UNITED STATES SECURITIES AND EXCHANGE COMMISSION
(Mark One) R 20042005 £
Delaware | 75-2402409 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
1250 Pittsford-Victor Rd | 14534 | |
Pittsford, NY | (Zip Code) | |
(Address of principal executive offices) |
N/A N/A
þx Nooan accelerated filera shell company (as defined in Exchange Act Rule 12b-2). Yeso Noþx20042005 was $9,785,964,$4,827,613 based on the last sale price as reported by OTC Bulletin Board.April 7, 2005,March 29, 2006 the registrant had 16,266,55316,878,090 shares of common stock outstanding.
PART I
We have Company.During 2004, the Company completed the termination of all research activities. All scientific staff and administrative positions have been eliminated and all of the Company’s research, license and royalty agreements have been terminated. On December 5, 2003, our then current Board of Directors: Dr. Joseph M. Davie, Robert J. Easton, Dr. Ronald L. Goode, Dr. Walter M. Lovenberg and Gordon F. Martin, (collectively referred to as the “Prior Board”) were removed by a majority vote of our stockholders via a proxy consent solicitation. They were replaced by the following slate of new Directors: John A. Paganelli, Robert A. Baron, Robert Benou, John J. Huntz, Jr., and Dr. David Lee Spencer, collectively referred to as the “New Board”. On February 23, 2004, Dr. Ronald L. Goode, the President and Chief Executive Officer of the Company resigned, thereby terminating his employment agreement with the Company that was to expire on March 21, 2004 (See Item 11. Executive Compensation). On June 22, 2004, John J. Huntz resigned as a member of the Company’s Board of Directors. On September 8, 2004, the board of directors of the Company appointed David Lee Spencer to serve as the third independent director of the audit committee. Currently, we have one employee, David E. Riggs, who serves as our President, Chief Executive Officer and Chief Financial Officer.Our Company has been unsuccessful at advancingWe completed the termination of all research programs. activities. All scientific staff and administrative positions were eliminated and all of our research and development activities were terminated. New Board and management are focused on redeploying the remaining residual assets of the Company. On September 8, 2004 the Company entered into an Intellectual Property Assignment Agreement to license the Company’s QCT drug discovery technology to NLC Pharma, Inc. The New Board has established a committee to study strategic direction and identify potential business opportunities and the Company’s objective continues to be to redeploy its assets and actively pursue new business opportunities. In 2003,recognized an aggregate of $2,233,000 in expenses related to merger, tender offer and consent solicitation activities which included $1,375,000 in legal fees, $398,000 in fees to a financial advisor, $360,000 in other fees for audit, printingDavid E. Riggs mutually agreed that Mr. Riggs would relinquish his duties as President, Chief Executive and investor relations services and $100,000 for reimbursement of certain expenses triggered in connection with the terminationChief Financial Officer of the Agreement and planCompany. Chairman of Merger were paid to AVI Biopharma (see Note E in Notes tothe Board, John A. Paganelli, assumed the role of Interim Chief Executive Officer. On July 1, 2005 David Hostelley was named Chief Financial Statements). In 2004,Officer of the Company did not incur any expenses in connection with merger, tender offer and consent solicitation.In addition to filing patent applications in the U.S.,As we have filed patent applications in certain foreign countries. Although a patent has a statutory presumption of validity in the U.S., the issuance of a patent is not conclusive as to such validity or as to the enforceable scope of the claims of the3
patent. There can be no assurance that our issued patents or any patents subsequently issued to us, or licensed by us, will not be successfully challenged in the future. The validity or enforceability of a patent after its issuance by the U.S. Patent and Trademark Office can be challenged in litigation. If the outcome of the litigation is adverse to the owner of the patent, third parties may then be able to use the invention covered by the patent, in some cases without payment. There can be no assurance that patents in whichterminated all drug discovery operations we have not incurred expenses in maintaining any of our prior patents. Thus any of our patents may be subject to challenge and we may lose our rights will not be infringed or successfully avoided through design innovation.
Costs associated with our patent portfolio were approximately $15,000 into such.
There can be no assurance that patent applications owned by us or licensed to us will result in patents being issued or thatreceive any such patents will afford protection against competitors with similar technology. It is also possible that third parties may obtain patent or other proprietary rights that may be needed by us. In cases where third parties arerevenues from the first to invent a particular product or technology, it is possible that those parties will obtain patents that will be sufficiently broad so as to prevent us from using certain technology or from further developing or commercializing certain products. If licenses from third parties are necessary but cannot be obtained, commercialization of the related products would be delayed or prevented. We are aware of patent applications and issued patents belonging to competitors but we are uncertain whether any of these, or patent applications filed of which we may not have any knowledge, will require us to alter our potential products or processes, pay licensing fees or cease certain activities.
No assurance can be given that others will not independently develop substantially equivalent information and techniques or otherwise gain access to our technology or disclose such technology, or that we can effectively protect our rights in such unpatented technology, trade secrets and information.
License Agreements
On September 8, 2004 we entered into an
Competition
4
Anydevelopment programs we do not anticipate developing any potential products that might come from our remaining intellectual property may face competition from existing therapies.
products.
On February 23, 2004, Dr. Ronald L. Goode resigned his positions with the Company as President and Chief Executive Officer, thereby terminating his employment agreement with the Company that was to expire on March 21, 2004.
agreement.
5
- announcements we make concerning new business development activities; - announcements we make concerning our use of cash to maintain our dormant operations; - regulatory developments in the United States and foreign countries; - our common stock being | ||||
On or about October 2004 the Company’s securities were delisted from the Nasdaq Small Cap Stock Market, due to concerns under Nasdaq Marketplace Rule 4330. As such the Company’s securities were thereafter immediately quoted for trading on the Pink Sheets. Shortly thereafter our common stock was quoted on the OTC Bulletin Board.
Board;
We incurred
| • | the market price of our common stock may decline; | ||
| • | we will continue to incur costs, including legal, accounting, financial advisory and other costs relating to us being a public company and our ongoing search for a suitable business opportunity; and | ||
| • | we may experience a negative reaction if we do not locate a suitable business opportunity, or if the Board of Directors does recommend a proposal to our shareholders which is not approved, or if such transaction is approved by our shareholders and does not produce anticipated results. |
Item 2.Properties
In December, 2003, we vacated approximately 19,300 square feet of officeresult in, a significant strain on the Company’s management, information systems and laboratory space at 2110 Research Row, Dallas, Texas, previously occupiedresources. Furthermore, achieving and maintaining compliance with Sarbanes-Oxley and other new rules and regulations has required the Company to hire additional personnel and has and will continue to require it to use additional outside legal, accounting and advisory services.
We are not a party to any litigation in any court, and management is not aware of any contemplated proceeding by any governmental authority or individual against us except as described below.6
Weiss Litigation
Labidi Proceeding. In April 2002, Dr. Labidi, one of our former employees, made certain allegations against us regarding discrimination. Dr. Labidi initially filed an employment discrimination charge with the Equal Employment Opportunity Commission (“EEOC”) alleging that he was harassed and discriminated against. The EEOC dismissed this charge because it found no substantial evidence to support Dr. Labidi’s claims. Dr. Labidi subsequently filed a timely federal court lawsuit against eXegenics in the United States District Court for the Northern District of Texas. In the lawsuit, Dr. Labidi reasserted his harassment and discrimination claims. In addition, Dr. Labidi alleged that we wrongfully converted certain biological research materials that Dr. Labidi claims belong to him. At this point, we are in the midst of formal discovery. We believe we have meritorious defenses with respect to these allegations, all of which we intend to pursue vigorously.
2110 Research Row, Ltd. Proceeding. On December 31, 2003, the termination date of our lease agreement, we vacated 19,300 square feet of office and laboratory space that we occupied at 2110 Research Row, Dallas, Texas. 2110 Research Row, Ltd. (the “Landlord”) acquired this property in April 2002. The Landlord contends he is owed payments that we believe to be outside the terms of the lease agreement or waived by the previous landlord. In October 2003, we filed suit against the Landlord and 9000 Harry Hines, Inc., in a Dallas County District Court. The Company, as tenant, and the Landlord were parties to a lease agreement (“Lease Agreement”) dated October 1, 1991, as amended. On March 19, 2004, we entered into a settlement agreement with the Landlord, whereby we made a $33,000 payment to the Landlord, dismissed the suit with prejudice and entered into a mutual release of any and all claims by all parties. On April 9, 2004, the Landlord and the Company filed an Agreed Order Of Dismissal With Prejudice in The District Court, 134th Judicial District, Dallas County Texas.
On December 16, 2004,Company held its Annual Meetingfourth quarter of Stockholders, with stockholders holding 249,134 shares of our Series A Preferred Stock and 12,685,941 shares of common stock voting together7
as a single class (representing 75.23% of the total number of shares outstanding and entitled to vote) present in person or by proxy at the meeting. Proxies for the meeting were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934. John Paganelli, Robert Baron, Dr. David Spencer and Robert Benou were listed as management’s nominees in the proxy statement and were elected as directors at the meeting. The votes for each nominee were as follows:
| Name | Number of Affirmative Votes | Number of Votes Withheld | ||||||
| John Paganelli | 12,738,085 | 196,990 | ||||||
| Robert Benou | 12,738,085 | 196,990 | ||||||
| Robert Baron | 12,738,185 | 196,890 | ||||||
| Dr. David Spencer | 12,744,585 | 190,490 | ||||||
At the meeting, the Company also sought the ratification of BDO Seidman, LLP as independent auditors of the Company for the fiscal year ended December 31, 2004. This proposal was approvedrepresented by 12,860,275 affirmative votes inthis report, the aggregate. There were an aggregate of 69,400 negative votes and 5,400 abstentions.
We called a special meeting of stockholders for June 29, 2004Company did not present any matters to consider and actbe voted upon a proposal to affect a one-for-two reverse stock split of our common stock. This meeting was adjourned prior to consideration of the proposal in order to provide more time to obtain a quorum. The meeting was reconvened at July by its shareholders.
On or about October 2004 our securities were delisted from the Nasdaq Small Cap Market, due to concerns under Nasdaq Marketplace Rule 4330. As such our securities were thereafter immediately quotedPink Sheets. Shortly thereafter our common stock was quoted onOver the OTCCounter Bulletin Board and our common stock is currently trading on the OTC Bulletin Board. On January 2, 2004, the Nasdaq Listings Qualification Panel notified us that we were entitled to an extension (until July 25, 2004) to regain compliance with a $1.00 minimum share price for continued listing on the Nasdaq SmallCap Market. During this period, it was necessary for the Company’s common stock to trade at or above $1.00 per share for a minimum of 10 consecutive trading days to remain listed on the Nasdaq SmallCap Market. The Nasdaq Panel’s determination was, in part, based on the Company’s commitment to seek shareholder approval of a reverse stock split of our Common Stock. A reverse stock split is one possible solution to rectifying the Company’s deficiency as it relates to the $1.00 minimum share price issue. On January 28, 2004 the Nasdaq internal staff review concluded that the New Board and its Audit committee satisfy the independent composition requirements as set forth in Nasdaq Marketplace Rules 4350(c) and 4350(d)(2), respectively.8
We called a special meeting of stockholders for June 29, 2004 to consider and act upon a proposal to affect a one-for-two reverse stock split of our common stock. This meeting was adjourned prior to consideration of the proposal in order to provide more time to obtain a quorum. The meeting was reconvened at July 8, 2004 at which time we failed to obtain the requisite votes to hold such special meeting of shareholders.
On or about July 2004 Nasdaq Stock Market informed the Company that we were not in compliance with the minimum $1.00 closing bid price per share requirement, as set forth in NASD Marketplace Rule 4310(c)(4) and our common stock was subject to delisting from the Nasdaq SmallCap Market effective August 4, 2004. The delisting was stayed pending an oral hearing to be held before a Nasdaq Listing Qualifications Panel on September 9, 2004. On September 1, 2004, we received a letter from Nasdaq stating that, in addition to the bid price deficiency, the Company was no longer in compliance with Nasdaq independent director and audit committee requirements rule, as set forth in Nasdaq Marketplace Rules 4350-1(c) and 4350-1(d)(2) due to the resignation of John Huntz. The letter also stated that the Nasdaq listings qualifications staff has raised public interest concerns in accordance with Nasdaq Marketplace Rules 4300 and 4330(a)(3).
Common Stock
The following table shows the highest and lowest actual trades of our common stock, on a per share basis, during each quarterly period within the two most recent fiscal years, as reported by the National Association of Securities Dealers. Such prices reflect inter-dealer quotations, without adjustment for any retail markup, markdown or commission.
| High | Low | |||||||
| 2003: | ||||||||
| First Quarter | $ | 0.84 | $ | 0.28 | ||||
| Second Quarter | 0.90 | 0.27 | ||||||
| Third Quarter | 0.85 | 0.35 | ||||||
| Fourth Quarter | 1.20 | 0.39 | ||||||
| 2004: | ||||||||
| First Quarter | $ | 1.09 | $ | 0.68 | ||||
| Second Quarter | 1.32 | 0.55 | ||||||
| Third Quarter | 0.85 | 0.35 | ||||||
| Fourth Quarter | 0.70 | 0.21 | ||||||
High | Low | ||||||
| 2004: | |||||||
| First Quarter | $ | 1.09 | $ | 0.68 | |||
| Second Quarter | 1.32 | 0.55 | |||||
| Third Quarter | 0.85 | 0.35 | |||||
| Fourth Quarter | 0.70 | 0.21 | |||||
| 2005: | |||||||
| First Quarter | $ | 0.45 | $ | 0.32 | |||
| Second Quarter | 0.47 | 0.35 | |||||
| Third Quarter | 0.44 | 0.36 | |||||
| Fourth Quarter | 0.46 | 0.39 | |||||
$0.41.
9
the Board John A. Paganelli, assumed the role of Interim Chief Executive Officer. On July 1, 2005 Dave Hostelley was named Chief Financial Officer of the Company. Our objective in This calculation includes $250,000 in the potential liability faced by the Company in the judgment rendered against the Company in the suit filed by Dr. Labidi. contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to investments, intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Medical Services, Inc. In 2005 Mid Atlantic Medical Services, Inc. was acquired by UnitedHealth Group, Inc. 2005. relating to accounting policy and internal controls and reviews the scope of annual audits. Mr. Benou, Mr. Baron and Dr. Spencer are “independent” as defined by current National Association of Securities Dealers’ listing standards. The Board has determined that Robert Benou is qualified as a financial expert serving on our Audit Committee. 2005. 2005. reports. directors, respectively. beneficially owned as of The Company is not aware of any arrangements which may at a subsequent date result in a change of control of the Company. 2004 2003 2003 2003 Equity compensation plans approved by security holders 905,000 3,345,000 Equity compensation plans not approved by security holders (1) 290,000 N/A Year Ended December 31, 2004 2003 2002 2001 2000 Statement of Operations Data Revenue $ — $ 13,000 $ 562,000 $ 1,333,000 $ 865,000 Research and development — 154,000 3,948,000 4,843,000 3,681,000 General and administrative expenses 2,051,000 2,938,000 4,770,000 6,448,000 5,788,000 Expenses related to strategic redirection — 653,000 864,000 560,000 — Merger, tender offers and consent solicitation expenses — 2,233,000 2,010,000 — — Operating loss (2,051,000 ) (5,965,000 ) (11,030,000 ) (10,518,000 ) (8,604,000 ) Gain on disposition — — 4,000 274,000 — Interest income 127,000 174,000 686,000 1,383,000 1,543,000 Interest expense (2,000 ) (2,000 ) (18,000 ) (6,000 ) (9,000 ) Loss before tax benefit and cumulative effect of a change in accounting principle (1,926,000 ) (5,793,000 ) (10,358,000 ) (8,867,000 ) (7,165,000 ) Tax benefit — — — 82,000 — Net loss (1,926,000 ) (5,793,000 ) (10,358,000 ) (8,785,000 ) (7,165,000 ) Preferred Stock Dividend (223,000 ) (207,000 ) (169,000 ) (180,000 ) (180,000 ) Net loss attributable to common stockholders $ (2,149,000 ) $ (6,000,000 ) $ (10,527,000 ) $ (8,965,000 ) $ (7,345,000 ) Basic and diluted loss per common share $ (0.13 ) $ (0.38 ) $ (0.67 ) $ (0.57 ) $ (0.51 ) December 31, 2004 2003 2002 2001 2000 Balance Sheet Data Total assets $ 10,071,000 $ 11,342,000 $ 17,515,000 $ 27,625,000 $ 37,378,000 Working capital 9,829,000 10,296,000 15,924,000 24,949,000 35,050,000 Royalties payable — less current portion — — — — 750,000 Stockholders’ equity $ 9,832,000 $ 10,304,000 $ 16,074,000 $ 26,121,000 $ 35,775,000 Statement of Operations Data Revenue $ — $ — $ 13,000 $ 562,000 $ 1,333,000 Research and development — — 154,000 3,948,000 4,843,000 General and administrative expenses 1,438,000 2,051,000 2,938,000 4,770,000 6,448,000 Expenses related to strategic redirection — — 653,000 864,000 560,000 Merger, tender offers and consent solicitation expenses — — 2,233,000 2,010,000 — Operating loss (1,438,000 ) (2,051,000 ) (5,965,000 ) (11,030,000 ) (10,518,000 ) Gain on disposition — — — 4,000 274,000 Gain on sale of investments (net) 1,064,000 — — — — Interest income 190,000 127,000 174,000 686,000 1,383,000 Interest expense (2,000 ) (2,000 ) (2,000 ) (18,000 ) (6,000 ) Loss before tax benefit and cumulative effect of a change in accounting principle (186,000 ) (1,926,000 ) (5,793,000 ) (10,358,000 ) (8,867,000 ) Tax benefit — — — — 82,000 Net Loss (186,000 ) (1,926,000 ) (5,793,000 ) (10,358,000 ) (8,785,000 ) Preferred Stock Dividend (234,000 ) (223,000 ) (207,000 ) (169,000 ) (180,000 ) Net loss attributable to common stockholders $ (420,000 ) $ (2,149,000 ) $ (6,000,000 ) $ (10,527,000 ) $ (8,785,000 ) Basic and diluted loss per common share $ (0.03 ) $ (0.13 ) $ (0.38 ) $ (0.67 ) $ (0.57 ) Balance Sheet Data Total assets $ 9,000,000 $ 10,071,000 $ 11,342,000 $ 17,515,000 $ 27,625,000 Working capital 8,723,000 9,829,000 10,296,000 15,924,000 24,949,000 Stockholders’ equity $ 8,723,000 $ 9,832,000 $ 10,304,000 $ 16,074,000 $ 26,121,000 10 On December 5, 2003, our Prior Board was removed by a majority vote of our stockholders via a proxy consent solicitation. They were replaced by our New Board. New Board is focused on redeploying the remaining residual assets of the Company. The New Board and management have established a committee to study strategic direction and identify potential business opportunities. On February 23, 2004, Dr. Ronald L. Goode, the President and Chief Executive Officer of the Company resigned, thereby terminating his employment agreement with the Company that was to expire on March 21, 2004 (See Item 11. Executive Compensation). On June 22, 2004, John J. Huntz resigned as a member of the Company’s Board of Directors. On September 8, 2004, the board of directors of the Company appointed David Lee Spencer to serve as the third independent director of the audit committee. Currently, we have one employee, David E. Riggs, who serves as the President, Chief Executive Officer and Chief Financial Officer. On May 15, 2003,The lawsuit filed by The M&B Weiss Family Limited Partnership of 1996 filed a lawsuit inwas dismissed on April 12, 2005. The Company faces potential liability of at least $600,000 (exclusive of interest and legal fees, which have been requested by Dr. Labidi, but not yet determined by the Delaware Court of Chancery, purportedly as a class action on behalf of all other similarly situated stockholders of the Company, against the Company, as a nominal defendant, and former directors: Joseph M. Davie, Robert J. Easton, Ronald L. Goode and Walter Lovenberg, (collectively referred to as the “Individual Defendants”), and purportedly as a derivative action on behalf of the Company against the Individual Defendants (the “Weiss Litigation”). The complaint alleges, among other things, that the Individual Defendants have mismanaged the Company, have made unwarranted and wasteful loans and payments to certain directors and third parties, have disseminated a materially false and misleading proxy statementCourt) in connection with the 2003 annual meeting of our stockholders, and have breached their fiduciary duties to actjudgment rendered against the Company in the best interests of ourlawsuit filed by Dr. Labidi. On June 29, 2005 the Company and its stockholders. The plaintiffs are seeking an award of costsDavid E. Riggs mutually agreed that Mr. Riggs would relinquish his duties as President, Chief Executive and attorneys’ fees and expenses. The defendants in the Weiss litigation filed a joint motion with the Delaware Court of Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand on the Company to assert the subject claims. On April 12, 2005 the judge, in a ruling from the bench, dismissed the matter with prejudice. We are awaiting a formal written order to that effect to be filed. In 2003, the Company recognized an aggregate of $2,233,000 in expenses related to merger, tender offer and consent solicitation activities which included $1,375,000 in legal fees, $398,000 in fees to the financial advisor, $360,000 in other fees for audit, printing and investor relations services and $100,000 for reimbursement of certain expenses triggered in connection with the terminationChief Financial Officer of the Agreement and PlanCompany. Chairman of Merger which were paid to AVI Biopharma.20052006 is to redeploy our assets and actively pursue new business opportunities. WeAfter taking into account the interest earned on our investments ($25,000 to $30,000 per month) we expect to use between $100,000$40,000 and $125,000$55,000 per month in 20052006 in furtherance of these objectives.1112 We do not anticipate recognizing revenues from licenses in 2005.$ 154,000$154,000 or 100%. The decrease was a result of the Company exiting the drug discovery business and termination of related research and development activities. Significant contributions to the overall decrease were as follows: $92,000 decrease in research salaries and payroll, $3,000 decrease in expenses for research consultants, $29,000 decline in lease expenses, maintenance and depreciation, $382,000 decrease in research services and materials, $16,000 decrease in travel and entertainment, health insurance and other headcount related expenses and $14,000 decline in laboratory supplies. We expect to incur expenses of between $100,000 and $125,000 per month during 2005.recognizedincurred costs of $5,000 in expenses from operations terminated in fiscal 2004.2004, Cash disbursements made during fiscal 2004 against a previously established restructuring reserve included $90,000 for severance payments, $87,000 for terminated operating lease obligations, and $16,000 for equipment and facilities relocation. We recognized $653,000$0 in expenses related to Strategic Redirection in 2003 and no expenses were recognized in 2004.13Fiscal Year Ended December 31, 2003 Compared to Fiscal Year Ended December 31, 2002Revenues Revenues for 2003 and 2002 were attributable to license and research and development payments. We recognized revenues of $13,000 during fiscal 2003, compared to $562,000 for fiscal 2002, a decrease of $549,000 or 98%. The decrease was a result of the Company exiting the drug discovery business and termination of related research and development activitiesResearch and Development Expenses We incurred research and development expenses of $154,000 during fiscal 2003 and $3,948,000 during fiscal 2002, a year-to-year decrease of $3,794,000 or 96%. The decrease was a result of the Company exiting the drug discovery business and termination of related research and development activities. Significant contributions to the overall decrease were as follows: $1,249,000 decrease in research salaries and payroll, $718,000 decrease in expenses for research consultants, $625,000 decrease in payments and reimbursements made under sponsored university research agreements, $536,000 decline in lease expenses, maintenance and depreciation, $382,000 decrease in research services and materials, $168,000 decrease in travel and entertainment, health insurance and other headcount related expenses and $99,000 decline in laboratory supplies.General and Administrative Expenses General and administrative expenses for fiscal 2003 were $2,938,000 compared to $4,770,000 for fiscal 2002, a decrease of $1,832,000 or 38%. General and administrative expenses decreased primarily as a result of the termination of drug discovery operations. Significant variances in fiscal 2003, compared to fiscal 2002, were as follows: patents and intellectual property expenses declined by $1,028,000, professional consulting fees declined by $357,000, headcount related expenses, primarily salaries, travel and entertainment, health insurance, employee relations and office expenses declined by $481,000, inventory and public relations expense declined by $154,000 and insurance, primarily directors and officers liability insurance expense increased by $232,000.Merger, Tender Offers and Consent Solicitation Expenses In 2003, we recognized an aggregate of $2,233,000 in expenses related to merger, tender offers and consent solicitation activities, which included $1,375,000 in legal fees, $398,000 in fees to a financial advisor, $360,000 in other fees for audit, printing and investor relations services and a $100,000 termination fee paid to AVI Biopharma. This compares to $2,010,000 in expenses related to merger activities during 2002.14Expenses Related to Strategic Redirection As a result of our decision to redirect our business strategy, we recognized $653,000 in expenses from operations terminated in fiscal 2003, net of $284,000 reimbursement from Bristol Meyers Squibb (“BMS”). These expenses included $467,000 for severance payments, $221,000 for research and legal fees related to intellectual property and $126,000 for the write down of laboratory equipment, net of recoveries from the sale of equipment, to its estimated resale value. In addition, there were charges of $123,000 for other expenses of terminated scientific programs. We recognized $864,000 in expenses related to Strategic Redirection in 2002.Other Income Other income for fiscal 2003 was $0 as compared to $4,000 during fiscal 2002.Interest Income Interest income for fiscal 2003 was $174,000 as compared to $686,000 for fiscal 2002, a decrease of $512,000 or 75%. The decrease in interest income was due to lower interest rates and declining investable balances as disbursements were made.Net Loss We incurred net losses of $5,793,000 during fiscal 2003 and $10,358,000 during fiscal 2002. The decrease in net loss of $4,565,000 or 44% is a result of the aforementioned changes in our operations. Net loss per common share for fiscal 2003 was $0.38 and for fiscal 2002 was $0.67.20042005 we had cash, cash equivalents and investments of approximately $8,734,000 plus restricted cash of $175,000.$8,901,000. During 2004,2005, we used approximately $1,503,000$1,000,000 to fund our operating activities, principally related to a net loss of $1,926,000 for the year. Net sales of equipment provided approximately $0 of cash. We used $92,000 to pay our operating lease obligations.activities. Restricted cash was pledged as collateral in support of leases of laboratory equipment. In connection with the termination of our drug discovery research programs, we repurchased equipment subject to a capital lease agreement. In January 2004,August 2005, in conjunction with this repurchase,the return of remaining lease obligations, the lessor of this equipment released $375,000$175,000 of the held collateral. In addition, in 20042005 the Company received proceeds of approximately $192,000$1,064,000 from the exercisesale of optionsJavelin Pharmaceuticals, Inc shares of common stock.certain holders. We forecastDr. Labidi, but not yet determined by the Court) in 2006 in connection with the judgment rendered against the Company in the lawsuit filed by Dr. Labidi. In connection with this potential liability the Company has recorded a reserve for $250,000.cash usage during 2005investments ($25,000 to be approximately $100,000-$125,000$30,000 per month) we expect to use between $40,000 and $55,000 per month assuming that we make no new investments or engagein 2006 in furtherance of these objectives. This calculation includes $250,000 in the operation of a new business.potential liability faced by the Company in the judgment rendered against the Company in the suit filed by Dr. Labidi. Our future capital needs are uncertain. The Company may or may not need additional financing in the future to fund operations, a determination to be made when the Company adopts its new business strategy. We do not know whether additional financing will be available when needed, or that, if available, we will obtain financing on terms favorable to our stockholders.15123 (revised 2004), “Share-Based Payment”, which replaces123R, “Share-based Payment.” SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock Based Compensation”, and supersedes APB Opinion No. 25. Among other items, SFAS No. 123 (R)123R eliminates the use of APB 25 and the intrinsic value method of accounting, and requires all share-based paymentscompanies to employees, including grantsrecognize the cost of employee stock options,services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. The effective date of SFAS 123R is January 1, 2006, for calendar year companies.beadopt its requirements using either a “modified prospective” method, or a “modified retrospective” method. Under the “modified prospective” method, compensation cost recognized in the financial statements based on their fair values, beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. In addition, SFAS No. 123 (R) will cause unrecognized expense (basedeffective date, based on the fair values determined for the pro forma footnote disclosure, adjusted for estimated forfeitures) related to options vesting after the date of initial adoption to be recognized as a charge to results of operations over the remaining vesting period. The Company is required to adopt SFAS No. 123 (R) in its third quarter of 2005, beginning July 1, 2005. Under SFAS No. 123 (R), the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition alternatives include the modified prospective or the modified retrospective adoption methods. Under the modified retrospective method, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The modified prospective method requires that compensation expense be recorded for all unvested stock options and share awards at the beginning of the first quarter of adoption of SFAS No. 123 (R), while the modified retrospective methods would record compensation expense for all unvested stock options and share awards beginning with the first period restated. The Company is evaluating the requirements of SFAS No. 123 (R)123R for all share-based payments granted after that date, and expects thatbased on the adoptionrequirements of SFAS No. 123 (R) will have a material impactfor all unvested awards granted prior to the effective date of SFAS 123R. Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but also permits entities to restate financial statements of previous periods based on our statement of operations and earnings per share. proforma disclosures made in accordance with SFAS 123.cannot yet estimate the effect of adopting SFAS No. 123 (R) as it has not yet selected the method of adoption or an option pricing model and it has not yet finalized estimates of our expected forfeitures.no off balance sheet arrangements.changes in or disagreements with our accountantsIndependent Registered Public Accounting Firm’s accounting and financial disclosure for the period covered by this Report.(a) Evaluation of Disclosure Controls and ProceduresCompany’s sole officer, who is the PresidentCompany's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s “Disclosure"Disclosure Controls and Procedures”Procedures". We have exited the16biotechnology-drug discovery business and all employees have been terminated except the PresidentThe Chief Executive Officer and Chief Financial Officer. He hasOfficer have concluded that, given our limited operations, our Disclosure Controls and Procedures were effective. As such term is used above, the Company’s Controls and Procedures are controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’sCommission's rules and forms. Disclosure Controls and Procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’sCompany's management, including its sole officerofficers as appropriate to allow timely decisions regarding required disclosure.(b) Changes(b) In December 2003, our New Board established procedures relating during the fourth quarter of 2005.control and disbursement of cash and cash equivalents, which represents approximately 87% of our total assets as of December 2004. The Chairmanfourth quarter of the Board and Chairman of the Audit Committee have access to and control over substantially all of our cash and cash equivalents. The Chairman of the Board of Directors or the Chairman of the Audit Committee may authorize disbursements up to $50,000 on his sole authority. Both the Chairman of the Board and the Chairman of the Audit Committee are required to authorize expenditures above $50,000. The Chief Financial Officer is authorized to incur expenditures on behalf of the Company up to $10,000 on his own authority and must obtain approval from the Board above that level.fiscal year covered by this Form 10-K but not reported.The Name NameAge Position with the Company John A. Paganelli 7071 Director, Chairman of the Board, Interim Chief Executive Officer Robert A. Baron 6465 Director Robert Benou 7071 Director David Lee Spencer, M.D. 6061 Director ManagerManaging Partner of Pharos Systems Partners, LLC, a company formed to raise capital to purchase the controlling interest in Pharos Systems International, a software development company. Mr. Paganelli is Chairman of the Board of Pharos Systems International. He was Vice President and Executive Vice President of PEG Capital Management, an investment advisory organization, from 1987 until 2000. From 1980 to January 2003, Mr. Paganelli was an officer and director-shareholder of Mike Barnard Chevrolet, Inc., an automobile dealership. Mr. Paganelli has beenwas on the Board of Directors of Mid Atlantic17since 1999.from 1999 until 2005. Mid Atlantic iswas listed on the New York Stock Exchange and through its wholly owned subsidiaries is in the business of selling various forms of health insurance. Mr. Paganelli is also on the Board of Directors of Mid Atlantic’sAtlantic's subsidiary, MAMSI Life and Healthy Insurance Company. Mr. Paganelli holds an A.B. from Virginia Military Institute.has been was the President of Cash City, Inc. since 1999. Cash City is a payday advance and check cashing business. Since November 2004 Mr. Baron has been a director of Hemobiotech, Inc. From 1997 to 1999 Mr. Baron was the President of East Coast Operations for CSS/TSC, Inc., a distributor of blank t-shirts and fleece and accessories and a subsidiary of Tultex, Inc., a publicly held company. From 1986 to 1997, Mr. Baron was the chairman of T shirt City, Inc., a privately held company. From 1993 to 1997, Mr. Baron was a member of the Board of Directors of Suburban Bank Corp. When Mr. Baron was on Suburban’s board, its common stock was traded on Nasdaq. Mr. Baron has a B.S. in Business from Ohio State University.Solutions’Solutions' audit committee. Mr. Benou is a graduate of Victoria College and holds a BS degree from Kingston College, England and a BSEE from Newark College of Engineering, in addition to industrial management courses at Newark College of Engineering. On or about June 2004 John Huntz resigned as a member of the Board of Directors and all associated committees. Such resignation was not due to any dispute or disagreement.2004,2005, the Board of Directors had three permanent committees (Audit Committee, Compensation Committee and Nominating Committee) and one ad hoc committee (Business Opportunities Search Committee).2004,2005, there were 10seven meetings of our Board, and the various committees met formally a total of fivefour times. All directors attended all meetingsa majority of the Board and of committees of the Board on which he served during fiscal 2004.fivefour times during fiscal 2004.2005. This committee consistedconsists of three members, Robert Benou, Robert Baron and Dr. David Spencer (as of June 2004). John Huntz was a member of the Audit Committee until his resignation from the Board of Directors in June 2004.Spencer. Our Audit Committee reviews the engagement of our independent accountants, reviews annual financial statements, considers matters182004.2005. Robert Baron served as Chairman and Dr. David Spencer and John Huntz (until his resignation from the Board of Directors in June 2004) served as committee members. The Compensation Committee reviews, approves and makes recommendations regarding our compensation policies, practices and procedures to ensure that legal and fiduciary responsibilities of the Board of Directors are carried out and that such policies, practices and procedures contribute to our success.20042005 our Nominating Committee held no meetings. The committee’s role, following consultation with all other members of the Board of Directors, was to make recommendations to the full Board as to the size and composition of the Board and to make recommendations as to particular nominees. The Nominating Committee has one sitting member at this time, Dr. David Spencer (John Huntz was a member of the Nominating Committee until his resignation from the Board of Directors in June 2004).Spencer. Given there was one member of the Nominating Committee the entire Board of Directors served in the capacity of the Nominating Committee during 2004.2004.20042005 fiscal year, a director, officer, beneficial owner of more than ten percent of any class of equity securities of the registrant registered pursuant to section 12 of the Exchange Act (based solely on a review of the copies of such reports furnished to the Company): John Paganelli, Robert Benou, Robert Baron, Dr. David Spencer, John HuntzDavid Hostelley (part of fiscal 2004), Dr. Ronald Goode2005) and David Riggs (part of fiscal 2004), and David Riggs.2005). Based solely on a review of the copies of such reports furnished to the Company, the Company believes all Section 16(a) filing requirements applicable to all such persons were complied with during the fiscal year covered by this report except: Mr.except that each of Messrs. Paganelli, filed two19late reports; Mr. Benou, filed two late reports; Mr. Baron filed three late reports; Dr.and Spencer filed twofour late reports, Mr. Huntz filed one late report; and Mr. Riggs filed one late report. In December 2003, the new Directors agreed to a new compensation plan. Directors receive $6,250 per quarter, due the day after the commencement of each calendar quarter for their service. During As of July 1, 2005 for assuming additional responsibilities for being the second quarter 2004,Chairman of the Business Opportunities Search Committee, Robert Baron is to receive an additional $6,250 per quarter. For additional services provided by Robert Benou and Dr. David Spencer, both directors are to receive an additional $1,250 per quarter. John A. Paganelli, Chairman of the Board, of Directors adopted a resolution revising the Prior Boards Board compensation, by providingis to receive an additional $6,250 per quarter for assuming additional responsibilities for serving as Interim Chief Executive Officer for the issuance of shares of the Company’s common stock and the granting of stock options as part of compensation paid to directors for their service to the Company. InOn March 22, 2005, the second quarter 2004,Board of Directors approved the Chairmangrant to each of Messrs. Paganelli and Baron 50,000 shares of Common Stock upon the closing of a transaction which results in a change of control, provided each such recipient is a member of the Board was issued 50,000 shares of common stock, Directors were issued 25,000 shares. In the aggregate, 150,000 shares of common stock were issued and recorded at their fair value on the date of grant, which resulted in the Company expensing approximately $133,000. such time. For the 12 months ended December 31, 2005 and December 31, 2004, stock options totaling 80,000 and 90,000 shares of common stock were granted to directors pursuant to the Board resolution for services provided by directors.is 53 years old. mutually agreed that Mr. Riggs joined us in March 2003would relinquish his duties as Vice President, Chief Business Officer and Chief Financial Officer. On March 30, 2004, Mr. Riggs was named the President and Chief Executive Officer in addition to his role as Chief Financial Officer. Mr. Riggs most recently was Founder and President of EMLIN Bioscience (founded in 2000). From 2000 to 2001 he was Senior Vice President and Chief Financial Officer of Celera Genomics Group (previously Axys Pharmaceuticals, Inc. — NASDAQ: AXPH). From 1992 to 2000 hethe Company. Chairman of the Board, John A. Paganelli, assumed the role of Interim Chief Executive Officer. On July 1, 2005 Dave Hostelley was with Unimed Pharmaceuticals, Inc. (previously NASDAQ: UMED) where he was Senior Vice President of Business Operations and prior to that, Chief Financial Officer and Secretary. Mr. Riggs also served asnamed Chief Financial Officer of NeoPharm, Inc. (NASDAQ: NEOL). the Company.held financial management positions at Fujisawa Healthcare, Inc. structured numerous acquisitions in the fields of printing, oil and gas development, private schools, insurance agencies, hotels, manufacturing, debit card issuance, health clubs and service entities. In his capacity of trainer in the field of Project Management, Dr. Hostelley has taught the executives of: Ford Motor Company, Westinghouse, National Fuel Gas, General Electric, Stromberg-Carlson, Doehler-Jarvis, Marvin Windows, Progressive Insurance, EDI Engineering, Sun Exploration, Tennessee Valley Authority, SPX Corporation, The Venezuelan Oil Ministry, Ford Museum in Greenfield Village, and Trans Ohio Savings and Loan. He has lectured in South Africa, Venezuela, Canada, and the United States.a certified public accountantnow serving as interim president and earned a B.S. fromboard member of the Universityfollowing companies: Allied Energy, Inc. (Symbol AGYP.PK); First American Railways, Inc. (SymbolFTRJ.PK); and IDViews, Inc. (Symbol IDVW.PK). He currently serves on the Executive Committee of Illinois and an M.B.A. from DePaul University.the Cleveland Chapter of the Muscular Dystrophy Association.our former Chiefthe named Executive OfficerOfficers and each of our other most highly compensated executive officers who were employed by us at the end of fiscal 20042005 for services rendered to us in all capacities during the three fiscal years ended December 31, 2005, 2004 2003 and 2002,2003, and who earned in excess of $100,000 for services rendered to us during fiscal 2004.20 Long-Term Compensation Annual Compensation Securities Other Annual Underlying Name and Principal Position Year Salary Bonus (4) Compensation Options(#) David E. Riggs 2004 $ 235,000 — — 75,000 President, Chief Executive Officer, 2003 $ 190,561 — — 225,000 Chief Financial Officer & Secretary (3) 2002 — — — — Ronald L. Goode, Ph.D. 2004 $ 95,751 — — — former President, CEO (2) 2003 $ 405,000 $ 105,000 $ 12,000 (1) — 2002 $ 373,333 $ 105,000 $ 12,000 (1) 400,000 John A. Paganelli, Interim CEO (2) 2005 $ 12,500 — $ 75,000 — 20,000 — — 2004 $ 75,000 — $ 75,000 — 20,000 — — 2003 — — — — — — — Dr. David Hostelley, CFO (3) 2005 $ 15,000 — — — — — — 2004 — — — — — — — 2003 — — — — — — — David E. Riggs Former President, CEO, CFO and Secretary (4) 2005 $ 244,000 — — — — — — 2004 $ 235,000 — — — 75,000 — — 2003 $ 190,561 — — — 225,000 — — Ronald L. Goode, Ph.D. Former President, CEO (5) 2005 — — — — — — — 2004 $ 95,751 — — — — — — 2003 $ 405,000 $ 105,000 $ 12,000 (6 ) — — — — (1) Bonuses paid in the year reported were earned and accrued in the previous year. (2) Mr. Paganelli is Chairman of the Board of the Company. Mr. Paganelli became Interim Chief Executive Officer of the Company on June 29, 2005. Compensation stated in Table under Other Annual Compensation reflects compensation earned by Mr. Paganelli as the Chairman of the Board of Directors of the Company. (3) Mr. Hostelley became Chief Financial Officer of the Company on July 1, 2005. (4) Mr. Riggs served as our President and Chief Executive Officer until June 29, 2005. (5) Dr. Goode served as our President and Chief Executive Officer until February 23, 2004. (6) Other annual compensation for Dr. Goode during fiscal 2003 consisted of a $12,000 car allowance. (1) Other annual compensation for Dr. Goode during fiscal 2003 and fiscal 2002 consisted of a $12,000 car allowance.(2) Dr. Goode served as our President and Chief Executive Officer until February 23, 2004.(3) Mr. Riggs joined the Company March 10, 2003 at an initial annual base salary of $235,000. Mr. Riggs was named President and Chief Executive Officer of the Company on or about March 30, 2004.(4) Bonuses paid in the year reported were earned and accrued in the previous year.20042005 to each of our executive officers named in the Summary Compensation Table, above. Individual Grants Number of Potential Realizable Securities % of Total Value at Assumed Underlying Options Annual Rates of Stock Options Granted to Exercise or Price Appreciation for Granted Employees in Base Price Expiration Option Term (2) Name (#) Fiscal Year ($/Share) Date 5% 10% David E. Riggs (1) 75,000 100 % $ 0.84 March 29, 2014 $ 102,750 $ 163,500 John A. Paganelli 20,000 20 % $ .40 Jan. 2015 thru Oct. 2015 $ 13,031 $ 20,750 (1) The options are non-qualified stock options, granted pursuant to the Company’s Amended and Restated 2000 Stock Option Plan. Options to purchase 75,00020,000 shares of Common Stock, at an average exercise price of $0.84$0.40 per share, vest annually in three equal installments commencingimmediately on the grant date of grant.that ranges from January 1, 2005 through October 1, 2005. These options were granted pursuant to the amendment to Mr. Riggs employment agreement dated March 30, 2004.Paganelli as a member of the Board of Directors of the Company.(2) In accordance with the rules of the SEC, we show in these columns the potential realizable value over the term of the option (the period from the grant date to the expiration date). We calculate this assuming that the fair market value of our common stock on the date of grant appreciates at the indicated annual rate, 5% and 10% compounded annually, for the entire term of the option and that the option is exercised and sold on the last day of its term for the appreciated stock price. These amounts are based on assumed rates of appreciation and do not represent an estimate of our future stock price. Actual gains, if any, on stock option exercises will depend on the future performance of our common stock, the option holder’s continued employment with us through the option exercise period, and the date on which the option is exercised. 212004 2005.The table also shows the aggregate value of options held by each executive officer named in the Summary Compensation Table as of December 31, 2004.2005. The value of the unexercised in-the-money options at fiscal year end is based on a value of $0.34$0.41 per share, the closing price of our stock on the OTC Bulletin Board on December 30, 20042005 (the last trading day prior to the fiscal year end), less the per share exercise price. Number of Securities Underlying Unexercised Value of the Unexercised Shares Options at Fiscal In-The-Money Options Acquired on Value Year-End at Fiscal Year-End Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable Ronald L. Goode, Ph.D 200,000 $ 86,000 — — N/A N/A David E. Riggs — N/A 175,000 125,000 N/A N/A Name John A. Paganelli — N/A 40,000 — $ 500 N/A David E. Riggs — N/A 50,000 25,000 N/A N/A (1) Amounts shown in this column do not necessarily represent actual value realized from the sale of the shares acquired upon exercise of the option because in many cases the shares are not sold on exercise but continue to be held by the executive officer exercising the option. The amounts shown represent the difference between the option exercise price and the market price on the date of exercise, which is the amount that would have been realized if the shares had been sold immediately upon exercise. new title of President and Chief Executive Officer. Pursuant to the Amendment Mr. Riggs was granted an option to purchase 75,000 shares of the Company’s Common Stock. This Option granted vests in three equal installments: The first immediately upon the grant date, the second on the first anniversary of that date and the final upon the second anniversary of that date. Ronald L. Goode, Ph.D. Effective June 30, 2005 the Company and David E. Riggs mutually agreed that Mr. Riggs would relinquish his duties as President, Chief Executive and Chief Financial Officer of the Company, and the Company entered into an employmenta Separation Agreement with Mr. Riggs. Chairman of the Board, John A. Paganelli, assumed the role of Interim Chief Executive Officer. On July 1, 2005 David Hostelley was named Chief Financial Officer of the Company. The Company’s agreement with usMr. Hostelley calls for him to receive $2,500 per month, and is terminable by either side upon 30 days written notice.March 21,our common stock during a period commencing on December 31, 2001 to serve asand ending on December 31, 2005 (as measured by dividing (A) the sum of the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and the difference between our Presidentshare price at the end and Chief Executive Officer until March 21, 2004. On December 18, 2003, the New Board notified Dr. Goode that his employment agreement would not be renewed. The employment agreement contains a two-year post-termination non-compete, non-solicitation and non-disclosure agreement. On February 23, 2004, Dr. Goode resigned, thereby terminating his employment agreementbeginning of the measurement period; by (B) our share price at the beginning of the measurement period) with the Company that was to expirecumulative total return of the Nasdaq Stock Market our peer group (Nasdaq Biotech Index) during such period. We have not paid any dividends on March 21, 2004.our common stock, and we do not include dividends in the representation of our performance. The stock price performance on the graph below does not necessarily indicate future price performance. 2001 2002 2003 2004 2005 EXEGENICS INC $ 100.00 $ 10.51 $ 27.03 $ 10.21 $ 12.31 NASDAQ Market Index $ 100.00 $ 68.47 $ 102.72 $ 111.54 $ 113.07 Nasdaq Biotech Index $ 100.00 $ 54.67 $ 79.68 $ 84.57 $ 86.96 22April 7, 2005March 28, 2006 by the following persons:• • • 2004,2005 referred to below as our named executive officer; and,• April 7, 2005March 21, 2006 through the exercise of any option, warrant or other right. The inclusion in the following table of those shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares. Common Stock Series A Preferred Stock Percent Percent Percent of all Name and Address of Beneficial Owner (1) Number of Class (2) Number of Class (3) Voting Securities (4) Bruce Meyers (5)(10) 1,329,983 8.18 % 39,051 3.83 % 7.92 % Melvin Weiss (6)(10) 602,850 3.71 % — — 3.49 % Michael Stone (10)(11) 269,257 1.66 % — — 1.56 % J. Morton Davis (16) 892,500 5.49 % — — 5.16 % John A. Paganelli (12) 75,000 * — — * Robert A. Baron (13) 94,800 * — — * Robert Benou (14) 50,000 * — — * David Lee Spencer, M.D (15) 824,100 5.07 % — — 4.77 % Ronald L. Goode, Ph.D. (7) 311,700 1.92 % — — 1.80 % David E. Riggs (8) 282,200 1.73 % — — 1.63 % Directors and executive officers as a group (5 persons) (9) 1,326,100 8.15 % — — 7.67 % * Less than One Percent. Bruce Meyers (5) 1,224,277 7.35 % 39,051 3.85 % 7.20 % J. Morton Davis and Rosalind Davidowitz (6) . 1,553,900 9.49 % — — 8.99 % John A. Paganelli (7). 95,000 * — — * Robert A. Baron (8) 114,800 * — — * Robert Benou (9) 70,000 * — — * David Lee Spencer, M.D (10). 844,100 5.14 % — — 4.88 % David E. Riggs (11) 82,200 * — — * David Hostelley — * Directors and executive officers as a group (5 persons) (12) * Less than One Percent. (1) (2) Calculated on the basis of 16,266,55316,367,090 shares of common stock issued and outstanding as of April 7, 2005March 28, 2006 except that shares of common stock underlying options and warrants exercisable within 60 days of the date hereof are deemed to be outstanding for purposes of calculating the beneficial ownership of securities of the holder of such options or warrants. This calculation excludes shares of common stock issuable upon the conversion of series A preferred stock. (3) Calculated on the basis of 1,020,3121,015,028 shares of series A preferred stock outstanding as of April 7, 2005.March 28, 2006. (4) Calculated on the basis of an aggregate of 16,266,55316,367,090 shares of common stock and 1,020,3121,015,028 shares of series A preferred stock issued and outstanding as of April 7, 2005,March 28, 2006, except that shares of common stock underlying options and warrants exercisable within 60 days of the date hereof are deemed to be outstanding for purposes of calculating beneficial ownership of securities of the holder of such options or warrants.23of securities of the holder of such options or warrants. (5) Mr. Meyers’Meyers' address is c/o Meyers Associates, L.P., 45 Broadway, New York, New York 10006. The amount shown for Mr. Meyers includes: 859,645 shares owned by Mr. Meyers; 4,740 shares owned by the Bruce Meyers Keogh; 33,800 shares of the Company’sCompany's common stock owned by the Joseph Rita and Bruce Meyers Foundation for Life Inc. (Mr. Meyers is the Chairman of the Board of the Joseph Rita and Bruce Meyers Foundation for Life), 39,051 shares of the Company’sCompany's common stock issuable upon the conversion of 39,051 shares of preferred stock owned by Bruce Meyers; and the following securities owned by Meyers Associates, L.P. of which Mr. Meyers, is an executive officer, the sole shareholder and director of the general partner of Meyers Associates, L.P.; 76,092 shares of common stock, and 250,000 shares of common stock issuable upon the exercise of currently exercisable five-year warrants issued in 2002 to Meyers Associates, L.P. A portion of the shares beneficially owned by Mr. Meyers were obtained for services provided by Meyers Associates, L.P. a registered broker dealer. The services provided by Meyers Associates, L.P. included acting as financial advisor, placement agent and/or underwriter to the Company. The percent of the class of common stock of the Company owned by Mr. Meyers is Based on the Company’s having 16,516,553 shares of common stock outstanding, which assumes the conversion of currently exercisable warrants issued to Meyers Associates, L.P. into 250,000 shares of the Company’s common stock. As of September 5, 2003, Mr. Meyers beneficially owned 1,329,983 shares of the Company’s common stock.(6) This includes 4,400 shares of the Company’s common stock owned by The M&B Weiss Family Limited Partnership of 1996 and 20,000 shares of the Company’s common stock owned by the M&B Weiss Family Foundation, Inc. (the “Foundation”). Mr. Weiss’ wife and children are also officers of the Foundation and members of its board. Mr. Weiss’ business address is Milberg Weiss Bershad Hynes & Lerach LLP, One Pennsylvania Plaza, New York, New York 10119.(7) Ownership consists of 311,700 shares of common stock, 200,000 of which were acquired upon Dr. Goode’s exercise of options in May 2004. Dr. Goode’s address is 3701 Cragmont Avenue, Dallas, Texas 75205. Beneficial ownership information taken from Dr. Goode’s disclosure to the Company.(8) Ownership consists of 7,200 shares of common stock and options to purchase 275,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof. Does not include options to purchase 25,000 shares of common stock not exercisable within 60 days of the date hereof.(9) Ownership consists of 951,100 shares of common stock and options to purchase an aggregate of 375,000 shares of common stock, which are currently exercisable or exercisable within 60 days of the date hereof. Does not include options to purchase 25,000 shares of common stock not exercisable within 60 days of the date hereof.(10) Beneficial ownership information taken from Schedule 14A file number 03896368 filed September 15, 2003. (11) Mr. Stone’s business address is c/o North American Pharmacy, 16129 Cohasset, Van Nuys, California 91406.(12) Ownership consists of 50,000 shares of common stock and options to purchase 25,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof.(13) Ownership consists of 69,800 shares of common stock and options to purchase 25,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof.(14) Ownership consists of 25,000 shares of common stock and options to purchase 25,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof.(15) Ownership consists of 799,100 shares of common stock and options to purchase 25,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof.(16)(6) Beneficial ownership information and the information under this footnote taken from Schedule 13G file number 005-51671 filed AprilFebruary 7, 2005. Includes2006. As of December 31, 2005 Mr. Davis may be deemed beneficially own: (i) 248,000 shares of common stock owned by D.H. Blair Investment Banking Corp. (“("Blair Investment”Investment"), and (ii) 644,5001,305,900 shares owned by Rosalind Davidowitz (Mr. Davis’ wife). Mr. Davis’Davis' business address is 44 Wall Street, New York, New York 10005. Mrs. Davidowitz’sMs. Davidowitz's address is 7 Sutton Place South, Lawrence, New York 11559. As of April 5,December 31, 2005 Rosalind Davidowitz may be deemed to beneficially own 892,5001,305,900 shares of common stock (644,500 shares owned directly by Rosalind Davidowitz, and 248,000 shares of common stock owned by Blair Investment).Investment. Mr. Davis has sole power to vote or to direct the vote, to dispose or to direct the disposition of those shares owned by Blair Investment. Ms. Davidowitz has sole power to vote or to direct the disposition of those shares owned directly by her. Each of Ms. Davidowitz and Mr. Davis do not deem the filing of the aforementioned Schedule 13G as an admission by each of beneficial ownership of the securities owned by the other.24(7) Ownership consists of 50,000 shares of common stock and options to purchase 45,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof. Equity Compensation Plan InformationEquity Compensation Plan InformationAs of December 31, 2004 Number of Securities Remaining Available for Number of Securities to be Weighted-Average Future Issuance Under Issued Upon Exercise of Exercise Price of Equity Compensation Plans Outstanding Options, Outstanding Options, (Excluding Securities Warrants and Rights Warrants and Rights Reflected in Column(a)) Plan Category (a) (b) (c) Equity compensation plans approved by security holders 1,100,000 $ 3.02 2,742,600 Equity compensation plans not approved by security holders (1) 290,000 $ 0.75 N/A (8) Ownership consists of 69,800 shares of common stock and options to purchase 45,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof. (1) Consists of the following warrants: Roan-Meyers dated August 13, 2002 to purchase 125,000 shares of our common stock; Roan-Meyers warrants, dated August 13, 2002 to purchase 125,000 shares of our common; and Petkevich & Partners, LLC warrants, to purchase 40,000 shares of our common stock.(9) Ownership consists of 25,000 shares of common stock and options to purchase 45,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof. We have authorized the issuance of equity securities under the compensation plans described below without the approval of stockholders. No additional options, warrants or rights are available for issuance under any of these plans, except for additional shares which may become purchasable under warrants with anti-dilution protection as noted below. We have either already registered or agreed to register for resale the common stock underlying all of these plans.• Roan-Meyers warrants, dated August 13, 2002: provided common stock purchase warrants in connection with financial advisory services, to purchase 125,000 shares of our common stock at a purchase price of $1.00 per share, with an expiration date of August 13, 2007.• Roan-Meyers warrants, dated August 13, 2002: provided common stock purchase warrants in connection with financial advisory services to purchase 125,000 shares of our common stock at a purchase price of $0.55 per share, with an expiration date of August 13, 2007.• Petkevich & Partners, LLC warrants, dated March 5, 2003, provided common stock purchase warrants in connection with financial advisory services to purchase 40,000 shares of our common stock at a purchase price of $0.58 per share, with an expiration date of March 5, 2008.(10) Ownership consists of 799,100 shares of common stock and options to purchase 45,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof. (11) Ownership consists of 7,200 shares of common stock and options to purchase 75,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof. Does not include options to purchase 25,000 shares of common stock not exercisable within 60 days of the date hereof. (12) Ownership consists of 951,100 shares of common stock and options to purchase an aggregate of 180,000 shares of common stock, which are currently exercisable or exercisable within 60 days of the date hereof. John Paganelli In January 2004,entered intois not a lease agreement for office space with RFG Associates,party to any transaction or series of transactions in an entityamount exceeding $60,000 in which John A. Paganelli, chairman of the Board of Directorsany Director or Executive Officer of the Company has a direct or indirect interest.an equity owner. The lease provides for a monthly rent of $625 and is cancelable by either party upon thirty (30) days notice.Meyers Associates, L.P. On August 13, 2002 we entered into an agreement with Meyers Associates, L.P. (formerly Roan/Meyers Associates, L.P., a security holder who is knownindebted to the Company to ownin an amount in excess of record or beneficially more than five percent25any class of the Company’s voting securities) for financial advisory services. Pursuant to the terms of this agreement, we paid Meyers Associates, L.P. $57,000 in 2003. In addition, we issued them warrants to purchase 125,000 shares of our common stock at a purchase price of $1.00 per share, with an expiration date of August 13, 2007, and additional warrants to purchase 125,000 shares of our common stock at a purchase price of $0.55 per share, with an expiration date of August 13, 2007. In connection with the Meyers Group consent solicitation, we reimbursed Meyers Associates, L.P. $14,000 for out-of-pocket expenses incurred in 2003.Milberg Weiss Bershad Hynes & Lerach LLP Melvyn I. Weiss (a security holder who is known to the Company to own of record or beneficially more than five percent of any class of the Company’s voting securities) is an attorney and senior partner of Milberg Weiss Bershad Hynes & Lerach LLP (“Milberg Weiss”). Milberg Weiss represents The M&B Weiss Family Limited Partnership of 1996 in connection with its lawsuit against the Company (as a nominal defendant) and Ronald L. Goode, Joseph M. Davie and Walter Lovenberg. Milberg Weiss also represents Bruce Meyers, The M&B Weiss Family Limited Partnership of 1996, Melvyn I. Weiss and Michael Stone in connection with this consent solicitation. Mr. Weiss’ business address is Milberg Weiss Bershad Hynes & Lerach LLP, One Pennsylvania Plaza, New York, New York 10119. In 2004, in connection with the Meyers Group consent solicitation, we paid Milberg Weiss approximately $177,000, substantially all of which was recognized as a legal expense in 2003.Regulation S-KBDO Seidman,Rotenberg & Company, LLP for the audit of our annual financial statements for the years ended December 31, 20042005 and December 31, 2003, and Ernst & YoungBDO Seidman, LLP for the period ending December 31, 2002 (Ernst & Young2004 and December 31, 2003 (BDO Seidman, LLP and BDO Seidman,Rotenberg & Company, LLP are collectively “our principal accountants”).$62,000$29,000 and $113,000$62,000 in fees and expenses for professional services rendered in connection with the audits of our financial statements for the calendar years ended December 31, 20042005 and 2003,2004, respectively, and reviews of the financial statements included in our quarterly reports on Form 10-Q during such calendar years.$48,000 inrelated services that are reasonably related to the performance of the audit related feesof our financial statements and not included above, for the calendar years ended December 31, 2005 and 2004, and 2003, respectively.$20,000$15,000 and $15,000$20,000 in fees and expenses for tax compliance, tax advice and tax planning during calendar years ended December 31, 2005 and 2004, and 2003, respectively.26 During 2003,BDO Seidman,Rotenberg & Company, LLP as the replacement auditors to Ernst & YoungBDO Seidman, LLP. Our principal auditorsaccountants have performed their audit procedures in accordance with pre-approved policies and procedures established by our Audit Committee. Our principal auditors have informed our Audit Committee of the scope and nature of each service provided. With respect to the provisions of services other than audit, review, or attest services, our principal accountants brought such services to the attention of our Audit Committee, or one or more members of our Audit Committee for the members of our Board of Directors to whom authority to grant such approval had been delegated by the Audit Committee, prior to commencing such services. Such services primarily consisted of due diligence and tax related services.Report of Ernst & Young LLP, Independent Registered Public Accounting Firm20042005 and 20032003 and 20022003 and 20022003 and 2002
(2)Financial Statement Schedules 3.1 — Certificate of Incorporation, as amended(l) 3.2 — By-laws(l) 3.3 — 4.1 — Specimen certificates representing Class C Warrants, Class D Warrants and Common Stock(l) 4.3 — 4.4 — Warrant Certificate issued to the Washington State University Research Foundation(4) 27
| 4.5 | — | Stockholders Rights Agreement, dated June 9, 2003, betweeneXegenicsInc. and American Stock Transfer & Trust Company, which includes as Exhibit A the Form of Certificate of Designations of Series B Junior Participating Preferred Stock, as Exhibit B the Form of Rights Certificate and as Exhibit C the Summary of Rights to Purchase Preferred Stock(11) | ||
| 4.6 | — | Amendment to Stockholders Rights Agreement entered into as of July 16, 2003, by and betweeneXegenics Inc. and American Stock Transfer & Trust Company, as Rights Agent (10) | ||
| 4.7 | — | Form of Warrant Agreement between eXegenics Inc. and Gruntal & Co., LLC (15) | ||
| 4.8 | — | Form of Warrant Agreement between eXegenics Inc. and Roan Meyers Associates LP (15) | ||
| 4.9 | — | Form of Warrant Agreement between eXegenics Inc. and Petkevich & Partners, LLC (15) | ||
| 10.1 | — | Employment Agreement dated March 1, 1992 betweeneXegenicsInc. and Arthur P. Bollon, Ph.D., as amended(1) | ||
| 10.2 | — | 1992 Stock Option Plan, as amended(l) | ||
| 10.3 | — | Form of Stock Option Agreement(l) | ||
| 10.4 | — | Lease Agreement dated October 1, 1991 betweeneXegenicsInc. and J.K. and Susie Wadley Research Institute and Blood Bank, as amended(l) | ||
| 10.5 | — | Security Agreement dated October 10, 1991 betweeneXegenicsInc. and Wadley(l) | ||
| 10.6 | — | License Agreement dated June 10, 1993 betweeneXegenicsInc. and Research & Development Institute, Inc. (“RDI”), as amended, relating to the Paclitaxel Fermentation Production System(l) | ||
| 10.7 | — | Research and Development Agreement effective June 10, 1993 betweeneXegenicsInc. and RDI, as amended(l) | ||
| 10.8 | — | License Agreement dated February 22, 1995 betweeneXegenicsInc. and RDI, as amended, relating to FTS-2(l) | ||
| 10.9 | — | Agreement effective June 30, 1992 betweeneXegenicsInc. and University of Texas at Dallas (“UTD”), as amended(l) | ||
| 10.10 | — | Extension Agreement with RDI dated June 5, 1995(l) | ||
| 10.11 | — | Third Amendment to Lease Agreement dated April 30, 1995(l) | ||
| 10.12 | — | September 25, 1995 RDI Extension(l) | ||
| 10.13 | — | October 25, 1995 RDI Extension(1) | ||
| 10.14 | — | Amendment to License Agreement dated June 10, 1993, as amended, and Research and Development Agreement effective June 10, 1993, as amended, both agreements betweeneXegenicsInc. and RDI(2) | ||
| 10.15 | — | License Agreement No. W960206 effective February 27, 1996 betweeneXegenicsInc. and The Regents of the University of California(2) | ||
| 10.16 | — | License Agreement No. W960207 effective February 27, 1996 betweeneXegenicsInc. and The Regents of the University of California(2) | ||
| 10.17 | — | License Agreement with the Washington State University, dated July 2, 1996(3)* | ||
| 10.18 | — | Amendment to Agreement, effective June 30, 1992, as amended, betweeneXegenicsInc. and the University of Texas at Dallas(3) | ||
| 10.19 | — | 1996 Stock Option Plan and Amendment No. 1 thereto(7) | ||
| 10.20 | — | Patent License Agreement, dated August 4, 1998, between The Regents of the University of California andeXegenicsInc. for Peptide Anti-estrogen for Breast Cancer Therapy(5)* | ||
| 10.21 | — | Master License Agreement, dated as of June 12, 1998, betweeneXegenicsInc. and Bristol-Myers Squibb Company(6)* | ||
| 10.22 | — | Sublicense Agreement, dated May 27, 1998, betweeneXegenicsInc. and Bristol-Myers Squibb under The Research & Development Institute, Inc. License Agreement, as amended, dated June 10, 1998(6)* | ||
| 10.23 | — | Sublicense Agreement, dated May 19, 1998, betweeneXegenicsInc. and Bristol-Myers Squibb Company under the Washington State University Research Foundation License Agreement, dated June 8, 1996(6)* | ||
| 10.24 | — | Amended and Restated License Agreement, dated June 3, 1998, between the Washington State University Research Foundation andeXegenicsInc.(6)* | ||
| 10.25 | — | Amendment, dated May 27, 1998, to the License Agreement, dated June 10, 1993, between The Research and Development Institute, Inc. andeXegenicsInc.(6)* | ||
| 10.26 | — | Amended and Restated 2000 Stock Option Plan(7) | ||
| 10.27 | — | Employment Agreement dated March 21, 2001, betweeneXegenicsInc. and Ronald L. Goode, Ph.D.(8) | ||
| 10.28 | — | Employment Agreement dated March 13, 2003, betweeneXegenicsInc. and David E. Riggs(13) | ||
| 10.29 | — | Termination Agreement dated November 25, 2002 betweeneXegenicsInc., Innovative Drug Delivery Systems, Inc., and IDDS Merger Corp(9) | ||
| 10.30 | — | Amendment, dated September 9, 2003, to Employment Agreement dated March 20, 2001, betweeneXegenics Inc. and Ronald L. Goode, Ph.D(12) | ||
| 10.31 | — | Amendment, dated October 16, 2003, to Employment Agreement dated March 20, 2001, betweeneXegenics Inc. and Ronald L. Goode, Ph.D(12) | ||
| 10.32 | — | Form of Indemnification Agreement by and amongeXegenicsand certain of its current and former directors and officers (10). | ||
| 10.33 | — | Promissory Note and Pledge Agreement betweeneXegenicsInc. and Ronald L. Goode, Ph.D. (14). |
28
| 10.34 | — | Amendment, dated March 30, 2004, to Employment Agreement dated March 13, 2003, betweeneXegenicsInc. and David E. Riggs (14). | ||
| 10.35 | — | Termination Letter dated April 10, 2003 by and betweeneXegenicsInc. and Dorit Arad (14). | ||
| 10.36 | — | Termination Letter Agreement dated April 30, 2003 by and betweeneXegenicsInc. and Joan Gillett (14). | ||
| 10.37 | — | Separation from Employment Letter Agreement dated January 10, 2003 by and betweeneXegenicsInc. and Arthur P. Bollon (14). | ||
| 10.38 | Sublease Agreement between eXegenics Inc. and RFG Associates dated as of January 1, 2004 (16). | |||
| 10.39 | Intellectual Property Assignment Agreement between eXegenics Inc. and NLC Pharma, Inc. (17) | |||
| 10.40 | Separation Agreement between eXegenics Inc. and David Riggs dated July 26, 2005 (18). | |||
| 10.41 | Agreement between eXegenics Inc. and David Hostelley dated July 20, 2005 (18). | |||
| 23.1 | — | Consent of BDO Seidman, LLP | ||
| 31.1 | — | |||
| Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of | ||||
| 31.2 | — | Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32.1 | — | Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 32.2 | — | Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| * | Confidential portions omitted and filed separately with the U.S. Securities and Exchange Commission pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended. |
| (1) | Previously filed as an exhibit toeXegenicsInc.’s Registration Statement on Form SB-2 (File No. 33-91802) and are incorporated by reference herein. | |||
| (2) | Previously filed as an exhibit toeXegenicsInc.’s Annual Report on Form 10-KSB for the year ended December 31, 1995 and are incorporated by reference herein. | |||
| (3) | Previously filed as an exhibit toeXegenicsInc.’s Post-Effective Amendment No. 1 to Form SB-2 (File No. 33-91802) and are incorporated by reference herein. | |||
| (4) | Previously filed as an exhibit toeXegenicsInc.’s Registration Statement on Form SB-2 (File No. 333-13409) and is incorporated by reference herein. | |||
| (5) | Previously filed as an exhibit to the Post-Effective Amendment toeXegenicsInc.’s Registration Statement on Form SB-2 on Form S-3 (File No. 333-13409) and is incorporated by reference herein. | |||
| (6) | Previously filed as an exhibit toeXegenicsInc.’s Current Report on Form 8-K (File No. 000-26078) and is incorporated by reference herein. | |||
| (7) | Previously filed as an appendix toeXegenicsInc.’s Schedule 14-A (File No. 000-26078) and is incorporated by reference herein. | |||
| (8) | Previously filed as an exhibit toeXegenicsInc.’s Annual Report on Form 10-K (File No. 000-26078) for the year ended December 31, 2000 and is incorporated by reference herein. | |||
| (9) | Previously filed as an exhibit toeXegenicsInc.’s Current Report on Form 8-K (File No. 000-26078) and is incorporated by reference herein. | |||
| (10) | Previously filed as an exhibit toeXegenicsInc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (File No. 000-26078), filed August 14, 2003. | |||
| (11) | Previously filed as an exhibit toeXegenicsInc.’s Current Report on Form 8-K (File No. 000-26078), filed June 9, 2003. | |||
| (12) | Previously filed as an exhibit toeXegenicsInc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (File No. 000-26078), filed November 14, 2003. | |||
| (13) | Previously filed as an exhibit toeXegenicsInc.’s Annual Report on Form 10-K (File No. 000-26078) for the year ended December 31, 2002. | |||
| (14) | Previously filed as an exhibit toeXegenicsInc.’s Annual Report on Form 10-K (File No. 000-26078) for the year ended December 31, 2003. |
| (15) | Previously filed as an exhibit to eXegenics Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (File No. 000-26078), filed May 14, 2004. |
| (16) | Previously filed as an exhibit to eXegenics Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (File No. 000-26078), filed August 16, 2004 |
| (17) | Previously filed as an exhibit to eXegenics Inc.’s Current Report on Form 8-K (File No. 000-26078), filed September 10, 2004. |
| (18) | Previously filed as an exhibit to eXegenics Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 000-26078), filed August 15, 2005 |
29
| EXEGENICS INC. | |||||
| | | ||||
| Date: March 31, 2006 | By: | ||||
Name:John A. Paganelli | |||||
Title: Chairman of the Board Interim Chief Executive Officer | |||||
Date: April 20, 2005
Signatures | Title | Date | ||||
| By: | /s/ JOHN A. PAGANELLI | Director, Chairman of the Board | ||||
| John A. Paganelli | Interim Chief Executive Officer | |||||
| By: | /s/ DAVID HOSTELLEY | March 31, 2006 | ||||
| David Hostelley | ||||||
| By: | ||||||
| /s/ ROBERT A. BARON | Director | |||||
| Robert A. Baron | ||||||
| By: | /s/ ROBERT S. BENOU | Director | ||||
| Robert S. Benou | ||||||
| By: | /s/ DAVID LEE SPENCER | Director | ||||
| David Lee Spencer | �� |
30
Page | ||||
| Report of Rotenberg & Company, LLP, Independent Registered Public Accounting Firm | F-1 | |||
| Report of BDO Seidman, LLP, Independent Registered Public Accounting Firm | ||||
| F-2 | ||||
| Balance sheets as of December 31, | 2004 | F-3 | ||
| Statements of operations for the years ended December 31, 2005, 2004 | 2003 | F-4 | ||
| Statements of changes in stockholders’ equity for the years ended December 31, 2005, 2004 | 2003 | F-5 | ||
| Statements of cash flows for the years ended December 31, 2005, 2004 | 2003 | F-6 | ||
| Notes to financial statements | F-7 | |||
31
| /s/ Rotenberg & Co., LLP | |||
Rotenberg & Co., LLP Rochester, New York February 27, 2006 |
F-1
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Board of Directors and StockholderseXegenicsInc.
We have audited the accompanying statements of operations, changes in stockholders’ equity and cash flows ofeXegenicsInc. (the Company) for the year ended December 31, 2002. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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 results of operations ofeXegenicsInc. and its cash flows for the year ended December 31, 2002 in conformity with U.S. generally accepted accounting principles.
Dallas, TexasFebruary 28, 2003
F-2
eXegenics Inc.
| December 31, | December 31, | ||||||||||||||
| 2004 | 2003 | 2005 | 2004 | ||||||||||||
| ASSETS | ASSETS | ||||||||||||||
| Current assets: | |||||||||||||||
| Cash and cash equivalents | $ | 8,734,000 | $ | 10,132,000 | $ | 8,901,000 | $ | 8,734,000 | |||||||
| Restricted cash | 175,000 | 600,000 | — | 175,000 | |||||||||||
| Marketable securities available for sale | 1,124,000 | — | — | 1,124,000 | |||||||||||
| Prepaid expenses and other current assets | 35,000 | 602,000 | 99,000 | 35,000 | |||||||||||
| Total current assets | 10,068,000 | 11,334,000 | 9,000,000 | 10,068,000 | |||||||||||
| Equipment, net | 3,000 | 8,000 | — | 3,000 | |||||||||||
| $ | 9,000,000 | $ | 10,071,000 | ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||
| $ | 10,071,000 | $ | 11,342,000 | ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||
| Current liabilities: | |||||||||||||||
| Accounts payable and accrued expenses | $ | 239,000 | $ | 1,038,000 | $ | 277,000 | $ | 239,000 | |||||||
| Stockholders’ equity: | |||||||||||||||
| Preferred stock — $.01 par value, 10,000,000 shares authorized; 935,332 and 890,564 shares of Series A convertible preferred issued and outstanding (liquidation value $2,338,000 and $2,226,000) | 9,000 | 9,000 | |||||||||||||
| Common stock — $.01 par value, 30,000,000 shares authorized; 16,869,031 and 16,314,779 shares issued | 169,000 | 163,000 | |||||||||||||
| Additional paid-in capital | 68,385,000 | 68,061,000 | |||||||||||||
Preferred stock — $.01 par value, 10,000,000 shares authorized; 952,839 and 935,332 shares of Series A convertible preferred issued and outstanding (liquidation value $2,382,000 and $2,338,000) | 10,000 | 9,000 | |||||||||||||
| Common stock — $.01 par value, 30,000,000 shares authorized; 16,945,026 and 16,869,031 shares issued | 169,000 | 169,000 | |||||||||||||
| Additional paid in capital | 68,384,000 | 68,385,000 | |||||||||||||
| Accumulated other comprehensive income | 1,124,000 | — | — | 1,124,000 | |||||||||||
| Subscriptions receivable | (302,000 | ) | (302,000 | ) | |||||||||||
| Subscriptions receivable, net of reserve | (101,000 | ) | (302,000 | ) | |||||||||||
| Accumulated deficit | (56,216,000 | ) | (54,290,000 | ) | (56,402,000 | ) | (56,216,000 | ) | |||||||
| Treasury stock, 611,200 and 611,200 shares of common stock, at cost | (3,337,000 | ) | (3,337,000 | ) | (3,337,000 | ) | (3,337,000 | ) | |||||||
| 8,723,000 | 9,832,000 | ||||||||||||||
| 9,832,000 | 10,304,000 | $ | 9,000,000 | $ | 10,071,000 | ||||||||||
| $ | 10,071,000 | $ | 11,342,000 | ||||||||||||
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||
| 2004 | 2003 | 2002 | 2005 | 2004 | 2003 | |||||||||||||||||
| Revenue: | ||||||||||||||||||||||
| License and research fees | $ | — | $ | 13,000 | $ | 562,000 | $ | — | $ | — | $ | 13,000 | ||||||||||
| Operating expenses: | ||||||||||||||||||||||
| Research and development | — | 154,000 | 3,948,000 | — | — | 154,000 | ||||||||||||||||
| General and administrative | 2,051,000 | 2,938,000 | 4,770,000 | 1,438,000 | 2,051,000 | 2,938,000 | ||||||||||||||||
| Expenses related to strategic redirection | — | 653,000 | 864,000 | — | — | 653,000 | ||||||||||||||||
| Merger, tender offers and consent solicitation expenses | — | 2,233,000 | 2,010,000 | — | — | 2,233,000 | ||||||||||||||||
| 1,438,000 | 2,051,000 | 5,978,000 | ||||||||||||||||||||
| 2,051,000 | 5,978,000 | 11,592,000 | ||||||||||||||||||||
| Other (income) expenses: | ||||||||||||||||||||||
| Gain on dispositions | — | — | (4,000 | ) | ||||||||||||||||||
| Gain on sale of investments, net | (1,064,000 | ) | — | — | ||||||||||||||||||
| Interest income | (127,000 | ) | (174,000 | ) | (686,000 | ) | (190,000 | ) | (127,000 | ) | (174,000 | ) | ||||||||||
| Interest expense | 2,000 | 2,000 | 18,000 | 2,000 | 2,000 | 2,000 | ||||||||||||||||
| (1,252,000 | ) | (125,000 | ) | (172,000 | ) | |||||||||||||||||
| (125,000 | ) | (172,000 | ) | (672,000 | ) | |||||||||||||||||
| Loss before provision (benefit) for taxes | (1,926,000 | ) | (5,793,000 | ) | (10,358,000 | ) | (186,000 | ) | (1,926,000 | ) | (5,793,000 | ) | ||||||||||
| Provision (benefit) for taxes | — | — | — | — | — | — | ||||||||||||||||
Net loss | (1,926,000 | ) | (5,793,000 | ) | (10,358,000 | ) | ||||||||||||||||
Net Loss | (186,000 | ) | (1,926,000 | ) | (5,793,000 | ) | ||||||||||||||||
| Preferred stock dividend | (223,000 | ) | (207,000 | ) | (169,000 | ) | (234,000 | ) | (223,000 | ) | (207,000 | ) | ||||||||||
Net loss attributable to common stockholders | $ | (2,149,000 | ) | $ | (6,000,000 | ) | $ | (10,527,000 | ) | $ | (420,000 | ) | $ | (2,149,000 | ) | $ | (6,000,000 | ) | ||||
Basic and diluted loss per common share: | $ | (0.13 | ) | $ | (0.38 | ) | $ | (0.67 | ) | $ | (0.03 | ) | $ | (0.13 | ) | $ | (0.38 | ) | ||||
Weighted average number of shares outstanding — basic and diluted | 16,050,000 | 15,690,000 | 15,672,000 | 16,271,000 | 16,050,000 | 15,690,000 | ||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||
| Convertible | Additional | Other | ||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid in | Subscriptions | Unearned | Accumulated | Comprehensive | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivable | Compensation | Deficit | Income (Loss) | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||
Balance — January 1, 2002 | 755,950 | $ | 8,000 | 16,180,935 | $ | 162,000 | $ | 67,025,000 | ($360,000 | ) | ($5,000 | ) | ($38,139,000 | ) | — | 511,200 | ($2,570,000 | ) | $ | 26,121,000 | ||||||||||||||||||||||||||||
| Preferred stock converted to common stock | (3,551 | ) | — | 3,551 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Preferred dividend (stock) | 75,624 | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Net interest on Subscription Receivable | — | — | — | — | — | 8,000 | — | — | — | — | — | 8,000 | ||||||||||||||||||||||||||||||||||||
| Charge-off of Subscription Receivable | — | — | — | — | — | 51,000 | — | — | — | — | — | 51,000 | ||||||||||||||||||||||||||||||||||||
| Value assigned to warrants and options issued for professional services | — | — | — | — | 247,000 | — | — | — | — | — | — | 247,000 | ||||||||||||||||||||||||||||||||||||
| Compensation related to grant of options to employees | — | — | — | — | — | — | 5,000 | — | — | — | — | 5,000 | ||||||||||||||||||||||||||||||||||||
| Net loss for the year | — | — | — | — | — | — | — | (10,358,000 | ) | — | — | — | (10,358,000 | ) | ||||||||||||||||||||||||||||||||||
Balance — December 31, 2002 | 828,023 | 8,000 | 16,184,486 | 162,000 | 67,272,000 | (301,000 | ) | — | (48,497,000 | ) | — | 511,200 | (2,570,000 | ) | 16,074,000 | |||||||||||||||||||||||||||||||||
| Preferred stock converted to common stock | (20,293 | ) | — | 20,293 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Preferred dividend (stock) | 82,834 | 1,000 | — | — | (1,000 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Net interest on subscription receivable | — | — | — | — | — | (1,000 | ) | — | — | — | — | — | (1,000 | ) | ||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | 10,000 | — | 4,000 | — | — | — | — | — | — | 4,000 | ||||||||||||||||||||||||||||||||||||
| Issuance of shares previously recorded as issuance from Treasury Stock | — | — | 100,000 | 1,000 | 766,000 | — | — | — | — | 100,000 | (767,000 | ) | — | |||||||||||||||||||||||||||||||||||
| Value assigned to warrants and options issued for professional services | — | — | — | — | 20,000 | — | — | — | — | — | — | 20,000 | ||||||||||||||||||||||||||||||||||||
| Net loss for the year | — | — | — | — | — | — | — | (5,793,000 | ) | — | — | — | (5,793,000 | ) | ||||||||||||||||||||||||||||||||||
Balance — December 31, 2003 | 890,564 | $ | 9,000 | 16,314,779 | $ | 163,000 | $ | 68,061,000 | ($302,000 | ) | $ | — | ($54,290,000 | ) | $ | — | 611,200 | ($3,337,000 | ) | $ | 10,304,000 | |||||||||||||||||||||||||||
| Preferred stock converted to common stock | (44,252 | ) | (500 | ) | 44,252 | 500 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Preferred dividend (stock) | 89,020 | 500 | — | — | (500 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | 360,000 | 4,000 | 188,000 | — | — | — | — | — | — | 192,000 | ||||||||||||||||||||||||||||||||||||
| Compensation related to grant of stock and options to board members | — | — | 150,000 | 1,500 | 132,000 | — | — | — | — | — | — | 133,500 | ||||||||||||||||||||||||||||||||||||
| Value assigned to warrants and options issued for professional services | — | — | — | — | 4,500 | — | — | — | — | — | — | 4,500 | ||||||||||||||||||||||||||||||||||||
| Comprehensive Income: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss for the year | — | — | — | — | — | — | — | (1,926,000 | ) | — | — | — | (1,926,000 | ) | ||||||||||||||||||||||||||||||||||
| Unrealized gain on available for sale securities | — | — | — | — | — | — | — | — | 1,124,000 | — | — | 1,124,000 | ||||||||||||||||||||||||||||||||||||
| Total comprehensive income | — | — | — | — | — | — | — | — | — | — | — | (802,000 | ) | |||||||||||||||||||||||||||||||||||
Balance — December 31, 2004 | 935,332 | $ | 9,000 | 16,869,031 | $ | 169,000 | $ | 68,385,000 | ($302,000 | ) | $ | — | ($56,216,000 | ) | $ | 1,124,000 | 611,200 | ($3,337,000 | ) | $ | 9,832,000 | |||||||||||||||||||||||||||
Accumulated Other | Treasury Stock | ||||||||||||||||||||||||||||||||||||
Convertible Preferred Stock | Common Stock | Additional Paid in | Subscriptions | Reserve on | Accumulated | Comprehensive | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Receivable | Subscp. Rec | Deficit | Income (Loss) | Shares | Amount | Total | ||||||||||||||||||||||||||
Balance — January 1, 2003 | 828,023 | $ | 8,000 | 16,184,486 | $ | 162,000 | 67,272,000 | (301,000 | ) | — | (48,497,000 | ) | — | 511,200 | ($2,570,000 | ) | 16,074,000 | ||||||||||||||||||||
| Preferred stock converted to common stock | (20,293 | ) | — | 20,293 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Preferred dividend (stock) | 82,834 | 1,000 | — | — | (1,000 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Net interest on Subscription Receivable | — | — | — | — | — | (1,000 | ) | — | — | — | — | — | (1,000 | ) | |||||||||||||||||||||||
| Exercise of stock options | — | — | 10,000 | — | 4,000 | — | — | — | — | — | — | 4,000 | |||||||||||||||||||||||||
| Issuance of shares previously recorded as issuance from Treasury Stock | — | — | 100,000 | 1,000 | 766,000 | — | — | — | — | 100,000 | (767,000 | ) | — | ||||||||||||||||||||||||
| Value assigned to warrants and options issued for professional services | — | — | — | — | 20,000 | — | — | — | — | — | — | 20,000 | |||||||||||||||||||||||||
| Net loss for the year | — | — | — | — | — | — | — | (5,793,000 | ) | — | — | — | (5,793,000 | ) | |||||||||||||||||||||||
Balance — December 31, 2003 | 890,564 | 9,000 | 16,314,779 | 163,000 | 68,061,000 | (302,000 | ) | — | (54,290,000 | ) | — | 611,200 | (3,337,000 | ) | 10,304,000 | ||||||||||||||||||||||
| Preferred stock converted to common stock | (44,252 | ) | (500 | ) | 44,252 | 500 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
| Preferred dividend (stock) | 89,020 | 500 | — | — | (500 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Exercise of stock options | — | — | 360,000 | 4,000 | 188,000 | — | — | — | — | — | — | 192,000 | |||||||||||||||||||||||||
| Compensation related to grant of stock and options to board members | — | — | 150,000 | 1,500 | 132,000 | — | — | — | — | — | — | 133,500 | |||||||||||||||||||||||||
| Value assigned to warrants and options issued for professional services | — | — | — | — | 4,500 | — | — | — | — | — | — | 4,500 | |||||||||||||||||||||||||
| Comprehensive Income: | |||||||||||||||||||||||||||||||||||||
| Net Loss for the year | — | — | — | — | — | — | — | (1,926,000 | ) | — | — | — | (1,926,000 | ) | |||||||||||||||||||||||
| Unrealized gain on available for sale securities | — | — | — | — | — | — | — | — | 1,124,000 | — | — | 1,124,000 | |||||||||||||||||||||||||
| Total comprehensive income | — | — | — | — | — | — | — | — | — | — | — | (802,000 | ) | ||||||||||||||||||||||||
Balance — December 31, 2004 | 935,332 | $ | 9,000 | 16,869,031 | $ | 169,000 | $ | 68,385,000 | ($302,000 | ) | — | ($56,216,000 | ) | $ | 1,124,000 | 611,200 | ($3,337,000 | ) | $ | 9,832,000 | |||||||||||||||||
| Preferred stock converted to common stock | (75,995 | ) | — | 75,995 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Preferred dividend (stock) | 93,502 | 1,000 | — | — | (1,000 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Accrued Interest on subscription receivable | — | — | — | — | — | (14,000 | ) | — | — | — | — | — | (14,000 | ) | |||||||||||||||||||||||
| Reserve on stock subscriptions receivable | — | — | — | — | — | — | 215,000 | — | — | — | — | 215,000 | |||||||||||||||||||||||||
| Comprehensive Income: | |||||||||||||||||||||||||||||||||||||
| Net Loss for the year | — | — | — | — | — | — | — | (186,000 | ) | — | — | — | (186,000 | ) | |||||||||||||||||||||||
| Realized gain on available for sale securities | — | — | — | — | — | — | — | — | (1,124,000 | ) | — | — | (1,124,000 | ) | |||||||||||||||||||||||
| Total comprehensive income | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Balance — December 31, 2005 | 952,839 | $ | 10,000 | 16,945,026 | $ | 169,000 | $ | 68,384,000 | ($316,000 | ) | $ | 215,000 | ($56,402,000 | ) | — | 611,200 | ($3,337,000 | ) | $ | 8,723,000 | |||||||||||||||||
| Year Ended December 31, | |||||||||||||
| 2004 | 2003 | 2002 | |||||||||||
Cash flows from operating activities: | |||||||||||||
| Net loss | $ | (1,926,000 | ) | $ | (5,793,000 | ) | $ | (10,358,000 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||||
| Depreciation and amortization | 5,000 | 55,000 | 472,000 | ||||||||||
| Non-cash expenses relating to strategic redirection | — | 171,000 | 726,000 | ||||||||||
| Value assigned to warrants, options and compensatory stock | 138,000 | 20,000 | 251,000 | ||||||||||
| Interest accrual on subscriptions receivable | (2,000 | ) | (1,000 | ) | 8,000 | ||||||||
| Loss on write down of subscriptions receivable | — | — | 51,000 | ||||||||||
| Changes in: | |||||||||||||
| Release of cash restricted for operating lease obligations | 425,000 | — | — | ||||||||||
| Prepaid expenses and other current assets | 569,000 | (87,000 | ) | 154,000 | |||||||||
| Payment of operating lease obligations | (87,000 | ) | — | — | |||||||||
| Notes receivable — officer/shareholder | — | — | 278,000 | ||||||||||
| Accounts payable and accrued expenses | (712,000 | ) | (201,000 | ) | (337,000 | ) | |||||||
| Tax payable | — | — | (28,000 | ) | |||||||||
| Deferred revenue | — | — | (56,000 | ) | |||||||||
| �� | |||||||||||||
| Net cash used in operating activities | (1,590,000 | ) | (5,836,000 | ) | (8,839,000 | ) | |||||||
Cash flows from investing activities: | |||||||||||||
| Net sales of equipment | — | 28,000 | 115,000 | ||||||||||
| Sales of investment securities | — | 10,000,000 | — | ||||||||||
| Net cash provided by investing activities | — | 10,028,000 | 115,000 | ||||||||||
Cash flows from financing activities: | |||||||||||||
| Proceeds from sale of common stock through exercise of options and warrants | 192,000 | 4,000 | — | ||||||||||
| Payment of capital lease obligations | — | (202,000 | ) | (83,000 | ) | ||||||||
| Net cash provided by (used in) financing activities | 192,000 | (198,000 | ) | (83,000 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents | (1,398,000 | ) | 3,994,000 | (8,807,000 | ) | ||||||||
| Cash and cash equivalents at beginning of year | 10,132,000 | 6,138,000 | 14,945,000 | ||||||||||
Cash and cash equivalents at end of year | $ | 8,734,000 | $ | 10,132,000 | $ | 6,138,000 | |||||||
Supplemental disclosures of cash flow information: | |||||||||||||
| Cash paid for interest | $ | 2,000 | $ | 9,000 | $ | 18,000 | |||||||
| Taxes paid | — | — | 14,000 | ||||||||||
| Noncash investing activities: | |||||||||||||
| Investment in Intrac, Inc. | 1,124,000 | — | — | ||||||||||
See notes to financial statements
Year Ended December 31, | ||||||||||
2005 | 2004 | 2003 | ||||||||
Cash flows from operating activities: | ||||||||||
| Net loss | $ | (186,000 | ) | $ | (1,926,000 | ) | $ | (5,793,000 | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||
| Depreciation and amortization | 3,000 | 5,000 | 55,000 | |||||||
| Non-cash expenses relating to strategic redirection | — | — | 171,000 | |||||||
| Value assigned to warrants, options and compensatory stock | — | 138,000 | 20,000 | |||||||
| Interest accrual on subscriptions receivable | (14,000 | ) | (2,000 | ) | (1,000 | ) | ||||
| Reserve for subscriptions receivable | 215,000 | — | — | |||||||
| Gain on Sale of Investments, net | (1,064,000 | ) | — | — | ||||||
| Changes in: | ||||||||||
| Release of cash restricted for operating lease obligations | 175,000 | 425,000 | — | |||||||
| Prepaid expenses and other current assets | (64,000 | ) | 569,000 | (87,000 | ) | |||||
| Payment of operating lease obligations | — | (87,000 | ) | — | ||||||
| Accounts payable and accrued expenses | 38,000 | (712,000 | ) | (201,000 | ) | |||||
| Net provided by (cash used) in operating activities | (897,000 | ) | (1,590,000 | ) | (5,836,000 | ) | ||||
Cash flows from investing activities: | ||||||||||
| Net sales of equipment | — | — | 28,000 | |||||||
| Sales of investment securities | 1,064,000 | — | 10,000,000 | |||||||
| Net cash provided by investing activities | 1,064,000 | — | 10,028,000 | |||||||
Cash flows from financing activities: | ||||||||||
| Proceeds from sale of common stock through exercise of options and warrants | — | 192,000 | 4,000 | |||||||
| Payment of capital lease obligations | — | — | (202,000 | ) | ||||||
| Net cash provided by (used in) financing activities | — | 192,000 | (198,000 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 167,000 | (1,398,000 | ) | 3,994,000 | ||||||
| Cash and cash equivalents at beginning of year | 8,734,000 | 10,132,000 | 6,138,000 | |||||||
Cash and cash equivalents at end of year | $ | 8,901,000 | $ | 8,734,000 | $ | 10,132,000 | ||||
Supplemental disclosures of cash flow information: | ||||||||||
| Cash paid for interest | $ | 2,000 | $ | 2,000 | $ | 9,000 | ||||
| Cash paid for Income Taxes | $ | 36,000 | — | — | ||||||
| Noncash investing activities: | ||||||||||
| Investment in Intrac, Inc. | — | 1,124,000 | — | |||||||
On December 5, 2003, our then current Board of Directors: Dr. Joseph M. Davie, Robert J. Easton, Dr. Ronald L. Goode, Dr. Walter M. Lovenberg and Gordon F. Martin, (collectively referred to as the “Prior Board”) were removed by a majority vote of our stockholders via a proxy consent solicitation. They were replaced by the following slate of new Directors: John A. Paganelli, Robert A. Baron, Robert Benou, John J. Huntz, Jr., and Dr. David Lee Spencer, collectively referred to as the “New Board”. The New Board is focused on redeploying the remaining residual assets of the Company. Our New Board has established a committee to study strategic direction and identify potential business opportunities. Currently, we have one employee, David E. Riggs, who serves as our President, Chief Executive Officer and Chief Financial Officer.
Investments consist of equity securities and are classified as available for sale and reported at their fair values. The realized gains and losses from these investments are reported in current earnings. Unrealized gains and losses from these securities are reported as a separate component of stockholders equity and excluded from current earnings.
comprehensive income.
F-7
F-8
among other things, when employees exercise stock options.
future years.
During the year ended December 31, 2003, the Company recognized reorganization related expenses of $937,000 for severance benefits and legal and other expenses related to terminated scientific programs. These costs were partially offset by expense reimbursement from BMS of $284,000 received during the same period, resulting in a net charge of $653,000 for the year ended December 31, 2003. During the years ended December 31, 2003 and December 31, 2004, cash payments of $580,000 and $193,000, respectively were charged to restructuring expenses accrued at December 31, 2002. Accrued reorganization expenses are $0 and $193,000 at December 31, 2004 and 2003, respectively. Beginning in June 2001, the Company initiated efforts to strategically redirect the operations of the Company and terminated most of its research programs. In addition, scientific personnel associated with these programs and related administrative functions and support staff positions were also terminated. During the second quarter of 2002, the completion of funding related to the "Sponsored Research Agreement" with BMS necessitated the Company’s decision to concentrate on its strategic drug discovery programs, and the Company terminated both scientific and administrative employees. In the last quarter of 2002, the Company wrote down equipment no longer utilized to its estimated salvage value, resulting in a charge to operations of $240,000. Also, an expense of $326,000 was recognized for commitments under operating leases that will not provide any future benefit to the Company. Additional employees were terminated in December 2002 resulting in a charge of $298,000. Expenses related to the reorganization for 2002 totalled $864,000.
Note E — Merger, Tender Offer and Consent Solicitations
In 2003 and 2002 respectively, the Company recognized an aggregate of $2,233,000 and $2,010,000, in expenses related to merger, tender offer and consent solicitation activities which included $1,375,000 and $496,000, in legal fees, $398,000 and $304,000, in fees to a financial advisor, $360,000 and $210,000, in other fees for audit, printing and investor relations services and a $100,000 and $500,000, in termination fees. In 2004, the Company did not incur any expenses in connection with merger, tender offer and consent solicitation activities.
Note F — Equipment
| December 31, | ||||||||
| 2004 | 2003 | |||||||
| Office equipment | $ | 26,000 | $ | 26,000 | ||||
| Less accumulated depreciation | (23,000 | ) | (18,000 | ) | ||||
| Net | $ | 3,000 | $ | 8,000 | ||||
December 31, | |||||||
2005 | 2004 | ||||||
| Office equipment | $ | 26,000 | $ | 26,000 | |||
| Less accumulated depreciation | (26,000 | ) | (23,000 | ) | |||
| Net | $ | — | $ | 3,000 | |||
In December 2003, the Company sold substantially all of its equipment and furniture at auction. The auction proceeds totaled approximately $66,000. The Company also sold certain assets during 2003 to employees and local research entities and universities for an additional $27,000.
All capital leases were terminated in December 2003 (See
Note GE — Accounts Payable and Accrued Expenses
| December 31, | ||||||||
| 2004 | 2003 | |||||||
| Professional fees | $ | 39,000 | $ | 616,000 | ||||
| Accrued reorganization expense | — | 193,000 | ||||||
| Payroll and related expenses | — | 8,000 | ||||||
| Equipment Return Reserve | 100,000 | — | ||||||
| Delaware Franchise Tax | 32,000 | — | ||||||
| Licensors and contractors | — | 133,000 | ||||||
| Real estate taxes | — | 24,000 | ||||||
| Other | 68,000 | 64,000 | ||||||
| $ | 239,000 | $ | 1,038,000 | |||||
December 31, | |||||||
2005 | 2004 | ||||||
| Professional fees | $ | 23,000 | $ | 39,000 | |||
| Legal Reserve | 250,000 | — | |||||
| Equipment Return Reserve | — | 100,000 | |||||
| Delaware Franchise Tax | — | 32,000 | |||||
| Other | 4,000 | 68,000 | |||||
| $ | 277,000 | $ | 239,000 | ||||
In December of 2003,
was released from restriction.
F-10
closing trading price of the Company’s common stock on the date of grant. In the second quarter 2004, the Chairman of the Board was issued 50,000 shares of common stock, Directors were issued 25,000 shares. In the aggregate, 150,000 shares of common stock were issued and recorded at their fair value on the date of grant.
No common stock was issued to the Board of Directors in 2005.
Treasury stock
During 2003, it was determined that 100,000 shares of its treasury stock previously sold to the former CEO had never been issued via certificate. Accordingly, the company issued a 100,000-share certificate from its common stock share reserve to satisfy its responsibility to the shareholder. Subsequently, the Company determined that the 100,000 treasury shares had in fact been issued in certificate form but erroneously issued to the Company itself. Consequently, the Company returned the issued certificate back to Treasury Stock.
Warrant Type | Exercise Price | Expiration Dates | ||||||||||
Number of | ||||||||||||
Shares | ||||||||||||
Reserved | ||||||||||||
| Other | $ | 0.55 to $1.00 | July 2004-March 2008 | 290,000 | ||||||||
F-11
financial advisory services. In connection with this exchange, the Company recorded a charge of $91,000 to operations during 2002 using the Black-Scholes option-pricing model.
Warrant expense in 2003 includes $15,000 of expense related to warrants issued in prior years.
2004 and 2005.
| Year Ended December 31, | ||||||||||||||||||||||||
| 2004 | 2003 | 2002 | ||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||
| Exercise | Exercise | Exercise | ||||||||||||||||||||||
| Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
| Options outstanding at beginning of year | 2,158,000 | $ | 3.02 | 3,286,855 | $ | 4.29 | 2,858,155 | $ | 4.94 | |||||||||||||||
| Granted | 165,000 | .82 | 455,000 | 0.51 | 788,000 | 1.46 | ||||||||||||||||||
| Exercised | (360,000 | ) | .53 | (10,000 | ) | 0.40 | — | — | ||||||||||||||||
| Expired | (863,000 | ) | 3.64 | (1,573,855 | ) | 5.06 | (200,000 | ) | 1.65 | |||||||||||||||
| Canceled | — | — | — | — | (159,300 | ) | 5.43 | |||||||||||||||||
| Options outstanding at end of year | 1,100,000 | 3.02 | 2,158,000 | 3.02 | 3,286,855 | 4.29 | ||||||||||||||||||
| Options exercisable at end of year | 971,660 | 3.32 | 1,932,000 | 3.26 | 2,688,410 | 4.69 | ||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||
2005 | 2004 | 2003 | |||||||||||||||||
Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | ||||||||||||||
| Options outstanding at beginning of year | 1,100,000 | $ | 3.02 | 2,158,000 | $ | 3.02 | 3,286,855 | $ | 4.29 | ||||||||||
| Granted | 80,000 | .40 | 165,000 | .82 | 455,000 | 0.51 | |||||||||||||
| Exercised | — | — | (360,000 | ) | 0.53 | (10,000 | ) | 0.40 | |||||||||||
| Expired | (275,000 | ) | 0.72 | (863,000 | ) | 3.64 | (1,573,855 | ) | 5.06 | ||||||||||
| Canceled | — | — | — | — | — | — | |||||||||||||
| Options outstanding at end of year | 905,000 | 3.37 | 1,100,000 | 3.02 | 2,158,000 | 3.02 | |||||||||||||
| Options exercisable at end of year | 880,000 | 3.44 | 971,660 | 3.32 | 1,932,000 | 3.26 | |||||||||||||
F-12
| Options Outstanding | Options Exercisable | |||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||
| Range of | Exercise | Remaining | Exercise | |||||||||||||||||
| Exercise Price | Shares | Price | Life in Years | Shares | Price | |||||||||||||||
| $0.40-$2.99 | 620,000 | $ | 1.29 | 5.9 | 491,666 | $ | 1.51 | |||||||||||||
| $3.00-$4.99 | 325,000 | 4.29 | 1.4 | 325,000 | 4.29 | |||||||||||||||
| $5.00-$7.43 | 40,000 | 6.75 | 1.4 | 40,000 | 6.75 | |||||||||||||||
| $7.44-$9.88 | 115,000 | 7.45 | 1.4 | 115,000 | 7.45 | |||||||||||||||
| 1,100,000 | 971,666 | |||||||||||||||||||
Options Outstanding | Options Exercisable | |||||||||||||||
Range of Exercise Price | Shares | Weighted Average Exercise Price | Weighted Average Remaining Life in Years | Shares | Weighted Average Exercise Price | |||||||||||
| $0.40-$2.99 | 450,000 | $ | 1.49 | 3.48 | 425,000 | $ | 1.45 | |||||||||
| $3.00-$4.99 | 305,000 | 4.27 | 0.20 | 305,000 | 4.27 | |||||||||||
| $5.00-$7.43 | 40,000 | 6.75 | 0.18 | 40,000 | 6.75 | |||||||||||
| $7.44-$9.88 | 110,000 | 7.45 | 0.09 | 110,000 | 7.45 | |||||||||||
| 905,000 | 880,000 | |||||||||||||||
| 2004 | 2003 | 2002 | ||||
| Risk-free interest rates | 2.9% to 3.6% | 2.5% to 3.5% | 3.3% to 6.7% | |||
| Expected option life in years | 5 | 5 | 5 | |||
| Expected stock price volatility | 72% to 75% | 89% to 105% | 79% to 89% | |||
| Expected dividend yield | 0% | 0% | 0% |
2005 | 2004 | 2003 | ||||
| Risk-free interest rates | 3.6% to 4.3% | 2.9% to 3.6% | 2.5% to 3.5% | |||
| Expected option life in years | 5 | 5 | 5 | |||
| Expected stock price volatility | 63% to 75% | 72% to 75% | 89% to 105% | |||
| Expected dividend yield | 0% | 0% | 0% |
| Year Ended December 31, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
| Net loss attributable to common stockholders as reported | $ | (2,149,000 | ) | $ | (6,000,000 | ) | $ | (10,527,000 | ) | |||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (32,000 | ) | (154,000 | ) | (643,000 | ) | ||||||
| Pro forma net income | $ | (2,181,000 | ) | $ | (6,154,000 | ) | $ | (11,170,000 | ) | |||
| Earnings per share: | ||||||||||||
| Basic and diluted-as reported | $ | (0.13 | ) | $ | (0.38 | ) | $ | (0.67 | ) | |||
| Basic and Diluted-pro forma | $ | (0.14 | ) | $ | (0.39 | ) | $ | (0.71 | ) | |||
Year Ended December 31, | ||||||||||
2005 | 2004 | 2003 | ||||||||
| Net loss attributable to common stockholders as reported | $ | (420,000 | ) | $ | (2,149,000 | ) | $ | (6,000,000 | ) | |
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (11,000 | ) | (32,000 | ) | (154,000 | ) | ||||
| Pro forma net income | $ | (431,000 | ) | $ | (2,181,000 | ) | $ | (6,154,000 | ) | |
| Earnings per share: | ||||||||||
| Basic and diluted-as reported | $ | (0.03 | ) | $ | (0.13 | ) | $ | (0.38 | ) | |
| Basic and Diluted-pro forma | $ | (0.03 | ) | $ | (0.14 | ) | $ | (0.39 | ) | |
F-13
At December 31, 2003, our lease of 19,300 square feet of office and laboratory space at 2110 Research Row, Dallas, Texas, terminated. Rent expense, prior to any reorganization expense, was approximately $20,000, $238,000 and $275,000 for the years ended December 31, 2004, 2003 and 2002, respectively. In January 2004, the
Rent expense, prior to any reorganization expense, was approximately $11,000, $20,000, and $238,000 for the years ended December 31, 2005, 2004 and 2003, respectively.
In April 2002, Dr.
financial statements.
F-14
Riggs shall receive severance payments of equal monthly installments at the then current base rate until either (i) the expiration of 12 months following the date of termination, if such date is prior to March 10, 2004, (ii) the expiration of nine months following the date of termination, if such date is before March 10, 2005, (iii) the expiration of six months following the date of termination, if such date is before March 9, 2006, or (iv) the expiration of six months following the date of termination, if such date is during a renewal period. The employment agreement contains a one-year post-termination non-compete, non-solicitation and non-disclosure agreement. On or about March 2004 we amended Mr. Riggs employment agreement (the “Amendment”) to reflect his new title of President and Chief Executive Officer. Pursuant to the Amendment Mr. Riggs was granted an option to purchase 75,000 shares of the Company’s Common Stock. This Option granted vests in three equal installments: The first immediatelyside upon the grant date, the second on the first anniversary of that date and the final upon the second anniversary of that date.
Ronald L. Goode, Ph.D. entered into an employment agreement with us on March 21, 2001 to serve as our President and Chief Executive Officer until March 21, 2004. On December 18, 2003, the New Board notified Dr. Goode that his employment agreement would not be renewed. The employment agreement contains a two-year post-termination non-compete, non-solicitation and non-disclosure agreement. On February 23, 2004, Dr. Goode resigned, thereby terminating his employment agreement with the Company that was to expire on March 21, 2004.
written notice.
Meyers Associates, L.P.
On August 13, 2002 we entered into an agreement with Meyers Associates, L.P. (formerly Roan/Meyers Associates, L.P. (a security holder who is known to the Company to own of record or beneficially more than five percent of any class of the Company’s voting securities)) for financial advisory services. Pursuant to the terms of this agreement, we paid Meyers Associates, L.P. $57,000 in 2003. In addition, we issued them warrants to purchase 125,000 shares of our common stock at a purchase price of $1.00 per share, with an expiration date of August 13, 2007, and additional warrants to purchase 125,000 shares of our common stock at a purchase price of $0.55 per share, with an expiration date of August 13, 2007. In connection with the Meyers Group consent solicitation, we reimbursed Meyers Associates, L.P. $14,000 for out-of-pocket expenses incurred in 2003.
Milberg Weiss Bershad Hynes & Lerach LLP
Melvyn I. Weiss (a security holder who is known to the Company to own of record or beneficially more than five percent of any class of the Company’s voting securities) is an attorney and senior partner of Milberg Weiss Bershad Hynes & Lerach LLP (“Milberg Weiss”). Milberg Weiss represents The M&B Weiss Family Limited Partnership of 1996 in connection with its lawsuit against the Company (as a nominal defendant) and Ronald L. Goode, Joseph M. Davie and Walter Lovenberg (See
Note LJ — 401(k) Plan
2003.
F-15
Quarter Ended | ||||||||||||||||||||||||||||||||||||
| Quarter Ended | March 31 | June 30 | September 30 | December 31 | Total Year | |||||||||||||||||||||||||||||||
| March 31 | June 30 | September 30 | December 31 | Total Year | ||||||||||||||||||||||||||||||||
2005 | ||||||||||||||||||||||||||||||||||||
| Revenues | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||
| Net (loss) income | (290,000 | ) | (434,000 | ) | 870,000 | (332,000 | ) | (186,000 | ) | |||||||||||||||||||||||||||
| Loss per share — basic and diluted(a) | (0.03 | ) | (0.03 | ) | 0.05 | (0.01 | ) | 0.03 | ||||||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||||||
| Revenues | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Net loss | (739,000 | ) | (531,000 | ) | (368,000 | ) | (288,000 | ) | (1,926,000 | ) | (739,000 | ) | (531,000 | ) | (368,000 | ) | (288,000 | ) | (1,926,000 | ) | ||||||||||||||||
| Loss per share — basic and diluted(a) | (0.06 | ) | (0.03 | ) | (0.02 | ) | (0.02 | ) | (0.13 | ) | (0.06 | ) | (0.03 | ) | (0.02 | ) | (0.02 | ) | (0.13 | ) | ||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||||||
| Revenues | $ | 13,000 | $ | — | $ | — | $ | — | $ | 13,000 | ||||||||||||||||||||||||||
| Net loss | (987,000 | ) | (1,795,000 | ) | (1,525,000 | ) | (1,486,000 | ) | (5,793,000 | ) | ||||||||||||||||||||||||||
| Loss per share — basic and diluted(a) | (0.07 | ) | (.011 | ) | (0.10 | ) | (0.09 | ) | (0.38 | ) | ||||||||||||||||||||||||||
| (a) | Per common share amounts for the quarters and full year have been calculated separately. Accordingly, quarterly amounts may not add to the annual amount because of differences in the weighted average common shares outstanding during each period due to the effect of the Company’s issuing shares of its common stock during the year. |
Note N — Subsequent Events
On April 12, 2005 the judge, in a ruling from the bench, dismissed, with prejudice, the lawsuit filed by The M&B Weiss Family Limited Partnership of 1996 against the Company, as nominal defendant, and certain former directors of the Company. We are awaiting a formal written order to that effect to be filed.
F-16