UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11550
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| Pharmos Corporation |
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(Exact name of registrant as specified in its charter) |
| Nevada |
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| 36-3207413 |
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(State or other jurisdiction of | (IRS Employer Id. No.) |
99 Wood Avenue South, Suite 311
Iselin, NJ 08830
(Address of principal executive offices)
Registrant’s telephone number, including area code: (732) 452-9556
Indicate by check mark 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 preceding 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.Yesx Noo.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).Yesx Noo.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso Nox.
As of November 7, 2005 the Registrant had outstanding 19,027,809 shares of its $.03 par value Common Stock.
1
Part I. Financial Information
Item 1 Financial Statements
PHARMOS CORPORATION
(Unaudited)
Condensed Consolidated Balance Sheets
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| September 30, |
| December 31, |
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| 2005 |
| 2004 |
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Assets |
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Cash and cash equivalents |
| $ | 34,678,382 |
| $ | 49,014,530 |
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Short-term investments |
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| 13,551,278 |
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| — |
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Restricted cash |
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| — |
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| 4,846,155 |
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Research and development grants receivable |
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| 589,396 |
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| 1,537,782 |
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Prepaid expenses and other current assets |
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| 963,039 |
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| 262,810 |
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Debt issuance costs |
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| — |
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| 45,648 |
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Total current assets |
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| 49,782,095 |
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| 55,706,925 |
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Fixed assets, net |
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| 812,698 |
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| 987,451 |
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Restricted cash |
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| 141,563 |
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| 139,594 |
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Severance pay funded |
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| 779,820 |
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| 811,926 |
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Other assets |
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| 18,496 |
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| 18,946 |
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Total assets |
| $ | 51,534,672 |
| $ | 57,664,842 |
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Liabilities and Shareholder’s Equity |
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Accounts payable |
| $ | 295,448 |
| $ | 2,462,162 |
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Accrued expenses |
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| 910,689 |
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| 1,155,413 |
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Warrant liability |
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| 43,709 |
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| 297,955 |
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Accrued wages and other compensation |
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| 1,164,477 |
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| 756,488 |
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Convertible debentures, net |
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| — |
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| 4,765,540 |
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Total current liabilities |
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| 2,414,323 |
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| 9,437,558 |
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Other liability |
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| 137,797 |
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| 39,412 |
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Severance pay |
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| 1,048,069 |
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| 1,197,039 |
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Total liabilities |
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| 3,600,189 |
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| 10,674,009 |
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Commitments and contingencies |
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Shareholder’s Equity |
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Preferred stock, $.03 par value, 1,250,000 shares authorized, none issued and outstanding |
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| — |
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| — |
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Common stock, $.03 par value; 60,000,000 shares authorized, 19,027,809 issued |
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| 570,834 |
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| 2,854,112 |
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Deferred compensation |
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| (805,132 | ) |
| (1,701,122 | ) |
Paid-in capital in excess of par |
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| 191,094,477 |
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| 188,809,955 |
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Accumulated deficit |
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| (142,925,270 | ) |
| (142,971,686 | ) |
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Treasury stock, at cost, 2,838 shares |
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| (426 | ) |
| (426 | ) |
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Total shareholders’ equity |
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| 47,934,483 |
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| 46,990,833 |
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Total liabilities and shareholders’ equity |
| $ | 51,534,672 |
| $ | 57,664,842 |
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The accompanying notes are an integral part of these condensed consolidated financial statements
2
PHARMOS CORPORATION
(Unaudited)
CondensedConsolidated Statements of Operations
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| Nine months ended |
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| 2005 |
| 2004 |
| 2005 |
| 2004 |
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Expenses |
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Research and development, gross |
| $ | 2,180,137 |
| $ | 4,811,747 |
| $ | 7,225,373 |
| $ | 12,316,830 |
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Grants |
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| (284,185 | ) |
| (1,032,813 | ) |
| (1,015,640 | ) |
| (2,739,958 | ) |
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Research and development, net of grants |
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| 1,895,952 |
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| 3,778,934 |
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| 6,209,733 |
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| 9,576,872 |
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Selling, general and administrative |
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| 1,734,493 |
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| 1,739,679 |
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| 5,265,239 |
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| 4,490,024 |
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Depreciation and amortization |
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| 87,841 |
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| 143,300 |
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| 301,518 |
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| 443,370 |
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Total operating expenses |
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| 3,718,286 |
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| 5,661,913 |
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| 11,776,490 |
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| 14,510,266 |
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Loss from operations |
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| (3,718,286 | ) |
| (5,661,913 | ) |
| (11,776,490 | ) |
| (14,510,266 | ) |
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Other income (expense) |
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Bausch & Lomb payment |
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| — |
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| — |
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| 10,725,688 |
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| — |
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Interest income |
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| 416,267 |
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| 147,294 |
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| 1,043,283 |
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| 450,143 |
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Interest expense |
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| (2,219 | ) |
| (756,804 | ) |
| (165,591 | ) |
| (3,244,379 | ) |
Change in value of warrants |
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| 11,562 |
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| 345,284 |
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| 254,246 |
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| 143,577 |
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Other (expense) income |
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| 0 |
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| (16,770 | ) |
| (34,723 | ) |
| (8,086 | ) |
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Other income (expense), net |
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| 425,610 |
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| (280,996 | ) |
| 11,822,903 |
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| (2,658,745 | ) |
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Net income (loss) |
| ($ | 3,292,676 | ) | ($ | 5,942,909 | ) | $ | 46,413 |
| ($ | 17,169,011 | ) |
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Net income (loss) per share |
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- basic |
| ($ | 0.17 | ) | ($ | 0.33 | ) | $ | 0.00 |
| ($ | 0.97 | ) |
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- diluted |
| ($ | 0.17 | ) | ($ | 0.33 | ) | $ | 0.00 |
| ($ | 0.97 | ) |
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Weighted average shares outstanding |
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- basic |
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| 18,974,338 |
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| 18,150,939 |
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| 18,974,120 |
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| 17,754,459 |
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- diluted |
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| 18,974,338 |
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| 18,150,939 |
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| 18,974,954 |
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| 17,754,459 |
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The accompanying notes are an integral part of these condensed consolidated financial statements
3
Pharmos Corporation
(Unaudited)
CondensedConsolidated Statements of Cash Flows
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| Nine months Ended September 30, |
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| 2005 |
| 2004 |
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Cash flows from operating activities |
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Net income (loss) |
| $ | 46,413 |
| $ | (17,169,011 | ) |
Adjustments to reconcile net income (loss) loss to net cash used in operating activities: |
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Depreciation and amortization |
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| 301,518 |
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| 443,370 |
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Interest expense on convertible debentures converted into common stock |
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| — |
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| 10,555 |
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Provision for severance pay |
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| (148,970 | ) |
| 91,168 |
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Change in the value of warrants |
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| (254,246 | ) |
| (143,577 | ) |
Amortization of debt discount and issuance costs |
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| 126,256 |
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| 2,748,274 |
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Amortization of stock options issuances below fair market value |
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| 68,772 |
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| 53,936 |
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Option expense – consultant compensation |
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| 1,244 |
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| 558,206 |
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Amortization of restricted shares issuance |
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| 827,217 |
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| 91,913 |
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Income from Bausch & Lomb milestone payment, net |
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| (10,725,688 | ) |
| — |
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Changes in operating assets and liabilities: |
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Research and development grants receivable |
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| 948,386 |
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| (1,069,381 | ) |
Prepaid expenses and other current assets |
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| (700,229 | ) |
| 49,060 |
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Severance pay funding |
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| 32,106 |
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| (81,640 | ) |
Other assets |
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| 450 |
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| 1,645 |
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Accounts payable |
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| (634,186 | ) |
| (794,546 | ) |
Accrued expenses |
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| (244,724 | ) |
| (122,294 | ) |
Accrued wages and other compensation |
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| 407,989 |
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| (185,409 | ) |
Other liabilities |
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| 98,385 |
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| 22,978 |
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Net cash used in operating activities |
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| (9,849,307 | ) |
| (15,494,753 | ) |
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Cash flows from investing activities |
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Purchases of fixed assets |
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| (126,761 | ) |
| (238,671 | ) |
Proceeds from Bausch & Lomb milestone payment |
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| 12,275,000 |
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Payment to Bausch & Lomb related to sale of ophthalmic business |
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| (1,532,528 | ) |
| — |
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Royalty payment and grant reimbursement related to Bausch & Lomb milestone payment |
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| (1,549,312 | ) |
| — |
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Purchase of short-term investments |
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| (13,551,278 | ) |
| — |
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Decrease in restricted cash |
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| 4,844,186 |
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| 6,729,798 |
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Net cash provided by investing activities |
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| 359,307 |
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| 6,491,127 |
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Cash flows from financing activities |
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Proceeds from issuance of common stock and exercise of options and warrants, net of issuance costs |
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| — |
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| 20,812,716 |
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Repayment of convertible debentures |
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| (4,846,148 | ) |
| (9,692,308 | ) |
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Net cash used in financing activities |
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| (4,846,148 | ) |
| 11,120,408 |
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Net increase (decrease) in cash and cash equivalents |
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| (14,336,148 | ) |
| 2,116,782 |
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Cash and cash equivalents at beginning of year |
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| 49,014,530 |
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| 49,292,640 |
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Cash and cash equivalents at end of period |
| $ | 34,678,382 |
| $ | 51,409,422 |
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Supplemental information: |
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Interest paid |
| $ | 39,042 |
| $ | 479,828 |
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Supplemental disclosure of non-cash financing activities: |
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Conversion of convertible debt |
| $ | — |
| $ | 2,000,000 |
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The accompanying notes are an integral part of these condensed consolidated financial statements
4
Basis of Presentation
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| The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accrual adjustments, considered necessary for a fair statement have been included. Operating results and cash flows for the three month and nine month periods ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. The year-end condensed balance sheet was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America and included in the Form 10-K filing. |
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| 1. The Company |
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| Pharmos Corporation (the Company or Pharmos) is a bio-pharmaceutical company that discovers and develops novel therapeutics to treat a range of indications, in particular, central and peripheral neurological and inflammatory disorders. The Company’s core proprietary technology platform focuses on discovery and development of synthetic cannabinoid compounds. Cannabinor, the lead CB2-selective receptor agonist candidate, began Phase I safety studies in the third quarter of 2005 and, if successful, will enter Phase II testing in pain indications in early 2006. From the dextrocannabinoid family, the neuroprotective drug candidate dexanabinol completed a Phase IIa trial as a preventive agent against post-surgical cognitive impairment in the fourth quarter of 2004. Other compounds from Pharmos’ proprietary synthetic cannabinoid library are in pre-clinical studies targeting pain, multiple sclerosis, rheumatoid arthritis and other disorders. The Company’s NanoEmulsion drug delivery system is in clinical-stage development for topical application of analgesic and anti-inflammatory agents. The Company has executive offices in Iselin, New Jersey and conducts research and development through its wholly owned subsidiary, Pharmos, Ltd., in Rehovot, Israel. |
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| 2. Liquidity and Business Risks |
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| The Company was not profitable in 2002, 2003, or 2004. During the nine months ended September 30, 2005, the Company funded all of its expenses through other income of $10.7 million as a result of the receipt of a non-recurring milestone payment in January 2005 from Bausch & Lomb (B&L) related to the FDA approval and subsequent product launch of Zylet™ and income from the Office of the Chief Scientist of Israel. At September 30, 2005, the Company had an accumulated deficit of $142.9 million and expects to continue to incur losses going forward. Such losses have resulted principally from costs incurred in research and development and from general and administrative expenses. The Company has financed its operations with public and private offerings of securities, advances and other funding pursuant to a marketing agreement with Bausch & Lomb, grants from the Office of the Chief Scientist of Israel, research contracts, the sale of a portion of its New Jersey net operating loss carryforwards, and interest income. Management believes that the current cash, cash equivalents and short term investments, totaling of $48.2 million as of September 30, 2005, will be sufficient to support the Company’s continuing operations beyond September 30, 2006. |
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| The Company is continuing to actively pursue various funding options, including equity offerings, strategic corporate alliances, business combinations and the establishment of product related research and development limited partnerships, to obtain additional financing to continue the development of its products and bring them to commercial markets. Should the Company be unable to raise adequate financing or generate revenue in the future, long-term operations will need to be scaled back or discontinued. |
5
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| 3. Significant Accounting Policies |
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| Reverse Stock Split |
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| On May 26, 2005, Pharmos Corporation filed a Certificate of Change with the Nevada Secretary of State which served to effect, as of May 31, 2005, a 1-for-5 reverse split of Pharmos’ common stock. As a result of the reverse stock split, every five shares of Pharmos common stock were combined into one share of common stock; any fractional shares created by the reverse stock split were rounded up to whole shares. The reverse stock split affected all of Pharmos’ common stock, stock options and warrants outstanding immediately prior to the effective date of the reverse stock split. The reverse split reduced the number of shares of Pharmos’ common stock outstanding from 95,137,076 shares to 19,027,809 shares, and the number of authorized shares of common stock was reduced from 150,000,000 shares to 30,000,000 shares. All references to common share and per common share amounts for all periods presented have been retroactively restated to reflect this reverse split. At the Annual Meeting in September 2005, the shareholders voted to increase the number of authorized shares of common stock to 60,000,000 shares. |
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| Reclassifications |
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| The consolidated statement of cash flows for the nine months ended September 30, 2005 includes in cash flows from investing activities a $1.5 million payment made during the three months ended March 31, 2005 to Bausch & Lomb related to the sale of the ophthalmic business. For the three months ended March 31, 2005 such payment was included in cash flow used in operating activities. This reclass was recorded in the three month period ended June 30, 2005 and had no impact on the Consolidated Balance Sheet or Consolidated Statement of Operations for any period. |
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| Research and development grants receivable |
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| As of September 30, 2005 and December 31, 2004, research and development grant receivables consist of grants for research and development relating to certain projects. Research and development grants are recognized as a reduction of research and development expenses. |
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| Investments |
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| The Company considers all investments that are not considered cash equivalents and with a maturity of less than one year from the balance sheet date to be short-term investments. The Company considers all investments with a maturity of greater than one year to be long-term investments. All investments are considered as held-to-maturity and are carried at amortized cost, as the Company has both the positive intent and ability to hold them to maturity. Interest income includes interest, amortization of investment purchases premiums and discounts, and realized gains and losses on sales of securities. Realized gains and losses on sales of investment securities are determined based on the specific identification method. |
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| Restricted cash |
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| In connection with the September 2003 Convertible Debenture offering, the terms of the agreement required the Company to establish an escrow account. The escrow account is shown as Restricted Cash on the Company’s balance sheet and had been released to the Company generally in proportion to the amount of Convertible Debentures converted into common shares or in connection with the repayment of the debt that began in March 2004. The short-term balance represents debt repayment due within 12 months. During the first quarter of 2004, one of the investors converted a total of $2 million plus interest into shares of common stock. As part of the escrow agreement, $2 million of restricted cash was released to the Company during April 2004. The Company repaid in full the debenture holders approximately $4.8 million from its escrow account during the nine months ended September 30, 2005. |
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| The remaining restricted cash represents deposits held for or by landlords. |
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| Impairment of Long-Lived Assets |
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| The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flow to the recorded value of the asset. Subsequent impairment assessments could result in future impairment charges. Any impairment charge would result in the reduction in the carrying value of long-lived assets to its fair market value and would reduce its operating results in the period in which the charge arose. |
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| Tax Provision |
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| No tax provision is required at this time since the company expects to be in a tax loss position at year-end December 31, 2005 and has net operating losses from previous years. The Company has established a 100% valuation allowance against the deferred tax asset. |
7
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| Equity based compensation |
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| The Company accounts for its employee stock option plans in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. As such, compensation expense related to employee stock options is recorded if, on the date of grant, the fair value of the underlying stock exceeds the exercise price. The Company adopted the disclosure-only requirements of SFAS No. 123, “Accounting for Stock-Based Compensation”, which allows entities to continue to apply the provisions of APB Opinion No. 25 for transactions with employees and provide pro forma operating results and pro forma per share disclosures for employee stock grants as if the fair-value-based method of accounting in SFAS No. 123 (as amended by SFAS 148) has been applied to these transactions. Options issued to non-employees are valued using the fair value methodology under SFAS 123. |
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| On June 28, 2005, the Company accelerated the vesting of unvested stock options awarded under its stock option plans that had exercise prices greater than $9.00; the closing price was $2.43 on June 28, 2005. Unvested options to purchase approximately 200 thousand shares became exercisable as a result of the vesting acceleration. Typically, the Company grants stock options that vest over a four-year period. The purpose of the accelerated vesting was to enable the Company to avoid recognizing, in its consolidated statement of operations, compensation expense associated with these options in future periods, upon adoption of SFAS 123R (Share-Based Payment) in January 2006. The impact of this acceleration resulted in a $2.6 million increase in proforma stock-based compensation expense. |
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| The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation. The estimated fair value of each option is calculated using the Black-Scholes option-pricing model. |
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| Three months ended, |
| Nine months ended, |
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| 2005 |
| 2004 |
| 2005 |
| 2004 |
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| Net loss (income) as reported |
| ($ | 3,292,676 | ) | ($ | 5,942,909 | ) | $ | 46,413 |
| ($ | 17,169,011 | ) |
| Add: Stock-based employee compensation expense included in reported net income (loss) |
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| 274,199 |
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| 109,865 |
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| 895,989 |
|
| 145,849 |
|
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards |
|
| (352,097 | ) |
| (466,715 | ) |
| (4,168,379 | ) |
| (1,172,919 | ) |
|
|
|
|
|
|
| ||||||||
| Pro forma net loss |
| ($ | 3,370,574 | ) | ($ | 6,299,759 | ) | ($ | 3,225,977 | ) | ($ | 18,196,081 | ) |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss (earnings) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic - as reported |
| ($ | 0.17 | ) | ($ | 0.35 | ) | $ | 0.00 |
| ($ | 0.97 | ) |
| Diluted - as reported |
| ($ | 0.17 | ) | ($ | 0.35 | ) | $ | 0.00 |
| ($ | 0.97 | ) |
| Basic - pro forma |
| ($ | 0.18 | ) | ($ | 0.35 | ) | ($ | 0.17 | ) | ($ | 1.02 | ) |
| Diluted – pro forma |
| ($ | 0.18 | ) | ($ | 0.35 | ) | ($ | 0.17 | ) | ($ | 1.02 | ) |
|
|
| For disclosure purposes under SFAS No. 123, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumption: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended, |
| Nine months ended, |
| ||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| ||||
|
|
|
|
|
|
| ||||||||
| Risk-free interest rate |
| n/a* |
| 3.69 | % |
| 3.71-3.72% |
| 3.07 – 3.69% |
| |||
| Expected lives (in years) |
| n/a* |
| 5 |
|
| 5 |
| 5 |
| |||
| Dividend yield |
| n/a* |
| 0 | % |
| 0% |
| 0% |
| |||
| Expected volatility |
| n/a* |
| 87 | % |
| 99-107% |
| 87-88% |
|
* No options were granted in the third quarter of 2005
8
|
|
| New Accounting Pronouncements |
|
|
| New pronouncements issued by the FASB and not effective until after September 30, 2005 are not expected to have a significant effect on the company’s financial position or results of operations, with the possible exception of the following, which are currently being evaluated by management: |
|
|
| In May 2005, the FASB has issued Statement No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3. The Statement applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. Statement 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. Statement 154 improves financial reporting because its requirements enhance the consistency of financial information between periods. Statement 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. |
|
|
| In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS 123 and supersedes APB No. 25. Under the new standard, companies will no longer be allowed to account for stock-based compensation transactions using the intrinsic value method in accordance with APB 25. Instead, companies will be required to account for such transactions using a fair value method and to recognize the expense in the statements of operations. The adoption of SFAS 123R will require additional accounting related to the income tax effects of share-based payment arrangements and additional disclosure of their cash flow impacts. SFAS 123R also allows, but does not require, companies to restate prior periods. The Company expects to adopt the provisions of SFAS 123R, prospectively, beginning January 1, 2006. |
|
|
| In March 2005, the FASB issued FASB Interpretation No. (FIN) 47 –Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143, that clarifies the term “conditional asset retirement obligation” as used in Statement of Financial Accounting Standards (SFAS) No. 143 –Accounting for Asset Retirement Obligations. Specifically, FIN 47 provides that an asset retirement obligation is conditional when either the timing and (or) method of settling the obligation is conditioned on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. This interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal years ending after December 15, 2005. The adoption of FIN 47 is not expected to have a material impact on our consolidated financial position or results of operations. |
9
|
|
| 4. Net Income (Loss) Per Common Share |
|
|
| Basic and diluted net income (loss) per common share was computed by dividing the net income (loss) for the period by the weighted average number of shares of common stock issued and outstanding. For the period ending September 30, 2004, other potential common stock has been excluded from the calculation of diluted net loss per common share, as their inclusion would be anti-dilutive. In accordance with the requirements of Statement of Financial Accounting Standards No. 128, a limited number of the stock options or warrants as of September 30, 2005 were “in the money” or would be considered other potential common stock and have been included in the calculation of diluted net earnings per share. The basis for the shares used in determining the diluted shares include in the calculation of diluted income per share for September 30, 2005 is illustrated below. |
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| September 30, |
| ||
|
|
|
|
| ||||
| Weighted average shares outstanding – basic |
|
| 18,974,120 |
|
| 17,754,459 |
|
|
|
|
|
|
|
|
|
|
| Restricted shares – non-vested |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
| Weighted average of options that are “in the money” |
|
| 834 |
|
| — |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Weighted average shares outstanding – diluted |
|
| 18,974,954 |
|
| 17,754,459 |
|
|
|
|
|
|
| The following table sets forth the number of potential shares of common stock that have been excluded from diluted income (loss) per share because the exercise price was greater than the average market price of our common stock, and therefore, the effect on diluted income (loss) per share would have been anti-dilutive. |
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| September 30, |
| ||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
|
|
|
|
| ||
| Stock options |
|
| 909,158 |
|
| 1,065,993 |
|
| Warrants |
|
| 1,176,310 |
|
| 1,361,288 |
|
| Shares issuable upon exercise of convertible debt |
|
| — |
| 466,373 |
| |
| Restricted stock – non vested |
|
| 126,582 |
|
| 126,582 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Total potential dilutive securities not included in loss (income) per share |
|
| 2,212,050 |
|
| 3,020,236 |
|
|
|
|
|
|
10
|
|
| 5. Collaborative Agreements |
|
|
| In October 2001, the Company sold its ophthalmic product line to Bausch & Lomb. Future payments were subject to certain milestones related to product approvals by the FDA and the royalties on the sales of these products. |
|
|
| At the time of the sale in 2001, Pharmos received gross proceeds of approximately $25 million in cash. In January 2005, Pharmos received additional gross proceeds of approximately $12.275 million from Bausch & Lomb in connection with their successful commercial launch of the Zylet™ product. The net proceeds to Pharmos from this payment were approximately $9.2 million, after making the payments to Bausch & Lomb, Dr. Nicholas Bodor and the Israel-U.S. Binational Industrial Research and Development Foundation as described below. In addition, Pharmos may receive a royalty payment of up to $10 million if actual Zylet™ sales during the first two years after commercialization exceed agreed-upon amounts. |
|
|
| As part of the original agreement with Bausch & Lomb, Pharmos agreed to pay up to $3.75 million of the costs of developing Zylet™. In January 2005, Pharmos paid approximately $1.56 million (included in accounts payable on December 31, 2004) which was the remaining balance owed to Bausch & Lomb for the Zylet™ project development under the terms of the agreement. |
| |
| Dr. Nicholas Bodor, a former director of and consultant to Pharmos, is the patent owner and licensor of the technology underlying the ophthalmic product line sold to Bausch & Lomb. In January 2005, Pharmos paid Dr. Bodor approximately $1.338 million in connection with the commercialization of Zylet™, per the license agreement with Dr. Bodor. Pharmos owes Dr. Bodor an additional 14.3% of any payments the Company may receive from Bausch & Lomb in the event that certain sales levels are exceeded in the first two years following commencement of Zylet™ sales in the U.S. |
|
|
| In February 2005, the Company paid the Israel-U.S. Binational Industrial Research and Development Foundation (BIRDF) $.212 million, which represented the maximum amount the Company owed the foundation for Zylet™. |
|
|
| Pharmos’ subsidiary, Pharmos Ltd., licensed its patents related to the oral delivery of lipophilic substances in the limited field of use of nutraceuticals to Herbamed, Ltd., a company in Israel controlled by the Chairman and Chief Executive Officer of Pharmos. In the three and nine months ending September 30, 2005, the Company recorded in other income royalties of $2,219 and $22,710, compared with $59 and $4,813 in the same periods in 2004, per the licensing agreement with Herbamed. |
11
|
|
| 6. Private Placement of Convertible Debt |
|
|
| On September 26, 2003, the Company completed a private placement of convertible debentures and warrants to six institutional investors, generating total gross proceeds of $21.0 million. Five million dollars of the proceeds was to be used for working capital purposes, and $16.0 million was to be available to fund acquisitions upon the approval of the investors. The convertible debentures were convertible into common stock of the Company at a fixed price of $20.20, or 205% above the closing bid price of the stock for the five days preceding the closing date. The debentures, which bore an interest rate of 4%, were redeemed in 13 substantially equal monthly increments which began March 31, 2004. Amounts converted into shares of Pharmos common stock reduced the monthly redemption amount in inverse order of maturity. The $16.0 million earmarked for acquisition activity was to be held in escrow until used or repaid. In connection with the financing, the Company also issued 1,102,941 three-year warrants (including 102,941 placement agent warrants) to purchase 1,102,941 shares of common stock at an exercise price of $10.20 per share. The issuance costs related to the convertible debentures of approximately $1,229,000 in cash and $434,000 for the value of the placement agent warrants were capitalized and amortized over the life of the debt. The Company calculated the value of the warrants at the date of the transaction, including the placement agent warrants, being approximately $4,652,877 under the Black-Scholes option-pricing method (assumption: volatility 75%, risk free rate 1.59% and zero dividend yield). The Company allocated the $21.0 million in gross proceeds between the convertible debentures and the warrants based on their relative fair values. The Company has reported the debt discount as a direct reduction to the face amount of the debt in accordance with APB 21. The discount had accreted over the life of the outstanding debentures. The issuance costs allocated to the convertible debentures were deferred and amortized to interest expense over the life of the debt. APB 21 also requires the Company to allocate the warrant costs between the convertible debentures and the transaction warrants. The issuance costs allocated to the warrants were recorded as a debit to additional paid in capital. During the first quarter of 2004, one of the investors from the September 2003 Convertible Debentures private placement converted a total of $2 million plus interest. The Company issued 99,532 shares of common stock. As of March 31, 2005, the Convertible Debentures have been fully repaid. |
|
|
| 7. Common Stock Transactions |
|
|
| In the nine months ended September 30, 2005, there were no shares of common stock issued pursuant to the Pharmos Corporation 2001 Employee Stock Purchase Plan or options exercised under the Company’s Stock Option Plans. In the nine months ended September 30, 2005, the Company incurred a non-cash charge of $1,244 for issuing stock options to consultants who have since become employees. In addition, the amortization of the remaining balance for options which had been issued below fair market value in 2004 has been expensed in the amount of $48,000 in the second quarter of 2005 as a result of the acceleration of vested options above $9.00 which included these shares. |
|
|
| On May 26, 2005, Pharmos Corporation filed a Certificate of Change with the Nevada Secretary of State which served to effect, as of May 31, 2005, a 1-for-5 reverse split of Pharmos’ common stock. As a result of the reverse stock split, every five shares of Pharmos common stock were combined into one share of common stock; any fractional shares created by the reverse stock split were rounded up to whole shares. The reverse stock split affected all of Pharmos’ common stock, stock options, restricted shares and warrants outstanding immediately prior to the effective date of the reverse stock split. The reverse split reduced the number of shares of Pharmos’ common stock outstanding from 95,137,076 shares to 19,027,809 shares, and the number of authorized shares of common stock was reduced from 150,000,000 shares to 30,000,000 shares. The authorized shares of common stock were increased to 60,000,000 shares at the Annual Meeting held in September 2005. |
|
|
| On September 6, 2004, the Board of Directors approved the Retention Award Agreements and Pharmos entered into Retention Award Agreements with each of Dr. Haim Aviv, Chairman and Chief Executive Officer, and Dr. Gad Riesenfeld, President and Chief Operating Officer. The Company granted retention awards of $300,000 cash and 75,950 restricted stock units to Dr. Aviv and $200,000 cash and 50,633 shares of restricted stock to Dr. Riesenfeld (the Awards). One half of the Awards shall vest or are scheduled to vest and become non-forfeitable on December 31, 2005, and the balance shall vest and become non-forfeitable on June 30, 2007, subject to certain accelerated vesting provisions. The fair value of the restricted shares was based on the fair value of the stock on the issuance date. The aggregate fair value of the restricted stock awards totaled $2 million. For financial reporting purposes, the cash awards and the fair value of the restricted stock awards, which totaled $2,500,000, will be expensed pro rata over the vesting periods. During the nine month period ended September 30, 2005, the Company recorded an expense of $827,000 in connection with the stock portion of the Awards. |
12
|
|
| On March 4, 2003, the Company raised $4.3 million from the placement of common stock and warrants. The private placement offering was completed by issuing 1,011,765 shares of common stock at a price of $4.25 per share and approximately 200 thousand warrants at an exercise price of $6.25 per share. Additionally, the remaining balance of the September 2000 Convertible Debenture offering was redeemed for cash. The original face amount of $3.5 million was redeemed for approximately $4.0 million, which included accrued and unpaid interest. According to EITF 00-19, the issued warrants meet the requirements of and are being accounted for as a liability since registered shares must be delivered upon settlement. The Company calculated the initial value of the warrants, including the placement agent warrants, being approximately $394,000 under the Black-Scholes option-pricing method (assumption: volatility 75%, risk free rate 2.88% and zero dividend yield). The value of the warrants is being marked to market each reporting period as a derivative gain/loss until exercised or expiration and amounted to $43,709 at September 30, 2005. Upon exercise of each of the warrants, the related liability is reduced by recording an adjustment to additional paid-in-capital. |
|
|
| 8. Segment and Geographic Information |
|
|
| The Company is active in one business segment: designing, developing, selling and marketing pharmaceutical products. The Company maintains development operations in the United States and Israel. The Company’s selling operations are maintained in the United States. |
|
|
| Geographic information for the three and nine months ending September 30, 2005 and 2004 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, |
| Nine months ended September 30, |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| ||||
|
|
|
|
|
|
| ||||||||
| Net (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| United States |
| $ | (3,224,696 | ) | $ | (5,824,145 | ) | $ | 300,778 |
| $ | (16,837,447 | ) |
| Israel |
|
| (67,980 | ) |
| (118,764 | ) |
| (254,365 | ) |
| (331,564 | ) |
|
|
|
|
|
|
| ||||||||
|
|
| $ | (3,292,676 | ) | $ | (5,942,909 | ) | $ | 49,413 |
| $ | (17,169,011 | ) |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
| United States |
| $ | — |
| $ | 31,493 |
| $ | 3,945 |
| $ | 71,057 |
|
| Israel |
|
| 16,091 |
|
| 53,489 |
|
| 122,816 |
|
| 167,614 |
|
|
|
|
|
|
|
| ||||||||
|
|
| $ | 16,091 |
| $ | 84,982 |
| $ | 126,761 |
| $ | 238,671 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic information as of September 30, 2005 and 2004 are as follows: | ||||||||||||||
|
|
|
|
|
|
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||
| Total Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| United States |
|
|
|
|
|
|
| $ | 47,709,020 |
| $ | 60,494,279 |
|
| Israel |
|
|
|
|
|
|
|
| 3,825,652 |
|
| 4,566,729 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
| $ | 51,534,672 |
| $ | 65,061,008 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long Lived Assets, net |
|
|
|
|
|
|
|
|
|
| |||
| United States |
|
|
|
|
|
|
| $ | 110,158 |
| $ | 130,483 |
|
| Israel |
|
|
|
|
|
|
|
| 1,500,856 |
|
| 1,634,909 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
| $ | 1,611,014 |
| $ | 1,765,392 |
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
| 9. Subsequent Events |
|
|
| In early October, the Company notified its Chief Operating Officer that it would not be renewing his employment agreement when it expires in April 2006. Under the terms of his employment agreement, this non-renewal will require several payments from the Company including salary, benefits and the vesting of certain stock options and restricted stock. These payments will include his salary through April 2006, one year’s additional salary of $249,063, plus payments for benefits commensurate with his current benefits. In addition, his restricted stock and other stock options will become vested. The balance for the restricted shares carried in Deferred Compensation within Equity is $322,059 as of September 30, 2005. The Company also expects to record approximately $300,000 in other severance costs in the fourth quarter of 2005. |
|
|
|
|
|
|
| Legal |
|
|
| The Company and certain current officers have been named as defendants in several purported shareholder class action lawsuits alleging violations of federal securities laws. These lawsuits were filed beginning in January 2005 and are pending in the U.S. District Court for the District of New Jersey. These lawsuits assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaints allege generally that the defendants knowingly or recklessly made false or misleading statements regarding the effectiveness of dexanabinol in treating TBI which had the effect of artificially inflating the price of our shares. The complaints seek unspecified damages. These class actions have been consolidated by order of the Court and lead plaintiffs and lead plaintiffs’ counsel have been appointed. An amended complaint was filed in September 2005. Management intends to defend these lawsuits vigorously. However, we cannot assure you that we will prevail in these actions, and, if the outcome is unfavorable to Pharmos, our reputation, profitability and share price could be adversely affected. |
|
|
| In addition, two purported shareholders of Pharmos common stock have commenced derivative actions against our directors and against certain current and former officers. The first derivative lawsuit was commenced in February 2005 in the U.S. District Court for the District of New Jersey, and has been consolidated for pretrial purposes with the class actions. An amended complaint in the federal derivative lawsuit was filed in September 2005. The second was filed in April 2005 in the Superior Court of New Jersey, County of Middlesex. Both lawsuits allege generally, on behalf of Pharmos (which has been named as a nominal defendant), breaches of fiduciary duty and other state law violations arising from the same set of underlying facts as the class actions. The complaints seek unspecified damages. The Company believes the complaints are without merit and intends to defend the lawsuits vigorously, and is planning on filing motions to dismiss the pending actions. |
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. The Company has based these forward-looking statements on our current expectations and projections of future events. Such statements reflect our current views with respect to future events and are subject to unknown risks, uncertainty and other factors that may cause results to differ materially from those contemplated in such forward looking statements. Statements made in this document related to the development, commercialization and market expectations of the Company’s drug candidates, to the establishment of corporate collaborations, and to the Company’s operational projections are forward-looking and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. Among the factors that could result in a materially different outcome are the inherent uncertainties accompanying new product development, action of regulatory authorities and the results of further trials. Additional economic, competitive, governmental, technological, marketing and other factors identified in Pharmos’ filings with the Securities and Exchange Commission could affect such results. In addition, the following discussion should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this report.
Executive Summary
During the third quarter of 2005, the Company commenced a Phase I trial for its lead candidate for treating pain, a CB-2 selective agonist, cannabinor (formerly known as PRS 211,375). If successful, the Company will enter Phase II testing in pain indications in early 2006. The Company’s NanoEmulsion drug delivery system is in development for the topical application of analgesic and anti-inflammatory agents and also has the potential for the delivery of a wide variety of water-insoluble molecules. Phase I (safety and tolerability) studies have been completed with a prototype formulation of an NSAID, and revealed that the it was well-tolerated. The Company expects to commence a clinical program in the first half of 2006. From the dextrocannabinoid family, the neuroprotective drug candidate dexanabinol completed a Phase IIa trial as a preventive agent against post-surgical cognitive impairment in the fourth quarter of 2004. Results of the exploratory Phase II trial of dexanabinol as a preventive agent for cognitive impairment (CI) in coronary artery bypass graft (CABG) patients are being reviewed internally and with the FDA. The Company expects to complete its evaluation of the clinical and regulatory aspects of this program and their impact on the future of the program during the fourth quarter of this year.
During the nine months ended September 30, 2005, Pharmos advanced the lead candidate from its proprietary platform of CB2-selective synthetic cannabinoid compounds, cannabinor, through the initial stages of development, including safety and toxicology studies in multiple species, kinetics, and clinical Phase I. Cannabinor and other platform compounds were designed to reduce the side effects caused by natural cannabinoids. In a number of animal models, these compounds have demonstrated efficacy as analgesics to treat moderate to severe pain, as anti-inflammatory agents, and immunomodulation agents to treat diseases such as multiple sclerosis, rheumatoid arthritis and inflammatory bowel disease. The Company commenced Phase I human testing of cannabinor during the third quarter of 2005, and dosing in the Phase I study in healthy volunteers has been completed. Pending full review of the Phase I data, Phase II studies will be conducted to assess feasibility for treating indications such as post-operative pain and neuropathic pain with cannabinor.
Pharmos has initiated a clinical program to develop its proprietary NanoEmulsion drug delivery technology. A Phase I study in healthy volunteers has been completed, and the formulation was well-tolerated. The Company plans to initiate a Phase I/II feasibility clinical trial in the first quarter of 2006. The study will evaluate safety, pharmacokinetics and the analgesic effect of an approved non-steroidal anti-inflammatory drug (NSAID) formulated in its NanoEmulsion. Efforts are targeted for the development of a product for the treatment of osteoarthritic pain.
Pharmos invented and owns a family of patents covering novel NanoEmulsion formulations as vehicles for lipophilic drugs. A topical application of the nanotechnology has already demonstrated excellent targeted delivery of lipophilic drugs to muscle and joints in animal models. Topical application of drugs directly to pathological sites offers potential advantages over systemic delivery by producing high drug concentration in the affected tissue while avoiding unwanted side-effects due to high systemic drug levels. Topical preparations of NSAIDs are commonly used as analgesics and anti-inflammatory agents to treat various disorders such as arthropathies and myalgias. Many topical formulations employ chemical penetration enhancers to improve dermal penetration of drugs. Chemical enhancers, which are usually organic solvents, may cause skin irritation and sensitization. An advantage of Pharmos’ NanoEmulsion is that it is composed of natural lipids and oils designed to minimize irritation as well as its high loading capacity for lipophilic drugs.
15
In December 2004, the Company completed and announced the results of a Phase 3 trial of dexanabinol to treat severe traumatic brain injury (TBI) patients. Dexanabinol did not demonstrate efficacy in the trial, and the program was discontinued. A final report was submitted to the FDA, and a manuscript was submitted to a peer-reviewed journal for publication. During 2005, the Company responded to the unfavorable TBI results and the termination of the TBI project by reducing its workforce by 15%, rebalancing its personnel to focus on advancing its preclinical programs toward a clinical developmental stage and by reducing costs without jeopardizing its strategic initiatives.
On May 26, 2005, Pharmos Corporation filed a Certificate of Change with the Nevada Secretary of State which served to effect, as of May 31, 2005, a 1-for-5 reverse split of Pharmos’ common stock. As a result of the reverse stock split, every five shares of Pharmos common stock were combined into one share of common stock; any fractional shares created by the reverse stock split were rounded up to whole shares. The reverse stock split affected all of Pharmos’ common stock, stock options and warrants outstanding immediately prior to the effective date of the reverse stock split. The reverse split reduced the number of shares of Pharmos’ common stock outstanding from 95,137,076 shares to 19,027,809 shares, and the number of authorized shares of common stock was reduced from 150,000,000 shares to 30,000,000 shares. All references to common share and per common share amounts for all periods presented have been retroactively restated to reflect this reverse split. At the Annual Meeting in September 2005, the shareholders voted to increase the number of authorized shares of common stock to 60,000,000 shares.
The Company is currently dependent upon external financing, interest income, and research and development contracts to pursue its intended business activities. The Company was not profitable in 2002, 2003, or 2004. During the nine months ended September 30, 2005, the Company funded all of its expenses through other income of $10.7 million as a result of the receipt of a non-recurring milestone payment in January 2005 from Bausch & Lomb (B&L) related to the FDA approval and subsequent project launch of Zylet™ and income from grants received from the Office of the Chief Scientist of Israel. At September 30, 2005, the Company has an accumulated deficit of $142.9 million and expects to continue to incur losses going forward. Losses have resulted principally from costs incurred in research activities aimed at identifying and developing the Company’s product candidates, clinical research studies, the write-off of purchased research and development, and general and administrative expenses. The Company expects to incur additional losses over the next several years as the Company’s research and development and clinical trial programs continue. The Company’s ability to achieve profitability, if ever, is dependent on its ability to develop and obtain regulatory approvals for its product candidates, to enter into agreements for product development and commercialization with strategic corporate partners and contract to develop or acquire the capacity to manufacture and sell its products. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
16
Results of Operations
Quarters ended September 30, 2005 and 2004
Total operating expenses decreased by $1,943,627 or 34%, from $5,661,913 in 2004 to $3,718,286 in 2005. With the completion of the pivotal dexanabinol trial in TBI and the decision to discontinue efforts for this indication, resources have been allocated to pre-clinical activities for cannabinor in preparation of beginning human clinical trials in the third quarter of 2005. The Company incurred higher compensation expenses for the deferred compensation from the September 2004 Retention Award Agreements, and higher investor relations costs and higher insurance costs as discussed below.
Research efforts in 2005 have been focused on the completion of cannabinor toxicology, scale-up manufacturing, technology transfer to the active ingredient supplier, and clinical trial finished material at Pharmos’ facility in Rehovot, Israel, as well as continuing to identify new, potentially more potent, CB2 agonists. During the quarter, the Company both initiated and completed dosing its dose escalating safety trial. The major decreases in quarter to quarter operating expenses for 2005 and 2004 reflects the shift from robust clinical trial spending for two trials in 2004 vs. primarily in-house research & development activities.
The Company considers major research & development projects to be those projects that have reached at least Phase II level of clinical development. The Company’s Phase II project is the development of dexanabinol as a preventive agent against the cognitive impairment that can follow CABG surgery. During the third quarter of 2005, the gross cost of development and review was approximately $0.2 million. Total costs since the CI-CABG project entered Phase II development in 2003 through September 30, 2005 were $3.2 million. The Company is evaluating various strategies regarding development of this product and will make its determination of direction in the fourth quarter. To bring this product to the FDA for approval would require extensive additional testing in both Phase II and Phase III trials and there is no assurance the product could achieve regulatory approval and commercialization.
Gross expenses for other research and development projects in early stages of development for the third quarters of 2005 and 2004 were $1,453,807 and $1,741,596, respectively. Over 80% of the spending in both 2005 and 2004 was related to cannabinor and other CB2 compounds. Research & development (R&D) gross expenses decreased by $2,631,610 or 55% from $4,811,747 in 2004 to $2,180,137 in 2005, primarily related to the TBI clinical activity in 2004. The Company recorded research and development grant receivables from the Office of the Chief Scientist of Israel’s Ministry of Industry and Trade of $284,185 and $1,032,813 during the third quarter of 2005 and 2004, respectively, which reduced the research and development expenses. Total research and development expenses, net of grants, decreased by $1,882,982 or 50% from $3,778,934 in 2004 to $1,895,952 in 2005.
General and administrative expenses remained at the same level at $1,734,493 in 2005 from $1,739,679 in 2004 in total; however, there were offsetting variances within the major expense categories. The increase in general and administrative expenses is due to higher compensation, insurance and investor relations by $202,851, $124,636 and $66,503, respectively, in the third quarter 2005 compared to the third quarter 2004. The decrease in general and administrative expenses is due to lower professional fees and consultant expenses by $157,656 and $214,109, respectively, coupled with savings from the Company’s cost containment efforts in the third quarter 2005 compared to the third quarter 2004. The increase in compensation is attributed to the amortization of deferred compensation related to General & Administration from the Retention Award Agreements in the amount of $183,826 which commenced in the third quarter of 2004. The increase in insurance is attributable to higher insurance rates. The increase in investor relation costs is solely a result of the change in the timing of the annual meeting from its normal June schedule to September 2005 and the shift in the timing of the expenses from the 2nd quarter of 2005 to the 3rd quarter of 2005. The decrease in professional fees in 2005 over 2004 is from the higher expenses recognized in the third quarter of 2004 for accounting fees for the cost of implementation and compliance for SOX 404 offset by higher legal fees in 2005 related to the class action suits. The decrease in consulting expenses is attributed to a non-cash charge for stock options provided to a key consultant in 2004 and no costs incurred in 2005, coupled with reduced pre-marketing consulting in 2005 vs. 2004.
Depreciation and amortization expenses decreased by $55,459, or 39%, from $143,300 in 2004 to $87,841 in 2005. The decrease is due to fixed assets which have become fully depreciated.
17
Other income (expense), net, increased by $706,606 from an expense of $280,996 in 2004 to income of $425,610 in 2005. Interest expense decreased by $754,585 to $2,219 in 2005 from $756,804 in 2004. The decrease in 2005 interest expense is a result of the retirement of the September 2003 Convertible Debentures during the first quarter of 2005. Interest income increased by $268,973, or 183%, to $416,267 in 2005 from $147,294 in 2004 as a result of higher average cash and short term investment balances. During the quarter, the Company recorded in other income royalties of $2,219 compared with $59 in the third quarter of 2004 per the licensing agreement with Herbamed Ltd, a company controlled by Dr. Haim Aviv, the Company’s CEO.
No tax provision is required at this time since the company expects to be in a tax loss position at year-end December 31, 2005 and has net operating losses from previous years. The Company has established a 100% valuation allowance against the deferred tax asset.
18
Nine months ended September 30, 2005 and 2004
Total operating expenses decreased by $2,733,776 or 19%, from $14,510,266 in 2004 to $11,766,490 in 2005. With the completion of the pivotal dexanabinol trial in TBI and the decision to discontinue efforts for this indication, resources have been allocated to pre-clinical activities and clinical for cannabinor in preparation of human clinical trials which began in the third quarter of 2005. The Company incurred higher compensation expenses for the deferred compensation from the September 2004 Retention Award Agreements and higher professional fees consisting of accounting and legal fees and higher insurance cost as discussed below.
Research efforts in 2005 have been focused on the completion of cannabinor toxicology, scale-up manufacturing, technology transfer to the active ingredient supplier, and clinical trial finished material at Pharmos’ facility in Rehovot, Israel. During the quarter, the Company commenced its dose escalating safety trial. The major decreases in year-to-date operating expenses year–over-year reflects the shift from robust clinical trial spending for two trials in 2004 vs. primarily in-house research & development activities.
The Company considers major research & development projects to be those projects that have reached at least Phase II level of clinical development. The Company’s Phase II project is the development of dexanabinol as a preventive agent against the cognitive impairment that can follow CABG surgery. During the first nine months 2005, the gross cost of development and review was approximately $0.9 million. Total costs since the CI-CABG project entered Phase II development in 2003 through September 30, 2005 were $3.2 million. The Company is evaluating various strategies regarding development of this product and will make its determination of direction in the fourth quarter of 2005. To bring this product to the FDA for approval would require extensive additional testing in both Phase II and Phase III trials and there is no assurance the product could achieve regulatory approval and commercialization.
Gross expenses for other research and development projects in early stages of development for the nine months ended September 30, 2005 and 2004 were $4,521,387 and $ 2,666,660, respectively. Over 85% of the spending in both 2005 and 2004 was related to cannabinor and other CB2 compounds. Research & development (R&D) gross expenses decreased by $5,091,457 or 41% from $12,316,830 in 2004 to $7,225,373 in 2005 due to a reduction in clinical activity. The Company recorded research and development grant receivables from the Office of the Chief Scientist of Israel’s Ministry of Industry and Trade of $1,015,640 and $2,739,958 during the nine months ended September 30, 2005 and 2004, respectively, which reduced research and development expenses. Total research and development expenses, net of grants, decreased by 3,367,139 or 35% from $9,576,872 in 2004 to $6,209,733 in 2005.
General and administrative expenses increased by $775,215 or 17%, from $4,490,024 in 2004 to $5,265,239 in 2005. The increase in general and administrative expenses is due to higher compensation, professional fees, and insurance by $759,800, $385,257, and $335,858 respectively, in the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004. The decrease in general and administrative expenses is due to lower consultant expenses by $594,066 and savings from the Company’s cost containment efforts in the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004. The increase in compensation is attributed to the amortization of deferred compensation related to General & Administration from the Retention Award Agreements in the amount of $735,295 which commenced in the third quarter of 2004. The higher professional fees in 2005 are attributed to legal fees related to the class action suits and accounting fees related to Sarbanes-Oxley compliance. The decrease in consulting is attributed to a non-cash charge of approximately $490,000 for extending the stock option exercise period to the Company’s former chief financial officer and stock options granted to a key consultant which were incurred in 2004 but did not occur in 2005, coupled with reduced pre-marketing consulting in 2005 vs. 2004. The increase in insurance is attributable to higher insurance rates.
Depreciation and amortization expenses decreased by $141,852, or 32%, from $443,370 in 2004 to $301,518 in 2005. The decrease is due to fixed assets which have become fully depreciated.
19
Other income (expense), net, increased by $14,481,648 from an expense of $2,658,745 in 2004 to income of $11,822,903 in 2005. Income of $10,725,688 was recognized for the net payment received from B&L in the first quarter of 2005. Interest expense decreased by $3,078,788 from $3,244,379 in 2004 to $165,591 in 2005. The decrease in 2005 interest expense is a result of the substantially reduced average outstanding balance and maturity at March 31,2005 of the September 2003 Convertible Debentures. This debt was fully repaid as of March 31, 2005. Interest income increased by $593,140, or 132%, from $450,143 in 2004 to $1,043,283 in 2005 as a result of a higher average cash balances. During the nine months ended September 30, 2005, the Company recorded in other income royalties of $22,710 compared with $4,813 in the nine months ended September 30, 2004 per the licensing agreement with Herbamed Ltd, a company controlled by Dr. Haim Aviv, the Company’s CEO.
No tax provision is required at this time since the company expects to be in a tax loss position at year-end December 31, 2005 and has net operating losses from previous years. The Company has established a 100% valuation allowance against the deferred tax asset.
Liquidity and Capital Resources
The Company incurred cumulative operating losses since 2002 and had an accumulated deficit of $142.9 million at September 30, 2005. The Company has financed its operations with public and private offerings of securities, advances and other funding pursuant to a marketing and asset agreement with Bausch & Lomb, grants from the Office of the Chief Scientist of Israel, research contracts, the sale of a portion of its New Jersey State Net Operating Loss carryforwards, and interest income. Should the Company be unable to raise adequate financing or generate revenue in the future, operations will need to be scaled back or discontinued.
The following table describes the Company’s liquidity and financial position on September 30, 2005, and on December 31, 2004:
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| September 30, 2005 |
| December 31, 2004 |
| ||
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|
| ||||
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|
|
|
|
| ||
Working capital |
| $ | 47,367,772 |
| $ | 46,269,367 |
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|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 34,678,382 |
| $ | 49,014,530 |
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|
|
|
|
|
|
|
Short term investments |
| $ | 13,551,278 |
| $ | — |
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|
|
|
|
|
|
|
|
Total cash, cash equivalents and short term investments |
| $ | 48,229,660 |
| $ | 49,014,530 |
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|
|
|
|
|
|
|
Short-term convertible debentures, net |
| $ | — |
| $ | 4,765,540 |
|
Current working capital position
As of September 30, 2005, the Company had working capital of $47.4 million consisting of current assets of $49.8 million and current liabilities of $2.4 million. This represents an increase of $1.1 million from its working capital of $46.3 million on current assets of $55.7 million and current liabilities of $9.4 million as of December 31, 2004. This increase in working capital of $1.0 million was principally due to the net cash received from the B&L payment of $9.2 million ($10.7 million as reported in other income reduced by an outstanding payable to B&L of $1.5 million) and $1.9 million received from the Office of the Chief Scientist of Israel offset by the funding of R&D and G&A activities.
Current and future liquidity position
Management believes that the current cash, cash equivalents and short term investments, totaling $48.2 million as of September 30, 2005, will be sufficient to support the Company’s continuing operations beyond September 30, 2006. The Company is continuing to actively pursue various funding options, including additional equity offerings, strategic corporate alliances, business combinations and the establishment of product related research and development limited partnerships, to obtain additional financing to continue the development of its products and bring them to commercial markets. Should the Company be unable to raise adequate financing or generate revenue in the future, long-term operations will need to be scaled back or discontinued.
20
Cash
At September 30, 2005, cash and cash equivalents totaled $34.7 million. At December 31, 2004 cash and cash equivalents totaled $49.0 million. This net decrease in cash of $14.3 million was due to the investment of cash in short term investments in the amount of $13.6 million and $11.8 for normal operating requirements offset by the net cash received from the B&L payment of $9.2 million and $1.9 million received from the Office of the Chief Scientist of Israel.. The cash, cash equivalents short term investments will be used to finance future growth.
Operating activities
Net cash used in operating activities through the third quarter of 2005 was $9.8 million compared to net cash used of $15.7 million through the third quarter of 2004. The decrease in cash used of $5.9 million is primarily due to lower R&D spending related to the clinical trials in 2004, the timing of the of grants offset by the payment of annual insurance premiums and other operating activities.
Investing activities
Restricted cash during the first three quarters of 2005 was reduced by approximately $4.8 million as a result of the final repayment of the September 2003 Convertible Debentures.
During the first quarter of 2005, the Company received $9.2 million related to investing activities for a non-recurring milestone payment from Bausch & Lomb related to the FDA approval of Zylet™.
The Company invested cash of approximately $13.6 million in short term securities during the nine months ended September 30, 2005.
Capital expenditures for property, plant and equipment for the nine months ended September 30, 2005 and 2004 totaled approximately $127,000 and $239,000, respectively for normal replacements and improvements.
Financing activities
During the nine months ended September 30, 2005, the financing activities were the repayment of the remainder of the September 2003 Convertible Debentures.
During the first quarter of 2004, one of the investors from the September 2003 Convertible Debentures private placement converted a total of $2 million plus interest into 99,532 shares of common stock of the Company. As part of the escrow agreement, $2 million of restricted cash was released to the Company during April 2004. As of September 30, 2005, the Company repaid all of the outstanding September 2003 Convertible Debentures amounting to a total of $19.0 million.
21
Other Proceeds
In October 2001, the Company sold its ophthalmic product line to Bausch & Lomb. Future payments were subject to certain milestones related to product approvals by the FDA and the royalties on the sales of these products.
At the time of the sale in 2001, Pharmos received gross proceeds of approximately $25 million in cash. In January 2005, Pharmos received additional gross proceeds of approximately $12.275 million from Bausch & Lomb in connection with their successful commercial launch of the Zylet™ product. The net proceeds to Pharmos from this payment were approximately $9.2 million, after making the payments to Bausch & Lomb, Dr. Nicholas Bodor and the Israel-U.S. Binational Industrial Research and Development Foundation as described below. In addition, Pharmos may receive a royalty payment of up to $10 million if actual Zylet™ sales during the first two years after commercialization exceed agreed-upon amounts.
As part of the original agreement with Bausch & Lomb, Pharmos agreed to pay up to $3.75 million of the costs of developing Zylet™. In January 2005, Pharmos paid approximately $1.56 million (included in accounts payable on December 31, 2004) which was the remaining balance owed to Bausch & Lomb for the Zylet™ project development under the terms of the agreement.
Dr. Nicholas Bodor, a former director of and consultant to Pharmos, is the patent owner and licensor of the technology underlying the ophthalmic product line sold to Bausch & Lomb. In January 2005, Pharmos paid Dr. Bodor approximately $1.338 million in connection with the commercialization of Zylet™, per the license agreement with Dr. Bodor. Pharmos owes Dr. Bodor an additional 14.3% of any payments the Company may receive from Bausch & Lomb in the event that certain sales levels are exceeded in the first two years following commencement of Zylet™ sales in the U.S.
In February 2005, the Company paid the Israel-U.S. Binational Industrial Research and Development Foundation (BIRDF) $.212 million, which represented the maximum amount the Company owed the foundation for Zylet™.
Stock Listing
On March 18, 2005, the Company received notice from The NASDAQ Stock Market, Inc. (“NASDAQ”) that the minimum bid price of the Company’s common stock had fallen below $1.00 for 30 consecutive business days and that the Company was therefore not in compliance with NASDAQ Marketplace Rule 4310(c)(4).
In accordance with section 4310(c)(8) of the NASDAQ Marketplace Rules, the Company had until September 14, 2005 (180 calendar days from March 18, 2005) to regain compliance
On June 21, 2005, the Company received notice from NASDAQ that the Company had regained compliance with NASDAQ Marketplace Rule 4310(c)(4). Such Rule, in general, requires that a listed company maintain a closing bid price of $1.00 for continued listing on the NASDAQ SmallCap Market. The notice stated that for 10 consecutive business days, the Company’s stock had closed above $1.00, and therefore, the Company regained compliance with this Rule. No further actions in this regard were required of the Company.
22
Commitment and Contingencies
As of September 30, 2005, the Company had the following contractual commitments and long-term obligations:
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| Total |
| Less than |
| 1 – 3 |
| 3 – 5 |
| More than |
| Undetermined |
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Operating Leases |
| $ | 1,361,869 |
| $ | 536,250 |
| $ | 765,097 |
| $ | 60,522 |
| $ | — |
| $ | — |
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Other long-term liabilities reflected on our balance sheet* |
|
| 1,048,069 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,048,069 |
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Other Commitment** |
|
| 500,000 |
|
| 250,000 |
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| 250,000 |
|
| — |
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| — |
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| — |
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| ||||||||||||
Total |
| $ | 2,909,938 |
| $ | 786,250 |
| $ | 1,015,097 |
| $ | 60,522 |
| $ | — |
| $ | 1,048,069 |
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* | Consists of severance benefits payable under Israeli law. Because these benefits are paid only upon termination of employment, it is not possible to allocate the liability across future years. The Company has funded $779,820. |
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** | Represents cash portion of the September 2004 Retention Award Agreement given to the CEO and President. The Company has accrued $298,713 through September 30, 2005. |
Subsequent Events
In early October, the Company notified its Chief Operating Officer that it would not be renewing his employment agreement when it expires in April 2006. Under the terms of his employment agreement, this non-renewal will require several payments from the Company including salary, benefits and the vesting of certain stock options and restricted stock. These payments will include his salary through April 2006, one year’s additional salary of $249,063, plus payments for benefits commensurate with his current benefits. In addition, his restricted stock and other stock options will become vested. The balance for the restricted shares carried in Deferred Compensation within Equity is $322,059 as of September 30, 2005. The Company also expects to record approximately $200,000 in other severance costs in the fourth quarter of 2005.
On November 7, 2005, the Company entered into an Employment Agreement with Alan L. Rubino, 51, to serve as the Company’s new President and Chief Operating Officer, commencing November 14, 2005. Mr. Rubino’s Employment Agreement is attached as exhibit 10.1 to this Quarterly Report on Form 10-Q. Under the terms of his employment agreement, Mr. Rubino will be based in the Company’s Iselin, New Jersey corporate headquarters and will receive an annual salary of $315,000, a sign-on bonus of $40,000 plus options to purchase 325,000 shares of common stock. Prior to joining Pharmos, Mr. Rubino had been Executive Vice President and General Manager of PDI, Inc., a publicly traded outsourcing company focused on the pharmaceutical and biotech industries, since January 2004. From 2001 through December 2003, he served as Senior Vice President/Officer - PTS Marketing and Business Unit Strategy in the Pharmaceutical and Technology Services Division of Cardinal Health, Inc. Between 1977 and 2001, Mr. Rubino was with Hoffmann-LaRoche where he rose to Senior Vice President and a member of the U.S. Executive and Operating Committees. Currently, he is a member of the Board of Directors of Rutgers Business School and Aastrom Biosciences, Inc. and serves on the Advisory Board of SK Corp. Mr. Rubino holds a B.A. in Economics from Rutgers University.
Mr. Rubino will be replacing Dr. Gad Riesenfeld, the Company’s current President and Chief Operating Officer, who will continue working as an employee of the Company through the expiration of his current employment agreement in April 2006.
23
New accounting pronouncements
In May 2005, the FASB has issued Statement No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3. The Statement applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. Statement 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. Statement 154 improves financial reporting because its requirements enhance the consistency of financial information between periods. Statement 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS 123 and supersedes APB No. 25. Under the new standard, companies will no longer be allowed to account for stock-based compensation transactions using the intrinsic value method in accordance with APB 25. Instead, companies will be required to account for such transactions using a fair value method and to recognize the expense in the statements of operations. The adoption of SFAS 123R will require additional accounting related to the income tax effects of share-based payment arrangements and additional disclosure of their cash flow impacts. SFAS 123R also allows, but does not require, companies to restate prior periods. As originally issued, SFAS 123R would have been effective for periods beginning after June 15, 2005, but this requirement was amended on April 14, 2005 by a new rule from the SEC that requires adoption of SFAS 123R by the first fiscal year beginning after June 15, 2005. The effect of the new rule for the Company is a six-month deferral of the new standard. Accordingly, the Company expects to adopt the provisions of SFAS 123R beginning January 1, 2005.
In March 2005, the FASB issued FASB Interpretation No. (FIN) 47 –Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143, that clarifies the term “conditional asset retirement obligation” as used in Statement of Financial Accounting Standards (SFAS) No. 143 –Accounting for Asset Retirement Obligations. Specifically, FIN 47 provides that an asset retirement obligation is conditional when either the timing and (or) method of settling the obligation is conditioned on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. This interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal years ending after December 15, 2005. The adoption of FIN 47 is not expected to have a material impact on our consolidated financial position or results of operations.
24
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We assessed our vulnerability to certain market risks, including interest rate risk associated with financial instruments included in cash, cash equivalents, short term investments and the currency impact in Israel. Due to the relatively short-term nature of these investments the Company has determined that the risks associated with interest rate fluctuations related to these financial instruments do not pose a material risk to us. The value of the warrant liability is generally based upon the Company’s stock price.
Item 4. Controls And Procedures
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| a) Evaluation of Disclosure Controls and Procedures: An evaluation of Pharmos’ disclosure controls and procedures (as defined in Section 13a-15(e) of the Securities Exchange Act of 1934 (the “Act”) was carried out under the supervision and with the participation of Pharmos’ Chief Executive Officer and Chief Financial Officer and several other members of Pharmos’ senior management at September 30, 2005. Based on this evaluation, Pharmos’ Chief Executive Officer and Chief Financial Officer concluded that Pharmos’ disclosure controls and procedures were not effective at the reasonable assurance level at September 30, 2005 to ensure that the information required to be disclosed by Pharmos in the reports it files or submits under the Act is (i) accumulated and communicated to Pharmos’ management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms because of the material weakness identified in the first quarter of 2005 as described below. |
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| During the first quarter of 2005, management identified a material weakness regarding the company’s preparation and review of its Consolidated Statement of Cash Flows for the three months ended March 31, 2005. Specifically, the Company did not have effective controls in place to ensure the net payments of $10.7 million related to the Bausch & Lomb milestone payment were properly classified as cash flows from investing activities versus cash flows from operating activities. This control deficiency resulted in an adjustment to the Company’s Consolidated Statement of Cash Flows for the three months ended March 31, 2005 which was recorded prior to the filing of the Company’s Quarterly Report on Form 10Q for the quarter ended March 31, 2005. The Company has put new procedures in place in order to remediate this weakness and strengthen the control procedures surrounding the review and classification of cash flows from nonrecurring transactions during the quarterly closing process. |
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| (b) Changes in Internal Control Over Financial Reporting: Except as noted above, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. |
25
Part II
Other Information
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Item 1 | Legal Proceedings |
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| The Company and certain current officers have been named as defendants in several purported shareholder class action lawsuits alleging violations of federal securities laws. These lawsuits were filed beginning in January 2005 and are pending in the U.S. District Court for the District of New Jersey. These lawsuits assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaints allege generally that the defendants knowingly or recklessly made false or misleading statements regarding the effectiveness of dexanabinol in treating TBI which had the effect of artificially inflating the price of our shares. The complaints seek unspecified damages. These class actions have been consolidated by order of the Court and lead plaintiffs and lead plaintiffs’ counsel have been appointed. An amended complaint was filed in September 2005. Management intends to defend these lawsuits vigorously. However, we cannot assure you that we will prevail in these actions, and, if the outcome is unfavorable to Pharmos, our reputation, profitability and share price could be adversely affected. |
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| In addition, two purported shareholders of Pharmos common stock have commenced derivative actions against our directors and against certain current and former officers. The first derivative lawsuit was commenced in February 2005 in the U.S. District Court for the District of New Jersey, and has been consolidated for pretrial purposes with the class actions. An amended complaint in the federal derivative lawsuit was filed in September 2005. The second was filed in April 2005 in the Superior Court of New Jersey, County of Middlesex. Both lawsuits allege generally, on behalf of Pharmos (which has been named as a nominal defendant), breaches of fiduciary duty and other state law violations arising from the same set of underlying facts as the class actions. The complaints seek unspecified damages. The Company believes the complaints are without merit and intends to defend the lawsuits vigorously, and is planning on filing motions to dismiss the pending actions. |
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Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | NONE |
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Item 3 | Defaults upon Senior Securities | NONE |
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Item 4 | Submission of Matters to Vote of Security Holders |
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| At the Corporation’s Annual Meeting of Stockholders held on September 20, 2005, the stockholders of the Corporation elected the following persons as Class II Directors of the Corporation to serve until the 2008 annual meeting of stockholders and until their successors are duly elected and qualified: Elkan Gamzu and Lawrence F. Marshall. The results of the voting were as follows: |
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| VOTES FOR |
| VOTES WITHHELD |
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| Elkan Gamzu |
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| 14,329,969 |
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| 665,796 |
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| Lawrence F. Marshall |
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| 13,930,403 |
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| 1,065,363 |
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| Also at the Annual Meeting, the stockholders approved the increase in the number of authorized shares of the Company’s Common Stock from 30,000,000 to 60,000,000 with 14,109,372 votes for approval, 853,589 votes against approval, 32,804 abstentions, and zero broker non-votes. |
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| Also at the Annual Meeting, the stockholders approved amending of the Company’s 2000 Stock Option Plan, with 2,543,389 votes cast for approval, 759,596 votes cast against, 66,147 abstentions, and 11,626,634 broker non-votes. |
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| Further, the stockholders ratified the Board’s selection of PricewaterhouseCoopers LLP as the Corporation’s independent auditors for the fiscal year ending December 31, 2005, with 14,644,560 votes for ratification, 299,007 votes against ratification, 52,199 abstentions, and zero broker non-votes. |
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Item 5 | Other Information | ||||||
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Item 6 | Exhibits |
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| 4.1 | Amendment to the 2000 Stock Option Plan (incorporated by reference to Appendix D to the registrant’s Definitive Proxy Statement on Schedule 14A filed on August 8, 2005). | |||||
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| Employment Agreement dated as of November 7, 2005, between Pharmos Corporation and Alan L. Rubino. | ||||||
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| Press release of Pharmos Corporation dated November 3, 2005. | ||||||
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| Press release of Pharmos Corporation dated November 7, 2005. |
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SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| PHARMOS CORPORATION | ||
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Dated: November 7, 2005 |
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| by: /s/ James A. Meer | ||
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| James A. Meer |
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