UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------------------- FORM 10-QSB [ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to _____________ Commission file number 333-113734 MARC PHARMACEUTICALS, INC. -------------------------- (Exact name of small business issuer as specified in its charter) Delaware 13-4169954 --------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 350 Bedford Street, Stamford, Connecticut 06901 --------------------- ----- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code (203) 352-8817 -------------- Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. The outstanding number of each type of the issuer's securities as of May 13,2005 is (i) 287,310,000 shares of Common Stock, par value $.0001 (ii) 2,910,000 Class A Warrants to acquire common shares and (iii) 5,820,000 Class B Warrants to acquire common shares. Transitional Small Business Disclosure Format (check one): Yes No X --- --- PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. MARC PHARMACEUTICALS, INC. (A Development Stage Company) I N D E X --------- Page No. -------- FINANCIAL STATEMENTS: Balance Sheets as at March 31, 2005 (Unaudited) and December 31, 2004 3 Statements of Operations For the Three months Ended March 31, 2005 and, 2004 and Cumulative For the Period from February 21, 2001 (Inception) to March 31, 2005 (Unaudited) 4 Statements of Stockholders' Equity (Capital Deficiency) For the Three months Ended March 31, 2005 and, 2004 and Cumulative For the Period from February 21, 2001 (Inception) to March 31, 2005 (Unaudited) 5 Statements of Cash Flows For the Three months Ended March 31, 2005 and, 2004 and Cumulative For the Period from February 21, 2001 (Inception) to March 31, 2005 (Unaudited) 6 Notes to Financial Statements (Unaudited) 7-17 2 MARC PHARMACEUTICALS, INC. (A Development Stage Company) BALANCE SHEETS ASSETS ------ March 31, December 31, 2005 2004 ---- ---- (Unaudited) Current assets: Cash $ 17,290 $ 40,136 Prepaid insurance 3,875 7,196 -------- -------- Total current assets 21,165 47,332 Other assets: Deferred rent 20,380 24,880 -------- -------- Total assets $ 41,545 $ 72,212 ======== ======== LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY ------------------------------------------------ Current liabilities: Notes payable - stockholders $ 700,000 $ 700,000 Sponsored research obligation 40,000 50,000 Accrued expenses - related parties 697,751 581,071 Accrued expenses and other current liabilities 97,658 75,761 ----------- ------------ Total current liabilities 1,535,409 1,406,832 ----------- ------------ Commitments and contingencies - - Stockholders' capital deficiency: Common stock - $.0001 par value Authorized - 750,000,000 shares Issued and outstanding - 286,560,000 and 28,656 28,620 286,200,000, respectively Additional paid-in capital 1,684,069 1,604,005 Deficit accumulated in the development stage 3,206,589) (2,967,245) ----------- ------------ Total stockholders' capital deficiency 1,493,864) (1,334,620) ----------- ------------ Total liabilities and stockholders' capital deficiency $ 41,545 $ 72,212 ========== =========== See notes to financial statements. 3 MARC PHARMACEUTICALS, INC. (A Development Stage Company) STATEMENTS OF OPERATIONS (Unaudited) Cumulative From For the Three For the Three February 21, 2001 Months Ended Months Ended (Inception) to March 31, 2005 March 31, 2004 March 31, 2005 -------------- -------------- -------------- Revenues $ - $ - $ - -------- ------- --------- Operating expenses: Research and development - - 1,497,328 Consulting fees - related party 33,000 30,000 168,000 Compensatory element of stock issuance to a director - 125,000 125,000 License costs - - 100,000 Web site costs - - 28,000 General and administrative (including related party expenses) 172,942 111,432 798,233 -------- ------- --------- Total operating expenses 205,942 266,432 2,716,561 -------- ------- --------- Loss from operations (205,942) (266,432) (2,716,561) -------- ------- --------- Other (Income) expenses: Interest expense 33,438 13,822 491,813 Interest income (36) (4) (1,785) -------- ------- --------- Total other expenses 33,402 13,818 490,028 -------- ------- --------- Net loss ($239,344) ($280,250) ($3,206,589) Per share data: Loss per share - basic and diluted ($ - ) ($ - ) ==== ==== Weighted average number of shares outstanding 286,404,000 283,522,222 =========== =========== See notes to financial statements. 4 MARC PHARMACEUTICALS, INC. (A Development Stage Company) STATEMENTS OF STOCKHOLDERS' CAPITAL EQUITY (DEFICIENCY) FOR THE PERIOD FROM FEBRUARY 21, 2001 (Inception) TO MARCH 31, 2005 Deficit Total Accumulated Stockholders' Common Stock Additional in the Stock Equity ------------------------ Paid-In Development Subscriptions (Capital Shares Amount Capital Stage Receivable Deficiency) ------------ ---------- ----------- ------------ -------------- ------------- Balance at February 21, 2001 - Inception 202,700,000 $ 20,270 $ - $ - $ (20,270) $ - Payment of common stock subscriptions - - - - 40 140 Compensatory element of common stock issued for services rendered 450,000 45 45 Proceeds from sale of common stock 19,000,000 1,900 77,409 79,309 Net loss for the period from Inception to December 31, 2001 - - - (450) - (450) ----------- -------- ----------- ------------ --------- ------------ Balance at December 31, 2001 222,150,000 22,215 77,409 (450) (20,130) 79,044 Payment of common stock subscriptions - - - 20,130 20,130 Proceeds from sale of common stock 41,810,000 4,181 179,029 - - 183,210 Net loss for the year ended December 31, 2002 - - - (723,240) - (723,240) ----------- -------- ----------- ------------ --------- ------------ Balance at December 31, 2002 263,960,000 26,396 256,438 (723,690) - (440,856) Proceeds from sale of common stock 14,190,000 1,419 637,131 638,550 Compensatory element of common stock issued as payment of interest 5,000,000 500 249,500 250,000 Net loss for the year ended December 31, 2003 - - - (767,166) - (767,166) ----------- -------- ----------- ------------ --------- ------------ Balance at December 31, 2003 283,150,000 8,315 1,143,069 (1,490,856) - (319,472) Compensatory element of common stock issued for services rendered 500,000 50 124,950 125,000 Sale of securities 2,550,000 255 335,986 336,241 Net loss for the year ended December 31, 2004 - - - (1,476,389) - (1,476,389) ----------- -------- ----------- ------------ --------- ------------ Balance at December 31, 2004 286,200,000 28,620 1,604,005 (2,967,245) - (1,334,620) Sale of securities 360,000 36 80,064 80,100 Net loss for the period ended March 31, 2005 - - - (239,344) - (239,344) ----------- -------- ----------- ------------ --------- ------------ Balance at March 31, 2005 (Unaudited) 286,560,000 $ 28,656 $ 1,684,069 $ (3,206,589) $ - $ (1,493,864) ----------- -------- ----------- ------------ --------- ------------ See notes to financial statements. 5 MARC PHARMACEUTICALS, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS (Unaudited) operating activities: Compensatory element of common stock issued for services 125,000 125,045 Compensatory element of common stock issued in payment of interest - - 250,000 Increase (decrease) in cash flows as a result of changes in asset and liability account balances: Prepaid expenses 3,321 3,280 (3,875) Deferred rent 4,500 (1,419) (20,380) Accrued expense - related parties 116,681 178,253 697,752 Sponsored research obligation (10,000) - 40,000 Accrued expenses and other current liabilities 21,897 67,343 97,658 --------- --------- ---------- Total adjustments 136,399 372,457 1,186,200 --------- --------- ---------- Net cash provided by (used in) operating activities (102,945) 92,207 (2,020,389) --------- --------- ---------- Cash flows from financing activities: Proceeds from notes payable - stockholders - 200,000 1,150,000 Repayments of notes payable - stockholders - (100,000) (450,000) Deferred registration costs - (128,494) - Proceeds from sale of common stock 80,100 - 1,337,680 --------- --------- ---------- Net cash provided by (used in) financing activities 80,100 (28,494) 2,037,680 --------- --------- ---------- Increase (decrease) in cash (22,845) 63,713 17,291 Cash at beginning of period 40,136 3,105 - --------- --------- ---------- Cash at end of period $ 17,291 $ 66,818 $ 17,291 ========= ========= ========== Supplemental Disclosures of Cash Flow Information: Cash paid during the period: Interest $ - $ - $ - ========= ========= ========== Taxes $ - $ 363 $ - ========= ========= ========== Supplemental Schedules of Noncash Investing and Financing Activities: Common stock issued for services $ - $ 125,000 $ 125,045 ========= ========= ========== Common stock issued as payment for interest on note payable $ - $ - $ 250,000 ========= ========= ========== See notes to financial statements. 6 MARC PHARMACEUTICALS, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2005 (Unaudited) NOTE 1 - PLAN OF ORGANIZATION. (a) Organization and Presentation of Financial Statements: Marc Pharmaceuticals, Inc. (the "Company") was incorporated in the State of Delaware on February 21, 2001 at which time the founding and original stockholders subscribed for 202,700,000 shares of the Company's common stock for an aggregate of $20,270. $140 of the stock subscriptions were paid in 2001 and the balance in 2002. Effective February 21, 2001 four persons were issued 450,000 shares of the Company's common stock for administrative services rendered. Since its inception through December 31, 2004, the Company has not generated any significant revenues and has not carried on any significant operations. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company had a working capital deficiency of $1,514,244 and $1,359,500 at March 31, 2005 and December 31, 2004, respectively, and has incurred net losses of $239,344 and $280,250 for the three months ended March 31, 2005 and 2004, respectively, and had an accumulated deficit of $3,206,589 at March 31, 2005. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management's efforts have been directed towards the development and implementation of a plan to develop various pharmaceutical products to the point at which they may be sold. This plan necessarily means that it will be at least several years before the Company will generate sufficient revenues to cover all of its present and future costs and expenses. The Company's sources of cash to fund its operations have been the sales of its securities to accredited investors. Through 2004 the Company received $961,725 in proceeds (net of placement costs) from the sale of 203,790,000 unregistered shares of its common stock to its original founding stockholders and 75,000,000 unregistered shares of its common stock to accredited investors in two private placements. In July 2002 the Company issued its $350,000 note payable to one of its directors as reimbursement for funds the director had paid on the Company's behalf for certain research and development costs. Through March 31, 2005, $225,000 of this note was repaid. In November 2003 the Company commenced a private offering of up to $500,000 of its 20% interest bearing notes to accredited investors. The offering, which was scheduled to expire on February 3, 2004, was increased to $1,000,000 and was extended to February 29, 2004 and further extended until its termination on June 25, 2004. Through June 25, 2004, eleven notes aggregating $800,000 were sold of which $225,000 was repaid by March 31, 2005. In 2004 the Company contracted with a placement agent, on a best efforts basis, to sell up to 20,000,000 units of the Company's securities to the public at a purchase price of $0.25 per unit. Each unit consisted of one share of the Company's common stock, one Class A warrant to buy a share of the Company's common stock at $.50 and two Class B warrants to each purchase one share of the Company's common stock for $1.00. The Company paid the placement agent a commission of 8% of the proceeds of all the units placed by the placement agent and a non-accountable expense allowance of 3% of the proceeds of all the units placed by the placement 7 NOTE 1 - PLAN OF ORGANIZATION. (Continued) (a) Organization and Presentation of Financial Statements: (Continued) agent. In addition to the placement agent's cash compensation, the Company has agreed that the placement agent will receive a warrant to purchase one unit for every 12.5 units sold by the placement agent at a purchase price of $.3125 per unit which will be exercisable for a period of 5 years. The placement agent's warrants and the underlying shares of common stock will not be registered at the time of grant. Through March 31, 2004, the Company sold 2,910,000 units aggregating cash proceeds, after deducting the placement agent's 8% commission, of $669,300. The placement agent's 3% expense allowance of $21,825 has not been paid and is included in accrued expenses at March 31, 2005. Since the Company has not generated revenues from its inception and since management does not anticipate the Company will generate sufficiently substantial revenues from the sale of its products in an amount necessary to meet its cash needs for the next twelve months, management believes the Company will need additional financing to continue to operate. Towards that end management in April 2005 commenced a private placement of 2,750,000 shares of its unregistered common stock to accredited investors at $0.10 per share. Through May 9, 2005, eleven accredited investors purchased 750,000 shares for aggregate proceeds to the Company of $75,000. (b) Principal Business Activity: The Company is a development stage start-up pharmaceutical Company focusing on the development and commercialization of innovative products for the treatment of debilitating diseases. Management has no clinical experience in the development of pharmaceutical products and intends to rely, in part, on academic institutions and on clinical research institutions to conduct and monitor certain clinical trials. The Company and its products are subject to comprehensive regulation by the United States Food and Drug Administration (FDA) in the United States of America and by comparable authorities in other countries. In addition, certain clinical trials for our products are conducted by government-sponsored agencies. Because the conduct of such trials will be dependent on government funding and participation, the Company will have less control over such trials than if it were the sponsor of these trials. As a result, there can be no assurance that these trials will commence or be completed as planned. Currently, the Company is the exclusive licensee of certain compounds for use towards the treatment of cancer as site directed chemotherapeutic agent that selectively attack only cancer cells through a specific delivery device depending on the organ in which the cancer is located in the body which have directed towards anti-HIV activity and which could be used either systemically as an AIDS therapy, or locally as a microbicide to prevent the sexual acquisition of HIV. 8 NOTE 2 - SUMMARY OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES. (a) Basis of Presentation: The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, the statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of March 31, 2005 and the results of operations and cash flows for the three months ended March 31, 2005 and 2004. The results of operations for the three months ended March 31, 2005 and 2004 are not necessarily indicative of the results to be expected for the full year. (b) Revenue Recognition: Through March 31, 2005, the Company did not have any revenues and is in the development stage. The Company will recognize revenues in accordance with accounting principles generally accepted in the United States of America. Revenues from the sale of its products will be recognized when shipped to its customers. Royalties earned from the licensing of its products to other pharmaceutical entities will be recorded on a pro-rata basis over the life of the contract effectuating the royalty. (c) Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. (d) Sponsored Research and Development Costs: Sponsored research and development costs (R&D) are expensed at the earlier of when they are paid or when the R&D is performed. R&D costs to date have consisted of the minimum payments required under a sponsored research agreement between the Company and Weill Medical College of Cornell University ("WMC"). The three year agreement which commenced on June 19, 2002 requires the Company to pay an aggregate of $1,250,000 to Cornell for research costs and overhead associated with the research. In July 2002 and 2003, respectively, payments of $500,000 and $375,000 were made to WMC and the remaining $375,000 was paid in July 2004. In January 2004, the Company entered into a second sponsored research agreement, as amended, with WMC for three years ending in October 2007. The Company has agreed to sponsor research in other uses of certain oncological technologies for an aggregate of $1,000,000 - of which $75,000 was paid in July 2004, and $112,500 was payable in November 2004 of which only $62,500 was paid at December 31, 2004 and $10,000 was paid in January 2005. The unpaid balance due under the terms of the contract is included as a liability on the accompanying financial statements. On March 1, 2005 the agreement was amended for the remaining balance to be paid as follows; $40,000 on May 1, 2005, which was paid, $187,500 in July 2005, $312,500 in December 2005 and $312,500 in December 2006. The Company, in return for its research funding, received a first right of refusal to acquire a royalty-bearing license to market the technology developed by the researchers. The Company or WMC may cancel the agreement with prior notice. If cancelled, the Company would not be liable for any further payments but WMC can use all monies paid to meet its commitments to third parties involved in the R&D. Based upon budgets submitted by the chief R&D investigator for WMC, all funds have been committed for expenditure. 9 NOTE 2 - SUMMARY OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES. (Continued) (d) Sponsored Research and Development Costs: (Continued) Although the pro rata amortization of the entire R&D cost is less than the amounts paid in fiscal 2002, 2003, 2004 and 2005, management, because there is no evidence that the R&D will result in a commercially viable product, has charged the entire scheduled payments to operations at the earlier of when paid or scheduled to be paid. If the R&D was charged to operations ratably, the net loss and R&D expense in 2002 would be reduced by $250,000 with an increase in prepaid expenses, working capital, total assets and stockholders' equity of $250,000. In each of fiscal 2004 and 2003, there would be no effect to the results of operations but the prepaid expenses, working capital, total assets and stockholders' equity would be increased by the same $250,000. In the three months ended March 31, 2005 and 2004, the effect of pro rata amortization would be charge to operations of $187,500 and $93,750, respectively; and working capital, total assets and stockholder's equity would be increased by $62,500 at March 31, 2005. Each of the license agreements provides the Company with an exclusive license to the technology developed under the research and development agreement. The Company paid an initial license fee of $50,000 in fiscal 2002 for the first research license and $50,000 in 2004 for the second research license. As there is no evidence that any technology developed from the research will be commercially viable, management charged the initial payments to operations in the period paid. The license agreements require additional payments upon the attainment of certain milestones - e.g., initiation of clinical trials and FDA or equivalent approval of products developed. If all milestones are attained, then the Company would be required to pay an aggregate of $2,187,500 for the licenses. Additionally, the agreements require the Company to reimburse WMC for certain costs incurred in obtaining patents for any technology developed through the sponsored research. Fees for patent attorneys of $52,146 in 2002 and $7,682 in 2003, $49,295 in 2004 and $13,871 and $1,030 in the three months ended March 31, 2005 and 2004, respectively, were charged to operations. (e) Deferred Registration Costs: Costs incurred in connection with the proposed initial sale of the Company's securities to the public of $231,134 have been offset against the proceeds from the sale of the securities and charged to additional paid-in capital. (f) Recently Issued Accounting Pronouncements: On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), "Share-Based Payment", which is a revision of SFAS No. 123 and superseded APB Opinion No. 25. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be valued at fair value on the date of grant, and to be expensed over the applicable vesting period. The Company will be required to comply with SFAS No. 123(R) for all financial periods commencing after December 15, 2005. Management believes the adoption of this pronouncement will not have a material impact on the Company. 10 NOTE 2 - SUMMARY OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES. (Continued) (e) Earnings Per Share: The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic earnings per share is based on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share, which is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding, is not presented as it is anti-dilutive. NOTE 3 - RELATED PARTY TRANSACTIONS. Liabilities to related parties consist of the following at December 31, 2004 and 2003: March 31, December 31, 2005 2004 ---- ---- Notes Payable - Stockholders $700,000 $700,000 ========= ======== Accrued Expenses and other current Liabilities: Accrued salaries $277,500 $225,000 Consulting fees 153,000 127,000 Professional fees 17,930 17,683 Interest 241,826 208,388 Sundry operating expenses 7,495 3,000 -------- ----- $697,751 $581,071 ========= ======== Total Related Party Liabilities $1,397,751 $1,281,071 ========== ========== (a) Notes Payable - Chairman: In July 2002, a founding shareholder and the Chairman of the Company personally paid $350,000 to WMC on behalf of the Company in partial satisfaction of the Company's commitment to fund research under the sponsored research and development agreement. The Company issued this director its 15% interest bearing note payable on August 17, 2002. The director agreed to extend the due date initially to March 31, 2003, then to June 30, 2003, then to September 30, 2003, then to March 31, 2004, then to May 31, 2004 and currently to September 30, 2005. During 2004 and 2003, $150,000 and $75,000, respectively, of loan principal was repaid. In return for the director's extension of the note from March 31, 2003 to June 30, 2003, the Company issued this director 5,000,000 shares of its common stock whose fair value at the date of issuance was $250,000 which was charged to operations in 2003 as interest expense. The fair value of the shares issued was based upon the per share price which the Company was offering at that time to accredited investors through a private placement of its common stock. Interest expense charged to operations on this debt was $4,688 and $9,740 in the three months ended March 31, 2005 and 2004, respectively. At March 31, 2005 and December 31, 2004, the director was owed accrued interest of $110,670 and $105,982, respectively, on this indebtedness which is included in the accompanying financial statements under the caption accrued expenses - related parties. 11 NOTE 3 - RELATED PARTY TRANSACTIONS. (Continued) (b) Notes Payable - Others - Subject to Rescission: In November 2003, the Company commenced a $500,000 private placement of its 20% interest bearing notes to accredited investors. On May 31, 2004 the total note private placement was increased to $1,000,000. Through June 25, 2004 when the private placement was terminated, eight stockholders and a personal friend of the Company's CEO acquired eleven (11) notes aggregating $800,000. Management of the Company offered the notes to only accredited individuals, all but one of whom were stockholders at the time they were offered these notes. Management did not seek investors outside of its own stockholders and a few other individuals who are longstanding business associates of the Company's officers. Management of the Company did not solicit any other person to buy these notes. Interest charged to operations during the three months ended March 31, 2005 and 2004 was $28,750 an $4,068, respectively. Included in accrued expenses - related parties at March 31, 2005 and December 31, 2004 is unpaid interest on the notes of $131,156 and $102,406. During 2004 $125,000 of the notes was repaid. (c) Legal Fees: The Company's general and securities counsel is an original shareholder of the Company. During the period from inception to March 31, 2005, these attorneys rendered services aggregating $232,242. $36,460 of the total was charged to additional paid-in capital for legal services rendered in connection with the Company's private placements of its common stock. $75,226 is for legal services in connection with the Company's initial offering of its securities to the public. The remainder was for general corporate matters of which $15,247, $38,589, $7,603 and $51,243 was charged to operations in fiscal in 2005, 2004, 2003 and 2002, respectively. A portion, $11,841, of these legal fees was paid by a director of the Company who was subsequently reimbursed by the Company in September 2002. At March 31, 2005 and December 31, 2004, unpaid fees aggregated $17,930 and $17,683, respectively, and are included in accrued expenses - related parties. (d) Consulting Agreement: The Company in January 2004 retained the services of its Chairman to assist senior management in identifying opportunities and developing strategies to enhance the Company's value through a five year consulting agreement. The Chairman will receive $120,000 annually for his services and a monthly car allowance of $1,000. At March 31, 2005 and December 31, 2004, the Chairman is owed $150,000 and $120,000, respectively, for his consulting services and $6,000 and $3,000 for his car allowance. These liabilities are included in accrued expenses - related parties at March 31, 2005 and December 31, 2004. (e) Placement Agent Fees: The Company's president controlled a corporate placement agent which placed the Company's two private sales of its common stock to accredited investors. The placement agent firm received $9,500 in 2001, $25,000 in 2002, $70,950 in 2003 and $0 in 2004 and 2005, in commissions and fees for its services. 12 NOTE 3 - RELATED PARTY TRANSACTIONS. (Continued) (f) Lease: The Company leases its Stamford, Connecticut premises from a corporation whose Chairman and CEO is the Company's Chairman. The lease commenced in March 2004 and is for one year which is automatically renewable for an additional one year term. Rental is $350 per month. During the three months ended March 31, 2005 rent charged to operations was $1,050 which remains unpaid at March 31, 2005 and is included in accrued expenses - related parties. This lessor also charged the Company for office expenses of $821 during the current period of which $588 remains unpaid at March 31, 2005 and is included in accrued expenses - related parties. (g) Employment Contract: The Company entered into a four year employment contract with its CEO on January 1, 2004. The CEO is to be paid $250,000 annually, an automobile allowance of $12,000 annually plus all other benefits which are or will be provided to other executive officers and employees of the Company. Additionally, the CEO is to receive annually a cash incentive bonus equal to 1% of the after-tax net income of the Company as defined. At March 31, 2005 and December 31, 2004, respectively, the CEO is owed $277,500 and $225,000 of his salary which is included in accrued expense - related parties. The CEO was paid in 2004 $15,530 in reimbursement of telephone costs and medical and disability insurance expenses he had previously paid on behalf of the Company. NOTE 4 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES. Accrued expenses and other current liabilities consist of the following at: March 31, December 31, 2005 2004 ---- ---- Professional fees $67,157 $34,677 Due to placement agent 21,825 19,175 Payroll taxes 317 3,872 Franchise taxes payable 1,637 1,637 Sundry operating expenses 6,722 16,400 ------- ------- $97,658 $75,761 ======= ======= NOTE 5 - INCOME TAXES. The Company does not have any currently payable or deferred federal or local tax benefit since its inception to March 31, 2005. At March 31, 2005, the Company had federal and state net operating loss carry forwards amounting to approximately $2,605,000 available to reduce future taxable income, of which $633,000 expires in 2022, $700,000 expires in 2023, $1,033,000 expires in 2024 and $239,000 expires in 2025. The Company also has federal research and development tax credits aggregating $256,000 of which $90,000, $68,000 and $98,000 expire in 2022, 2023 and 2024, respectively. Management is unable to determine if the utilization of the future tax benefit is more likely than not to occur and, accordingly, the deferred federal and state tax assets of approximately $94,000 and $1,289,000 at March 31, 2005 and December 31, 2004 have been fully reserved. 13 NOTE 5 - INCOME TAXES. (Continued) A reconciliation of the actual tax provision to the expected statutory rate is as follows: For the Three Months Ended March 31, Cumulative From ----------------------------------------- (Inception) To 2005 2004 March 31, 2005 --------------------- ---------------- -------------------------- Loss before income taxes ($239,344) ($280,520) ($3,206,589) -------- -------- --------- Expected statutory tax benefits (81,000) -34.0% (95,000) -34.0% (1,090,000) -34.0% Research credit - 0.0% - 0.0% (169,000) -5.3% State tax benefit net of federal tax (13,000) -5.4% (18,000) -6.4% (124,000) -3.9% Tax asset valuation reserve 94,000 39.4% 113,000 40.4% 1,383,000 43.1% -------- -------- --------- Total tax benefit $ - $ - $ - ======== ======== ========== NOTE 6 - COMMON STOCK. On February 21, 2001, the founding, original shareholders, all of whom are accredited investors, subscribed for 202,700,000 shares of common stock for an aggregate of $20,270 of which $140 was paid in 2001 and the balance in 2002. In payment for administrative services rendered in conjunction with the organizing of the Company, four persons received 450,000 shares of the Company's common stock whose fair value was $45 as determined by the then per share price ($.0001) paid by the founding and original shareholders. In 2003, the Chairman was issued 5,000,000 shares of the Company's common stock as compensation for the Chairman's extending the due date of his $350,000 note to June 30, 2003. The fair value of the securities of $250,000 was charged to operations as additional interest expense. The Company in January 2004 issued 500,000 shares of its common stock to an individual as an inducement to become a member of the Company's Board of Directors. The fair value of the common shares issued of $125,000 was charged to operations upon issuance. The fair value was based upon the per share value $0.25 ascribed to the Company's initial public offering of its securities. See below. Private Placements of the Company's Securities: In September 2001, the Company commenced the sale of 60,000,000 of its unregistered common shares to accredited investors for $.005 per share. The Company received $79,309 in proceeds (net of $16,191 in offering costs) in 2001 and $178,095 (net of $23,809 in offering costs) in 2002 from this private offering. In July 2002 the Company commenced another private placement of 15,000,000 unregistered shares of its common stock to accredited investors for an aggregate of $750,000 ($.05 per share). The Company received $5,115 in net proceeds from the sale of 810,000 shares of its common stock in 2002 and $638,550 in net proceeds from the sale of 14,190,000 shares of its common stock in 2003. 14 NOTE 6 - COMMON STOCK. (Continued) In November 2003 the Company commenced an offering for up to $500,000 of its 20% interest bearing one year unregistered notes to accredited investors. The offering amount was increased to $1,000,000. The note offering was to expire on February 3, 2004 but was extended to February 29, 2004 and further extended until its termination on June 25, 2004. Through June 25, 2004 eleven notes in the amount of $800,000 were sold. These notes were offered to all accredited individuals, all but one whom are stockholders of the Company. The Company did not go out into the open market to solicit individuals to buy these notes In April 2005 the Company commenced a private placement of up to 2,750,000 shares of its unregistered common stock to accredited investors at $0.10 per share. Through May 9, 2005, eleven investors have purchased an aggregate of 750,000 common shares for $75,000. Initial Sale of the Company's Securities to the Public: The Company entered into an agreement with a placement agent to offer for sale to the public, on a best efforts basis, up to 20,000,000 units of the Company's securities to the public at a purchase price of $0.25 per unit. Through February 15, 2005, the date the offering was terminated, the Company received $727,500 in gross proceeds from the sale of 2,910,000 units of securities to the public. Each unit consists of one share of the Company's common stock, one Class A warrant to buy a share of the Company's common stock at $.50 and two Class B warrants to each purchase one share of the Company's common stock for $1.00. The Company paid a placement agent commission of 8% of the proceeds ($58,200) of all the units placed by the placement agent and a non-accountable expense allowance of 3% of the proceeds ($21,825) of all the units placed by the placement agent which were charged to Additional paid-in capital. The expense allowance was not paid at March 31, 2005 and is included in accrued expenses. Upon the sale of the units, deferred offering costs of $231,134 were charged to additional paid-in capital. In addition to the placement agent's cash compensation, the Company agreed to give the placement agent warrants to purchase up to 1,600,000 units at a purchase price of $.3125 per unit which will be exercisable for a period of 5 years, which means that the placement agent will receive a warrant to purchase one unit for every 12.5 units sold by the placement agent. At March 31, 2005, the placement agent has not been issued nor has it exercised the 204,200 placement agent warrants that it is entitled to receive. The placement agent's warrants and the underlying shares of common stock will not be registered at the time of grant. 15 NOTE 7 - COMMITMENTS AND CONTINGENCIES. (a) Sponsored Research and License Agreements. In June 2002, the Company simultaneously entered into a three year Sponsored Research Agreement with the Weill Medical College of Cornell University ("WMC") and a license agreement with Cornell Research Foundation, Inc., a subsidiary of Cornell University ("Cornell"). In January 2004, the Company entered into a three year Sponsored Research Agreement with WMC which became effective on October 1, 2004. In July 2004, the Company executed an Amendment to the License Agreement. The agreements require the Company to fund the research for a medical compound which has certain derivatives that are (i) directed towards the treatment of cancer as a site directed chemotherapeutic agent that selectively attacks only cancer cells through a specific delivery device depending on the organ in which the cancer is located in the body and (ii) directed towards anti-HIV activity which could be used either systematically as an AIDS therapy, or locally as a microbicide to prevent the sexual acquisition of HIV. In return for the research funding the Company became the exclusive licensee for the commercial use of any product derived from the research. In January 2004, the Company entered into a second sponsored research agreement, as amended, with WMC for three years ending in October 2007. The Company has agreed to sponsor research relating to betulinol derivatives intended to be used to treat HIV/AIDS for an aggregate of $1,000,000, of which $75,000 was paid in July 2004, and $112,500 was payable in November 2004 of which $40,000 was not paid at December 31, 2004 and is included as a liability on the accompanying financial statements at December 31, 2004. On March 1, 2005 the agreement was amended for the remaining balance to be paid as follows: $40,000 on May 1, 2005, $187,500 in July 2005, $312,500 in December 2005 and $312,500 in December 2006. The Company, in return for its research funding, received a first right of refusal to acquire a royalty-bearing license to market the technology developed by the researchers. Under the License Agreement, the Company is required to pay a portion of any costs associated with obtaining patents on the technology derived from the research. In order for the Company to maintain its exclusive license arrangement, as amended, the Company must make additional payments when and if certain milestones are achieved. The milestones and the amounts due are as follows: Submission of Investigative New Drug Application to the FDA or equivalent $ 50,000 Initiation of Phase I Clinical Trial 62,500 Initiation of Phase II Clinical Trial 125,000 Initiation of Phase III Clinical Trial 200,000 FDA or Equivalent Body Approval 1,000,000 First Anniversary after FDA Approval 750,000 The amended license agreement required non-refundable initial payments of $50,000 in 2002 for the cancer therapeutic technology license and $50,000 paid in 2004 for the HIV license. The term of the license extends up to the expiration date of any patent granted from the R&D technology. The license requires the Company to make royalty payments of up to 7% from the sale of any product developed through the R&D technology. Commencing one year after the first sale of any R&D related product, the Company is required to make annual minimum royalty payments of $100,000 for as long as the Company remains licensee. Cornell is also entitled to a percentage of the proceeds received by the Company from its sub-licensees and from the sale or transfer of any part of its rights and interest in the license. The Company may terminate the license agreement at any time provided that all amounts owed under the agreement are paid and that the sale of all products developed from the R&D technology by the Company or its sub-licensees must cease and the license is returned to Cornell. 16 NOTE 7 - COMMITMENTS AND CONTINGENCIES. (Continued) (a) Sponsored Research and License Agreements. (Continued) Although it is impractical to predict when, or if, each of the milestones may be achieved, it is likely that FDA approval, if it is ever achieved, will not occur until 2011. The Company has committed to Cornell to spend an aggregate of $10,000,000 by December 31, 2008 for the development of the technology. (b) Lease: The Company and a corporation controlled by the lead researcher employed by WMC to undertake the sponsored research have entered into an arrangement whereby the Company is entitled to use the researcher's apartment in New York City for $1,500 per month through July 2004. The arrangement provides for automatic yearly renewals. The researcher has agreed to credit the company for its use fee any and all furnishings the company purchases for use in the apartment. The Company in 2004 and 2003 acquired $6,387 and $45,494 of furnishings and improvements to the apartment and received a credit from the owner of $4,500 for the three months ended March 31, 2005 and 2004. At December 31, 2004 and March 31, 2005, the balance of the furnishings costs was included in deferred rent. Commencing in March 2004, the Company also occupies office space in Stamford, Connecticut for $350 per month. The office is leased from a corporation whose CEO is the Company's Chairman on an annual basis. The lease term is one year and shall automatically renew for one year terms unless terminated in writing by either party. Rent charged to operations in 2005 was $1,050. (c) Employment and Consulting Agreements: The Company has an employment agreement with its CEO and a consulting Agreement with its Chairman. See Note 3. The Company also has a consulting agreement with the chief research investigator whereby the investigator receives $1,000 per day for attendance at meetings that management requires his presence. During the current three month period, $3,000 in consulting fees was charged to operations and included in accrued expenses at March 31, 2005. During the three months ended March 31, 2004, no fee was charged to operations. In fiscal 2004, 2003, and 2002 the investigator was paid $7,000, $3,000 and $5,000 respectively. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. Except for the historical information contained herein, the matters discussed below or elsewhere in this quarterly report may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Marc Pharmaceuticals, Inc. (the "Company") makes such forward-looking statements under the provisions of the "safe harbor" section of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect the Company's views and assumptions based on information currently available to management. Such views and assumptions are based on, among other things, the Company's operating and financial performance over recent years and its expectations about its business for the current and future fiscal years. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties and assumptions, including, but not limited to, (a) the Company's products may not be proven to be safe or effective, (b) the FDA may not approve clinical trials for the products, (c) the Company will depend substantially upon the efforts of contracting parties who may not perform adequately for the Company's patent rights may not be sufficient to protect its products, (d) the Company may never earn a profit from its products, (e) the Company may not be able to raise the necessary funds that are needed for the continued research and development of its products, (f) the Company's licenses require substantial performance on its part to remain effective, including the payment of substantial sums, if the Company loses its license, it could lose the right to develop and market the drugs covered by the license and (g) other groups may have developed similar inventions to those of the Company, and therefore, the Company may be at a competitive disadvantage. The Company is a development stage start-up pharmaceutical company focusing on the development and commercialization of innovative products for the treatment of debilitating diseases. Currently, the Company has exclusive licenses from Cornell Research Foundation, Inc. ("Cornell") under certain patent and patent applications covering compounds intended for use in treating cancer and in treating HIV and AIDS and methods for making and using such compounds. One of the U.S. patent applications licensed from Cornell was granted as a U.S. Patent by the U.S. Patent and Trademark Office on May 10, 2005. A second related U.S. patent application is pending in the U.S. Patent and Trademark Office. The U.S. Patent and Trademark Office has begun substantive examination of this application. The last response to the examination was sent January 28, 2005. It is not possible to predict the precise timetable for the entire examination of a U.S. patent application. The U.S. Patent and Trademark Office web site (WWW.USPTO.GOV) reports the average pendency of a patent application in the year 2003 was 26.7 months. There can be no assurance that any claims will be granted on the pending application. There are two counterpart European Patent applications related to these U.S. applications (licensed to us by Cornell). One of these has been granted as a European Patent. The other European Patent application is currently pending before the European Patent Office. Additionally, three provisional patent applications have been filed at the U.S. Patent and Trademark Office. These applications are directed to methods of targeting prostate tumors and treating prostate cancer using our candidate compounds and to conjugates of the candidate compounds. The Company presently intends to ask Cornell to convert these provisional patent applications into non-provisional U.S. patent applications in a timely fashion. Some of the compounds can be attached to an antibody to form a conjugate that selectively attaches only to cancer cells and does not attach to healthy cells, thereby permitting administration 18 of smaller quantities of active chemotherapeutic agents. Some of the compounds appear to be effective in treating HIV and could be used both systemically (i.e., as a general whole body therapy) or as an AIDS therapy, or locally to inhibit the growth and transmission of HIV through sexual activity. The Company and its products are subject to comprehensive regulation by the U.S. Food and Drug Administration (FDA) in the United States and by comparable authorities in other countries. The Company has not yet applied for, or received, approval from the FDA or any other of these authorities and, unless the Company receives such approvals, even if its compounds are both safe and effective, the Company will not be able to market its drugs. To date there have been some successful laboratory results. While there have been some indications that the Company's compounds may be effective in treating cancer and HIV and AIDS, the Company's compounds have not been proven effective in treating cancer or HIV or AIDS in humans or in preventing HIV or AIDS in humans and the Company's compounds have not yet been proven safe for administration to human beings. No drug can be marketed in the United States without FDA approval. Applications must be made to the FDA for their approval. The first step in the approval process is filing an institutional new drug application (IND). The Company has not yet filed an IND application for any of its products because they have not yet been able to achieve sufficient positive results for a product that the Company and its advisors deem to be commercially viable. The Company is in the process of conducting further tests to assemble information received for an IND application. The Company expects an IND application to be filed in 2006 for the cancer therapeutic if the required criteria can be achieved and if the Company has raised the necessary funds to complete its current program. The Company has a business plan, which involves the development of various pharmaceutical products to the point at which they may be sold in the United States, which means that it will be at least several years before the Company generate sales or revenues. During those years, the Company's development expenditures will likely exceed $10,000,000 for every product that it seeks to commercialize. The Company does not and will not have these funds available and, therefore, it is essential that the Company enter into some form of joint arrangements with established pharmaceutical companies or others to provide such financing capital. FINANCING HISTORY To date, the Company has had no revenues and sales. The Company has financed its operations since inception primarily with the net proceeds received from private and public placements of debt and equity securities. Various private placements from inception through June 25, 2004 aggregated a total of $1,150,000 in proceeds from notes payable (of which $450,000 was repaid). Net proceeds from the sale of its common stock through private placements was $921,339. The Company filed with the Securities and Exchange Commission a Registration Statement on Form SB-2 to raise $5,000,000 in an initial public offering for the sale of 20,000,000 units at a purchase price of $.25 per unit. Each unit consisted of one share of common stock, one class A redeemable warrant to purchase a share of common stock at $.50 per share and two class B redeemable warrants to each purchase a share of common stock at $1.00 per share. The Company offered the Units on a "best efforts" basis with no required minimum amount to be raised. 19 Each class A redeemable warrant gives its holder the right to purchase one share of common stock at $.50. A maximum of 20,000,000 shares of common stock are issuable upon the exercise of the class A redeemable warrants. If the Company's common stock trades for at least 5 consecutive trading days at a price of $.75 or more, the Company will have the right to call the class A redeemable warrants at a price of $.001 per warrant, unless an investor chooses to exercise the warrant at that time. The class A redeemable warrants are tradeable and are exercisable at any time beginning on August 12, 2004 for a period of 5 years. Each class B redeemable warrant gives its holder the right to purchase one share of common stock at $1.00. A maximum of 40,000,000 shares of common stock is issuable upon the exercise of the class B redeemable warrants. If the Company's common stock trades for at least 5 consecutive trading days at a price of $1.25 or more, the Company will have the right to call the class B redeemable warrants at a price of $.001 per warrant, unless an investor chooses to exercise the warrant at that time. The class B redeemable warrants are tradeable and are exercisable at any time beginning on August 12, 2004 for a period of 7 years. The registration statement became effective on August 12, 2004. Through February 15, 2005, the date the offering closed, the Company sold 2,910,000 units for $727,500 before placement agent commissions and nonaccountable expense allowance aggregating $80,025 of which $58,200 was paid to the placement agent. The placement agent is eligible to receive, but has not yet received, a warrant to purchase 232,800 units, each unit consisting of a share of the Company's common stock, a warrant to purchase a share of the Company's common stock at a price of $.50 for a period of five years from August 12, 2004 and two warrants to each purchase a share of the Company's common stock at a price of $1.00 for a period of 5 years from August 12, 2004. Because the Company's IPO did not raise the intended amount the Company is now in a position where it has insufficient funds to continue its development program (see below). The Company's authorized capital stock consists of 750,000,000 shares of common stock, par value $.0001. Based on the number of shares of common stock outstanding as of May 9, 2005, a total of 287,310,000 shares of common stock are outstanding. This total does not include any shares of common stock issuable upon the exercise of either the class A redeemable warrants or the class B redeemable warrants. On July 18, 2002, in consideration for a loan, the Company issued a promissory note to Joel San Antonio, the Company's Chairman of the Board, in the principal amount of $350,000, bearing interest at the rate of 15% per annum. The note matured on August 17, 2002 and the maturity date was extended various times and currently has a maturity date of September 30, 2005. As consideration for the extension of the note on one occasion the Company issued Mr. San Antonio 5,000,000 shares of the Company's common stock. No additional consideration was granted for the additional extensions. The Company repaid $225,000 of this loan. Commencing in November 2003 through June 2004, the Company borrowed $800,000 for operations by issuing 11 promissory notes each bearing interest at a rate of 20% per annum, and each due with interest one year from the date issued. These notes were offered to all accredited individuals, all but one whom were the Company's stockholders at the time they were offered these notes. The Company did not seek investors outside of its own stockholders and a few other individuals who are longstanding business associates of the Company's officers and directors. The Company repaid $225,000 of these loans as follows: one note for $25,000 was fully repaid without 20 interest and the interest was agreed to be paid by September 30, 2005; as to another note for $500,000, $200,000 was repaid and the balance and interest was agreed to paid by June 25, 2005. Maturity dates on the other notes that became due were extended until September 30, 2005. CAPITAL REQUIREMENTS The Company had a working capital deficiency of ($1,359,500) and ($1,514,246) at December 31, 2004 and March 31, 2005, respectively, and it has incurred net losses of ($1,476,389) and ($239,344) for the year ended December 31, 2004 and the quarter ended March 31, 2005, respectively, and had an accumulated deficit of ($2,967,245) at December 30, 2004 and ($1,493,864) at March 31, 2005. The Company's cash on hand at March 31, 2005 totaled $17,290. The Company is in the development stage and has had no revenues since its inception. The Company does not anticipate any revenues during fiscal year 2005. The Company will need additional financing to meet its obligations and to continue its development program. See: "Twelve Month Operating Plan" below. The Company is exploring alternative sources of financing, including institutional and non-institutional debt, equity, which will be highly dilutive to the current stockholders, joint venture arrangements, governmental or private grants or a combination of any or all of the foregoing. No arrangements have been entered into. In the meantime, the Company began a best efforts offering to all accredited investors, in April 2005 for a maximum of 2,750,000 shares of its common stock at $.10 per share, a total of $275,000. If raised, the additional funds will allow the Company to continue to operate for the next 6 months. Even if the entire amount is raised, the Company will not have sufficient funds to carry out its immediate business plan and the Company will still need to raise additional funds in the next 12 months. TWELVE MONTH OPERATING PLAN The Company's plan of operation for the next twelve months depends, in part, upon two variables: (a) the amount of money available from the Company's financing sources and (b) the respective rate of success in the clinical testing of the Company's products. If the Company raises additional funds and continue to have positive results from its testing program, the Company intends, over the next twelve months, to increase its staff, arrange for permanent leased space, continue its clinical in vitro and animal testing, submit investigative new drug applications (INDs) to the FDA for its products, perhaps begin Phase I human testing, and make all of the payments associated with these activities. In tabular form, the Company expects to expend the following amounts for these purposes: a. Payments to Cornell $500,000 b. Patent expenses $150,000 c. Compensation for a chief financial officer and consultants $200,000 d. Expanded facility $25,000 e. Other expenses for testing, including payments to Contract Research Organization $1,350,000 21 f. FDA expenses $50,000 g. Miscellaneous expenses $100,000 ----------- TOTAL $2,375,000 If the Company cannot raise these funds, the Company will suspend operations until the Company has the necessary capital. If the Company doe not raise the necessary capital by the time that additional expenditures must be made, the Company may lose its licenses or be unable to take its drugs to the FDA. If the Company's testing results do not continue to demonstrate success, the Company may abandon one or both of its products or may delay the filing of one or both of the INDs. In any of those circumstances, the Company's planned expenditures would be reduced. It is also possible that the Company may identify an additional product candidate, although the Company is not projecting that event during these twelve months. The Company engaged an experienced drug development specialist, Dr. Michael G. Palfreyman, as its Chief Scientific and Drug Development Advisor. He will work closely with the Company scientists at Cornell Medical College and FDA approved Contract Research Organizations to advance the program with maximum efficiency through the FDA mandated regulatory process. To keep this consultant engaged and engage any additional consultants the Company will also be required to secure additional financing. The Company's principal investigator at Cornell reports that the cancer therapeutic has been tested exclusively in a simulated laboratory environment and in mice that are genetically bred so that they do not produce antibodies. Antibodies are normally produced by living organisms such as humans and mice to combat the presence of dangerous conditions, such as cancer, which the organism discovers in itself. By utilizing these specially bred mice, the results of the cancer therapeutic may be measured without interference from the mouse's own antibodies. The investigators have transplanted prostate cancer cell cultures in the form of tumors into these mice by injection. They then injected the cancer therapeutic into the same mice. Results have been substantially consistent in showing that the Company's licensed compound has killed the cancer cells while not affecting normal cells. To date, the cell cultures that have been introduced into the mice have been developed in the laboratory. Preliminary studies have shown that several of the Company's candidate compounds are effective for treating prostate cancer cells. These preliminary studies have shown that most prostate cancer cells are killed after 10 days of treatment. Additionally, no adverse effects on normal cells have been detected and the mice remain healthy during treatment with both normal and high doses of the drug. The Company has also formulated candidate compounds with various solubilizing agents, amino agents and peptides. These agents have increased solubility of the candidate compound in a pharmaceutically acceptable solvent and one study has shown an increased bioactivity. The ability to solubilize in a pharmaceutically acceptable solvent is an important property for a compound intended for administration to mammals as a pharmaceutical. During 2005, several additional investigatory processes will be conducted and additional data must be collected to reduce the risk of product failure at the early stage of the process. If they are successful and the commercial value of the product is expanded, the Company will file an IND 22 with the FDA in 2006. Then, the Company will be required to wait for FDA approval of the IND before additional testing is commenced. With respect to the HIV therapeutic, similar steps will be followed. However, since funding has recently been provided to Cornell for the HIV research, it is likely that these steps will be taken at a slower pace. Nevertheless, various testing procedures have been conducted at Cornell with respect to the HIV compound without any outside funding so the process will continue at an intermediate stage. If there is an IND filing for the HIV therapeutic it is not likely before 2007. LONG-TERM PLAN The Company anticipates that expenditures for product development, research and general and administrative expenses and license payments with respect to the cancer therapeutic product will exceed $10,000,000 and with respect to the HIV product will also exceed $10,000,000. The Company is uncertain as to how long it will take for it to generate revenues, if any. Subject to financing availability and positive test results, the Company anticipates that its cancer products will be submitted for an IND in 2006 and then clinical trials and approval from the FDA can take anywhere from 5 to 10 years. It may cost hundreds of millions of dollars to bring a new drug to the marketplace. The Company does not at this point believe that it will bring the technologies to market and anticipates that at some point the Company will either seek a joint venture partner to assist in commercialization of the technologies or the Company will sublicense the technologies to larger pharmaceutical companies. In the event either of these events occur and the technologies are commercialized, the Company will retain a certain interest in the products. Such interest can not be determined at this time, and, therefore, the Company is unable to set forth its exact interest in the technologies once the products are sold in the marketplace. Since the Company is uncertain at which point it will contract with a third party, if at all, it is uncertain of the amount of additional funds the Company will need in order to complete certain phases of the product's path to commercialization. Other products which the Company may acquire will involve the same process discussed in this paragraph. ITEM 3. CONTROLS AND PROCEDURES. DISCLOSURE CONTROLS AND PROCEDURES The Company's Chief Financial Officer/Chief Executive Officer is primarily responsible for the accuracy of the financial information that is presented in this Quarterly Report on Form 10-QSB. He has, within 90 days of the filing date of this report, evaluated the Company's disclosure controls and procedures, as defined in the rules of the SEC and has determined that such controls and procedures were effective in ensuring that material information relating to the Company and its consolidated subsidiaries was made known to them during the period covered by this Quarterly Report. INTERNAL CONTROLS To meet his responsibility for financial reporting, the Chief Financial Officer/Chief Executive Officer has established internal controls and procedures, which he believes are adequate to provide reasonable assurance that the Company's assets are protected from loss. These internal controls are reviewed by the independent accountants to support their audit work. 23 There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of the most recent evaluation by the Chief Financial Officer/Chief Executive Officer. PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS 10.21 Consulting Agreement, dated April 1, 2005, between the Company and Michael G. Palfreyman. 31.1 Certification of and Chief Financial Officer and Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act. 32.1 Certification of Chief Financial Officer and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Marc Pharmaceuticals, Inc. - ------------------------------------------------------------------------------ (Registrant) By: /s/ Robert M. Cohen ------------------- Robert M. Cohen, Chief Financial Officer Date: May 15, 2005 ------------ 24 Exhibits Page No. - ----------------------------------------------------------------------------- 10.21 Consulting Agreement, dated April 1, 2005, between the Company and Michael G. Palfreyman. 26 31.1 Certification of Chief Financial Officer and Chief Executive 31 Officer pursuant to Section 302 of Sarbanes-Oxley Act. 32.1 Certification of Chief Financial Officer and Chief Executive 33 Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act. 25
