Registration No. 333-______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRO-PHARMACEUTICALS, INC.
(Name of Small Business Issuer in its Charter)
Nevada 8731 04-3562325
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
189 Wells Avenue, Suite 200
Newton, Massachusetts 02459
(617) 559-0033
(Address and Telephone Number of
Principal Executive Offices)
David Platt, Ph.D.
President and Chief Executive Officer
Pro-Pharmaceuticals, Inc.
189 Wells Avenue, Suite 200
Newton, Massachusetts 02459
(617) 559-0033
(Name, Address and Telephone Number
of Agent for Service)
with copies to:
Jonathan C. Guest, Esq.
Perkins, Smith & Cohen, LLP
One Beacon Street
Boston, Massachusetts 02108
(617) 854-4000
Approximate date of commencement of proposed sale to the public: As soon as
possible after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box [ ]
CALCULATION OF REGISTRATION FEE
Title of Each Class of Number of Proposed Maximum Proposed Maximum
Securities to be Units/Shares to be Offering Price per Aggregate Offering Amount of
Registered Registered (1) Unit (2) Price (3) Registration Fee (3)
Common Stock, 2,650,462 $3.50 $9,276,617 $2,811
$.001 par value
(1) Total represents 1,428,572 shares of Common Stock to be offered by the
Registrant and up to 1,221,890 already issued shares of the Common Stock of
the Registrant to be offered by selling security holders of the Registrant.
In the event of a stock split, stock dividend or similar transaction
involving the Common Stock of the Registrant, in order to prevent dilution,
the number of shares registered shall be automatically increased to cover
additional shares in accordance with Rule 416(a) under the Securities Act.
(2) Represents proposed maximum price per share of Common Stock to be offered
by the Registrant.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act, based on proposed
maximum offering price per share of Common Stock to be offered by the
Registrant.
------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
The information contained in this prospectus is not complete and may be
changed. Neither Pro-Pharmaceuticals nor the selling security holders may sell
these securities until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER ___, 2001
PRO-PHARMACEUTICALS, INC.
2,650,462 Shares of Common Stock
$.001 par value
Of the 2,650,462 shares of Pro-Pharmaceuticals common stock offered by this
prospectus, 1,428,572 shares are being sold by Pro-Pharmaceuticals on a "best
efforts" basis. The other 1,221,890 shares may be offered and sold, from time to
time, by the selling security holders identified in this prospectus. We will not
receive any of the proceeds from the sale of shares by the selling security
holders.
There is currently no market for our common stock. We anticipate that we
will retain a market maker to apply for trading of our common stock on the
Over-the-Counter Bulletin Board following effectiveness of this registration
statement.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 2 TO READ ABOUT CERTAIN RISKS YOU SHOULD CONSIDER
BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Proceeds to Proceeds to Selling
Price to Public Placement Fees (1) Company (2) Security Holders
Per Share $ $ $ $
Total (3) $ $ $ $
(1) The 1,428,572 shares offered by Pro-Pharmaceuticals are being offered
principally to selected institutional and accredited investors. We have
retained Atlas Capital Services, LLC, to act, on a best efforts basis, as
our placement agent in connection with the arrangement of this transaction.
We have agreed, among other things, to pay Atlas Capital a fee, including
issuance of warrants, in connection with the arrangement of this financing
and to indemnify Atlas Capital against certain liabilities, including
liabilities under the Securities Act of 1933. See "Plan of Distribution."
(2) Before deducting expenses payable by Pro-Pharmaceuticals estimated at
$120,000. We will not receive any proceeds from the sale of shares by the
selling security holders.
(3) We cannot assure you that any of the shares of common stock offered by this
prospectus will be sold. Since the offering is made on a best efforts
basis, there is no firm commitment by Atlas Capital to purchase or sell any
of the shares of common stock. There is no minimum number of shares of
common stock required to be sold by us, and no arrangements have been made
to escrow any proceeds of the offering. Therefore, we may sell less than
all of the shares of common stock offered hereby, which may significantly
reduce the amount of proceeds that we receive. We anticipate concluding our
offering of common stock 60 days after the date of this prospectus.
TABLE OF CONTENTS
PROSPECTUS SUMMARY....................................................................................1
THE OFFERING..........................................................................................2
RISK FACTORS..........................................................................................2
We are at an early stage of development without operating history................................3
We have incurred net losses to date and depend on outside capital................................3
We may not be able to sell all of the shares we are currently offering...........................4
Our product candidates will be based on novel technologies.......................................4
We must successfully develop products in order to generate revenue...............................4
We will need regulatory approvals to commercialize our products..................................5
Our product candidates may not be successfully commercialized....................................5
We have no experience in clinical trials.........................................................6
Our competitive position depends on protection of our intellectual property......................6
Our products could infringe on the intellectual property rights of others........................7
Our lack of operating experience may cause us difficulty in managing our growth..................7
Our business is subject to technological obsolescence............................................8
We face intense competition in the biotechnology and pharmaceutical industries...................8
We will depend on third parties to manufacture and market our products...........................8
We depend on key personnel to develop our products and pursue collaborations.....................9
A former employer of our President alleged violation of his noncompetition agreement.............9
We face potential difficulties in obtaining product liability and related insurance..............9
Health care cost containment initiatives may limit our returns..................................10
Environmental regulations may affect our manufacturers and other contractors....................10
Our ability to conduct animal testing could be limited in the future............................10
Stock prices for biopharmaceutical and biotechnology companies are volatile.....................11
Our stock is not listed on any exchange or quoted on Nasdaq.....................................11
If our stock is a "penny stock," your ability to trade our shares
could be adversely affected.................................................................11
Purchasers of stock may be subject to substantial dilution. ....................................12
Four principal stockholders own enough shares to control the company............................12
FORWARD-LOOKING STATEMENTS...........................................................................12
USE OF PROCEEDS......................................................................................13
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS..........................................14
PLAN OF OPERATION....................................................................................16
CAPITALIZATION.......................................................................................18
SELECTED FINANCIAL DATA..............................................................................19
BUSINESS.............................................................................................19
MANAGEMENT...........................................................................................35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................38
DILUTION.............................................................................................39
SELLING SECURITY HOLDERS.............................................................................40
PLAN OF DISTRIBUTION.................................................................................44
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................................46
DESCRIPTION OF CAPITAL STOCK.........................................................................48
LEGAL MATTERS........................................................................................48
EXPERTS..............................................................................................48
WHERE YOU CAN FIND MORE INFORMATION..................................................................49
FINANCIAL STATEMENTS................................................................................F-1
PROSPECTUS SUMMARY
About This Prospectus
This prospectus is part of a registration statement we filed with the U.S.
Securities and Exchange Commission. You should rely only on the information
provided in this prospectus. Neither we, Atlas Capital nor the selling security
holders listed in this prospectus have authorized anyone to provide you with
information different from that contained in this prospectus.
Pro-Pharmaceuticals and the selling security holders are offering to sell, and
seeking offers to buy, shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of common stock. Applicable SEC rules
may require us to update this prospectus in the future. This preliminary
prospectus is subject to completion prior to this offering.
About Pro-Pharmaceuticals, Inc.
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. We are
currently conducting preclinical animal experiments.
Corporate Information
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 below under "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 corporation. We acquired these shares in exchange for 12,354,670
shares of our common stock. As a result, that corporation became our wholly
owned subsidiary, and its shareholders through an exchange owned approximately
91% of the outstanding shares of our common stock, with the Developed Technology
shareholders owning the remaining 9%. See "Security Ownership of Certain
Beneficial Owners and Management" for information about the ownership of our
common
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stock. After the acquisition, we merged with the Massachusetts corporation and
are the surviving corporation in the merger.
As required by the stock exchange agreement that effected the acquisition,
we registered our common stock under the Securities Exchange Act of 1934 by
filing a Registration Statement on Form 10-SB with the Securities and Exchange
Commission that became effective on August 13, 2001. Our articles of
organization provide that our common stock may not be sold without our approval
until the 90th day after the date our common stock is registered. Accordingly,
our common stock became eligible for transfer, subject to applicable federal and
state securities law requirements, as of November 11, 2001. We anticipate that
we will retain a market maker to apply for trading of our common stock on the
Over-the-Counter Bulletin Board following effectiveness of this registration
statement.
Our address is 189 Wells Avenue, Suite 200, Newton, Massachusetts 02459.
Our telephone number is (617) 559-0033, fax number is (617) 928-3450, e-mail
address is Plattpharma@aol.com, and our website address is
www.pro-pharmaceuticals.com.
THE OFFERING
Common stock offered by us: 1,428,572 shares
Common stock offered by the selling security holders: 1,221,890 shares
Common stock currently outstanding before the 15,148,146 shares
offering (as of November 21, 2001):
Common stock to be outstanding after the 16,576,718 shares
offering assuming sale of all common stock
offered by us:
Use of Proceeds: We intend to use the
net proceeds of this
offering to fund
research and
development
activities, conduct
pre-clinical
experiments, and for
other general
corporate purposes.
We will not receive
proceeds from the
sale of shares by
the selling security
holders.
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and the other information
contained in this prospectus before deciding to invest in our common stock. The
risks described below are not the only ones facing our company. Additional risks
not presently known to us or which we currently consider immaterial may also
adversely affect our business. We have attempted to identify the major factors
under the heading "Risk Factors" that could cause differences between actual and
planned or expected results, but we cannot assure you that we have identified
all of those factors. If any of the following risks actually happen, our
business, financial condition and operating results could be materially
adversely affected. In this case, no market may develop for our common stock or,
if there
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is a market, the trading price of our common stock could decline, and you could
lose part or all of your investment.
We are at an early stage of development without operating history.
We are a development-stage venture without operating history. Our future
revenues and profits are uncertain. We were incorporated in January 2001. Our
predecessor, Pro-Pharmaceuticals (Massachusetts) was incorporated in July 2000.
We have not generated any revenues to date. Though we have prepared and tested
several carbohydrate-based formulations in preclinical studies, we have not
prepared formulations of any therapeutic product for testing, and we have not
commenced any clinical trials. We have no therapeutic products available for
sale, and none are expected to be commercially available for several years, if
at all. Our research activities may not lead to the development of any
commercially viable products. We may never generate revenue or become
profitable, even if we are able to commercialize any products. If we are unable
to generate revenues or profits, you might not be able to realize returns on
your investment in our company. Even if we do achieve profitability, we may not
be able to sustain or increase profitability on a quarterly or annual basis.
We have incurred net losses to date and depend on outside capital.
Our predecessor, Pro-Pharmaceuticals (Massachusetts) had incurred net
operating losses since its incorporation in July 2000. Our accumulated deficit
as of September 30, 2001 was approximately $1,626,872. We will need to conduct
significant research, development, testing and regulatory compliance activities
that, together with projected general and administrative expenses, we expect
will result in substantial increasing operating losses for at least the next
several years. Accordingly, we will not be generating our own capital and will
remain dependent on outside sources of financing during that time.
As of September 30, 2001, we had approximately $865,913 in cash and cash
equivalents. We have budgeted expenditures for the twelve-month period ending
December 31, 2002 of $4,500,000. We attempted to fund these expenditures through
proceeds of a private placement that we began in May 2001. We abandoned the
private placement as of December 3, 2001, and terminated all offering activity
on or before that date. We raised $2,237,500 prior to termination.
We will require substantial funds to: (1) continue our research and
development programs, (2) acquire technologies by license or purchase, and (3)
conduct preclinical studies and clinical trials. We may need to raise additional
capital to fund our operations repeatedly. We may raise such capital through
public or private equity financings, partnerships, debt financings, bank
borrowings, or other sources. Our capital requirements will depend upon numerous
factors, including the following:
o the establishment of collaborations
o the development of competing technologies or products
o changing market conditions
o the cost of protecting our intellectual property rights
o the progress of our research and development programs, the progress of
our collaborations and receipt of any option/license, milestone and
royalty payments resulting from those collaborations
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o technology acquisition opportunities
Additional funding may not be available on favorable terms or at all. If
adequate funds are not otherwise available, we may curtail operations
significantly. To obtain additional funding, we may need to enter into
arrangements that require us to relinquish rights to certain technologies,
products and/or potential markets. To the extent that additional capital is
raised through the sale of equity, or securities convertible into equity, you
may experience dilution of your proportionate ownership of the company.
We may not be able to sell all of the shares we are currently offering.
Upon this registration becoming effective, we plan to offer and sell to
institutional and accredited investors identified by Atlas Capital Services,
LLC, as our placement agent, shares of our common stock for proceeds of up to
$5,000,000 before expenses. Please see "Plan of Operation -- Liquidity and
Capital Resources" for further discussion of our present financing plans. If we
sell all of the 1,428,572 shares through Atlas Capital that we are offering by
this prospectus, our estimated proceeds would be $4,455,000 after deducting the
estimated placement fee of $425,000 and offering expenses including $20,000 as a
placement agent due diligence fee and estimated $100,000 for accounting, legal
and printing expenses. We cannot assure you that we will succeed in selling any
or all of the shares of common stock we are currently offering. We have not
fixed a minimum number of shares of common stock to be sold by us in this
offering. Therefore, we may sell less than all of the shares of common stock
offered by this prospectus, which may significantly reduce the amount of
proceeds we receive. In any case, we will have to raise additional funds to
continue the development of our technologies and complete the commercialization
of products, if any, resulting from our technologies.
Our product candidates will be based on novel technologies.
Our product candidates will be based upon novel technologies that we plan
to use to apply to drugs currently used in the treatment of cancer and other
diseases. These technologies have not been proven. Carbohydrates are difficult
to synthesize, and we may not be able to synthesize carbohydrates that would be
usable as delivery vehicles for the anti-cancer drugs we plan to work with.
Furthermore, as is often the case, preclinical results in animal studies may not
predict outcomes in human clinical trials. Our product candidates may not be
proven safe or effective. If this technology does not work, our product
candidates may not develop into commercial products.
We must successfully develop products in order to generate revenue.
Our product candidates are still in research and preclinical development,
which means that they have not yet been tested on humans. We will need to commit
significant time and resources to develop these and additional product
candidates. We are dependent on the successful completion of clinical trials and
obtaining regulatory approval in order to generate revenues. The failure to
generate such revenues may preclude us from continuing our research and
development of these and other product candidates.
We have no product candidates in clinical trials, and we do not know when,
if ever, we will have a candidate and commence clinical trials. Clinical trials
are expensive, time-consuming and may not be successful. They involve the
testing of potential therapeutic agents, or effective treatments, in humans in
three phases (phases I, II, and III) to determine the safety and efficacy of the
product candidates necessary for an approved drug. Many products in human
clinical trials fail to demonstrate the desired safety and efficacy
characteristics. Even if our products progress successfully through initial
human testing, they may fail in later stages of development. A number
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of companies in the pharmaceutical industry have suffered significant setbacks
in advanced clinical trials, even after reporting promising results in earlier
trials. In addition, data obtained from clinical trials are susceptible to
varying interpretations. Government regulators and our collaborators may not
agree with our interpretation of our future clinical trial results. The clinical
trials of any of our future product candidates may not be successful.
We will need regulatory approvals to commercialize our products.
We do not have any product approved for sale in the U.S. or any foreign
market. We must obtain approval from the FDA in order to sell our products in
the U.S. and from foreign regulatory authorities in order to sell our drug
products in other countries. We have not yet submitted any application for
approval to the FDA. Once an application is submitted, the FDA could reject the
application or require us to conduct additional clinical or other studies as
part of the regulatory review process. Delays in obtaining or failure to obtain
FDA approvals would prevent or delay the commercialization of our products,
which would prevent, defer or decrease our receipt of revenues.
The regulatory review and approval process is lengthy, expensive and
uncertain. Extensive preclinical and clinical data and supporting information
must be submitted to the FDA for each indication for each product candidate in
order to secure FDA approval. We have no experience in obtaining such approvals,
and cannot be certain when we will receive these regulatory approvals, if ever.
In addition to initial regulatory approval, our product candidates will be
subject to extensive and rigorous ongoing domestic and foreign government
regulation, as we discuss in more detail in "Business -- Business of
Pro-Pharmaceuticals -- Government Regulation," below. Any approvals, once
obtained, may be withdrawn if compliance with regulatory requirements is not
maintained or safety problems are identified. Failure to comply with these
requirements may subject us to stringent penalties.
Our product candidates may not be successfully commercialized.
Even if our product candidates are successful in clinical trials, they may
not be successfully commercialized. All of our compounds currently are in
research or development, and none has been submitted for marketing approval.
There can be no assurance that any of our compounds will enter human clinical
trials on a timely basis, if at all, or that we will develop any product
candidates suitable for commercialization. Prior to commercialization, each
product candidate will require significant additional research, development and
preclinical testing and extensive clinical investigation before submission of
any regulatory application for marketing approval. Potential products that
appear to be promising at early stages of development may not reach the market
for a number of reasons. Potential products may:
o be found ineffective or cause harmful side effects during preclinical
testing or clinical trials
o fail to receive necessary regulatory approvals
o be difficult to manufacture on a large scale
o be uneconomical to produce
o fail to achieve market acceptance
o be precluded from commercialization by proprietary rights of third
parties
5
We cannot assure you that we will undertake any product development
efforts, either alone or with collaborative partners. If we do undertake product
development efforts, we cannot assure you that any of those efforts will be
successfully completed, that required regulatory approvals will be obtained or
that any products, if introduced, will be successfully marketed or achieve
customer acceptance.
We have no experience in clinical trials.
We have no experience in conducting clinical trials and will be dependent
on others to conduct our clinical trials. We intend to rely on academic
institutions or clinical research organizations to conduct, supervise or monitor
some or all aspects of clinical trials involving our products. In addition,
certain clinical trials for our products may be conducted by
government-sponsored agencies and consequently will be dependent on governmental
participation and funding. We will have less control over the timing and other
aspects of these clinical trials than if we conducted them entirely on our own.
We cannot assure you that these trials will commence or be completed as we
expect or that they will be conducted successfully. Failure to commence or
complete, or delays in, any of our planned clinical trials could delay or
prevent the commercialization of our products and harm our business. The actual
timing of clinical trials can vary dramatically due to factors such as delays,
scheduling conflicts with participating clinicians and clinical institutions and
the rate of patient accruals. We cannot assure you that clinical trials
involving our product candidates will commence or be completed as forecasted.
Our competitive position depends on protection of our intellectual property.
Development and protection of our intellectual property are critical to our
business. If we do not adequately protect our intellectual property, competitors
may be able to practice our technologies. Our success depends in part on our
ability to:
o obtain patent protection for our products or processes both in the
United States and other countries
o protect trade secrets
o prevent others from infringing on our proprietary rights
While we believe that linking our carbohydrate polymers to existing drugs
will yield patentable subject matter, to date we have only two pending patent
applications, as well as a provisional patent application as discussed below
under "Business -- Business of Pro-Pharmaceuticals -- Patents and Proprietary
Rights." We do not believe that our carbohydrate-drug conjugates will infringe
any third-party patents covering the underlying drug. However, there can be no
assurance that we will receive a patent for our carbohydrate-drug conjugates. In
addition, we must meet further filing deadlines in the case of our provisional
patent applications if we are to retain the filing, or priority, dates for those
applications, as discussed below under "Business -- Business of
Pro-Pharmaceuticals -- Patents and Proprietary Rights."
Since patent applications in the United States are maintained in secrecy
until patents are issued, and since publication of discoveries in the scientific
or patent literature often lag behind actual discoveries, we cannot be certain
that we are the first to make the inventions to be covered by the patent
applications we intend to file. The patent position of biopharmaceutical firms
generally is highly uncertain and involves complex legal and factual questions.
The U.S. Patent and Trademark Office has not established a consistent policy
regarding the breadth of claims that it will allow in biotechnology patents. If
it allows broad claims, the number and cost of patent interference
6
proceedings in the U.S. and the risk of infringement litigation may increase. If
it allows narrow claims, the risk of infringement may decrease, but the value of
our rights under our patents, licenses and patent applications may also
decrease.
We cannot assure you that patent applications in which we have rights will
ever issue as patents or that the claims of any issued patents will afford
meaningful protection for our technologies or products. In addition, patents
issued to us or our licensors may be challenged and subsequently narrowed,
invalidated or circumvented. Litigation, interference proceedings or other
governmental proceedings that we may become involved in with respect to our
proprietary technologies or the proprietary technology of others could result in
substantial cost to us. Patent litigation is widespread in the biotechnology
industry, and any patent litigation could harm our business. Costly litigation
might be necessary to protect our patent position or to determine the scope and
validity of third-party proprietary rights, and we may not have the required
resources to pursue such litigation or to protect our patent rights. An adverse
outcome in litigation with respect to the validity of any of our patents could
subject us to significant liabilities to third parties, require disputed rights
to be licensed from third parties or require us to cease using a product or
technology.
We also rely upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. Third parties may independently
develop such know-how or otherwise obtain access to our technology. While our
employees, consultants and corporate partners with access to proprietary
information generally will be required to enter into confidentiality agreements,
these agreements may not be honored.
Patents issued to third parties may cover our products as ultimately
developed. We may need to acquire licenses to these patents or challenge the
validity of these patents. We may not be able to license any patent rights on
acceptable terms or successfully challenge such patents. The need to do so will
depend on the scope and validity of these patents and ultimately on the final
design or formulation of the products and services that we develop. We may not
be able to meet our obligations under those licenses that we do enter into. If
we enter into a license agreement for intellectual property underlying any of
our products, and that license were to be terminated, we may lose our right to
market and sell any products based on the licensed technology.
Our products could infringe on the intellectual property rights of others.
Although we attempt to monitor the patent filings of our competitors in an
effort to guide the design and development of our products to avoid
infringement, third parties may challenge the patents that have been issued or
licensed to us. We may have to pay substantial damages, possibly including
treble damages, for past infringement if it is ultimately determined that our
products infringe a third party's patents. Further, we may be prohibited from
selling our products before we obtain a license, which, if available at all, may
require us to pay substantial royalties. Even if infringement claims against us
are without merit, defending a lawsuit takes significant time, may be expensive
and may divert management attention from other business concerns.
Our lack of operating experience may cause us difficulty in managing our growth.
We have no experience in manufacturing or procuring products in commercial
quantities and conducting other later-stage phases of the regulatory approval
process, or in selling pharmaceutical products, and we have only limited
experience in negotiating, establishing and maintaining strategic relationships.
We have no experience with respect to the launch of a commercial product. Our
ability to manage our growth, if any, will require us to improve and expand our
management and our operational and financial systems and controls. If our
management is unable to manage growth effectively, our business and financial
condition would be
7
materially harmed. In addition, if rapid growth occurs, it may strain our
operational, managerial and financial resources.
Our business is subject to technological obsolescence.
Biotechnology and related pharmaceutical technology have undergone and are
subject to rapid and significant change. We expect that the technologies
associated with biotechnology research and development will continue to develop
rapidly. Our future will depend in large part on our ability to maintain a
competitive position with respect to these technologies. Any compounds, products
or processes that we develop may become obsolete before we recover any expenses
incurred in connection with developing these products.
We face intense competition in the biotechnology and pharmaceutical industries.
The biotechnology and pharmaceutical industries are intensely competitive.
We have numerous competitors in the United States and elsewhere. Our competitors
include major, multinational pharmaceutical and chemical companies, specialized
biotechnology firms and universities and other research institutions. Many of
these competitors have greater financial and other resources, larger research
and development staffs and more effective marketing and manufacturing
organizations, than we do. In addition, academic and government institutions
have become increasingly aware of the commercial value of their research
findings. These institutions are now more likely to enter into exclusive
licensing agreements with commercial enterprises, including our competitors, to
market commercial products. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical and established biotechnology companies. Many of these
competitors have significant products that have been approved or are in
development and operate large, well-funded research and development programs.
Our competitors may succeed in developing or licensing technologies and
products that are more effective or less costly than any we are developing. Our
competitors may succeed in obtaining FDA or other regulatory approvals for
product candidates before we do. In particular, we face direct competition from
many companies focusing on delivery technologies. Products resulting from our
research and development efforts, if approved for sale, may not compete
successfully with our competitors' existing products or products under
development.
We will depend on third parties to manufacture and market our products.
We do not have, and do not intend to develop, internal facilities for the
manufacture of any of our products for clinical or commercial production. We
will need to develop relationships with third-party manufacturing resources,
enter into collaborative arrangements with licensees or other parties which have
established manufacturing capabilities or elect to have other third parties
manufacture our products on a contract basis. We expect to be dependent on such
collaborators or third parties to supply us in a timely way with products
manufactured in compliance with standards imposed by the FDA and foreign
regulators. The manufacturing facilities of contract manufacturers may not
comply with applicable manufacturing regulations of the FDA nor meet our
requirements for quality, quantity or timeliness.
In addition, we have no direct experience in marketing, sales or
distribution, and we do not intend to develop a sales and marketing
infrastructure to commercialize pharmaceutical products. If we develop products
eligible for commercial sale, we will need to rely on third parties such as
licensees, collaborators, joint venture partners or independent distributors to
market and sell those products. We may not be able to obtain access to a
marketing and sales force with sufficient technical expertise and distribution
capability. Also, we will not be able to control the resources and
8
effort that a third party will devote to marketing our products. If we are
unable to develop and maintain relationships for the necessary marketing and
sales capabilities, we may fail to gain market acceptance for our products, and
our revenues could be impaired.
We depend on key personnel to develop our products and pursue collaborations.
We are highly dependent on Dr. David Platt, President and Chief Executive
Officer, and Dr. Anatole Klyosov. Dr. Klyosov is a member of our Scientific
Advisory Board and he owns 50% of MIR International, Inc., which provides
consulting services regarding our research and development. The loss of either
of these persons, or failure to attract or retain other key personnel, could
prevent us from pursuing collaborations or developing our products and core
technologies. We have not entered into an employment agreement with Dr. Platt.
Neither Dr. Platt nor Dr. Klyosov has entered into an assignment of inventions
or confidentiality agreement with us.
Recruiting and retaining qualified scientific personnel to perform research
and development work are critical to our success. There is intense competition
for qualified scientists and managerial personnel from numerous pharmaceutical
and biotechnology companies, as well as from academic and government
organizations, research institutions and other entities. In addition, we may
face particular difficulties because there is a limited number of scientists
specializing in carbohydrate chemistry, a principal focus of our company. We
expect to rely on consultants and advisors, including our scientific and
clinical advisors, to assist us in formulating our research and development
strategy. Any of those consultants or advisors could be employed by other
employers, or be self-employed, and might have commitments to, or consulting or
advisory contracts with, other entities that may limit their availability to us.
Such other employment, consulting or advisory relationships could place our
trade secrets at risk, even if we require non-disclosure agreements.
A former employer of our President alleged violation of his noncompetition
agreement.
SafeScience, Inc. (now known as GlycoGenesys, Inc.), former employer of Dr.
David Platt, our President and Chief Executive Officer, alleged in a letter
dated February 15, 2001, that his engagement with our business is a violation of
a noncompetition covenant he has with SafeScience. In a letter dated February
19, 2001, Dr. Platt responded, stating that our business is not competitive
because, among other things, we are developing methods to reduce toxicity of
currently existing chemotherapy drugs, whereas SafeScience is engaged in new
drug development. Counsel for SafeScience indicated a willingness to resolve
these matters but attempts to set up a meeting were unsuccessful. We cannot
assure you that Safe Science will not proceed to take further action.
We face potential difficulties in obtaining product liability and related
insurance.
We do not have product liability or other professional liability insurance.
In the future, we may, in the ordinary course of business, be subject to
substantial claims by, and liability to, persons alleging injury as a result of
taking products we have under development. If we are successful in having
products approved by the FDA, the sale of such products would expose us to
additional potential product liability and other claims resulting from their
use. This liability may result from claims made directly by consumers or by
pharmaceutical companies or others selling such products. We do not currently
have any product liability or professional liability insurance, and it is
possible that we will not be able to obtain or maintain such insurance on
acceptable terms or that any insurance obtained will provide adequate coverage
against potential liabilities. Our inability to obtain sufficient insurance
coverage at an acceptable cost or otherwise to protect against potential product
liability claims could prevent or limit the commercialization of any products we
develop. A successful product liability claim in excess of our insurance
coverage could exceed our net worth. While we desire to reduce our risk by
obtaining indemnity undertakings with respect to such claims
9
from licensees and distributors of our products, we may not be able to obtain
such undertakings and, even if we do, they may not be sufficient to limit our
exposure to claims.
Health care cost containment initiatives may limit our returns.
Our ability to commercialize our products successfully will be affected by
the ongoing efforts of governmental and third-party payors to contain or reduce
the cost of health care. Governmental and other third-party payors increasingly
are attempting to contain health care costs by:
o challenging the prices charged for health care products and services
o limiting both coverage and the amount of reimbursement for new
therapeutic products
o denying or limiting coverage for products that are approved by the FDA
but are considered experimental or investigational by third-party
payors
o refusing in some cases to provide coverage when an approved product is
used for disease indications in a way that has not received FDA
marketing approval
In addition, the trend toward managed health care in the United States, the
growth of organizations such as health maintenance organizations, and
legislative proposals to reform healthcare and government insurance programs
could significantly influence the purchase of healthcare services and products,
resulting in lower prices and reducing demand for our products.
Even if we succeed in bringing any products to the market, they may not be
considered cost-effective and third-party reimbursement might not be available
or sufficient. If adequate third-party coverage is not available, we may not be
able to maintain price levels sufficient to realize an appropriate return on our
investment in research and product development. In addition, legislation and
regulations affecting the pricing of pharmaceuticals may change in ways adverse
to us before or after any of our proposed products are approved for marketing.
While we cannot predict whether any such legislative or regulatory proposals
will be adopted, the adoption of such proposals could make it difficult or
impossible to sell our products.
Environmental regulations may affect our manufacturers and other contractors.
Pharmaceutical research and development involves the controlled use of
hazardous materials including but not limited to certain hazardous chemicals and
radioactive materials. In connection with research, development and
manufacturing activities, biotechnology and biopharmaceutical companies are
subject to federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials, biological specimens and
wastes. Since we do not anticipate building in-house research, development or
manufacturing facilities, but plan to have these activities conducted by
contractors and other third parties, we do not anticipate that we will be
directly affected by environmental regulations. However, our contractors and
others conducting research, development or manufacturing activities for us may
be required to incur significant costs to comply with environmental and health
and safety regulations in the future, and this could in turn affect our costs of
doing business and might ultimately interfere with timely completion of research
or manufacturing programs if those third parties are unable to comply with
environmental regulatory requirements.
Our ability to conduct animal testing could be limited in the future.
10
Our research and development activities have involved, and will continue to
involve, animal testing. Such activities have been the subject of controversy
and adverse publicity. Animal rights groups and other organizations and
individuals have attempted to stop animal testing activities by pressing for
legislation and regulation in these areas. To the extent the activities of these
groups are successful, our business could be materially harmed.
Stock prices for biopharmaceutical and biotechnology companies are volatile.
The market price for securities of biopharmaceutical and biotechnology
companies historically has been highly volatile, and the market from time to
time has experienced significant price and volume fluctuations that are
unrelated to the operating performance of such companies. Fluctuations in the
trading price or liquidity of our common stock may adversely affect our ability
to raise capital through future equity financings.
Factors that may have a significant impact on the market price and
marketability of our common stock include:
o announcements of technological innovations or new commercial
therapeutic products by us, our collaborative partners or our present
or potential competitors
o announcements by us or others of results of preclinical testing and
clinical trials
o developments or disputes concerning patent or other proprietary rights
o adverse legislation, including changes in governmental regulation and
the status of our regulatory approvals or applications
o changes in health care policies and practices
o economic and other external factors, including general market
conditions
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. If a securities class action suit is filed against us, we would
incur substantial legal fees and our management's attention and resources would
be diverted from operating our business in order to respond to the litigation.
Our stock is not listed on any exchange or quoted on Nasdaq.
We have not listed our capital stock on any exchange and do not foresee
that in the near-term we would be able to meet the listing standards for any
exchange or for the Nasdaq National Market or the Nasdaq SmallCap Market. We are
contemplating taking, but have not yet taken any, steps to permit our shares to
be traded over the counter including on the over-the-counter bulletin board
(OTCBB) sponsored by the National Association of Securities Dealers. There may
be, but we cannot assure, a market for our shares on the OTCBB. Accordingly, our
stockholders may not find a market for their shares and be unable to sell their
shares when they want or at a favorable price.
If our stock is a "penny stock," your ability to trade our shares could be
adversely affected.
The SEC has adopted regulations imposing limitations upon the manner in
which certain low priced equity securities, referred to as "penny stocks," are
publicly traded. Under these regulations, a penny stock is defined as any equity
security that has a market price of less than
11
$5.00 per share, subject to certain exceptions. These exceptions include any
equity security listed on a national exchange, the Nasdaq National Market System
or SmallCap Market and any equity security issued by a company meeting specified
requirements for net tangible assets or revenues. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the associated risks. The regulations also require certain
broker-dealers who recommend penny stocks to persons other than established
customers and certain accredited investors to make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. These requirements make it more difficult to effect
transactions in penny stocks as compared to other securities.
Our common stock is not yet publicly traded. Since we do not meet any of
the requirements that would exempt us from the $5.00 per share market price
requirement, our stock must trade above that level in order for it not to be
classified as a "penny stock." We are uncertain that trading prices at this
level can be established or sustained. Should trading prices fall below $5.00
per share, our shares could be considered a "penny stock" and your ability to
trade our shares could accordingly be adversely affected.
Purchasers of stock may be subject to substantial dilution.
We are offering our common stock to the public at a price that is
substantially higher than the net tangible book value per share of our common
stock, as discussed in "Dilution," below. If you purchase common stock that
Pro-Pharmaceuticals is offering with this prospectus, you will therefore incur
immediate and substantial dilution.
Four principal stockholders own enough shares to control the company.
Four of our principal stockholders, David Platt, James Czirr, Offer Binder
and Anatole Klyosov, own or control approximately 82% of our outstanding shares
of our common stock, and Dr. Platt and Mr. Czirr together own approximately 65%.
Even if we sell all of the 1,428,572 shares that we are currently offering in
this prospectus, the four stockholders named above would still control
approximately 75% of our common stock, with Dr. Platt and Mr. Czirr together
controlling about 60%. Some or all of these stockholders, acting in concert,
will be able to continue to elect the Board of Directors and take other
corporate actions requiring stockholder approval, such as recapitalization or
other fundamental corporate action, as well as dictate the direction and
policies of our company. Such concentration of ownership also could have the
effect of delaying, deterring or preventing a change in control of the company
that might otherwise be beneficial to stockholders.
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking" statements that involve risks
and uncertainties. Forward-looking statements include statements about the
desired or believed utility and market for our potential products, future of the
biotechnology and biopharmaceutical industry, statements about future business
plans and strategies, and most other statements that are not historical in
nature. Because forward-looking statements involve risks and uncertainties,
there are factors, including those discussed below, that could cause actual
results to be materially different from any future results, performance or
achievements expressed or implied. Accordingly, readers should not place undue
reliance on forward-looking statements. We undertake no obligation to publicly
release the result of any revision of these forward-looking statements to
reflect events or circumstances after the date they are made or to reflect the
occurrence of unanticipated events.
12
USE OF PROCEEDS
If we sell all of the 1,428,572 shares we are offering by this prospectus
through Atlas Capital, our estimated proceeds would be $4,455,000 after
deducting the estimated placement fee and offering expenses. We cannot assure
you that we will succeed in selling any or all of the shares of common stock we
are currently offering. See "Risk Factors -- We may not be able to sell all of
the shares we are currently offering" for further discussion about risks
connected with this offering.
We will not receive any proceeds from the sale of common stock by the
selling security holders.
We expect to use approximately $3,200,000 of the aggregate net proceeds of
this offering to fund our research and development efforts, including ongoing
development of our technologies, pre-clinical and clinical testing and other
costs associated with our pharmaceutical discovery and development programs. The
remainder of the aggregate net proceeds will be used for working capital and
general corporate purposes including general and administrative ($1,000,000),
equipment and leaseholds ($100,000) and contingency allowance ($150,000).
The amounts actually expended for each purpose may vary significantly
depending upon a number of factors, including:
o the progress of our drug delivery research and development efforts
o our ability to establish collaborative arrangements
o progress with pre-clinical studies and clinical trials
o the time and costs involved in obtaining regulatory approvals
o the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims
o competing technological and market developments
o changes in our collaborative relationships, if any
o costs associated with the acquisition of technology, if any
o evaluation of the commercial viability of potential products
Based on current projections, we estimate that our existing capital
resources, together with the net proceeds from this offering, will be sufficient
to fund our requirements for approximately twelve months. Pending such uses, we
intend to invest the aggregate net proceeds from this offering in short-term,
investment-grade, interest-bearing securities. We may also use a portion of the
net proceeds to acquire or invest in businesses, products and technologies that
are complementary to ours, although no agreements have been entered into as of
the date of this prospectus with respect to any such acquisition or investment.
See "Plan of Operation," below, for further discussion of our operating plans.
13
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market for Our Common Stock
There is currently no market for our common stock. We anticipate that we
will retain a market maker to apply for trading of our common stock on the
Over-the-Counter Bulletin Board following effectiveness of this registration
statement. Our articles of organization provide that our common stock may not be
sold without our approval until the 90th day after the date our common stock is
registered under the Securities Exchange Act of 1934. We registered our common
stock under the Exchange Act by filing a Registration Statement on Form 10-SB,
which became effective as of August 13, 2001. Accordingly, our common stock
became eligible for transfer, subject to applicable federal and state securities
law requirements, as of November 11, 2001.
Shares Subject to Future Issuance
Convertible Notes
As of November 15, 2001, we had outstanding $195,000 principal amount of
notes which are convertible into 97,500 shares of our common stock at a
conversion price of $2.00 per share. The $195,000 principal amount represents
the notes that are outstanding following an early conversion offer we made to
noteholders as described below under "Plan of Operation -- Liquidity and Capital
Resources."
Common Stock Warrants
Private Placement (terminated)
We began in May 2001 a private placement of securities consisting of
1,470,000 units, offered at $3.50 each, of one share of our common stock and one
warrant to purchase one share of our common stock. Such purchases will result in
our issuing 689,300 shares of our common stock and warrants to purchase 689,300
shares of our common stock. We granted one purchaser of a large block of units
an option to purchase an additional 200,000 units on the same terms as that
investor's current purchase. For detail about this private placement, see "Plan
of Operation -- Liquidity and Capital Resources" below. We abandoned the private
placement as of December 3, 2001, and terminated all offering activity on or
before that date.
Warrants Issued to Former Holders of Convertible Notes
In response to our offer for early conversion of our convertible notes,
holders of an aggregate of $1,115,602 of principal amount of the convertible
notes have requested conversion of their notes. This will result in issuance of
an additional 557,801 common stock purchase warrants identical to the warrants
being offered in our terminated private placement.
Stock Incentive Plan
On October 18, 2001, our 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 nonemployees such as directors and consultants.
The Board reserved 2,000,000 of our shares of common stock for awards pursuant
to the plan, all of which reserved shares could be awarded as incentive stock
options. The Board agreed to recommend the plan to our stockholders for approval
at the next annual or special meeting
14
of stockholders. As of November 26, 2001, we have granted Burton Firtel, a
director of our company, a non-qualified stock option under the plan to purchase
200,000 shares of common stock. The option is immediately exercisable as to
120,000 shares. See "Management -- Compensation of Directors and Advisors" for
further information about this option grant.
Shares Eligible for Sale Pursuant to Rule 144 under the Securities Act
As of November 21, 2001, 15,148,146 shares of our common stock are
outstanding, including 1,221,890 shares which were issued as a dividend to the
stockholders of Developed Technology Resource, Inc., and 12,354,670 shares which
were issued to the former shareholders of Pro-Pharmaceuticals (Massachusetts).
All of our outstanding shares, except for the 1,221,890 shares issued as a
dividend to the Developed Technology stockholders, are restricted securities
within the meaning of Rule 144 under the Securities Act of 1933 and may not be
sold in the absence of registration under the Securities Act unless an exemption
from registration is available, including an exemption contained in Rule 144
under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, as that term is defined in
Rule 144 under the Securities Act, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period, a number of
such shares that does not exceed the greater of (1) one percent of the then
outstanding shares of common stock (approximately 151,481 shares as of November
21, 2001) or (2) the average weekly trading volume in the common stock in the
Over-the-Counter market during the four calendar weeks preceding the date on
which notice of such sale is filed, provided certain requirements concerning
availability of public information, manner of sale and notice of sale are
satisfied. In addition, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement, in
order to sell shares of common stock which are not restricted securities.
Under Rule 144(k), a person who is not an affiliate and has not been an
affiliate for at least three months prior to the sale and who has beneficially
owned shares for at least two years may resell such shares without compliance
with the foregoing requirements. In meeting the one- and two-year holding
periods described above, a holder of shares can include the holding periods of a
prior owner who was not an affiliate. The one- and two-year holding periods
described above do not begin to run until the full purchase price or other
consideration is paid by the person acquiring the shares from the issuer or an
affiliate.
The 12,354,670 shares of our common stock issued to the shareholders of
Pro-Pharmaceuticals (Massachusetts) in exchange for their Pro-Pharmaceuticals
(Massachusetts) common stock will become eligible for sale pursuant to Rule 144
under the Securities Act on May 15, 2002, which is one year from the date of the
exchange. We have no agreements with any holder of our common stock or warrants
that would require us to register any common stock under the Securities Act for
sale by security holders.
Holders
As of November 21, 2001, there were 180 holders of record of our common
stock, although we believe that there are additional beneficial owners of our
common stock who own their shares in "street name."
Dividends
There have been no cash dividends declared on our common stock since our
company was formed. Dividends are declared at the sole discretion of our Board
of Directors.
15
PLAN OF OPERATION
This Plan of Operation and other parts of this prospectus contain
forward-looking statements that involve risks and uncertainties. All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of a number of
factors, including those set forth in "Risk Factors" and elsewhere in this
prospectus.
Liquidity and Capital Resources
We were incorporated in January 2001 for the purpose of effecting a
business combination with Pro-Pharmaceuticals, Inc., a Massachusetts
corporation. The transaction included a merger in which we are the surviving
corporation. The business combination has been accounted for using purchase
accounting, with the assets and liabilities of the acquired company being
recorded at fair value. The merger and related transactions are discussed below
under "Business -- Initial Corporate Organization, Acquisition and Merger."
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.
Commencing in December 2000 and continuing through May 2001,
Pro-Pharmaceuticals (Massachusetts) issued convertible notes with an aggregate
principal amount of $1,310,602 to "accredited investors" as such term is defined
in Regulation D promulgated under the Securities Act of 1933. These notes are
now our corporate obligations as a result of the merger with Pro-Pharmaceuticals
(Massachusetts). The notes have an interest rate of 10% per year and mature one
year from their issuance dates. The notes are convertible into shares of our
common stock, at a conversion price of $2.00 per share. Pursuant to our early
conversion offer, described below, holders of an aggregate of $1,115,602 of
principal amount of the convertible notes have requested conversion of their
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. We abandoned this
private placement as of December 3, 2001, and terminated all offering activity
on or before that date. Purchasers under the private placement had to qualify as
"accredited investors" as such term is defined in Regulation D. The offered
securities comprised up to 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. We sold 689,300 units as of the date we abandoned the
offering. 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 agreements with three investors in this offering who
were each willing to invest a substantial amount of funds, we sold units at
$3.00 each, as follows: 133,400 of the units for a total of $400,200; 66,700
units for a total of $200,100; and 150,000 units for a total of
16
$450,000. We reduced each 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 the earliest of these investors an option
to purchase an additional 200,000 units on the same terms as that 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 these investors, we are notifying each previous purchaser of the
sale to those investors. This could result in our agreeing to refund some or all
of the previous investments.
As of the termination of this private placement in December 2001, we had
received proceeds of $2,237,500 from the sale of the securities offered in this
private placement. Such purchases will result in our issuing 689,300 shares of
our common stock and warrants to purchase 689,300 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 terminated
private placement. In the case of a noteholder who accepted our offer, the
warrant we issue is 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 December 31, 2002, of
$4,500,000, comprised of anticipated expenditures for research and development
($3,200,000), general and administrative ($1,000,000), equipment and leaseholds
($100,000) and contingency allowance ($150,000).
Additional funds may be raised through additional equity financings, as
well as borrowings and other resources. With the capital we have raised to date,
and the additional $5,000,000 under the offering described in this prospectus
that 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.
17
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 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.
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2001,
and also our capitalization as adjusted to reflect the sale of 1,428,572 shares
of our common stock that we are offering with this prospectus, at an assumed
maximum public offering price of $3.50 per share, and receipt of net proceeds
from this sale of $4,455,000. See "Use of Proceeds" for further information
about our anticipated proceeds to us from this offering.
September 30, 2001
-------------------------
Actual As Adjusted
------ -----------
Common voting shares, $0.001 par value,
100,000,000 shares authorized and 14,727,226
shares outstanding actual and 16,155,798
shares outstanding pro forma as adjusted (1) $ 14,728 $ 16,156
Undesignated shares, $0.01 par value, 5,000,000
shares authorized, none issued -- --
Private placement units of common stock and
warrants 883,200 883,200
Private placement units subscription receivable (73,500) (73,500)
Additional paid-in capital 1,288,005 5,741,577
Stock subscription receivable -- --
Deficit accumulated during development stage (1,626,872) (1,626,872)
----------- -----------
$ 485,561 $ 4,940,561
=========== ===========
(1) The number of shares outstanding at September 30, 2001, excludes 420,920
shares of common stock issued after September 30, 2001 through November 21,
2001. Also excluded are: (i) 689,300 shares issuable on exercise of
warrants sold in our terminated private placement; (ii) 400,000 shares
(including 200,000 warrant shares) issuable on exercise of the option
granted to an investor in our terminated private placement to purchase an
additional 200,000 units; (iii) 557,801 shares issuable on exercise of
warrants granted to certain of our holders of convertible notes in
connection with their early conversion of the notes; and (iv) 200,000
shares issuable on exercise of a non-qualified stock option granted to one
of our directors. For details about the warrants and investor option, see
"Plan of Operation -- Liquidity and Capital Resources," above. For details
about the director option, see "Management -- Compensation of Directors and
Advisors," below.
18
SELECTED FINANCIAL DATA
The income statement data for the period from July 10, 2000 (inception)
through December 31, 2000, and balance sheet data at December 31, 2000, are
derived from our financial statements that have been audited by Scillia Dowling
& Natarelli LLC, independent auditors, and are qualified by reference to those
audited financial statements and related notes to the statements, which are
included elsewhere in this prospectus. The income statement data for the nine
months ended September 30, 2001, and balance sheet data at September 30, 2001,
are derived from unaudited financial statements which are included elsewhere in
this prospectus. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which our management considers
necessary for a fair presentation of the information set forth in those
statements. Operating results for the nine months ended September 30, 2001, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. You should read the data set forth below in
conjunction with "Plan of Operation," above, and the financial statements and
notes included in this prospectus.
Period from
July 10, 2000
(inception) (Unaudited)
to Nine Months Ended
December 31, 2000 September 30, 2001
----------------- ------------------
Income Statement Data
Revenue $ -- $ --
Net loss $ (112,927) $ (1,513,945)
Net loss per share $ (0.01) $ (0.12)
Outstanding Shares-Basic 11,119,203 13,074,466
(Unaudited)
December 31, 2000 September 30, 2001
----------------- ------------------
Balance Sheet Data
Total assets $ 227,940 $ 1,170,597
Working capital $ 157,378 $ 378,105
Long-term debt $ 284,500 $ 195,000
Stockholders' (deficiency)/equity $ (103,927) $ 485,561
19
BUSINESS
Initial Corporate Organization, Acquisition and Merger
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 below under "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 corporation. We acquired these shares in exchange for 12,354,670
shares of our common stock. As a result, that corporation became our wholly
owned subsidiary, and its shareholders through an exchange owned approximately
91% of the outstanding shares of our common stock, with the Developed Technology
shareholders owning the remaining 9%. See "Security Ownership of Certain
Beneficial Owners and Management" for information about the ownership of our
common stock. After the acquisition, we merged with the Massachusetts
corporation and are the surviving corporation in the merger. The transaction has
been accounted for as a reverse acquisition in which the predecessor corporation
purchased our outstanding shares, due to the change in control of the entity.
The business combination has been accounted for using purchase accounting, with
the assets and liabilities of the acquired company being recorded at fair value.
Concurrent with the acquisition, all of our original officers and directors
resigned and were succeeded by the officers and directors of the predecessor
Massachusetts corporation, except for Peter Hauser, who has served a director
from our incorporation in January 2001. He had also served as Vice President
from that time until the acquisition.
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. Our articles of organization
provide that our common stock may not be sold without our approval until the
earlier of May 1, 2003 or the 90th day after the date our common stock is
registered under the Securities Exchange Act of 1934. Accordingly, our common
stock became eligible for transfer, subject to applicable federal and state
securities law requirements, as of November 11, 2001. We anticipate that we will
retain a market maker to apply for trading of our common stock on the
Over-the-Counter Bulletin Board following effectiveness of this registration
statement.
We are continuing the business of Pro-Pharmaceuticals (Massachusetts),
which has been attempting to develop a technology that will reduce the toxicity
and improve the efficacy of current drug therapies, including cancer
chemotherapies, by combining the drugs with a number of specific carbohydrate
compounds. This is now the principal focus of our business, and is the basis for
the business discussion included in this registration statement.
Our address is 189 Wells Avenue, Suite 200, Newton, Massachusetts 02459.
Our telephone number is (617) 559-0033, fax number is (617) 928-3450, e-mail
address is Plattpharma@aol.com, and our website address is
www.pro-pharmaceuticals.com.
20
Business of Pro-Pharmaceuticals
Overview
We are an early-stage research and development pharmaceutical company that
intends initially to identify, develop and seek regulatory approval of
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. Our fundamental objective is to increase the body's
tolerance to the drugs by enabling delivery of the drugs while protecting
healthy tissue. This would also permit use of larger doses of the drugs, since
current dosages are generally limited due to concerns relating to their toxic
effects on healthy cells. Our carbohydrate-based drug delivery system may also
have applications for drugs now used to treat other diseases and chronic health
conditions.
In technical terms, we seek to "reformulate" existing cancer chemotherapy
drugs with non-toxic carbohydrate-based compounds that recognize and adhere to
specific binding sites on the surface of cancer cells. Reformulation of
chemotherapy drugs already approved by the U.S. federal Food and Drug
Administration has the following benefits for our business:
o Our carbohydrate-based drug delivery system requires less time for
development and FDA approval, and thus reaches the market sooner,
because the active chemotherapy drugs are already approved and in
widespread use for cancer treatment.
o We expect fewer risks in drug development because our
carbohydrate-based compounds would be combined with drugs already in
widespread use. Use of carbohydrate compounds with increased capacity
to bind to receptors only on cancer cells and combining the drug with
a harmless carbohydrate polymer will reduce the toxic effect on
healthy cells and permit better calibration (including possible
increase) of dosages to diseased tissue.
o We foresee a ready demand for chemotherapy that is less toxic and has
greater efficacy. We believe the pharmaceutical industry would respond
favorably to drug delivery systems to upgrade chemotherapies which
patients would tolerate more easily. The industry would likely also be
receptive to patent-protected drug delivery systems that "attach" to
chemotherapies whose patent protection has expired.
o We believe that the development of drug delivery systems to upgrade
these widely used drugs can be accomplished with much less investment
compared to the typical expenditures made by large pharmaceutical
companies for a new drug launch.
Cancer and Therapy Issues
Cancer is a disease characterized by uncontrolled growth and spread of
abnormal cells. The disease may be caused by patient-specific factors such as
genetic predisposition, immune deficiency, hormones, diet and smoking, or
external factors such as exposure to a toxic environment. It is the second
leading cause of death in the United States, resulting in over 550,000 deaths
annually. The National Cancer Advisory Board reports that more than 8 million
persons in the U.S. have cancer. Estimates claim that approximately one in three
Americans will be diagnosed with the disease their lifetime. About 1.2 million
new cases are diagnosed in the U.S. each year. As populations age in the U.S.,
Canada and other industrialized nations, the incidence of the disease is
expected to increase. About 6 million persons worldwide die annually from
cancer.
The most widely used methods to treat cancer are surgery, radiation and
chemotherapy. Cancer patients often receive a combination of these treatments,
and about half of all patients receive chemotherapy. Both radiation and
chemotherapy have significant limitations that often result in treatment
failure. In the case of chemotherapy, these limitations include:
21
o Toxicity. Most chemotherapy agents kill cancer cells by disrupting the
cell division process. Cells are killed once they begin to undergo
division and replication. Although these agents are effective on
cancer cells, which generally grow rapidly through cell division, they
also kill healthy non-cancerous cells as these cells undergo ordinary
division. This is particularly apparent in fast-growing normal cells,
such as blood cells forming bone marrow, in the digestive tract, hair
follicles, and reproductive cells. As the chemotherapy harms healthy
tissue, the effectiveness of the drug is limited because dosage levels
and treatment frequency cannot exceed tolerance levels for
noncancerous cells. Moreover, the chemotherapy regimen often
dramatically diminishes the quality of a patient's life through its
physical and emotional side effects.
o Inability to Selectively Target Diseased Cells. The administration of
chemotherapy occurs in such a way that the drug reaches both healthy
and diseased tissue. Normal cells are generally as receptive as tumors
to the toxic effects of chemotherapy. Without the ability to target
the drug exclusively to cancerous tissue, chemotherapy dosages must be
kept within a range that healthy tissue can tolerate, thus reducing
the optimal effectiveness of chemotherapy on diseased tissue.
Our Business Strategy and Initial Objectives
We seek to increase the effectiveness of current cancer treatment and other
drugs. The initial objectives of our business strategy are as follows:
o Verify and extend the carbohydrate-based drug enhancement concept
encompassing our approach for developing novel cancer chemotherapy
products.
o Expand and enhance clinical applications of at least five widely used
chemotherapy drugs (5-Fluorouracil, Adriamycin, Taxol, Cytoxan and
Cisplatin) by combining them with our carbohydrate-based drug delivery
system.
o Demonstrate the safety and efficacy of such product candidates by
means of preclinical evaluation and submitting investigational new
drug ("IND") applications to the FDA.
o Accelerate commercialization by identifying products that qualify for
fast-track designation by the FDA (further described below). We plan
to develop products to be used in treatment of types and stages of
cancer for which treatments are now inadequate. The FDA has adopted
fast-track and priority procedures for accelerating the approval of
oncology agents addressing such needs, potentially reducing the time
required to bring new drugs to market. Once approved, we would seek to
expand the market potential of our products by seeking approval for
indications in larger cancer patient populations.
o Leverage our carbohydrate-based drug enhancement technology by
applying it to other FDA-approved drugs, including drugs for
conditions or ailments other than cancer, that would benefit from
reduced toxicity and/or greater efficacy. This strategy would enable
us to increase the portfolio of drugs to which our technology may be
applied without corresponding development risk and expense of creating
new drugs.
o Apply our drug enhancement system with the aim of extending the patent
life of current drugs, or in some cases drugs with expired patents,
creating new patent protection. For example, the patent protections of
the five cancer drugs with which we propose to work have all expired
or long been in the public domain. Non-cancer drugs whose patents have
expired, and that we might apply our carbohydrate-based drug
enhancement
22
technology to include: Prozac (anti-depressant manufactured by Eli
Lilly and Company); Prilosec (anti-ulcerative manufactured by
AstraZenaca PLC); and Zoloft (anti-depressant manufactured by Pfizer
Inc.).
Drug Delivery Technologies
General
The ultimate objective of enhanced drug delivery is to control and optimize
the localized release of a drug at the target site and rapidly eliminate from
the body the portion of the drug that was not delivered to the diseased tissue.
Conventional drug delivery systems such as controlled release, sustained
release, transdermal systems, and others are based on a physical erosion process
for delivering active product into the systemic circulation over time with the
objective of improving compliance by patients with a therapy regimen. These
systems do not address the biologically important issues such as site targeting,
localized release and elimination of undelivered drug from the body. The major
factors that impact the achievement of this ultimate goal are:
o Physical characteristics of a drug. These characteristics affect,
among other things, the drug's interactions with the intended
pharmacological target sites and undesired areas of toxicity; and
o Biological characteristics of the diseased area. These characteristics
impact the ability of a drug to selectively interact with the intended
target site to allow the drug to express the desired pharmacological
activity.
Both of these factors are important in increasing efficacy and reducing toxicity
of cancer drugs. Biotechnology affords a new opportunity in drug delivery
techniques by taking advantage of biological mechanisms such as drug-cell
recognition and interactions, and particular physical characteristics of
cancerous tissue.
Our Focus: Carbohydrate-Based Drug Enhancement Technology
We are attempting to develop a carbohydrate-based drug delivery technology
to direct cancer drugs more selectively to tumor tissue so as to reduce the
toxic side effects and improve the tumor reduction capacity of chemotherapy
drugs now in use. Carbohydrates are found in the structural elements of cell
walls and, among other functions, serve as recognition elements in biomolecules,
enabling molecule-cell recognition, and hence, molecular targeting. The dense
concentration of chemical functional groups within carbohydrates compared to
other chemicals suits them for use in cell recognition applications in
biological systems.
Our drug enhancement technology is intended to take advantage of the
following biological mechanisms to improve drug delivery:
o Disease-specific carbohydrate recognition; and
o Enhanced permeability and retention in tumors.
Our technology does not change the chemistry of the drugs themselves, but
rather "attaches" cancer drugs to proprietary carbohydrate compounds, which
interact with sugar-specific proteins on the surface of the tumor cell. Because
of these cell surface interactions, we believe that these compounds will
increase cell permeability, resulting in increased targeted absorption of drugs
by cancer cells. These cell surface interactions may also reduce the cells'
ability to adhere to each
23
other as well as to normal tissue, resulting in diminished ability of cancer
cells to metastasize, or spread to other tissue systems.
Our preliminary studies have led to the identification of certain mannans,
a group of polysaccharides, 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 in many respects
to glucose. While mannans can be isolated from plant or microbial sources, we
use mannans isolated from plants. We believe that a mannan with suitable
chemical structure and composition, when attached to or combined with the active
agent of a chemotherapy drug, increases cellular membrane fluidity and
permeability, thereby assisting delivery of the drug. Also, our studies have
shown that mannans of a certain structure may be able to protect healthy tissue
from the toxic effects of chemotherapy drugs, and also may be able to increase
therapeutic efficacy of such drugs.
Initial Chemotherapy Applications
We believe that our carbohydrate-based drug enhancement technology applies
to essentially any oncology drug whose delivery to the target can be improved by
utilizing sugar-specific recognition at the cancer cell surface. Initially, we
are studying the effect of our carbohydrate-based system on the toxicity and
efficacy of selected cancer drugs. We have conducted preliminary studies that
indicate that certain of our mannans, when combined with some of these drugs,
may significantly reduce the toxic effects of the drugs and may also increase
therapeutic efficacy of such drugs.
Our initial program is designed to be "risk-contained" in that it will
focus on proven drugs for which there are already a great deal of data on their
therapeutic efficacy and toxicity, along with an accumulated knowledge of their
limitations. We intend to apply our drug delivery technology initially to five
widely used chemotherapy agents: 5-Fluorouracil, Adriamycin, Taxol, Cytoxan and
Cisplatin. Each of these drugs is among the most popular drugs used in cancer
chemotherapy treatment in the United States, and for each of these drugs there
is a strong need for improving their therapeutic efficacy and decreasing their
toxicity.
o 5-Fluorouracil (5-FU) is a fluorinated pyrimidine (a nucleic acid
component). It interferes with the synthesis of DNA and inhibits the
formation of RNA. Since DNA and RNA are essential for cell division
and growth, the effect of 5-FU provokes unbalanced growth and death of
the cell. The effect of DNA and RNA deprivation is most marked on
those cells which grow more rapidly and which take up the 5-FU at a
more rapid rate, such as cancer cells. 5-FU is effective against
cancers of the colon, rectum, breast, stomach and pancreas. This drug
is also toxic, resulting in side effects such as nausea, vomiting,
mouth sores, gastrointestinal ulceration and bleeding, loss of hair,
skin darkening and fatigue. 5-FU is manufactured by Roche Laboratories
for intravenous administration. Originally patented in the late 1950s,
its patent protection has expired.
o Adriamycin (generic name -- doxorubicin hydrochloride) is a cytotoxic
agent that selectively kills malignant cells and causes tumor
regression. It binds to the DNA, and presumably inhibits nucleic acid
synthesis. It is used to treat, among others, leukemia, cancers of the
breast, ovaries, bladder, stomach and thyroid, as well as Hodgkin's
and non-Hodgkin's lymphoma. Adriamycin is toxic, resulting in side
effects such as nausea, vomiting, loss of hair, mouth sores, colon
ulceration and heart damage. It is manufactured by Pharmacia Upjohn
for intravenous administration. Originally patented in 1971, its
patent protection has expired.
24
o Taxol (generic name -- paclitaxel) is a relatively new anti-leukemic
and anti-tumor agent, possessing a cytotoxic activity. It suppresses
cell division by binding to so-called microtubules that form in a
cell's nucleus to help move the chromosomes around during the division
process. Taxol is most effective against ovarian and advanced breast
cancers, particularly after failure of standard chemotherapy. Studies
indicate that it might be effective against leukemia, lung carcinoma,
colon carcinoma, renal carcinoma, melanoma, and CNS carcinoma. Taxol
is toxic, and patients receiving it often develop problems ranging
from rashes, drop in blood pressure and anemia to major breathing
problems, hives and/or fluid buildup around the heart and bone marrow
suppression. Almost all patients experience hair loss from Taxol, and
some patients experience severe hypersensitivity reactions to Taxol.
It is manufactured by Bristol-Myers-Squibb Company for intravenous
administration. We believe that there are no patents covering the
composition of Taxol (paclitaxel).
o Cytoxan (generic name -- cyclophosphamide) has action leading to
cross-linking of RNA of tumor cells, and thereby interferes with the
growth of susceptible rapidly proliferating malignant cells. It is
effective against a range of cancers, such as malignant lymphomas,
Hodgkin's disease, various leukemias, and cancer of the breast and
ovaries. This drug is toxic, with side effects including nausea,
vomiting, anorexia, diarrhea, skin rash and darkening and, in extreme
cases, heart damage or failure, and secondary malignancies. It is
manufactured by Bristol-Myers-Squibb Company for intravenous and oral
administration. We believe that there are no patents covering the
composition of Cytoxan (cyclophosphamide).
o Cisplatin appears to act by inhibiting DNA synthesis. It is effective
against metastatic testicular and ovarian tumors (typically in
combination with other chemotherapeutic agents, such as Cytoxan,
above), and advanced bladder cancer. This drug is toxic, with side
effects including renal toxicity, nausea, vomiting, anorexia, diarrhea
and anemia. It is manufactured as PLATINOL(R) by Bristol-Myers-Squibb
Company for intravenous injection. We believe that there are no
patents covering the composition of Cisplatin.
Preclinical Animal Studies
As discussed below, using independent laboratories we have conducted
preclinical animal experiments to study the toxicity and efficacy of
5-Fluorouracil (5-FU) and Adriamycin in combination with our mannan compounds.
Toxicity Studies
Results of one toxicity study conducted in early 2001 indicate that one of
our mannan compounds may significantly decrease the toxicity of 5-FU. Ten groups
of five animals each were used. In five groups, treated respectively with a
placebo and one of four different mannans provided by us, the animals showed no
signs of toxicity. That was expected because the animals were not receiving the
toxic drug, and the mannans were not expected to be toxic at all. In four
groups, treated respectively with 5-FU alone and 5-FU in combination with either
of three of the mannans, the animals showed signs of severe toxicity. In one
group, treated with 5-FU in combination with the fourth mannan, no clinical
signs of toxicity were observed. This provides a preliminary indication of
potential reduction in cancer drug toxicity by a carbohydrate-based addition to
the cancer drug.
A second, similar study, also conducted in early 2001, was performed to
test a potential reduction of toxicity of another anticancer drug, Adriamycin,
in combination with each of two mannan compounds selected for the study. Results
indicate that one of the mannan compounds
25
may decrease the toxicity of Adriamycin. In two groups, treated with Adriamycin
alone and Adriamycin in combination with one mannan, the animals showed signs of
severe toxicity. In one group, treated with the same amount of Adriamycin in
combination with the second mannan, four out of the five animals in the group
did not show any clinical signs of toxicity. Again, this provides a preliminary
indication of potential reduction in cancer drug toxicity by a
carbohydrate-based addition to the cancer drug. The fact that two different
cancer drugs with chemically unrelated structures showed a marked reduction of
their toxicity in combination with particular mannans indicates that there might
be some fundamental underlying biological reasons, related to the mannans rather
than to the drugs, for the reduction in toxicity.
The above toxicity studies were conducted by Toxikon Corporation, a
comprehensive compliance FDA-registered service testing laboratory in Bedford,
Massachusetts, that is not affiliated with Pro-Pharmaceuticals. Please see " --
Research" below, for further information about Toxikon Corporation.
In four subsequent preclinical experiments conducted in June and September
2001, we studied on larger animals the toxicity reduction of 5-FU in combination
with the same mannan that demonstrated toxicity reduction in the prior 5-FU
study. These experiments were performed in accordance with FDA guidelines and
recommendations on rats (acute and long-term toxicity study) and dogs (acute and
long-term toxicity study) measuring the effect of the 5-FU/mannan combination on
blood structure and survival of these animals. Preliminary results indicate that
the 5-FU/mannan combination decreased toxicity using this measure because it
resulted in lower animal mortality and decreased loss of blood structure
components in comparison to the results of tests which administered 5-FU alone.
These four experiments were conducted by Redfield Laboratories, Inc., based
on Redfield, Arkansas and licensed by the U.S. Department of Agriculture to
conduct research in laboratory animals. Testing conditions at Redfield
Laboratories are in compliance with the federal Animal Welfare Act. Redfield
Laboratories is not affiliated with Pro-Pharmaceuticals.
Efficacy Study
A preliminary study was performed to test a potential change in therapeutic
efficacy of 5-FU in a combination with that same mannan that decreased toxicity
of the drug in healthy animals (see the first study described in " -- Toxicity
Studies," above). The study was motivated by the desire to test the possibility
that the mannan might diminish both toxicity and efficacy in parallel, if the
mannan were merely competing with 5-FU for binding with cells, healthy or
cancerous. Results of the study demonstrated, however, that the same mannan that
may decrease toxicity of 5-FU may also increase efficacy of the drug when the
drug combined with mannan is administered into cancer-carrying animals. In this
study, we ascertained a decrease in tumor size following administration of 5-FU
alone as well as administration of the 5-FU/mannan combination. When the
5-FU/mannan combination was administered, the time for the tumor to quadruple in
size in the animals increased from 24 days (5-FU alone administered) to 56 days
(5-FU/mannan combination administered) relative to 12 days for control animals
(no drug administered).
The above efficacy study was conducted by Southern Research Institute in
Birmingham, Alabama. Southern Research Institute is an independent,
not-for-profit contract research organization that is not affiliated with our
company. Please see " -- Research" below, for further information about Southern
Research Institute.
26
Carbohydrate-Cancer Drug Formulations
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. These studies were conducted at the Academy of Medical
Sciences, Moscow, Russia.
Although the foregoing studies are encouraging, the results achieved in
preclinical studies with animals are often not duplicated in human patients.
Please see "Risk Factors -- Our product candidates will be based on novel
technologies" above.
Cancer Detection Technology
We have an indirect royalty interest in a cancer detection technology that
may be applied to the detection of soft tissue nodules in human organs, and may
thus assist in the detection of cancerous tissue. A diagnostic system has been
developed which is based on this detection technology. This system uses pressure
to measure the elasticity or hardness of soft tissue, and, through digitization,
provides a clinician with an image of the size and location of nodules in the
tissue. While the detection technology is currently being focused on the
development of a prostate imaging system, the technology is also believed to be
applicable to the detection of nodules or hardness in the breast.
The detection technology is substantially covered by three United States
patents: Patent No. 5,265,612 entitled "Intercavity Ultrasonic Device for
Elasticity Imaging"; Patent No. 5,524,636, dated June 11, 1996 entitled "Method
and Apparatus for Elasticity Imaging"; and Patent No. 5,785,663 dated July 28,
1998, entitled "Method and Device for Mechanical Imaging of Prostate."
The detection technology is owned, and primary development efforts are
being conducted, by ArMed, Inc., a Delaware corporation (formerly ArMed LLC, a
Delaware limited liability company). Artann Corporation, a New Jersey
corporation, and an earlier owner and developer of the detection technology,
transferred the detection technology to ArMed, Inc. in 1996, and in return
received a license to use, develop, manufacture and market a home use breast
cancer system utilizing the detection technology.
Artann Corporation entered into an "Agreement for Transfer of Patent and
Proprietary Rights" dated September 5, 1995, as amended on August 29, 1996, with
our former parent company, Developed Technology. We refer to that agreement as
the "royalty agreement" in this section. We received our rights under the
royalty agreement by assignment from Developed Technology on April 23, 2001.
Armen P. Sarvazyan is the original inventor of the detection technology, is the
principal shareholder of Artann Corporation, and is also a party to the royalty
agreement. Sarvazyan and Artann Corporation, combined, have approximately a 9.5%
equity and voting interest in ArMed, Inc., on a fully diluted basis.
The royalties which we have a right to receive under the royalty agreement
are based on the gross revenues of Artann Corporation and Sarvazyan. Those gross
revenues, if generated, will be obtained by Artann Corporation from (i) the sale
of home use breast cancer detection systems, utilizing the detection technology,
(ii) the licensing or assignment to third parties of the rights to manufacture
and sell breast cancer detection systems utilizing the detection technology, and
(iii) distributions made by ArMed, Inc. to Artann Corporation. The royalty
computation is complex and not readily subject to description, and varies
significantly depending upon the specific application of the detection
technology.
27
We do not anticipate receiving any revenue under the royalty agreement for
at least two years, and we do not expect any revenue we do receive to be
substantial. An independent appraisal of our royalty interest under the royalty
agreement was obtained in March 2001. That appraisal established a fair market
value of our royalty interest at $107,000.
We may exchange our royalty interest for a direct equity interest in ArMed,
Inc. We cannot predict whether our royalty interest will ever result in any
revenues to us.
Patents and Proprietary Rights
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.
A provisional patent application is not actually reviewed by the U.S.
Patent and Trademark Office. Rather, it is used to establish a filing, or
priority, date for either a U.S. utility patent application, which is subject to
review, or a Patent Cooperation Treaty application, which is subject to an
initial search and a further review upon request. In order to retain the
benefits of the initial filing or priority date, the inventor must file a
utility application with the U.S. Patent and Trademark Office, or an application
under the Patent Cooperation Treaty, within one year of the original filing date
of the provisional application. Otherwise, the filing, or priority, date will be
lost.
We intend to file additional patent applications when appropriate, with
respect to improvements in our core technology and to specific products and
processes that we develop. There can be no assurance that any patents will issue
from any present or future applications or, if patents do issue, that such
patents will be issued on a timely basis or that claims allowed on issued
patents will be sufficient to protect our technology. Our intellectual property
is subject to other risks, including potential patent challenges and possible
lack of protection. Please see "Risk Factors -- Our competitive position depends
on protection of our intellectual property" above, for additional discussion of
risks related to intellectual property.
We filed with the U.S. Patent and Trademark Office (PTO) applications to
register the following trademarks/service marks: ADVANCING DRUGS THROUGH
GLYCOSCIENCE; GLYCO-UPGRADE; and PRO-PHARMACEUTICALS, INC. The PTO generally
issues an office action several months after an application is filed which
reports on its initial determination of whether a mark is registrable under the
federal trademark statute. In November 2001, the PTO informed us that two of
these marks, ADVANCING DRUGS THROUGH GLYCOSCIENCE, and GLYCO-UPGRADE, have been
approved for publication. Unless an opposition to registration is timely filed,
the PTO will register these marks for our use.
Research
We anticipate that our focus will be on design and analysis of
carbohydrate-based drug enhancement systems. We do not anticipate building
in-house research or development facilities, or hiring staff to conduct those
activities. As we have done to date, we will have our pre-clinical testing
conducted by outside laboratories.
Our early stage research was conducted by Toxikon Corporation, a
comprehensive compliance FDA-registered service testing laboratory in Bedford,
Massachusetts, that is not affiliated with Pro-Pharmaceuticals. Toxikon's
laboratory is ISO-9001 certified and EN-45001 approved, meaning that it complies
with quality management standards as established by the International
Organization for Standardization and other international organizations.
28
Our current research on toxicity and efficacy of several chemotherapy drugs
both alone and in combinations with our mannans on cancer-carrying animals is
being conducted by Southern Research Institute in Birmingham, Alabama. Southern
Research Institute is an independent, not-for-profit contract research
organization that is not affiliated with our company.
If we develop products eligible for clinical trials, we will contract with
an independent clinical research organization to design the trial protocols and
arrange for and monitor the clinical trials. We also intend to rely on academic
institutions or clinical research organizations to conduct, supervise or monitor
some or all aspects of clinical trials involving our products. In addition,
certain clinical trials for our products may be conducted by
government-sponsored agencies and consequently will be dependent on governmental
participation and funding. Our dependence on third-party researchers will
involve risks including lessened control over the timing and other aspects of
any clinical trials, since we will not be conducting them on our own. Please see
"Risk Factors -- We have no experience in clinical trials," above, for
additional discussion of risks related to our research.
We do not intend to manufacture our products. We anticipate that any
products we develop will be manufactured by subcontractors. Please see "Risk
Factors -- We will depend on third parties to manufacture and market our
products," above, for additional discussion of risks related to contract
manufacturing.
Manufacturing and Marketing
We are a development company and do not have, or intend to obtain, internal
facilities for the manufacture of any of our products for clinical or commercial
production. In order to have our products manufactured, we will initially need
to develop relationships with third-party manufacturing resources, enter into
collaborative arrangements with other parties that have established
manufacturing capabilities or elect to have other third parties manufacture our
products on a contract basis. Later we would propose to have our products
manufactured and marketed pursuant to licensing agreements as discussed below.
We also have no marketing infrastructure, and we do not intend to develop a
sales and marketing staff to commercialize pharmaceutical products. If we
develop products eligible for commercial sale, we will need to rely on third
parties such as licensees, collaborators, joint venture partners or independent
distributors to market and sell those products. Our dependence on third-party
manufacturers and marketers will involve risks relating to our lessened control,
and other risks including those discussed in "Risk Factors -- We will depend on
third parties to manufacture and market our products," above.
We currently envision having our manufacturing and marketing operations
conducted pursuant to license agreements that we would negotiate with
pharmaceutical companies with respect to manufacturing and marketing of their
"upgraded" drugs. While we presently contemplate offering the rights to
manufacture and market an "upgraded" drug to the original pharmaceutical company
that developed the drug, we will evaluate other manufacturing and marketing
arrangements as well.
Competition
We expect to encounter significant competition for the principal drug
delivery systems we plan to develop. Companies that complete clinical trials,
obtain required regulatory approvals and commence commercial sales of their
products before their competitors may achieve a significant competitive
advantage. Accordingly, the relative speed with which we and any future
collaborators
29
can develop products, complete preclinical testing and clinical trials and
approval processes, and supply commercial quantities of the products to the
market are expected to be important competitive factors. A number of
biotechnology and pharmaceutical companies are developing new drug delivery
systems for the treatment of the same diseases being targeted by us. In some
instances, such products have already entered late-stage clinical trials or
received FDA approval. Significant levels of research in biotechnology,
medicinal chemistry and pharmacology occur in academic institutions,
governmental agencies and other public and private research institutions. These
entities have become increasingly active in seeking patent protection and
licensing revenues for their research results. They also compete with us in
recruiting and retaining skilled scientific talent. Please see "Risk Factors --
We face intense competition in the biotechnology and pharmaceutical industries,"
above, for additional discussion related to our current and potential
competition.
Our potential competition includes other companies developing drug delivery
systems based on carbohydrates, as well as companies developing drug delivery
systems based on other polymers. The principal competitors in the polymer area
are Cell Therapeutics, Access Pharmaceuticals, Daiichi, Enzon and Pharmacia
which are developing alternate drugs in combination with polymers. We believe we
are the only company conducting research on mannan-based drug delivery systems.
In addition, we face competition with technologies other than polymer-based
delivery technologies. We believe that the principal current competitors to
polymer-based targeting technology fall into two categories: monoclonal
antibodies and liposomes. A number of companies are developing or may in the
future engage in the development of products competitive with our drug delivery
system. Several companies are working on targeted monoclonal antibody therapy
including Bristol-Myers Squibb, Centocor, GlaxoSmithKline, Imclone and Xoma.
Currently, liposomal formulations being developed by Nexstar (acquired by Gilead
Sciences), The Liposome Company (acquired by Elan Corporation) and Sequus
Pharmaceuticals (acquired by Alza Corporation), are the major competing
intravenous drug delivery formulations which deliver similar drug substances. A
number of companies are developing or evaluating enhanced drug delivery systems.
We expect that technological developments will occur at a rapid rate and that
competition is likely to intensify as various alternative delivery system
technologies achieve similar if not identical advantages.
We believe that our ability to compete successfully will be based on our
ability to create and maintain scientifically advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent or
other protection for our products, obtain required regulatory approvals and
manufacture and successfully market our products either alone or through outside
parties.
Government Regulation
The research, development, testing, manufacture, labeling, promotion,
advertising, distribution, and marketing, among other things, of our products
are extensively regulated by governmental authorities in the United States and
other countries. In the United States, the Food and Drug Administration (FDA)
regulates drugs under the Federal Food, Drug, and Cosmetic Act and its
implementing regulations. Failure to comply with the applicable U.S.
requirements may subject us to administrative or judicial sanctions, such as FDA
refusal to approve pending new drug applications, warning letters, product
recalls, product seizures, total or partial suspension of production or
distribution, injunctions, and/or criminal prosecution. Please see "Risk Factors
- -- We will need regulatory approvals to commercialize our products," above, for
additional discussion of risks related to regulatory compliance.
30
Drug Approval Process
No drug may be marketed in the U.S. until the drug has received FDA
approval. We have not yet submitted an application for approval for any of our
product candidates. The steps required before a drug may be marketed in the U.S.
include:
o preclinical laboratory tests, animal studies, and formulation studies
o submission to the FDA of an investigational new drug application, or
IND, for human clinical testing, which must become effective before
human clinical trials may begin
o adequate and well-controlled human clinical trials to establish the
safety and efficacy of the drug for each indication
o submission to the FDA of a New Drug Application, or NDA
o satisfactory completion of an FDA inspection of the manufacturing
facility or facilities at which the drug is produced to assess
compliance with current Good Manufacturing Procedures established by
the FDA ("cGMP") and
o FDA review and approval of the NDA.
Preclinical tests include laboratory evaluation of product chemistry,
toxicity, and formulation, as well as animal studies. The results of the
preclinical tests, together with manufacturing information and analytical data,
are submitted to the FDA as part of an IND, which must become effective before
human clinical trials may begin. An IND will automatically become effective 30
days after receipt by the FDA, unless before that time the FDA raises concerns
or questions about issues such as the conduct of the trials as outlined in the
IND. In such a case, the IND sponsor and the FDA must resolve any outstanding
FDA concerns or questions before clinical trials can proceed. We cannot be sure
that submission of an IND will result in FDA allowing clinical trials to begin.
Clinical trials involve the administration of the investigational drug to
human subjects under the supervision of qualified investigators. Clinical trials
are conducted under protocols detailing the objectives of the study, the
parameters to be used in monitoring safety, and the effectiveness criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap or be combined. Each trial must be reviewed and approved by
an independent Institutional Review Board before it can begin. Study subjects
must sign an informed consent form before participating in a clinical trial.
Phase I usually involves the initial introduction of the investigational drug
into people to evaluate its safety, dosage tolerance, pharmacodynamics, and, if
possible, to gain an early indication of its effectiveness. Phase II usually
involves trials in a limited patient population to (i) evaluate dosage tolerance
and appropriate dosage; (ii) identify possible adverse effects and safety risks;
and (iii) evaluate preliminarily the efficacy of the drug for specific
indications. Phase III trials usually further evaluate clinical efficacy and
test further for safety by using the drug in its final form in an expanded
patient population. There is no assurance that these trials will be completed
within a specified period of time, if at all.
Assuming successful completion of the required clinical testing, the
results of the preclinical studies and of the clinical studies, together with
other detailed information, including information on the manufacture and
composition of the drug, are submitted to the FDA in the form of an NDA
requesting approval to market the product for one or more indications. Before
approving an NDA, the FDA usually will inspect the facility or the facilities at
which the drug is manufactured, and will not approve the product unless cGMP
compliance is satisfactory. If the FDA evaluates the NDA
31
and the manufacturing facilities as acceptable, the FDA will issue an approval
letter. If the FDA evaluates the NDA submission or manufacturing facilities as
not acceptable, the FDA will outline the deficiencies in the submission and
often will request additional testing or information. Even if we submit the
requested additional information, the FDA ultimately may decide that the NDA
does not satisfy the regulatory criteria for approval. The testing and approval
process requires substantial time, effort, and financial resources, and we
cannot be sure that any approval will be granted on a timely basis, if at all.
After approval, certain changes to the approved product, such as adding new
indications, manufacturing changes, or additional labeling claims are subject to
further FDA review and approval.
FDA "Fast Track" Program; Priority Review
The FDA's "fast track" program is intended to facilitate the development
and expedite the review of drugs intended for the treatment of serious or
life-threatening diseases and that demonstrate the potential to address unmet
medical needs for such conditions. Under this program, the FDA can, for example,
review portions of an NDA for a fast track product before the entire application
is complete, thus potentially beginning the review process at an earlier time.
We intend to seek to have some of our products designated as fast track
products, with the goal of reducing review time. There can be no guarantee that
the FDA will grant any of our requests for fast track designation, that any fast
track designation would affect the time of review, or that the FDA will approve
the NDA submitted for any of our product candidates, whether or not fast track
designation is granted. Additionally, FDA approval of a fast track product can
include restrictions on the product's use or distribution (such as permitting
use only for specified medical procedures or limiting distribution to physicians
or facilities with special training or experience), and can be conditioned on
the performance of additional clinical studies after approval.
FDA procedures also provide priority review of NDAs submitted for drugs
that, compared to currently marketed products, offer a significant improvement
in the treatment, diagnosis, or prevention of a disease. NDAs that are granted
priority review are intended to be acted upon more quickly than NDAs given
standard review. The FDA's current goal is to act on 90% of priority NDAs within
six months of receipt. We anticipate seeking priority review with regard to some
of our product candidates. There can be no guarantee that the FDA will grant
priority review status in any instance, that priority review status will affect
the time of review, or that the FDA will approve the NDA submitted for any of
our product candidates, whether or not priority review status is granted.
Post-Approval Requirements
If FDA approval of one or more of our products is obtained, we will be
required to comply with a number of post-approval requirements. For example,
holders of an approved NDA are required to report certain adverse reactions to
the FDA, and to comply with certain requirements concerning advertising and
promotional labeling for their products. Also, quality control and manufacturing
procedures must continue to conform to cGMP after approval, and the FDA
periodically inspects manufacturing facilities to assess compliance with cGMP.
Accordingly, manufacturers must continue to expend time, money, and effort in
the area of production and quality control to maintain cGMP compliance. In
addition, discovery of problems with a product after approval may result in
restrictions on a product, manufacturer, or holder of an approved NDA, including
withdrawal of the product from the market. Also, new government requirements may
be established that could delay or prevent regulatory approval of our products
under development.
32
FDA "Orphan Drug" Designation
The FDA may grant orphan drug designation to drugs intended to treat a
"rare disease or condition," which generally is a disease or condition that
affects fewer than 200,000 individuals in the United States. Orphan drug
designation must be requested before submitting an NDA. After the FDA grants
orphan drug designation, the identity of the therapeutic agent and its potential
orphan use are publicly disclosed by the FDA. Orphan drug designation does not
convey an advantage in, or shorten the duration of, the regulatory review and
approval process. If a product which has an orphan drug designation subsequently
receives the first FDA approval for the indication for which it has such
designation, the product is entitled to orphan exclusivity, meaning that the FDA
may not approve any other applications to market the same drug for the same
indication, except in certain very limited circumstances, for a period of seven
years. As well, orphan drugs usually receive ten years of marketing exclusivity
in the E.U.
Non-United States Regulation
Before our products can be marketed outside of the United States, they are
subject to regulatory approval similar to that required in the United States,
although the requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary widely from country to country. No
action can be taken to market any product in a country until an appropriate
application has been approved by the regulatory authorities in that country. The
current approval process varies from country to country, and the time spent in
gaining approval varies from that required for FDA approval. In certain
countries, the sales price of a product must also be approved. The pricing
review period often begins after market approval is granted. No assurance can be
given that even if a product is approved by a regulatory authority, satisfactory
prices will be approved for such product.
Environmental Regulation
Pharmaceutical research and development involves the controlled use of
hazardous materials including but not limited to certain hazardous chemicals and
radioactive materials. In connection with research, development and
manufacturing activities, biotechnology and biopharmaceutical companies are
subject to federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials, biological specimens and
wastes. Since we do not anticipate building in-house research, development or
manufacturing facilities, but plan to have these activities conducted by
contractors and other third parties, we do not anticipate that we will be
directly affected by environmental regulations. However, our contractors and
others conducting research, development or manufacturing activities for us may
be required to incur significant costs to comply with environmental and health
and safety regulations in the future, and this could in turn affect our costs of
doing business and might ultimately interfere with timely completion of research
or manufacturing programs if those third parties are unable to comply with
environmental regulatory requirements.
Employees
We currently have two employees: David Platt, our President and Chief
Executive Officer; and Maureen Foley, our Chief Operating Officer. Both are
full-time employees.
Scientific and Clinical Advisory Boards
We have started, and will continue to recruit members for, a Scientific
Advisory Board that will include recognized scientists with expertise in the
fields of carbohydrate chemistry and biochemistry, immunology, cell and
molecular biology, and synthetic and medical chemistry. The Scientific Advisory
Board will meet with our management on a regular basis and in smaller groups
33
or individually from time to time on an informal basis. The members will assist
us in identifying scientific and product development opportunities, reviewing
with management the progress of our specific projects and recruiting and
evaluating our scientific staff. We may also have a Clinical Advisory Board that
will assist us from time to time on clinical matters.
The initial members of our Scientific Advisory Board are: Dr. David Platt,
our President and Chief Executive Officer and a director; Dr. Anatole A.
Klyosov; Dr. Dale H. Conaway, a director; Burton Firtel, a director; and Dr.
Henry Esber. See "Management" for additional information about the business and
educational backgrounds of these persons, other than Dr. Klyosov and Dr. Esber,
whose backgrounds are as follows:
Dr. Klyosov was the Senior Vice President, Chief Scientific Officer of
Pro-Pharmaceuticals (Massachusetts), our predecessor, as of its founding in July
2000. Dr. Klyosov owns 50% of MIR International, Inc., which provides consulting
services regarding our research and development. See "Certain Relationships and
Related Transactions -- Related Party Transactions," below. From 1996 to the
present, Dr. Klyosov has served as Manager, Research and Development, for Thermo
Fibergen Inc. (AMEX: TFG), a biotechnology company that develops and
manufactures products including biotechnological materials and fiber-based
composites. From 1990 to June 1998, Dr. Klyosov served as Professor of
Biochemistry at Harvard Medical School, Center for Biochemical and Biophysical
Sciences and Medicine, where he studied an enzyme involved in angiogenesis of
cancer cells, glucocorticoid receptors, and biochemistry of alcohol abuse. Dr.
Klyosov received a Ph.D. degree in Physical Chemistry from Moscow State
University in 1972, and a D.Sc. degree in Physical Chemistry and Biochemistry
from Moscow State University in 1977.
Dr. Esber is Executive Director of Business Development for Primedica
Corporation, a contract research organization. Dr. Esber has served in this
capacity for more than five years. Dr. Esber is a co-founder and a director of
BioQuant Corporation (formerly BioSignature Diagnostics, Inc.), a developer of
immunochemistry kits for diagnosis and assessment of immunological diseases. He
is also a co-founder of Advanced Drug Delivery, Inc., a biotechnology company
that focuses on development of drug delivery systems using co-polymers or other
modifications for use in the area of cancer and other diseases. Dr. Esber serves
on the Scientific Advisory Boards of several U.S. and non-U.S. biotechnology
companies, including Celltek Biotechnologies, Inc., BioQuant Corporation and
Delmont Laboratories. Dr. Esber received a B.S. degree in Biology from the
College of William and Mary in 1961, an M.S. degree in Public Health and
Parasitology from the University of North Carolina in 1963, and a Ph.D. degree
in Immunology/Microbiology from West Virginia University Medical Center in 1967.
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 $12,500 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, and preparing reports on biochemical study and clinical
applications of carbohydrates.
34
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.
Properties
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.
Legal Proceedings
Pro-Pharmaceuticals is not a party to any litigation or legal proceedings.
MANAGEMENT
Officers and Directors
The following table sets forth information about our executive officers and
directors:
Name Age as of 12/1/01 Position
---- ----------------- --------
David Platt, Ph.D. 47 President, Chief Executive Officer,
Treasurer, Secretary and Director
James Czirr 47 Executive Vice President of
Business Development and Director
Maureen Foley 60 Chief Operating Officer
Peter Hauser 60 Director
Burton C. Firtel 61 Director
Dale H. Conaway, D.V.M. 46 Director
35
Dr. Platt has served as our President, Chief Executive Officer, Treasurer,
Secretary and a director since May 15, 2001. Previously, he had been President,
Chief Executive Officer, Treasurer, Clerk and a director of Pro-Pharmaceuticals
(Massachusetts), the Company's predecessor, since its founding in July 2000. He
was Chairman of the Board, Chief Executive Officer and Secretary of SafeScience
Inc. (now known as GlycoGenesys, Inc.) (NASDAQ SmallCap: GLGS) (formerly IGG
International, Inc.), a biotechnology company involved in research and
development of products for treating cancer and immune system diseases, from
December 1992 through May 2000. Dr. Platt had been Chairman of the Board, Chief
Executive Officer and Secretary of Agricultural Glycosystems, Inc., a wholly
owned subsidiary of SafeScience, from its inception in June 1995 through May
2000. Agricultural Glycosystems manufactures and markets complex carbohydrate
compounds for use in agriculture. He is currently a director of Integrated
Pharmaceuticals, Inc. (OTCBB: INTP), a company specializing in molecular-level
means of increasing speed of production of enzymes for use in fermentation. Dr.
Platt received a Ph.D. in Chemistry from Hebrew University in Jerusalem, Israel,
in 1988, and also earned an M.S. degree in 1983 and a B.S. degree in 1978 from
Hebrew University. He earned a Bachelor of Engineering degree in 1980 from
Technicon in Haifa, Israel.
Mr. Czirr has served as Executive Vice President of Business Development
and a director since May 15, 2001. He had been a director of Pro-Pharmaceuticals
(Massachusetts), our predecessor, since its founding in July 2000. He has been
an independent corporate and public relations consultant for over ten years,
working with various companies concerning business strategies, including issues
such as organization of production, finance and capital programs, marketing
strategies and incentive programs. He is a director of the following companies
which are subject to the reporting requirements of the Securities Exchange Act
of 1934: Metalline Mining Co. (OTCBB: MMGG), which is developing a zinc mine in
Mexico; and NACO Industries Inc., which manufactures polyvinyl chloride fittings
for use in agriculture, municipal and industrial applications. Mr. Czirr
received a B.B.A. degree from the University of Michigan in 1976, and has
completed post-graduate courses at the University of Toledo School of Business
Administration, and at the College for Financial Planning.
Ms. Foley has served as our Chief Operating Officer since October 2001 and
prior to that time served as our Manager of Operations since January 2001. She
has been involved in the start-up of several high tech companies, where she has
been responsible for the establishment and administration of business operations
including human resources and benefits, accounting and finance, marketing,
product development, and project management. Her experience at start-up
companies includes the following: From June 2000 to December 2000, she provided
business operations services as described for eHealthDirect, Inc., a developer
of medical records processing software. From October 1999 to May 2000 she
provided business operations services for ArsDigita, Inc., a developer of
business software and programs. From June 1996 to August 1999, Ms. Foley served
with Thermo Fibergen Inc., a subsidiary of Thermo Electron Corporation, a paper
waste processing developer. She is a director and Chairman of Tax/Eze, Inc. a
tax preparation and financial services company, and a director of
Stewart/Precision, Inc., a metal fabricator, and Ergonics, Inc., a project
management firm. Ms. Foley is a graduate of The Wyndham School, Boston,
Massachusetts, with a major in Mechanical Engineering.
Mr. Hauser has served as a director since May 15, 2001. He has been a
director of Developed Technology Resource, Inc. (DEVT.OB), a company subject to
the reporting requirements of the Securities Exchange Act of 1934, since October
1993. Since 1977, he has been employed by Equity Securities Trading Co., Inc., a
Minneapolis-based brokerage firm, where he is a Registered Principal. Mr. Hauser
received a B.A. from the University of Minnesota in 1965.
36
Mr. Firtel has served as a director since May 15, 2001. He is President of
Adco Medical Supplies Incorporated, a company he founded in 1970. Adco Medical
Supplies distributes disposable medical supplies to U.S. customers, mostly for
hospital use. Mr. Firtel also serves as President of Plastic Fabricators
Incorporated, a manufacturer of plastic burial supplies sold through
distributors to customers in the funeral industry, which was acquired by Adco
Medical Supplies in 1992. Mr. Firtel received a B.S. degree in Business
Administration from Boston University in 1961.
Dr. Conaway has served as a director since May 15, 2001. He is currently
the Deputy Regional Director and the Chief Veterinary Medical Officer for the
Office of Research Compliance and Assurance, a division of the U.S. Department
of Health and Human Services. From March 1998 to March 2001, he served as
Manager of the Equine Drug Testing and Animal Disease Surveillance Laboratories,
for the Michigan Department of Agriculture. From July 1994 to March 1998, he was
the Regulatory Affairs Manager for the Michigan Department of Public Health
Vaccine Production Division. Dr. Conaway received a D.V.M. degree from Tuskegee
Institute, Tuskegee, Alabama, in 1979, and a M.S. degree in Pathology from the
College of Veterinary Medicine, Michigan State University, in 1984.
None of the persons specified above share any familial relationship. Other
than the persons specified above, there are currently no significant employees
that we expect to make a significant contribution to our business. All of our
directors serve until the next annual meeting of stockholders.
Executive Compensation
We were incorporated in January 2001 and have been inactive from that time
until April 23, 2001 when we acquired certain rights to potential royalties
relating to a cancer detection technology from our former parent, Developed
Technology Resources, Inc. Please see "Business -- Business of
Pro-Pharmaceuticals -- Cancer Detection Technology." We acquired
Pro-Pharmaceuticals (Massachusetts) on May 15, 2001 by means of an exchange of
stock. Pro-Pharmaceuticals (Massachusetts) was incorporated as of July 11, 2000.
During the year ended December 31, 2000, none of our executive officers or
directors earned any salary, bonus or other cash or non-cash compensation from
Pro-Pharmaceuticals (Massachusetts) for services provided in their official
capacities.
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 nonemployees such as directors and consultants.
The Board reserved 2,000,000 of our shares of common stock for awards pursuant
to the plan, all of which reserved shares could be awarded as incentive stock
options. The Board agreed to recommend the plan to our stockholders for approval
at the next annual or special meeting of stockholders. We have granted Burton
Firtel, a director of our company, a non-qualified stock option under the plan
to purchase 200,000 shares of common stock, as described below under " --
Compensation of Directors and Advisors."
We do not currently have an employment contract with Dr. David Platt or
with any other employees. We compensate Dr. Platt at a salary of $150,000 per
year. We compensate Ms. Foley at a salary of $75,000 per year.
37
Compensation of Directors and Advisors
We have no standard arrangement to compensate directors for their services
in their capacity as directors and have no immediate plans to compensate them or
the members of our Scientific Advisory Board. As of November 26, 2001, we have
granted Burton Firtel, a director of our company, a non-qualified stock option
under our stock incentive plan to purchase 200,000 shares of common stock at an
exercise price of $3.50 per share. The option is immediately exercisable as to
120,000 shares, and will vest as to an additional 40,000 shares on the first
anniversary of the grant date, and as to the remaining 40,000 shares on the
second anniversary of the grant date, provided Mr. Firtel remains a director at
the applicable anniversary date.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock, as of November 26, 2001, by (1) each shareholder
known to us to be the beneficial owner of more than 5% of our outstanding shares
of common stock, (2) each of our executive officers and directors and (3) our
executive officers and directors, as a group, as of November 26, 2001.
Percentage of Class
-------------------
Shares of Common Stock Before After
Name and Address Beneficially Owned (1) Offering Offering (2)
---------------- ---------------------- -------- ------------
David Platt, Ph.D. 4,941,868 32.6% 29.8%
12 Appleton Circle
Newton, MA 02459
James Czirr 4,939,868 (3) 32.6 29.8
425 Janish Drive
Sandpoint, ID 83864
Anatole Klyosov, Ph.D. 1,235,467 8.2 7.5
36 Walsh Road
Newton, MA 02459
Offer Binder 1,235,467 8.2 7.5
c/o Pasquale
via Settembrini 14/A
San Mariano
06073 Corciano (PG)
Italy
Peter L. Hauser (4) 40,000 0.3 --
Equity Security Investments, Inc.
701 Xenia Avenue South, Suite 100
Golden Valley, MN 55416
Burton C. Firtel 223,000 (5) 1.5 1.3
555 Sherman Avenue
Hamden, CT 06518
38
Percentage of Class
-------------------
Shares of Common Stock Before After
Name and Address Beneficially Owned (1) Offering Offering (2)
---------------- ---------------------- -------- ------------
Dale H. Conaway, D.V.M. 12,846 0.1 0.1
1731 Circle Pines Fort
Okemos, MI 48864
All executive officers and directors as a 10,157,582 66.5% 60.8%
group (5 persons)
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares owned by a
person and the percentage ownership of that person, shares of common stock
subject to options and warrants held by that person that are currently
exercisable or exercisable within 60 days of November 26, 2001, are deemed
outstanding. Such shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of any other person. This table has been
prepared based on 15,148,146 shares of common stock outstanding as of November
26, 2001.
(2) Assumes that Pro-Pharmaceuticals sells all of the 1,428,572 shares currently
being offered with this prospectus.
(3) Includes 15,000 shares owned by minor children of Mr. Czirr, as to which Mr.
Czirr disclaims beneficial ownership.
(4) Included in selling security holders, as disclosed below in "Selling
Security Holders."
(5) Includes shares which may be acquired upon the exercise of non-qualified
stock option which is currently exercisable as to 120,000 shares.
We are not aware of any arrangements that may result in "changes in
control" as that term is defined by the provisions of Item 403(c) of Regulation
S-B.
DILUTION
At September 30, 2001, our net tangible book value was $331,216 or $.02 per
share. Net tangible book value per share is equal to our total tangible assets
less our total liabilities, divided by the number of shares of common stock
outstanding, which was 14,727,226 shares at September 30, 2001. For purposes of
this analysis, we assume that we will sell all of the 1,428,572 shares we are
currently offering, at the proposed maximum offering price per share of $3.50.
Net tangible book value dilution per share represents the difference between the
amount per share paid by the purchasers of shares in our offering and the pro
forma net tangible book value per share of common stock immediately after
completion of this offering. After giving effect to the sale by
Pro-Pharmaceuticals of 1,428,572 shares of common stock offered with this
prospectus at the proposed maximum offering price of $3.50 per share, and after
deducting the estimated placement fee and offering expenses, our pro forma net
tangible book value at September 30, 2001, would have been approximately
$4,786,216, or $.30 per share, representing an immediate increase in our pro
forma net tangible book value of $.28 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $3.20 per share to
purchasers of common stock that we are offering with this prospectus. The
following table illustrates this per share dilution:
39
Proposed maximum offering price per share to public $3.50
Net tangible book value per share at September 30, 2001 $0.02
Increase per share attributable to new investors $0.28
-----
Pro forma net tangible book value per share after offering $0.30
=====
Dilution per share to new investors $3.20
=====
The number of shares outstanding at September 30, 2001, excludes 420,920
shares of common stock issued after September 30, 2001 through November 21,
2001. The above computations assume no exercise of outstanding options or
warrants. See Footnote (1) under "Capitalization," above. To the extent that
outstanding options or warrants are exercised, there may be further dilution to
new investors.
SELLING SECURITY HOLDERS
The selling security holders identified in the following table are offering
for sale 1,221,890 shares of common stock. These shares were issued to
shareholders of our former parent company, Developed Technology Resources, as
described above under "Business -- Initial Corporate Organization, Acquisition
and Merger." Forty thousand of these shares are being offered by directors,
officers or principal stockholders of the company.
The selling security holders may offer their shares of common stock for
sale from time to time at market prices prevailing at the time of sale or at
negotiated prices, and without payment of any underwriting discounts or
commissions except for usual and customary selling commissions paid to brokers
or dealers.
The following table sets forth, as of November 26, 2001, the number of
shares being held of record or beneficially by the selling security holders and
provides by footnote reference any material relationship between the company and
the selling security holder, all of which is based upon information currently
available to the company.
- -------------------------------------------------------------------------------------------------------------------------
Beneficial Ownership of Beneficial Ownership of
Selling Security Holder Shares
Prior to Offering (1) After Offering (2)
--------------------- ------------------
- -------------------------------------------------------------------------------------------------------------------------
Number of
Shares
offered
Name of Selling Security Holder Number Percent hereby (2) Number Percent
- ------------------------------- ------ ------- ---------- ------ -------
- -------------------------------------------------------------------------------------------------------------------------
Kathleen C. Anderson 183 * 183 -- --
- -------------------------------------------------------------------------------------------------------------------------
Gertrude Barbush 334 * 334 -- --
- -------------------------------------------------------------------------------------------------------------------------
Theresa S. Block 2,167 * 2,167 -- --
- -------------------------------------------------------------------------------------------------------------------------
Kent Bond 34 * 34 -- --
- -------------------------------------------------------------------------------------------------------------------------
Brad M. Bristol 333 * 333 -- --
- -------------------------------------------------------------------------------------------------------------------------
Michael D. Callister 67 * 67 -- --
- -------------------------------------------------------------------------------------------------------------------------
George J. Chlebecek 100 * 100 -- --
- -------------------------------------------------------------------------------------------------------------------------
Ronald G. Dorken and Cynthia J. Dorken 333 * 333 -- --
- -------------------------------------------------------------------------------------------------------------------------
Dina Drits 3,334 * 3,334 -- --
- -------------------------------------------------------------------------------------------------------------------------
40
- -------------------------------------------------------------------------------------------------------------------------
Beneficial Ownership of Beneficial Ownership of
Selling Security Holder Shares
Prior to Offering (1) After Offering (2)
--------------------- ------------------
- -------------------------------------------------------------------------------------------------------------------------
Number of
Shares
offered
Name of Selling Security Holder Number Percent hereby (2) Number Percent
- ------------------------------- ------ ------- ---------- ------ -------
- -------------------------------------------------------------------------------------------------------------------------
Tanya Drits 16,667 * 16,667 -- --
- -------------------------------------------------------------------------------------------------------------------------
Vladimir Drits 30,000 * 30,000 -- --
- -------------------------------------------------------------------------------------------------------------------------
Russ Erkkila 167 * 167 -- --
- -------------------------------------------------------------------------------------------------------------------------
Scott O. Fuller 167 * 167 -- --
- -------------------------------------------------------------------------------------------------------------------------
Peter L. Hauser (3) 40,000 * 40,000 -- --
- -------------------------------------------------------------------------------------------------------------------------
Edward J Hayward 334 * 334 -- --
- -------------------------------------------------------------------------------------------------------------------------
LeAnn Hitchcock (4) 30,000 * 30,000 -- --
- -------------------------------------------------------------------------------------------------------------------------
Karen Holitz 1,167 * 1,167 -- --
- -------------------------------------------------------------------------------------------------------------------------
Norman D. Holm 3,000 * 3,000 -- --
- -------------------------------------------------------------------------------------------------------------------------
Jennifer L. Holmers 1,167 * 1,167 -- --
- -------------------------------------------------------------------------------------------------------------------------
Richard M. Horwood (Russell Trust) 5,667 * 5,667 -- --
- -------------------------------------------------------------------------------------------------------------------------
William J. Howard 134 * 134 -- --
- -------------------------------------------------------------------------------------------------------------------------
John P. Hupp (5) 247,335 1.6% 247,335 -- --
- -------------------------------------------------------------------------------------------------------------------------
Boris Iliarski 334 * 334 -- --
- -------------------------------------------------------------------------------------------------------------------------
Steven C. Isakson as Custodian for Evan 67 * 67 -- --
Alden Isakson
- -------------------------------------------------------------------------------------------------------------------------
Julie A. Johnson 1,167 * 1,167 -- --
- -------------------------------------------------------------------------------------------------------------------------
Thomas Denver Kaufman 334 * 334 -- --
- -------------------------------------------------------------------------------------------------------------------------
Kathryn M. Kubinski 1,167 * 1,167 -- --
- -------------------------------------------------------------------------------------------------------------------------
William C. Marx and Roger W. Marx 1,334 * 1,334 -- --
- -------------------------------------------------------------------------------------------------------------------------
Kevin P. Mc Quillan 67 * 67 -- --
- -------------------------------------------------------------------------------------------------------------------------
Diane Meyer 833 * 833 -- --
- -------------------------------------------------------------------------------------------------------------------------
Greg Meyer 833 * 833 -- --
- -------------------------------------------------------------------------------------------------------------------------
Doug Morgan 34 * 34 -- --
- -------------------------------------------------------------------------------------------------------------------------
John P. Oroark 34 * 34 -- --
- -------------------------------------------------------------------------------------------------------------------------
Mark F. Palma and Shannon L. Palma 1,334 * 1,334 -- --
- -------------------------------------------------------------------------------------------------------------------------
Mark Peterson 167 * 167 -- --
- -------------------------------------------------------------------------------------------------------------------------
Loren A. Pfau and Florence A. Pfau 17 * 17 -- --
- -------------------------------------------------------------------------------------------------------------------------
John Rhodes 5,000 * 5,000 -- --
- -------------------------------------------------------------------------------------------------------------------------
Vernon D. Riediger 1,334 * 1,334 -- --
- -------------------------------------------------------------------------------------------------------------------------
Steve D. Roberts as Trustee for Steven D. 5,500 * 5,500 -- --
Roberts Trust
- -------------------------------------------------------------------------------------------------------------------------
Erlan Sagadiev 125,000 * 125,000 -- --
- -------------------------------------------------------------------------------------------------------------------------
Joseph J. Scancarello and Margaret 35,000 * 35,000 -- --
Scancarello
- -------------------------------------------------------------------------------------------------------------------------
Christopher K. Schneenman 21 * 21 -- --
- -------------------------------------------------------------------------------------------------------------------------
Roger W. Schnobrich (6) 35,700 * 35,700 -- --
- -------------------------------------------------------------------------------------------------------------------------
Aaron J. Scholl as Custodian for Gordon J. 34 * 34 -- --
Scholl
- -------------------------------------------------------------------------------------------------------------------------
41
- -------------------------------------------------------------------------------------------------------------------------
Beneficial Ownership of Beneficial Ownership of
Selling Security Holder Shares
Prior to Offering (1) After Offering (2)
--------------------- ------------------
- -------------------------------------------------------------------------------------------------------------------------
Number of
Shares
offered
Name of Selling Security Holder Number Percent hereby (2) Number Percent
- ------------------------------- ------ ------- ---------- ------ -------
- -------------------------------------------------------------------------------------------------------------------------
Aaron J. Scholl as Custodian for Nora M. 34 * 34 -- --
Scholl
- -------------------------------------------------------------------------------------------------------------------------
Joan V. Smith 134 * 134 -- --
- -------------------------------------------------------------------------------------------------------------------------
Dain Rauscher as Custodian for John P Smith 166 * 166 -- --
(IRA)
- -------------------------------------------------------------------------------------------------------------------------
Theresa J. Smith 334 * 334 -- --
- -------------------------------------------------------------------------------------------------------------------------
Scott L. Solberg and Barb M. Solberg 100 * 100 -- --
- -------------------------------------------------------------------------------------------------------------------------
John Steinbergs 7,500 * 7,500 -- --
- -------------------------------------------------------------------------------------------------------------------------
Stephen B. Swartz as Trustee for Stephen B. 6,667 * 6,667 -- --
Swartz (1991 Profit Sharing Plan)
- -------------------------------------------------------------------------------------------------------------------------
Leo Tutewohl (Trustee) 166 * 166 -- --
- -------------------------------------------------------------------------------------------------------------------------
Debra Van Der Vieren 835 * 835 -- --
- -------------------------------------------------------------------------------------------------------------------------
Kimberly S. Vatter 134 * 134 -- --
- -------------------------------------------------------------------------------------------------------------------------
Avie Wasser as Custodian for David M. Wasser 7 * 7 -- --
- -------------------------------------------------------------------------------------------------------------------------
Dain Rauscher as Custodian for Brenton L 500 * 500 -- --
Wolfe (IRA)
- -------------------------------------------------------------------------------------------------------------------------
Advanced Clearing, Inc. 14,600 * 14,600 -- --
- -------------------------------------------------------------------------------------------------------------------------
Alpine Securities Corp. 47,850 * 47,850 -- --
- -------------------------------------------------------------------------------------------------------------------------
American Enterprise Investment Services 2,500 * 2,500 -- --
- -------------------------------------------------------------------------------------------------------------------------
Robert W. Baird & Co., Incorporated 202 * 202 -- --
- -------------------------------------------------------------------------------------------------------------------------
Bear Stearns Securities Corp. 2,333 * 2,333 -- --
- -------------------------------------------------------------------------------------------------------------------------
Brown & Company Securities Corporation 31,868 * 31,868 -- --
- -------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 35,873 * 35,873 -- --
- -------------------------------------------------------------------------------------------------------------------------
Dain Rauscher Incorporated 3 * 3 -- --
- -------------------------------------------------------------------------------------------------------------------------
Dobbin & Co. 2,000 * 2,000 -- --
- -------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin and Jenrette Securities 64,136 * 64,136 -- --
- -------------------------------------------------------------------------------------------------------------------------
E Trade Securities, Inc. 20,834 * 20,834 -- --
- -------------------------------------------------------------------------------------------------------------------------
Edward D. Jones 534 * 534 -- --
- -------------------------------------------------------------------------------------------------------------------------
First Clearing Corporation 4,000 * 4,000 -- --
- -------------------------------------------------------------------------------------------------------------------------
Fiserv Securities, Inc. 2 * 2 -- --
- -------------------------------------------------------------------------------------------------------------------------
Fleet Securities, Inc. 1,468 * 1,468 -- --
- -------------------------------------------------------------------------------------------------------------------------
GVR Co. 1 * 1 -- --
- -------------------------------------------------------------------------------------------------------------------------
Harris Investorline, Inc. 10,143 * 10,143 -- --
- -------------------------------------------------------------------------------------------------------------------------
ICLEARING CORP. 1,787 * 1,787 -- --
- -------------------------------------------------------------------------------------------------------------------------
Janney Montgomery Scott Inc. 350 * 350 -- --
- -------------------------------------------------------------------------------------------------------------------------
Lehman Brothers, Inc. 1,000 * 1,000 -- --
- -------------------------------------------------------------------------------------------------------------------------
Merrill Lynch, Pierce, Fenner & Smith Inc. 26,499 * 26,499 -- --
- -------------------------------------------------------------------------------------------------------------------------
Miller Johnson Steichen Kinnard, Inc. 20,986 * 20,986 -- --
- -------------------------------------------------------------------------------------------------------------------------
42
- -------------------------------------------------------------------------------------------------------------------------
Beneficial Ownership of Beneficial Ownership of
Selling Security Holder Shares
Prior to Offering (1) After Offering (2)
--------------------- ------------------
- -------------------------------------------------------------------------------------------------------------------------
Number of
Shares
offered
Name of Selling Security Holder Number Percent hereby (2) Number Percent
- ------------------------------- ------ ------- ---------- ------ -------
- -------------------------------------------------------------------------------------------------------------------------
Millsec & Co 70,296 * 70,296 -- --
- -------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Inc 334 * 334 -- --
- -------------------------------------------------------------------------------------------------------------------------
National Financial Services Corporation 4,316 * 4,316 -- --
- -------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. 12,566 * 12,566 -- --
- -------------------------------------------------------------------------------------------------------------------------
PREFERREDTRADE, INC. 333 * 333 -- --
- -------------------------------------------------------------------------------------------------------------------------
Prudential Securities Incorporated 6,350 * 6,350 -- --
- -------------------------------------------------------------------------------------------------------------------------
Ragen MacKenzie Incorporated 1,010 * 1,010 -- --
- -------------------------------------------------------------------------------------------------------------------------
Raymond James & Associates, Inc. 2,300 * 2,300 -- --
- -------------------------------------------------------------------------------------------------------------------------
SCOTTRADE, INC. 4,167 * 4,167 -- --
- -------------------------------------------------------------------------------------------------------------------------
Southwest Securities, Inc. 209,979 1.4% 209,979 -- --
- -------------------------------------------------------------------------------------------------------------------------
Stifel, Nicolaus & Co Inc. 333 * 333 -- --
- -------------------------------------------------------------------------------------------------------------------------
UBS Painewebber Inc. 2,583 * 2,583 -- --
- -------------------------------------------------------------------------------------------------------------------------
US Bancorp Piper Jaffray Inc. 2,692 * 2,692 -- --
- -------------------------------------------------------------------------------------------------------------------------
USAA Investment Management Company 750 * 750 -- --
- -------------------------------------------------------------------------------------------------------------------------
Wells Fargo Bank Minnesota, N.A. 334 * 334 -- --
- -------------------------------------------------------------------------------------------------------------------------
Total 1,221,890
- -------------------------------------------------------------------------------------------------------------------------
* Represents less than 1% of the outstanding shares of common stock.
(1) Applicable percentage of ownership is based on 15,148,146 shares of common
stock outstanding as of November 26, 2001, plus any securities held by such
holder exercisable for or convertible into common stock within sixty (60)
days after the date of this prospectus.
(2) Assumes that all shares are sold pursuant to this offering and that no
other shares of common stock are acquired or disposed of by the selling
security holders prior to the termination of this offering. Because the
selling security holders may sell all, some or none of their shares or may
acquire or dispose of other shares of common stock, we cannot estimate the
aggregate number of shares which will be sold in this offering or the
number or percentage of shares of common stock that each selling security
holder will own upon completion of this offering.
(3) Mr. Hauser has served as a director of Pro-Pharmaceuticals since our
incorporation in January 2001. He served as our Vice President from our
incorporation in January 2001 until we acquired the predecessor
Massachusetts corporation in May 2001. He is a director of our former
parent company, Developed Technology Resource, Inc.
(4) Ms. Hitchcock has served as Chief Executive Officer and President of our
former parent company, Developed Technology Resource, Inc., since January
2001, and has served as Chief Financial Officer and Corporate Secretary of
that company since September 1997.
(5) Mr. Hupp served as President, Treasurer and a director of
Pro-Pharmaceuticals from its incorporation in January 2001 until we
acquired the predecessor Massachusetts corporation in May 2001. He is a
director of our former parent company, Developed Technology Resource, Inc.
43
(6) Mr. Schnobrich served as Secretary and a director of Pro-Pharmaceuticals
from its incorporation in January 2001 until we acquired the predecessor
Massachusetts corporation in May 2001. He is a director of our former
parent company, Developed Technology Resource, Inc., and served as
President of that company from June 1995 to January 2001.
We will pay all expenses in connection with the distribution of the shares
of common stock being sold by the selling security holders, except for the fees
and expenses of any counsel and other advisors that any selling security holders
may employ to represent them in connection with the offering and any brokerage
or underwriting discounts or commissions paid to broker-dealers in connection
with the sale of the shares.
PLAN OF DISTRIBUTION
Of the 2,650,462 shares of Pro-Pharmaceuticals common stock offered by this
prospectus, 1,428,572 shares are being sold by Pro-Pharmaceuticals on a "best
efforts" basis through Atlas Capital Services, LLC, as described below. The
other 1,221,890 shares may be offered and sold, from time to time, by the
selling security holders identified in this prospectus. We will not receive any
of the proceeds from the sale of shares by the selling security holders. We will
pay the expenses of preparing this prospectus and the related registration
statement.
Shares Offered by Pro-Pharmaceuticals
We are offering 1,428,572 shares of our common stock through Atlas Capital
Services, LLC, on a best efforts basis, which means that Atlas Capital is not
obligated to buy any of the common stock we are offering and is required only to
use its reasonable best efforts to sell common stock on our behalf. Atlas
Capital will offer the common stock principally to selected institutional
investors. We have engaged Atlas Capital to act as our exclusive agent in
connection with the shares being offered by Pro-Pharmaceuticals in this
prospectus. The offering is subject to the terms and conditions set forth in a
placement agent engagement agreement between us and Atlas Capital.
Atlas Capital is not obligated to and does not intend to take (or purchase)
any of the shares of common stock for itself. Confirmation and definitive
prospectuses will be distributed to all investors at the time of pricing,
informing investors of the closing date, which will be scheduled for three
business days after pricing. We will not accept any investor funds before the
Registration Statement becomes effective. We may sell less than all of the
shares of common stock we are offering in this prospectus. There is no required
minimum number of shares that must be sold as a condition to completion of the
offering. Upon closing, (i) we will deliver to each investor the number of
shares of common stock purchased by such investor in accordance with
instructions previously delivered by Atlas Capital on behalf of the investors,
(ii) each investor will deliver to us immediately available funds in an amount
equal to the aggregate purchase price of the shares of common stock being sold
to that investor and (iii) we will pay Atlas Capital its fee. The offering will
not continue after the closing.
We have agreed to pay Atlas Capital a placement fee of 8.5% of the proceeds
of the offering (0.5% of the proceeds from sales of shares to investors that we
identify) and also to issue to Atlas Capital a warrant to purchase 10% of the
total number of shares sold by Pro-Pharmaceuticals to investors in this offering
who are identified by Atlas Capital. The warrant will be exercisable for 5 years
and the exercise price per share will be the effective per share price of
investors who purchase in the offering. We have also agreed to pay Atlas Capital
a non-refundable due diligence fee of
44
$20,000 to cover all fees of Atlas Capital and its counsel associated with this
offering. We will indemnify Atlas Capital against certain liabilities, including
liabilities under the Securities Act, if these liabilities arise from any
negligence or misrepresentation by us.
We reserve the right to reject any order to purchase our common stock.
Orders will be effective only upon acceptance by us.
Prior to this offering, there has been no public market for our common
stock. The public offering price of our common stock has been determined by
negotiations between Pro-Pharmaceuticals and prospective purchasers, with advice
also provided by Atlas Capital. Among the factors considered in the negotiations
are:
o Prevailing market conditions;
o Offering price of recent issuances of our common stock;
o Market capitalizations and stages of development of other companies
which we believe are comparable with our company;
o Estimates of our business potential;
o The present stage of our development; and
o Other factors deemed relevant.
Shares Offered by Selling Security Holders
Pro-Pharmaceuticals will not receive any of the proceeds of the sale of the
shares offered by the selling security holders.
The selling security holders have not advised us of any specific plan for
distribution of the shares offered hereby, but it is anticipated that the shares
will be sold from time to time by the selling security holders or by pledgees,
donees, transferees or other successors in interest on a best efforts basis
without an underwriter. Such sales may be made on the National Quotation
Bureau's Pink Sheets, the OTC Bulletin Board, any exchange upon which our shares
may trade in the future, over-the-counter, or otherwise, at prices and at terms
then prevailing or at prices related to the then current market price, or in
negotiated transactions. The shares may be sold by one or more of the following,
without limitation:
o a block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker or dealer for its account pursuant to this
prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchases;
o through options, swaps or derivatives;
o in privately negotiated transactions;
o in transactions to cover short sales;
45
o through a combination of any such methods of sale; or
o in accordance with Rule 144 under the Securities Act, rather than
pursuant to this prospectus.
The selling security holders may sell their shares directly to purchasers
or may use brokers, dealers, underwriters or agents to sell their shares.
Brokers or dealers engaged by the selling security holders may arrange for other
brokers or dealers to participate. Brokers or dealers may receive commissions,
discounts or concessions from the selling security holders, or, if any such
broker-dealer acts as agent for the purchaser of shares, from the purchaser in
amounts to be negotiated immediately prior to the sale. The compensation
received by brokers or dealers may, but is not expected to, exceed that which is
customary for the types of transactions involved. Broker-dealers may agree with
a selling security holder to sell a specified number of shares at a stipulated
price per share, and, to the extent the broker-dealer is unable to do so acting
as agent for a selling security holder, to purchase as principal any unsold
shares at the price required to fulfill the broker-dealer commitment to the
selling security holder. Broker-dealers who acquire shares as principal may
thereafter resell the shares from time to time in transactions, which may
involve block transactions and sales to and through other broker-dealers,
including transactions of the nature described above, in the over-the counter
market or otherwise at prices and on terms then prevailing at the time of sale,
at prices then related to the then-current market price or in negotiated
transactions. In connection with resales of the shares, broker-dealers may pay
to or receive from the purchasers of shares commissions as described above.
The selling security holders and any broker-dealers or agents that
participate with the selling security holders in the sale of the shares may be
deemed to be "underwriters" within the meaning of the Securities Act. In that
event, any commissions received by broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
From time to time the selling security holders may engage in short sales,
short sales against the box, puts and calls and other hedging transactions in
our securities, and may sell and deliver the shares in connection with such
transactions or in settlement of securities loans. These transactions may be
entered into with broker-dealers or other financial institutions. In addition,
from time to time, a selling security holder may pledge its shares pursuant to
the margin provisions of its customer agreements with its broker-dealer. Upon
delivery of the shares or a default by a selling security holder, the
broker-dealer or financial institution may offer and sell the pledged shares
from time to time.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions
Dr. David Platt and MIR International, Inc., were each paid $25,000 as fees
for managing the operations, compiling chemistry data and planning experiments,
and conducting strategic planning for our company's predecessor during the
partial year ended December 31, 2000. Dr. Platt is a founding stockholder of
Pro-Pharmaceuticals (Massachusetts), and is President, Chief Executive Officer,
Treasurer, Secretary and a director of our company. He owns more than 5% of our
outstanding stock. Dr. Anatole Klyosov, also a founding stockholder of
Pro-Pharmaceuticals (Massachusetts), owns 50% of MIR International, Inc., with
the remaining 50% owned by a party unrelated to Dr. Klyosov or to us. Dr.
Klyosov was Senior Vice President, Chief Scientific Officer of
Pro-Pharmaceuticals (Massachusetts), our predecessor, since its founding in July
2000. Dr. Klyosov owns more than 5% of our outstanding stock.
46
Pro-Pharmaceuticals (Massachusetts) also issued a convertible $7,000 note
to Naomi Platt, the wife of Dr. David Platt, and issued convertible notes
aggregating $100,000 and $12,500, respectively, to Burton Firtel and Dr. Dale
Conaway, directors of our company. All of these convertible notes have been
converted into shares of our common stock in accordance with their terms,
pursuant to our request for early conversion. See "Plan of Operation --
Liquidity and Capital Resources" for detail as to the convertible notes and our
early conversion request. The accounts payable of Pro-Pharmaceuticals
(Massachusetts) include $22,417 as amounts due to our stockholders during the
period ended December 31, 2000 for operating expenses incurred.
Pro-Pharmaceuticals (Massachusetts) paid Dr. Platt, MIR International,
Inc., and Offer Binder, Ph.D., $25,000, $50,000 and $12,500, respectively, for
services as described in the preceding paragraph that they provided to the
company's predecessor during the three months ended March 31, 2001. Dr. Binder
is a founding stockholder of Pro-Pharmaceuticals (Massachusetts) and currently
owns more than 5% of our outstanding stock. Also during that period,
Pro-Pharmaceuticals (Massachusetts) reimbursed James Czirr $5,039 for expenses
made by Mr. Czirr on that company's behalf. Mr. Czirr is also a founding
stockholder of Pro-Pharmaceuticals (Massachusetts), and currently serves as our
Executive Vice President of Business Development and a director. Mr. Czirr owns
more than 5% of our outstanding stock. In addition, as of March 31, 2001,
Pro-Pharmaceuticals (Massachusetts) owed $9,028 to Dr. Binder under an unsecured
loan without repayment terms, but expected to be paid by December 31, 2001.
Extol International Ltd., a company controlled by Mr. Czirr, has agreed to
provide financing and business development services. This agreement provides for
a monthly payment of $12,500 and reimbursement of expenses.
MIR International, Inc., a company controlled by Dr. Klyosov as described
above, has agreed to provide consulting services regarding our research and
development including design of preclinical experimental protocols, arranging
preclinical experiments, performing chemical synthetic work, and 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. Binder has agreed to provide management advisory services. This
agreement provides for a monthly payment of $5,000 and reimbursement of
expenses.
Transactions with Promoters
Because we were incorporated less than five years ago, we are required to
disclose any transactions we have had with "promoters" of our company. Promoters
include founders of our company, as well as any persons who have received 10
percent or more of our common stock in connection with the organization of our
company. Our promoters are: Developed Technology Resource, Inc.; Dr. David
Platt, our President and Chief Executive Officer and a director; and James
Czirr, Executive Vice President of Business Development and a director.
In connection with our formation in January 2001, Developed Technology
acquired 1,221,890 shares of our common stock, representing all of our common
stock outstanding, for a contract right valued at $107,000. On May 15, 2001,
Developed Technology distributed its holdings of our common stock to its
shareholders of record at the close of business on May 7, 2001. See "Business --
Initial Corporate Organization, Acquisition and Merger" for a discussion of the
distribution and related transactions.
Each of Dr. Platt and Mr. Czirr became the owner of 10 percent or more of
our common stock in connection with our acquisition of Pro-Pharmaceuticals
(Massachusetts) on May 15, 2001,
47
whereby all of the holders of Pro-Pharmaceuticals (Massachusetts) common stock,
including Dr. Platt and Mr. Czirr, exchanged their Pro-Pharmaceuticals
(Massachusetts) common stock for the common stock of our company. In September
2000, Pro-Pharmaceuticals (Massachusetts) had issued and sold 40,000 shares to
Dr. Platt for $4,000 in cash, and also issued and sold 40,000 shares to James
Czirr for $4,000 in cash. In addition, Dr. Platt has loaned $6,000 to
Pro-Pharmaceuticals (Massachusetts), of which $1,000, loaned in July 2000, was
evidenced by a promissory note with an interest rate of 10% per year and a
maturity date of July 2002. The remaining $5,000, loaned in two installments in
September 2000, will be evidenced by a form of note if Dr. Platt so requests.
The $5,000 loan has an interest rate of 8% per year and matures in September
2001.
DESCRIPTION OF CAPITAL STOCK
We have authorized 100,000,000 shares of common stock, $0.001 par value per
share, and 5,000,000 shares of $0.01 par value (blank check) undesignated
shares. Our common stockholders are entitled to one vote per share on all
matters on which holders of common stock are entitled to vote and do not have
any cumulative voting rights. This means that the holders of more than 50% of
the shares of common stock voting for the election of directors can elect all of
the directors if they choose to do so; and, in that event, the holders of the
remaining shares of common stock would not be able to elect any person to our
board of directors. Subject to the rights of holders of shares of any series of
preferred stock, our common stockholders are entitled to receive such dividends
as our board of directors may declare, out of legally available funds. Holders
of common stock have no pre-emptive, conversion, redemption, subscription or
similar rights. If Pro-Pharmaceuticals were to be liquidated, dissolved or wound
up, common stockholders would be entitled to share equally in any of our assets
legally available for distribution after we satisfy any outstanding debts and
other liabilities as well as any amounts that might be due to holders of
preferred stock, if any.
Our shares of authorized preferred stock are undesignated. Our board or
directors has authority, without seeking stockholder approval, to determine the
designation, preferences, rights and other privileges for any series of
preferred stock that the board of directors may designate, which could include
preferences on liquidation or as to dividends, voting rights including the right
to vote as a separate class on certain corporate events or to elect directors
designated by the holders of such series, and rights to conversion, or
redemption of their shares and other matters.
We have no charter or by-law provisions that would delay, defer or prevent
a change in control of Pro-Pharmaceuticals.
LEGAL MATTERS
The validity of the common stock being offered hereby will be passed upon
for Pro-Pharmaceuticals by Perkins, Smith & Cohen, LLP, of Boston,
Massachusetts.
EXPERTS
The financial statements for our Massachusetts predecessor corporation as
of December 31, 2000 and for the period from inception (July 10, 2000) through
December 31, 2000, as well as the financial statements for Pro-Pharmaceuticals,
Inc. as of May 15, 2001 and for the period from inception (January 26, 2001)
through May 15, 2001, included in this prospectus, have been so
48
included in reliance on the report of Scillia Dowling & Natarelli LLC,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC. This
prospectus, which forms a part of that registration statement, does not contain
all of the information included in the registration statement and the exhibits
and schedules thereto as permitted by the rules and regulations of the SEC. For
further information with respect to Pro-Pharmaceuticals and the shares of common
stock offered hereby, please refer to the registration statement, including its
exhibits and schedules. Statements contained in this prospectus as to the
contents of any contract or other document referred to herein are not
necessarily complete and, where the contract or other document is an exhibit to
the registration statement, each such statement is qualified in all respects by
the provisions of such exhibit, to which reference is hereby made. You may
review a copy of the registration statement at the SEC's public reference room
in Washington, D.C., and at the SEC's regional office in Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. The registration statement can also be reviewed
by accessing the SEC's Internet site at http://www.sec.gov. We are subject to
the information and reporting requirements of the Securities Exchange Act and,
in accordance therewith, file periodic reports, proxy statements and other
information with the SEC. These reports can also be reviewed by accessing the
SEC's Internet site.
FINANCIAL STATEMENTS
Index to Financial Statements
Page
----
Items 1 - 6 below relate to Pro-Pharmaceuticals, Inc., a Massachusetts
corporation
1. Independent Auditors' Report dated December 4, 2001 with respect to
the period from inception (July 10, 2000) through December 31, 2000 .. F-1
2. Audited Balance Sheet as of December 31, 2000......................... F-2
3. Audited Statement of Operations for the period from inception
(July 10, 2000) through December 31, 2000............................. F-3
4. Audited Statement of Stockholders' Deficiency for the period from
inception (July 10, 2000) through December 31, 2000................... F-4
5. Audited Statement of Cash Flows for the period from inception
(July 10, 2000) through December 31, 2000............................. F-5
6. Notes Accompanying Financial Statements for the period from
inception (July 10, 2000) through December 31, 2000................... F-6
Items 7 - 18 below relate to the registrant, Pro-Pharmaceuticals, Inc., a Nevada
corporation formerly known as DTR Med-Pharma Corp. Unaudited statements have
been prepared to reflect the accounting treatment of the stock exchange between
the registrant and the Massachusetts
49
predecessor corporation and subsequent merger in which the registrant is the
surviving corporation. The transaction has been accounted for as a reverse
acquisition in which the predecessor corporation purchased the registrant's
outstanding shares, due to the change in control of the entity.
7. Report of Independent Auditors dated June 6, 2001.................... F-12
8. Audited Balance Sheet as of May 15, 2001............................. F-13
9. Audited Statement of Operations for the period from inception
(January 26, 2001) through May 15, 2001 ............................. F-14
10. Audited Statement of Changes in Stockholders' Equity for the period
from inception (January 26, 2001) through May 15, 2001 .............. F-15
11. Audited Statement of Cash Flows for the period from inception
(January 26, 2001) through May 15, 2001 ............................. F-16
12. Notes to Financial Statements for period from inception
(January 26, 2001) through May 15, 2001 ............................. F-17
13. Review Report of Independent Accountants for the period
ended September 30, 2001............................................. F-20
14. Unaudited Balance Sheets as of September 30, 2001 and
December 31, 2000.................................................... F-21
15. Unaudited Statements of Operations for the three- and nine-month
periods ended September 30, 2001, and for the period from
inception (July 10, 2000) through September 30, 2001................. F-23
16. Unaudited Statement of Changes in Stockholders' Equity (Deficiency)
for the period from inception (July 10, 2000) through
September 30, 2001................................................... F-24
17. Unaudited Statements of Cash Flows for the three- and nine-month
periods ended September 30, 2001, and for the period from inception
(July 10, 2000) through September 30, 2001........................... F-25
18. Notes to (unaudited) Financial Statements for the periods ended
September 30, 2001................................................... F-27
Other:
19. Pro Forma Financial Data (unaudited statement of operations)
combining data for the registrant for period from inception
(January 26, 2001) through September 30, 2001, and Pro-
Pharmaceuticals (Massachusetts) for the nine months ended
September 30, 2001................................................... F-33
50
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
Pro-Pharmaceuticals, Inc.
(A development stage company)
Newton, Massachusetts
We have audited the accompanying balance sheet of Pro-Pharmaceuticals, Inc. as
of December 31, 2000 and the related statements of operations, changes in
stockholders' deficiency and cash flows for the period from inception (July 10,
2000) through December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pro-Pharmaceuticals, Inc. at
December 31, 2000 and the results of its operations and cash flows for the
period from inception (July 10, 2000) through December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Scillia Dowling & Natarelli LLC
Scillia Dowling & Natarelli LLC
Hartford, Connecticut
December 4, 2001
F-1
PRO-PHARMACEUTICALS, INC.
(A development stage company)
BALANCE SHEET
December 31, 2000
ASSETS
CURRENT ASSETS
Cash $ 204,745
---------
Total current assets 204,745
---------
OTHER ASSETS
Patent 8,695
Debt issuance costs 14,500
---------
Total other assets 23,195
---------
$ 227,940
=========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 24,129
Accrued expenses 23,238
---------
Total current liabilities 47,367
---------
CONVERTIBLE NOTES PAYABLE 284,500
---------
Total liabilities 331,867
---------
STOCKHOLDERS' DEFICIENCY
Deficit accumulated during development stage (103,927)
---------
$ 227,940
=========
See notes to financial statements.
F-2
PRO-PHARMACEUTICALS, INC.
(A development stage company)
STATEMENT OF OPERATIONS
Period from inception (July 10, 2000)
through December 31, 2000
REVENUE $ --
----------
RESEARCH AND DEVELOPMENT EXPENSES
Laboratory fees 9,000
Consulting fees 50,000
----------
59,000
----------
GENERAL AND ADMINISTRATIVE EXPENSES
Legal fees 6,649
Consulting fees 25,000
Accounting fees 7,500
Office expenses 5,771
Telephone 4,300
Travel and entenainment 3,730
----------
52,950
----------
OPERATING LOSS (11l,950)
----------
NON OPERATING INCOME (EXPENSE)
Interest income 261
Interest expense (1,238)
----------
(977)
----------
NET LOSS $ (112,927)
==========
LOSS PER SHARE
Basic and fully diluted (0.01)
==========
SHARES OUTSTANDING
Basic 11,119,203
==========
See notes to financial statements.
F-3
PRO-PHARMACEUTICALS, INC.
(A development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
Period from inception (July 10, 2000)
through December 31, 2000
Common Voting Shares Deficient
------------------------------------------ Accumulated
Issued Stock Subscribed During
-------------------- ------------------- Development Stockholders'
Shares Amount Shares Amount Stage Deficiency
------ ------ ------ ------ ----------- -------------
Balance, July 10, 2000 -- $ -- -- $ -- $ -- $ --
Issuance of common stock 12,354,670 10,000 (1,235,467) (1,000) -- 9,000
Net Loss -- -- -- -- (112,927) (112,927)
---------- ------- ---------- ------- --------- ---------
Balance, December 31, 2000 12,354,670 $10,000 (1,235,467) $(1,000) $(112,927) (103,927)
========== ======= ========== ======= ========= =========
Common voting shares, $0.01 par value, 100,000,000 shares authorized, 11,119,203
shares issued and outstanding after restatement for reverse acquisition.
See notes to financial statements.
F-4
PRO-PHARMACEUTICALS, INC.
(A development stage company)
STATEMENT OF CASH FLOWS
Period from inception (July 10, 2000)
through December 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(112,927)
Adjustments to reconcile net loss to net
cash used in operating activities:
Changes in assets and liabilities:
Accrued expenses 601
Accounts payable 23,238
---------
Net cash used in operating activities (89,088)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Patent costs (8,695)
---------
Net cash used in investing activities (8,695)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 9,000
Proceeds from convertible notes payable 284,500
Proceeds from shareholder advances 9,028
---------
Net cash provided by financing activities 302,528
---------
NET INCREASE IN CASH 204,745
CASH AND CASH EQUIVALENTS, Beginning --
----------
CASH AND CASH EQUIVALENTS, End $ 204,745
=========
SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS
Interest paid $ 1,238
=========
NON CASH INVESTING ACTIVITIES:
$14,500 of debt issuance costs incurred through accrued expense
See notes to financial statements.
F-5
PRO-PHARMACEUTICALS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Pro-Pharmaceuticals, Inc. (the Company), was established (as a Massachusetts
corporation) on July 10, 2000 to identify, develop and seek regulatory approval
of technology that will reduce toxicity and improve the efficacy of chemotherapy
drugs currently in use 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 in the development stage while it is focusing on research and
raising capital (see Note 6) and has not generated any revenues. Its product
candidates are still in research and development, with none yet in clinical
trials. Principal risks to the Company include 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; need for regulatory approval
of products; risks associated with protection of intellectual property; and
competition with larger, better-capitalized companies.
Significant Accounting Policies
Cash and Cash Equivalents -- For the purposes of reporting cash flows, the
Company includes all cash accounts that are not subject to withdrawal
restrictions or penalties, as cash and cash equivalents in the accompanying
balance sheet.
The Company has cash accounts that exceed $100,000 at a single financial
institution. Accounts are insured by the Federal Deposit Insurance Corporation
(FDIC) up to $100,000 per depositor. The portion of the deposit in excess of
$100,000 is not subject to such insurance and represents a credit risk to the
Company. At December 31, 2000, $104,745 was uninsured.
Research and Development Costs -- The Company charges research and development
costs to operations as incurred.
Debt Issuance Costs -- The Company's issuance costs with respect to its
outstanding convertible notes payable are capitalized and amortized over the
terms of the related notes, using the straight-line method. These costs comprise
a financing fee of 10 percent of the principal amount of such notes, payable
upon issuance of the notes.
Income Taxes -- The Company accounts for income taxes under the asset and
liability method. Deferred income taxes and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the period in which the
differences are expected to reverse.
Use of Estimates in Financial Statements -- Management uses estimates and
assumptions in preparing these financial statements in accordance with generally
accepted accounting principles. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses. Actual results could
vary from those estimates that were used.
F-6
PRO-PHARMACEUTICALS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2 -- CONVERTIBLE NOTES PAYABLE
Convertible notes issued by the Company as of December 31, 2000 range in
original principal amount from $2,500 to $50,000 and accrue interest at 10
percent per annum. The notes are due two years after issue. The notes provide
that in the event the Company is acquired by or merged with a non-operating
public company, the note holders will receive additional consideration as
described below.
At any time up to maturity a note holder may convert the principal and interest
into common stock of the Company. If the conversion is made prior to maturity,
the holder will receive that number of shares of the common stock of the Company
as calculated by dividing the converted amount by 75 percent of the offering
price per share of the Company's most recent equity offering, subject to a
maximum conversion price of $2.00. If the notes are converted at the maturity
date, the conversion price is $.50 per share. If at the time of conversion the
Company does not have at least 10,000,000 shares outstanding, the conversion
price will be adjusted such that the holder receives such number of shares as
would result if 10,000,000 shares were outstanding.
As additional consideration, if the maturity date is extended, the note holders
receive one-quarter of a share of the Company's common stock for each dollar of
principal amount loaned and, if the Company does not then have at least
10,000,000 shares outstanding, or an acquisition by or merger with a public
company has not then occurred, the number of shares issued as additional
consideration will be adjusted such that the holder receives such number of
shares as would result if 10,000,000 shares were outstanding.
As additional consideration in the event of an acquisition or merger of the
Company by or with a non-operating public company, the note holders receive one
half of a share of the acquiring company's common stock for each dollar of
principal amount loaned. If the acquisition has not occurred by the maturity
date of the notes, the holders receive one-half of a share of the company for
each dollar of principal amount loaned. If the Company does not have at least
10,000,000 shares outstanding as of the maturity date of the notes, the holders
will receive such percentage of the Company's common stock as they would have
received had 10,000,000 shares been outstanding. The shares for additional
consideration are to be issued upon the earliest of completion of such
acquisition or merger, filing of a registration statement for the common stock
of the Company (or the acquiring company, as the case may be) with the
Securities and Exchange Commission, or the maturity date of the notes.
NOTE 3 -- RELATED PARTY TRANSACTIONS
Consulting Fees
For the period from inception (July 10, 2000) through December 31, 2000, the
Company paid two of its stockholders $25,000 and $12,500, respectively, for fees
associated with the management of the day-by-day operations of the Company as
well as research and development of chemistry data, planning experiments and
strategic planning.
Convertible Notes Payable
Included in convertible notes payable is $7,000 due to a stockholder's spouse.
F-7
PRO-PHARMACEUTICALS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3 -- RELATED PARTY TRANSACTIONS (Continued)
Due to Stockholder
As of December 31, 2000, the Company owes $22,417 to a stockholder of the
Company. The amount is included in accounts payable and represents advances
received and various operating expenses incurred.
NOTE 4 -- INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income tax asset and liability as of December 31, 2000
are as follows:
Deferred tax assets $ 45,102
Valuation allowance (45,102)
--------
Asset (liability) $ --
========
The valuation allowance at December 31, 2000 relates primarily to tax assets
associated with net operating losses. Management's assessment is that the nature
of future taxable income may not allow the Company to realize certain tax
benefits of net operating losses within the prescribed carryforward period.
Accordingly, an appropriate valuation allowance has been made. The Company has a
federal net operating loss carryover of $112,384 that can be carried forward to
the following 20 years.
NOTE 5 -- CONTINGENCY
SafeScience, Inc. (now known as GlycoGenesys, Inc.), former employer of Dr.
David Platt, President and Chief Executive Officer of the Company, alleged in a
letter dated February 15, 2001, that Dr. Platt's activity with the Company is a
violation of a noncompetition covenant he has with SafeScience. Dr. Platt
responded by letter dated February 19, 2001 denying the allegations and inviting
a meeting to discuss them. Counsel for SafeScience indicated a willingness to
resolve these matters but attempts to set up a meeting were unsuccessful. No
determination has been made as to the likelihood of a 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.
NOTE 6 -- SUBSEQUENT EVENTS
Reverse Acquisition
DTR-Med Pharma Corp. (DTR Med-Pharma) was incorporated under Nevada law as of
January 26, 2001 for the purpose of acquiring all of the issued and outstanding
stock of the Company (referred to in this note as Pro-Pharmaceuticals-MA). Prior
to the acquisition, DTR Med-Pharma changed its name to "Pro-Pharmaceuticals,
Inc." (Pro-Pharmaceuticals-NV).
F-8
PRO-PHARMACEUTICALS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6 -- SUBSEQUENT EVENTS (Continued)
Reverse Acquisition (Continued)
From its incorporation until the acquisition of Pro-Pharmaceuticals-MA, DTR
Med-Pharma had been a wholly owned subsidiary of Developed Technology Resource,
Inc., a Minnesota corporation (Developed Technology) whose stock is publicly
traded on the Over-the-Counter Bulletin Board under the symbol DEVT.OB. In
exchange for 1,221,890 shares of the common stock of DTR-Med Pharma, Developed
Technology transferred its contractual rights to receive royalties from a yet
undeveloped or approved cancer detection method. As part of that process,
Developed Technology distributed its 1,221,890 shares of the common stock of
DTR-Med Pharma to the stockholders of record of Developed Technology as of May
7, 2001.
On May 15, 2001, Pro-Pharmaceuticals-NV (formerly known as DTR-Med Pharma) in
exchange for 12,354,670 shares of its common stock acquired all of the issued
and outstanding shares of the common stock of Pro-Pharmaceuticals-MA. As a
result, Pro-Pharmaceuticals-MA became a subsidiary of Pro-Pharmaceuticals-NV,
following which the subsidiary was merged into its parent which is the surviving
corporation. The transaction has been accounted for as a reverse acquisition in
which Pro-Pharmaceuticals-MA purchased the outstanding shares of
Pro-Pharmaceuticals-NV due to the change in control. The business combination
has been accounted for using purchase accounting, with the assets and
liabilities of the acquired company being recorded at fair value.
Pro-Pharmaceuticals-NV continues the business of Pro-Pharmaceuticals-MA (note
1).
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.
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
to raise $5,145,000. The Company abandoned this private placement as of December
3, 2001, and terminated all offering activity on or before that date. 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 December 3, 2001, the Company had received proceeds of $2,237,500 from the
sale of securities offered in the private placement representing 689,300 units.
Such purchases will result in the Company issuing 689,300 shares of common stock
and warrants to purchase 689,300 shares of its common stock.
F-9
PRO-PHARMACEUTICALS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6 -- SUBSEQUENT EVENTS (Continued)
Private Placement (Continued)
In connection with agreements with three investors in this offering who were
each willing to invest a substantial amount of funds, the Company sold units at
$3.00 each, as follows: 133,400 of the units for a total of $400,200; 66,700
units for a total of $200,100; and 150,000 units for a total of $450,000. The
Company reduced each 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. The Company also granted the earliest of these investors an option to
purchase an additional 200,000 units on the same terms as that investor's
current purchase. The option is exercisable at any time until 30 days after the
Company notifies the investor of its receipt of notice that an investigational
new drug application filed by the Company with the FDA has become effective for
any one of the Company's compounds.
As a result of agreeing to accept different terms on the offered securities with
these investors, the Company is notifying each previous purchaser of the sale to
those investors. This could result in the Company's agreeing to refund some or
all of the previous investments.
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 $12,500 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.
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 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. The Company will also issue to those holders an additional 557,801
common stock purchase warrants identical to the warrants being offered in the
Company's terminated private placement.
As of November 15, 2001, the Company had outstanding $195,000 principal amount
of notes which are convertible into 97,500 shares of common stock at a
conversion price of $2.00 per share. The $195,000 principal amount represents
the notes that are outstanding following the early conversion offer.
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. As of November 26, 2001, the Company had granted Burton Firtel, a
director of the Company, a non-qualified stock option under the plan to purchase
200,000 shares of common stock at an exercise price of $3.50 per share. The
option is immediately exercisable as to 120,000 shares, and will vest as to an
additional 40,000 shares on the first anniversary of the grant date, and as to
the remaining 40,000 shares on the second anniversary of the grant date,
provided Mr. Firtel remains a director at the applicable anniversary date.
F-10
PRO-PHARMACEUTICALS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6 -- SUBSEQUENT EVENTS (Continued)
New Accounting Pronouncements
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.
28, Accounting for Preacquisition Contingencies of Purchased Enterprises. All
business combinations within the scope of this statement are to be accounted for
using the purchase method.
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 indefinite lives will be tested
for impairment at least annually.
The Company does not expect the issuance of these pronouncements to have a
material effect.
F-11
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
Pro-Pharmaceuticals, Inc.
(formerly DTR-Med Pharma Corp.)
Reno, Nevada
We have audited the accompanying balance sheet of Pro-Pharmaceuticals, Inc.
(formerly DTR-Med Pharma Corp.) as of May 15, 2001 and the related statements of
operations, changes in stockholders' equity and cash flows for the period from
inception (January 26, 2001) through May 15, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pro-Pharmaceuticals, Inc.
(formerly DTR-Med Pharma Corp.) at May 15, 2001, and the results of its
operations and cash flows for the period from inception (January 26, 2001)
through May 15, 2001, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Scillia Dowling & Natarelli LLC
SCILLIA DOWLING & NATARELLI LLC
(formerly SIMIONE SCILLIA LARROW & DOWLING LLC)
Hartford, Connecticut
June 6, 2001
F-12
PRO-PHARMACEUTICALS, INC.
(formerly DTR-Med Pharma Corp.)
BALANCE SHEET
May 15, 2001
ASSETS
OTHER ASSETS
Contractual rights $ 1,222
--------
$ 1,222
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses $ 75,000
--------
Total current liabilities 75,000
--------
STOCKHOLDERS' EQUITY
Common stock
Voting shares, $0.001 par value,
100,000,000 shares authorized,
1,221,890 shares issued and outstanding 1,222
Undesignated shares, $0.01 par value,
5,000,000 shares authorized --
Deficit accumulated (75,000)
--------
(73,778)
--------
$ 1,222
========
See notes to financial statements.
F-13
PRO-PHARMACEUTICALS, INC.
(formerly DTR-Med Pharma Corp.)
STATEMENT OF OPERATIONS
Period from inception (January 26, 2001)
through May 15, 2001
REVENUE $ --
-----------
GENERAL AND ADMINISTRATIVE
Legal fees 40,000
Consulting fees 15,000
Accounting fees 10,000
Other expenses 10,000
-----------
75,000
-----------
NET LOSS $ (75,000)
===========
EARNINGS PER SHARE
Basic $ (0.06)
===========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic 1,221,890
===========
See notes to financial statements.
F-14
PRO-PHARMACEUTICALS, INC.
(formerly DTR-Med Pharma Corp.)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Period from inception (January 26, 2001)
through May 15, 2001
Common Stock
---------------------------------------------------
Voting Shares Undesignated Shares
----------------------- ----------------------- Retained
Shares Amount Shares Amount Earnings Total
--------- --------- --------- --------- --------- ---------
Issuance of Common Stock of
DTR-Med Pharma Corp. 1,221,890 $ 1,222 -- $ -- $ -- $ 1,222
Net loss -- -- -- -- (75,000) (75,000)
--------- --------- --------- --------- --------- ---------
Balance at May 15, 2001 1,221,890 $ 1,222 -- $ -- $ (75,000) $ (73,778)
========= ========= ========= ========= ========= =========
See notes to financial statements.
F-15
PRO-PHARMACEUTICALS, INC.
(formerly DTR-Med Pharma Corp.)
STATEMENT OF CASH FLOWS
Period from inception (January 26, 2001)
through May 15, 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(75,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization --
Changes in assets and liabilities:
Accrued expenses 75,000
--------
Net cash used in operating activities --
--------
NET INCREASE IN CASH --
CASH AND CASH EQUIVALENTS, Beginning --
--------
CASH AND CASH EQUIVALENTS, End $ --
========
SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS
Interest $ --
========
Taxes $ --
========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
During the year, the Company received certain contractual rights of
Developed Technology Resource, Inc., valued at $1,222, in exchange for
shares of the common stock of the Company.
See notes to financial statements.
F-16
PRO-PHARMACEUTICALS, INC.
(formerly DTR-Med Pharma Corp.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Formation
On January 26, 2001, Developed Technology Resource, Inc. (DTR) formed DTR-Med
Pharma Corp. (the Company), a Nevada corporation, for the sole purpose of
entering into a business combination with Pro-Pharmaceuticals, Inc, a
Massachusetts corporation, a development stage biotechnology company. On April
23, 2001, DTR, the Company's parent, contributed certain contractual rights (see
below) for equity. On May 10, 2001 the Company's name was changed to
Pro-Pharmaceuticals, Inc.
Significant Accounting Policies
Contractual Rights -- DTR owned a fifty percent interest in Medical Biophysics
International, a Partnership, (MBI) which owned certain rights regarding
technologies and patents. MBI assigned these rights to Artann Corporation d/b/a
Artann Laboratories. That corporation then assigned those rights to ArMed LLC.
In consideration for the assignment of these rights DTR was to receive certain
payments relating to royalties or production of the MBI technology. DTR assigned
these rights to the Company on April 23, 2001. The Company recorded the
contractual rights received from DTR at DTR's carrying costs, which was $1,222
at the time of the assignment; this is due to the fact that the entities were
under common control.
Income Taxes -- The Company accounts for income taxes under the asset and
liability method. Deferred income taxes and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates for the period in which the differences are
expected to reverse.
Use of Estimates in Financial Statements -- Management uses estimates and
assumptions in preparing these financial statements in accordance with generally
accepted accounting principles. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses. Actual results could
vary from the estimates that were used.
F-17
PRO-PHARMACEUTICALS, INC.
(formerly DTR-Med Pharma Corp.)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2 -- SUBSEQUENT EVENTS
Stock Exchange and Merger
On May 15, 2001, 1,221,890 shares of the Company's stock were distributed by DTR
to its stockholders. Subsequent to the distribution, the Company issued an
additional 12,354,670 shares to the stockholders of Pro-Pharmaceuticals, Inc. (a
Massachusetts corporation) in exchange for all of the outstanding shares of
common stock of that corporation, diluting the Company's prior stockholders'
percentage to approximately 9 percent. Following the exchange,
Pro-Pharmaceuticals, Inc. (a Massachusetts corporation) will be merged into the
Company. After this merger, the Company will be the surviving corporation and
assume all assets and liabilities of both corporations.
Pro-Pharmaceuticals, Inc. (a Massachusetts corporation) has raised approximately
$1,200,000 in a private placement of convertible debt. Currently,
Pro-Pharmaceuticals, Inc. is undertaking a private placement of common stock and
common stock purchase warrants and filing a registration statement on Form 10-SB
to make the Company a reporting entity under the Securities Exchange Act of
1934.
For accounting purposes, the previous Pro-Pharmaceuticals, Inc. (a Massachusetts
corporation) will be treated as the continuing reporting entity in the form of a
reverse acquisition.
NOTE 3 -- INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liabilities as of May 15, 2001 are
as follows:
Current Long-Term
Asset Liability
-------- ---------
Net operating loss carryforward $ 30,000 $ --
Valuation allowance (30,000) --
-------- --------
Asset (liability) $ -- $ --
======== ========
The valuation allowance at May 15, 2001 relates primarily to tax assets
associated with net operating losses. Management's assessment is that the nature
of future taxable income may not allow the Company to realize the tax benefits
of net operating losses within the prescribed carry forward period. Accordingly,
an appropriate valuation allowance has been made.
F-18
PRO-PHARMACEUTICALS, INC.
(formerly DTR-Med Pharma Corp.)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3 -- INCOME TAXES (Continued)
The provision for income taxes consisted of the following components for the
period from inception (January 26, 2001) through May 15, 2001:
Currently payable $ --
Deferred income tax benefit 30,000
Change in valuation allowance (30,000)
--------
$ --
========
At May 15, 2001, the Company has approximately $75,000 of available net
operating loss carryforwards for income tax purposes, which will expire through
2020 for federal and state income tax purposes.
F-19
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Pro-Pharmaceuticals, Inc.
Newton, Massachusetts
We have reviewed the accompanying balance sheet of Pro-Pharmaceuticals, Inc. as
of September 30, 2001 and the related statements of operations, changes in
stockholders' deficit and cash flows for the three-month 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 Company'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 auditing standards generally accepted in the United States of America, 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 of the United States of America.
We have previously audited, in accordance with generally accepted auditing
standards in the United States of America, the balance sheet of
Pro-Pharmaceuticals, Inc. as of December 31, 2000, and the related statements of
operations, changes in stockholders' deficiency, and cash flows for the period
from inception (July 10, 2000) through December 31, 2000; and in our report
dated December 4, 2001, we expressed an unqualified opinion on those 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
December 4, 2001
F-20
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
BALANCE SHEETS
September 30, December 31,
2001 2000
----------- -----------
(unaudited)
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
Contractual rights 107,000 --
Patent 47,345 8,695
Debt issuance costs, net of accumulated
amortization of $13,083 and $0 at
September 30, 2001 and December 31, 2000,
respectively 5,000 14,500
Deposits and other assets 48,883 --
----------- -----------
208,228 23,195
----------- -----------
$ 1,170,597 $ 227,940
=========== ===========
See notes to financial statements.
F-21
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
BALANCE SHEETS - continued
September 30, December 31,
2001 2000
----------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable $ 290,317 $ 24,129
Accrued expenses 189,690 23,238
Other current liabilities 10,029 --
----------- -----------
Total current liabilities 490,036 47,367
CONVERTIBLE NOTES PAYABLE 195,000 284,500
----------- -----------
Total liabilities 685,036 331,867
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common voting shares, $0.001 par value,
100,000,000 shares authorized,
14,727,226 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 1,288,005 --
Stock subscription receivable -- (3,355)
Deficit accumulated during development stage (1,626,872) (112,927)
----------- -----------
485,561 (103,927)
----------- -----------
$ 1,170,597 $ 227,940
=========== ===========
See notes to financial statements.
F-22
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
STATEMENTS OF OPERATIONS
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)
REVENUE $ -- $ -- $ --
------------ ------------ ------------
RESEARCH AND DEVELOPMENT
Consulting fees and salaries 248,295 380,396 430,396
Laboratory fees 86,140 150,830 159,830
------------ ------------ ------------
334,435 531,226 590,226
------------ ------------ ------------
GENERAL AND ADMINISTRATIVE
Legal fees 2,108 221,478 228,127
Consulting fees 50,036 147,115 172,115
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
------------ ------------ ------------
301,337 917,739 970,689
------------ ------------ ------------
NET LOSS FROM
OPERATIONS (635,772) (1,448,965) (1,560,915)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 4,326 16,992 17,253
Interest expense (54,845) (81,972) (83,210)
------------ ------------ ------------
(50,519) (64,980) (65,957)
------------ ------------ ------------
NET LOSS $ (686,291) $ (1,513,945) $ (1,626,872)
============ ============ ============
LOSS PER SHARE
Basic $ (0.05) $ (0.12) $ (0.12)
============ ============ ============
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic 13,883,404 13,074,466 13,017,978
============ ============ ============
See notes to financial statements.
F-23
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
Private
Placement Private
Units of Placement
Common Voting Shares Undesignated Shares Stock Common Units
------------------------- ------------------------- Subscription Stock and Subscription
Shares Amount Shares Amount Receivable Warrants Receivable
----------- ----------- ----------- ----------- ----------- ----------- -----------
Issuance of Common Stock of
Pro-Pharmaceuticals, Inc. 12,354,670 $ 12,355 -- -- $ (3,355) $ -- $ --
Net loss -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 12,354,670 12,355 -- -- (3,355) -- --
Issuance of Stock to Acquire
Contractual Rights, and
Payment of Stock
Subscription Receivable 1,221,890 1,222 -- 3,355 -- --
Sale of Private Placement
Units, beginning May 2001 -- -- -- -- -- 883,200 (73,500)
Conversion of Notes Payable
to Common Stock 1,150,666 1,151 -- -- -- --
Net loss -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 2001
(unaudited) 14,727,226 $ 14,728 -- $ -- $ -- $ 883,200 $ (73,500)
=========== =========== =========== =========== =========== =========== ===========
Deficit
Accumulated
Additional During
Paid-in Development
Capital Stage Total
----------- ----------- -----------
Issuance of Common Stock of
Pro-Pharmaceuticals, Inc. $ -- $ -- $ 9,000
Net loss -- (112,927) (112,927)
----------- ----------- -----------
Balance at December 31, 2000 -- (112,927) (103,927)
Issuance of Stock to Acquire
Contractual Rights, and
Payment of Stock
Subscription Receivable 103,423 -- 108,000
Sale of Private Placement
Units, beginning May 2001 -- -- 809,700
Conversion of Notes Payable
to Common Stock 1,184,582 -- 1,185,733
Net loss -- (1,513,945) (1,513,945)
----------- ----------- -----------
Balance at September 30, 2001
(unaudited) $ 1,288,005 $(1,626,872) $ 485,561
=========== =========== ===========
See notes to financial statements.
F-24
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS
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)
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $ (686,291) $(1,513,945) $(1,626,872)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 23,600 33,572 33,572
Changes in assets and liabilities:
Other current assets 181 (2,228) (2,228)
Accounts payable and
accrued expenses 250,544 491,300 515,139
Other current liabilities (2,601) -- --
----------- ----------- -----------
Net cash used in operating activities (414,567) (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 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 sale of private
placement units 676,700 809,700 809,700
Proceeds from issuance
of common stock -- -- 9,000
Proceeds from issuance of
convertible notes payable -- 1,026,102 1,310,602
Increase in due to stockholder (1,000) -- 9,028
Cash received from stock
subscription receivable -- 1,000 1,000
----------- ----------- -----------
Net cash provided by
financing activities 675,700 1,836,802 2,139,330
----------- ----------- -----------
NET (DECREASE)
INCREASE IN CASH 119,562 661,168 865,913
CASH AND CASH EQUIVALENTS, Beginning 746,351 204,745 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, End $ 865,913 $ 865,913 $ 865,913
=========== =========== ===========
See notes to financial statements.
F-25
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS - continued
FINANCING ACTIVITIES
During the nine months ended September 30, 2001, the Company received
certain contractual rights of Developed Technology Resource, Inc., valued
at $107,000, in exchange for shares of the common stock of the Company.
During the period from inception (July 10, 2000) through September 30, 2001,
the Company capitalized debt issuance costs totaling $36,000, a long-term
asset, by incurring an accrued liability of the same amount.
On September 7, 2001 certain convertible note holders accepted an early
conversion offer issued by the Company. The result was a conversion of
notes payable totaling $1,115,602 and related accrued interest totaling
$70,131, resulting in the issuance of 1,150,666 shares of common stock
(see note 9).
See notes to financial statements.
F-26
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 Massachusetts in
July 2000 to identify, develop and seek regulatory approval of 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. As detailed
below, the Company is a Nevada corporation.
The Company is in the development stage while it is focusing on research and
raising capital. Its product candidates are still in research and development,
with none yet in clinical trials. Principal risks to the Company include
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.
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 of its shares of 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
percent and resulted in the prior stockholders of Pro-Pharmaceuticals-MA owning
approximately 91 percent 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. As a legal effect of the merger, Pro-Pharmaceuticals-NV assumed
all of the assets and liabilities of Pro-Pharmaceuticals-MA. For reporting
purposes, however, the foregoing stock-exchange transaction has been accounted
for as a reverse acquisition in which Pro-Pharmaceuticals-MA acquired all the
assets and liabilities of Pro-Pharmaceuticals-NV and recorded them at their fair
values and as if Pro-Pharmaceuticals-MA remained the reporting entity. The only
assets of Pro-Pharmaceuticals-NV were contractual rights with a fair value of
$107,000. Because Pro-Pharmaceuticals-NV is the surviving entity for legal
purposes, all equity transactions have been restated in terms of this
corporation's capital structure.
F-27
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
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.
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.
The Company does not expect the issuance of these pronouncements to have a
material effect.
F-28
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 Company abandoned this private placement as of
December 3, 2001, and terminated all offering activity on or before that date.
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 December 3, 2001, the Company had received proceeds of $2,237,500 from the
sale of the securities offered in the private placement representing 689,300
units. Such purchases will result in the Company issuing 689,300 shares of
common stock and warrants to purchase 689,300 shares of its common stock.
In connection with agreements with three investors in this offering who were
each willing to invest a substantial amount of funds, the Company sold units at
$3.00 each, as follows: 133,400 of the units for a total of $400,200; 66,700
units for a total of $200,100; and 150,000 units for a total of $450,000. The
Company reduced each 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. The Company also granted the earliest of these investors an option to
purchase an additional 200,000 units on the same terms as that investor's
current purchase. The option is exercisable at any time until 30 days after the
Company notifies the investor of its receipt of notice that an investigational
new drug application filed by the Company with the FDA has become effective for
any one of the Company's compounds.
As a result of agreeing to accept different terms on the offered securities with
these investors, the Company is notifying each previous purchaser of the sale to
those investors. This could result in the Company's agreeing to refund some or
all of the previous investments.
Subsequent to September 30, 2001, the Company issued 320,400 shares of common
stock related to the private placement.
NOTE 5 -- 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).
F-29
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 6 -- 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 7 -- 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.
F-30
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 8 -- 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 $12,500 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.
F-31
PRO-PHARMACEUTICALS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (Continued)
(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. The Company will also issue to those holders an additional 557,801
common stock purchase warrants identical to the warrants being offered in the
Company's terminated private placement.
As of November 15, 2001, the Company had outstanding $195,000 principal amount
of notes which are convertible into 97,500 shares of common stock at a
conversion price of $2.00 per share. The $195,000 principal amount represents
the notes that are outstanding following the early conversion offer.
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. As of November 26, 2001, the Company had granted Burton Firtel, a
director of the Company, a non-qualified stock option under the plan to purchase
200,000 shares of common stock at an exercise price of $3.50 per share. The
option is immediately exercisable as to 120,000 shares, and will vest as to an
additional 40,000 shares on the first anniversary of the grant date, and as to
the remaining 40,000 shares on the second anniversary of the grant date,
provided Mr. Firtel remains a director at the applicable anniversary date.
F-32
PRO FORMA FINANCIAL DATA
STATEMENT OF OPERATIONS
The following unaudited pro forma statement of operations has been derived from
the audited statement of operations of Pro-Pharmaceuticals, Inc. (formerly
DTR-Med Pharma Corp.) (Pro-Pharmaceuticals-NV) for the period from inception
(January 26, 2001) through May 15, 2001 and the unaudited statement of
operations for Pro-Pharmaceuticals, Inc. for the nine months ended September 30,
2001, and gives the effect to the exchange of newly issued stock by
Pro-Pharmaceuticals-NV for all outstanding shares of the Massachusetts
predecessor corporation (Pro-Pharmaceuticals-MA) as if the acquistion occurred
as of the beginning of the period. The original stockholders of
Pro-Pharmaceuticals-MA received 91 percent of issued and outstanding stock of
Pro-Pharmaceuticals-NV. The pro forma statement of operations is presented for
informational purposes only and does not purport to be indicative of the results
of operations that actually would have resulted if the transaction had been
consummated at January 1, 2001. The pro forma statement of operations should be
read in conjunction with the financial statements and related notes thereto
contained elsewhere in this registration statement. The transaction has been
accounted for as a reverse acquisition where Pro-Pharmaceuticals-MA is the
acquirer with purchase accounting being applied for the business combination,
where all the assets and liabilities were recorded at fair value with no change
in the reporting entity except for restating the stockholders' equity in terms
of Pro-Pharmaceuticals-NV.
Pro-
Pharmaceuticals,
Inc. (formerly
Pro- DTR-Med
Pharmaceuticals, Pharma Corp.)
Inc. from inception
For the Nine (January 26, 2001)
Months Ended through Pro Forma
September 30, 2001 May 15, 2001 Adjustments Pro Forma
------------ ------------ ------------ ------------
REVENUES $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------
RESEARCH AND DEVELOPMENT $ 531,226 $ 531,226
GENERAL AND ADMINISTRATIVE $ 917,739 $ 75,000 $ 992,739
------------ ------------ ------------
NET LOSS FROM
OPERATIONS $ (1,448,965) $ 75,000 -- $ (1,523,965)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income $ 16,992 $ -- -- $ 16,992
Interest expense $ (81,972) $ (81,972)
------------ ------------ ------------ ------------
$ (64,980) $ -- -- $ (64,980)
------------ ------------ ------------ ------------
NET LOSS $ (1,513,945) $ (75,000) $ -- $ (1,588,945)
============ ============ ============ ============
LOSS PER SHARE
Basic and fully diluted $ (0.12) $ (0.06) $ -- $ (0.12)
============ ============ ============ ============
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic 13,074,466 1,221,890 12,354,670 13,576,560
============ ============ ============ ============
(a) As a result of the stock exchange transaction between
Pro-Pharmaceuticals-NV and Pro-Pharmaceuticals-MA, where the stockholders
of Pro-Pharmaceuticals-MA received approximately 91 percent of the common
stock of Pro-Pharmaceuticals-NV, in exchange for all of the outstanding
stock of Pro-Pharmaceuticals-MA, the ending common stock totaled 13,576,560
shares issued and outstanding as of the date of the merger.
F-33
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Article V of our Articles of Incorporation provides that no director or
officer of our company will be liable to us or to any of our stockholders for
breach of his or her fiduciary duty as a director or officer, except for:
o Acts or omissions by the director or officer which involve intentional
misconduct, fraud or a knowing violation of law, or
o The payment of any distribution to any of our stockholders in
violation of, and as provided under, Section 78.300 of the Nevada
Revised Statutes.
Our By-laws provide that we will indemnify our officers and directors to
the fullest extent permitted by Section 78.7502 of the Nevada Revised Statutes,
provided the officer or director acts in good faith and in a manner which he or
she reasonably believes to be in or not opposed to the company's best interests,
and with respect to any criminal matter, had no reasonable cause to believe that
his or her conduct was unlawful. Our By-laws also provide that, to the fullest
extent permitted by Section 78.751 of the Nevada Revised Statutes, we will pay
the expenses of our officers and directors incurred in defending a civil or
criminal action, suit or proceeding, as they are incurred and in advance of the
final disposition of the matter, upon receipt of an undertaking acceptable to
the Board of Directors for the repayment of such advances if it is ultimately
determined by a court of competent jurisdiction that the officer or director is
not entitled to be indemnified.
Subsection (1) of Section 78.7502 of the Nevada Revised Statutes empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (other
than an action by or in the right of the corporation) by reason of the fact that
the person is or was a director, officer, employee, or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise, against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him or
her in connection with the action, suit, or proceeding if the person acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful.
Subsection (2) of Section 78.7502 of the Nevada Revised Statutes empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that such person acted in any of the capacities set forth in subsection (1)
enumerated above, against expenses (including amounts paid in settlement and
attorneys' fees) actually and reasonably incurred by him or her in connection
with the defense or settlement of such action or suit if the person acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation except that no indemnification may be
made in respect of any claim, issue, or matter as to which such person shall
have been adjudged to be liable to the corporation, unless and only to the
extent that the court in which such action or suit was brought determines that
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Subsection (3) of Section 78.7502 of the Nevada Revised Statutes provides
that to the extent a director, officer, employee, or agent of a corporation has
been successful in the defense of any action, suit, or proceeding referred to in
subsections (1) and (2) or in the defense of any claim,
51
issue, or matter therein, that person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
Section 78.751 of the Nevada Revised Statutes provides that a corporation's
charter or by-laws, or an agreement made by the corporation, may provide that
the expenses of officers and directors incurred in defending a civil or criminal
action, suit or proceeding must be paid by the corporation as they are incurred
and in advance of the final disposition of the action, suit or proceeding, upon
receipt of an undertaking of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he or she is
not entitled to be indemnified by the corporation. Section 78.751 also provides
that indemnification and advancement of expenses authorized in or ordered by a
court does not exclude any other rights to which the indemnified party may be
entitled.
Section 78.752 of the Nevada Revised Statutes empowers the corporation to
purchase and maintain insurance on behalf of any person acting in any of the
capacities set forth in Subsection (1) of Section 78.7502 against any liability
asserted against that person and liability and expenses incurred by that person
in any such capacity or arising out of the person's status as such whether or
not the corporation would have the power to indemnify that person against such
liability and expenses.
Reference is made to Item 28 for Pro-Pharmaceuticals' undertakings in this
registration statement with respect to indemnification of liabilities arising
under the Securities Act of 1933, as amended.
Item 25. Other Expenses of Issuance and Distribution.
The following is a list of the expenses, other than the placement fees, to
be incurred by the Registrant in connection with the preparation and filing of
this Registration Statement. All amounts shown are estimates except for the SEC
registration fee. The Registrant will pay all expenses in connection with the
distribution of the shares of common stock being sold by the selling security
holders, except for the fees and expenses of any counsel and other advisors
that any selling security holders may employ to represent them in connection
with the offering and any brokerage or underwriting discounts or commissions
paid to broker-dealers in connection with the sale of the shares.
SEC Registration Fee........................$ 2,811
Printing and Engraving......................$ 4,500
Accountants' Fees and Expenses..............$ 35,000
Legal Fees and Expenses.....................$ 50,000
Placement Agent Due Diligence Fee...........$ 20,000
Transfer Agent Fees and Expenses............$ 2,500
Other Offering Expenses.....................$ 5,189
----------
Total..................................$ 120,000
==========
52
Item 26. Recent Sales of Unregistered Securities.
1. Commencing in December 2000 and continuing through May 2001,
Pro-Pharmaceuticals (Massachusetts) issued convertible notes with an aggregate
principal amount of $1,310,602 to "accredited investors" as such term is defined
in Regulation D promulgated under the Securities Act of 1933. These notes are
now our corporate obligations as a result of the merger with Pro-Pharmaceuticals
(Massachusetts). The notes have an interest rate of 10% per year and mature one
year from their issuance dates. The notes are convertible into shares of our
common stock, at a conversion price of $2.00 per share.
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 terminated
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. All
shares of common stock issued upon conversion of the notes are "restricted
securities" as defined in Rule 144 under the Securities Act.
In issuing the notes, Pro-Pharmaceuticals (Massachusetts) relied upon the
exemption provided by Rule 506 under Section 4(2) of the Securities Act of 1933.
2. In May 2001, we began 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. We abandoned this
private placement as of December 3, 2001, and terminated all offering activity
on or before that date. Purchasers under the private placement had to qualify as
"accredited investors" as such term is defined in Regulation D. The offered
securities comprised up to 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. We sold 689,300 units as of the date we abandoned the
offering. 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 agreements with three investors in this offering who
were each willing to invest a substantial amount of funds, we sold units at
$3.00 each, as follows: 133,400 of the units for a total of $400,200; 66,700
units for a total of $200,100; and 150,000 units for a total of $450,000. We
reduced each 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 the earliest of these investors an option to purchase an additional
200,000 units on the same terms as that 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
53
FDA has become effective for any one of our compounds. As a result of agreeing
to accept different terms on the offered securities with these investors, we are
notifying each previous purchaser of the sale to those investors. This could
result in our agreeing to refund some or all of the previous investments.
As of the termination of this offering in December 2001, we had received
proceeds of $2,237,500 from the sale of the securities offered in this private
placement. Such purchases will result in our issuing 689,300 shares of our
common stock and warrants to purchase 689,300 shares of our common stock.
Item 27..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 **
5 Opinion of Perkins, Smith & Cohen, LLP (including the consent of such firm)
regarding the legality of the securities being offered
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)
21 Subsidiaries of the Registrant None
23.1 Consent of Perkins, Smith & Cohen, LLP (included as part of Exhibit 5 hereto)
23.2 Consent of Scillia Dowling & Natarelli LLC, independent auditors
24 Powers of Attorney (included on page S-1)
* 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 for the period ended September 30, 2001, as filed with the
Commission on November 14, 2001.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, as
amended (the "Securities Act"); (ii) reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or the
54
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; and (iii) include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
2. For the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
55
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in Newton,
Massachusetts, on December 5, 2001
PRO-PHARMACEUTICALS, INC.
Registrant
By: /s/ David Platt
--------------------------------
Name: David Platt
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID PLATT, PH.D., his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
or all amendments (including, without limitation, post-effective amendments) to
this Registration Statement, any related Registration Statement filed pursuant
to Rule 462(b) under the Securities Act of 1933 and any or all pre- or
post-effective amendments thereto, and to file the same, with all exhibits
thereto, and all other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes, may all
that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ David Platt President, Chief Executive Officer, December 5, 2001
- ---------------------------- Treasurer, Secretary and Director
David Platt, Ph.D. (Principal Executive, Financial and
Accounting Officer)
/s/ James Czirr Executive Vice President of Business December 4, 2001
- ---------------------------- Development and Director
James Czirr
/s/ Peter Hauser Director December 5, 2001
- ----------------------------
Peter Hauser
/s/ Burton C. Firtel Director December 5, 2001
- ----------------------------
Burton C. Firtel
/s/ Dale H. Conaway Director December 5, 2001
- ----------------------------
Dale H. Conaway, D.V.M.
56
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 **
5 Opinion of Perkins, Smith & Cohen, LLP (including the consent of such firm)
regarding the legality of the securities being offered
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)
21 Subsidiaries of the Registrant None
23.1 Consent of Perkins, Smith & Cohen, LLP (included as part of Exhibit 5 hereto)
23.2 Consent of Scillia Dowling & Natarelli LLC, independent auditors
24 Powers of Attorney (included on page S-1)
* 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 for the period ended September 30, 2001, as filed with the
Commission on November 14, 2001.
57
Exhibit 5
PERKINS, SMITH & COHEN, LLP
- --------------------------------------------------------------------------------
Attorneys At Law
ONE BEACON STREET
BOSTON, MA 02108-3106
TEL 617.854.4000 FAX 617.854.4040
www.pscboston.com
December 5, 2001
Pro-Pharmaceuticals, Inc.
189 Wells Avenue, Suite 200
Newton, Massachusetts 02458
Ladies and Gentlemen:
We have acted as special counsel for Pro-Pharmaceuticals, Inc., a Nevada
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), of a Registration Statement on
Form SB-2 (the "Registration Statement"), including a prospectus to be filed
with the Commission pursuant to Rule 424(b) of Regulation C promulgated under
the Securities Act (the "Prospectus") relating to shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), as follows: (i) a "best
efforts" placement of up to 1,428,572 shares of Common Stock to be issued and
sold by the Company (the "Company Shares"), and (ii) the offering of up to
1,221,890 shares of Common Stock by certain stockholders of the Company (the
"Stockholders' Shares").
As special counsel to the Company, in connection with this opinion, we have
examined and relied upon such records, documents, certificates and other
instruments as in our judgment are necessary or appropriate to form the basis
for the opinions set forth herein. In our examinations, we have assumed the
genuineness of all signatures, the legal capacity of natural persons signing or
delivering any instrument, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified or photostatic copies and the authenticity of the originals of such
latter documents.
Based upon the foregoing, we are of the opinion that:
1. The Company Shares, when issued and sold in accordance with the
Registration Statement and related Prospectus, will be validly issued, fully
paid and non-assessable.
2. The Stockholders' Shares have been duly authorized and validly issued
and are fully paid and non-assessable.
PERKINS, SMITH & COHEN, LLP
Pro-Pharmaceuticals, Inc.
December 5, 2001
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm appearing under the
heading "Legal Matters" in the Prospectus. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act or the General Rules and Regulations of
the Commission thereunder.
Very truly yours,
/s/ Perkins, Smith & Cohen, LLP
Perkins, Smith & Cohen, LLP
Exhibit 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the reference to our firm under the headings "Selected Financial Data" and "Experts" and to the use of our reports dated June 6, 2001 and December 4, 2001, in the Registration Statement on Form SB-2 and related Prospectus of Pro-Pharmaceuticals, Inc. for the registration of 2,650,462 shares of its common stock. /s/ Scillia Dowling & Natarelli LLC Scillia Dowling & Natarelli LLC Hartford, Connecticut December 5, 2001