and Chief Scientific Officer, has agreed to provide consulting services
regarding our research and development including design of preclinical
experimental protocols, arranging preclinical experiments, performing chemical
synthetic work, preparing reports on biochemical study and clinical applications
of carbohydrates. This agreement provides for a monthly payment of $5,000 and
reimbursement of expenses. Dr. Klyosov owns more than 5% of our outstanding
common stock.
Eliezer Zomer, Ph.D. has agreed to provide consulting services with respect
to the development of standard operations procedures for the manufacture of our
medical products. This agreement provides for a monthly payment of $2,000 and
reimbursement of expenses.
Offer Binder, Ph.D. has agreed to provide management advisory services.
This agreement provides for a monthly payment of $5,000 and reimbursement of
expenses. Dr. Binder owns more than 5% of our outstanding common stock.
Plan of Operation
For the twelve-month period ending September 30, 2002, our plan of
operation is to:
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o Make drug delivery formulations to upgrade the anti-cancer drugs
5-Fluorouracil, Adriamycin, Taxol, Cytoxan and Cisplatin linked to
carbohydrates, in quantities necessary for preclinical evaluation of
the upgraded formulations
o Based on results of preclinical evaluations, and depending on the
availability of funds, select one or more of the drug enhancement
systems to conduct clinical trials
o File an Investigational New Drug (IND) application with the Food and
Drug Administration to conduct clinical trials, aiming for a
fast-track designation to shorten the FDA approval process
o Begin clinical trials
We plan in subsequent years to complete clinical trials, file at least one
New Drug Application (NDA) with the FDA and obtain FDA approval to market the
product. We would then arrange for manufacture and marketing of our product(s).
We do not plan to purchase or sell any plant or significant equipment
during the twelve months ending September 30, 2002. We expect to maintain our
employee headcount at three to four.
Liquidity and Capital Resources
Our capital resources to date consist of (i) the proceeds of a private
placement of convertible notes issued and sold by the predecessor Massachusetts
company in anticipation of its being acquired by us and (ii) the proceeds of a
private placement begun in May 2001 of our common stock and stock purchase
warrants. Each is further described below.
The convertible notes became our corporate obligations as a result of the
merger. Sale of the convertible notes resulted in aggregate proceeds of
$1,310,602. See "Part II. Item 4. Recent Sales of Unregistered Securities" in
our Form 10-SB for a discussion of the convertible notes.
We began as of May 25, 2001 a private placement of securities exempt from
registration pursuant to Rule 506 of Regulation D under the Securities Act of
1933 in order to raise $5,145,000 to cover our expenditures. Purchasers under
the private placement must qualify as "accredited investors" as such term is
defined in Regulation D. The securities consist of 1,470,000 units, offered at
$3.50 each, of one share of our common stock and one 4-year warrant exercisable
at $6.50 to purchase one share of our common stock. The warrant is subject,
following written notice, to acceleration if either (i) we file a New Drug
Application with the FDA, or (ii) our stock is listed on an exchange and its
closing price exceeds $11.00 on any 10 trading days within a period of 20
consecutive trading days or, if our stock is quoted on the NASDAQ National
Market System or Small Cap Market, or over-the-counter, and the average of the
closing bid and asked prices thereon exceeds $11.00 on any 10 trading days
within a period of 20 consecutive trading days.
In connection with an agreement with an early investor in this offering who
was willing to invest a substantial amount of funds, we sold 133,400 of the
units to that investor at $3.00 each, for a total of $400,200. We reduced the
investor's warrant exercise price to $5.00, and changed the warrant acceleration
provision to lower the 10-day closing price threshold to $10.00. We also granted
that investor an option to purchase an additional 200,000 units on the same
terms as the investor's current purchase. The option is exercisable at any time
until 30 days after we notify the investor of our receipt of notice that an
investigational new drug application filed by us with the FDA has become
effective for any one of our compounds. As a result of agreeing to accept
different terms on the offered securities with that investor, we have notified
each previous purchaser
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of the sale to that investor. This could result in our agreeing to refund some
or all of the previous investments.
As of September 30, 2001 we had received aggregate subscriptions of
$907,700 for securities offered in our private placement and, as of November 9,
2001, an additional $24,500 of subscriptions. Such purchases will result in our
issuing 285,400 shares of our common stock and warrants to purchase 285,400
shares of our common stock.
We have requested that the holders of the convertible notes described above
convert them, in accordance with their terms, to shares of our common stock
prior to the notes' maturity dates. In order to encourage early conversion by
September 7, 2001, we offered to issue each noteholder who converts a common
stock purchase warrant identical to the warrant offered in our ongoing private
placement. In the case of a noteholder who accepts our offer, the warrant we
issue would be exercisable to purchase such number of shares as is equal to the
number of shares of our common stock that the holder receives as of the
conversion of the note. In response to our offer, holders of an aggregate of
$1,115,602 of principal amount of the convertible notes have requested
conversion of their notes.
Regardless of whether a noteholder accepted our early conversion offer or
later decides to convert each of our noteholders is entitled to receive, as
"additional consideration" for originally purchasing the note, one-half (1/2)
share of our common stock for each dollar of principal. We are completing our
issuance an aggregate of 655,301 of such "additional compensation" shares. Based
upon the offering price of the securities in our private placement, the
conversion price under the convertible note is now fixed at one share of our
common stock for each two dollars ($2.00) of unpaid principal and interest. All
shares of common stock issued upon conversion of the notes are "restricted
securities" as defined in Rule 144 under the Securities Act.
As of September 30, 2001, we had approximately $865,913, and as of October
31, 2001 approximately $852,092, in cash and cash equivalents. We have budgeted
expenditures for the twelve-month period ending September 30, 2002, of
$5,000,000, comprised of anticipated expenditures for research and development
($3,200,000), general and administrative ($1,300,000), equipment and leaseholds
($200,000) and contingency allowance ($300,000).
Additional funds may be raised through additional equity financings, as
well as borrowings and other resources. We are currently holding discussions
with potential investors. With the capital we have raised to date, and the
additional $5,145,000 we are attempting to raise, we believe that we will be
able to proceed with our current plan of operations and meet our obligations for
approximately the next twelve months. If we do not raise the additional funds,
we will have to cut our research and development expenditures to a minimum level
for the next twelve months, since available cash at October 31, 2001 would be
insufficient to cover more than equipment and leasehold costs and some
administrative costs. In that case, overall administrative expenses for the next
twelve months would have to be cut by approximately $500,000. If we have only
minimal funds to spend on research and development, that would substantially
slow progress that we might expect to make during the next twelve months in
development of our business including commencement of clinical trials.
In August 2001 we retained I.W. Miller Group, Inc., of Irvine, California,
for two years to provide us with financial public relations and financial
consulting services. We have since terminated this relationship.
We expect to generate losses from operations for several years due to
substantial additional research and development costs, including costs related
to clinical trials. Our future capital requirements will depend on many factors,
in particular our progress in and scope of our research and development
activities, and the extent to which we are able to enter into collaborative
efforts for
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research and development and, later, manufacturing and marketing products. We
may need additional capital to the extent we acquire or invest in businesses,
products and technologies. If we should require additional financing due to
unanticipated developments, additional financing may not be available when
needed or, if available, we may not be able to obtain this financing on terms
favorable to us or to our stockholders. Insufficient funds may require us to
delay, scale back or eliminate some or all of our research and development
programs, or may adversely affect our ability to operate as a going concern. If
additional funds are raised by issuing equity securities, substantial dilution
to existing stockholders may result.
Recent Events
Our Board of Directors on October 18, 2001 adopted the
"Pro-Pharmaceuticals, Inc. 2001 Stock Incentive Plan" which permits awards of
incentive and non-qualified stock options and other forms of incentive
compensation to employees and non-employees such as directors and consultants.
The Board reserved 2,000,000 of our shares of common stock for awards pursuant
to such plan, all of which reserved shares could be awarded as incentive stock
options. The Board agreed to recommend such plan to our stockholders for
approval at the next annual or special meeting of stockholders.
Our Board of Directors on October 18, 2001 amended our by-laws to insert a
provision for indemnification of our directors, officers and other employees, as
well as other persons who may be entitled to indemnification. The by-law
amendment enables us to indemnify such persons to the extent permitted under the
Nevada corporation law statute which governs our company.
On October 18, 2001, we appointed Maureen Foley to the office of Chief
Operating Officer. Ms. Foley had been serving as our senior administrator since
January 2001.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
In May 2001, we began a private placement exempt from registration pursuant
to Rule 506 of Regulation D under the Securities Act of 1933 in order to raise
up to $5,145,000 to cover our budgeted expenditures as set forth in "Part I --
Financial Information -- Item 2. Plan of Operation -- Liquidity and Capital
Resources," above. Purchasers under the private placement must qualify as
"accredited investors" as that term is defined in Regulation D. The securities
consist of 1,470,000 units, offered at $3.50 each, of one share of our common
stock and one 4-year warrant exercisable at $6.50 to purchase one share of our
common stock. The warrant is subject, following written notice, to acceleration
if either (i) we file a New Drug Application with the FDA, or (ii) our stock is
listed on an exchange and its closing price exceeds $11.00 on any 10 trading
days within a period of 20 consecutive trading days or, if our stock is quoted
on the NASDAQ National Market System or Small Cap Market, or over-the-counter,
and the average of the closing bid and asked prices thereon exceeds $11.00 on
any 10 trading days within a period of 20 consecutive trading days. For further
information about this offering, please see "Part I -- Financial Information --
Item 2. Plan of Operation -- Liquidity and Capital Resources."
As of September 30, 2001 we had received aggregate subscriptions of
$907,700 for securities offered in our private placement and, as of November 9,
2001, an additional $24,500 of subscriptions. Such purchases will result in our
issuing 285,400 shares of our common stock and warrants to purchase 285,400
shares of our common stock.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Document
------ -----------------------
3.1 Articles of Incorporation of the Registrant, dated January 26,
2001*
3.2 Amended and Restated By-laws of the Registrant
10.1 Assignment and Assumption Agreement, dated April 23, 2001, by and
between Developed Technology Resource, Inc. and DTR-Med Pharma
Corp.*
10.2 Stock Exchange Agreement, dated April 25, 2001, by and among
Developed Technology Resource, Inc., DTR-Med Pharma Corp.,
Pro-Pharmaceuticals, Inc. (Massachusetts) and the Shareholders
(as defined therein)*
10.3 Pro-Pharmaceuticals, Inc. 2001 Stock Incentive Plan**
* Incorporated by reference to the Registrant's Registration Statement on
Form 10-SB, as filed with the Commission on June 13, 2001.
** Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB, as filed with the Commission on November 14, 2001.
(b) Reports on Form 8-K
None
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SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on April 12, 2002.
PRO-PHARMACEUTICALS, INC.
Registrant
By: /S/ DAVID PLATT
------------------------------
Name: David Platt
Title: President, Chief Executive Officer,
Treasurer and Secretary
(Principal Executive Officer and
Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
Exhibit
Number Description of Document
------ -----------------------
3.1 Articles of Incorporation of the Registrant, dated January 26,
2001*
3.2 Amended and Restated By-laws of the Registrant
10.1 Assignment and Assumption Agreement, dated April 23, 2001, by and
between Developed Technology Resource, Inc. and DTR-Med Pharma
Corp.*
10.2 Stock Exchange Agreement, dated April 25, 2001, by and among
Developed Technology Resource, Inc., DTR-Med Pharma Corp.,
Pro-Pharmaceuticals, Inc. (Massachusetts) and the Shareholders
(as defined therein)*
10.3 Pro-Pharmaceuticals, Inc. 2001 Stock Incentive Plan**
* Incorporated by reference to the Registrant's Registration Statement on
Form 10-SB, as filed with the Commission on June 13, 2001.
** Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB, as filed with the Commission on November 14, 2001.
24