Celox Laboratories (CELX) 10QSB 2004 Q2 Quarterly report (small business)

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

(X) Quarterly report under Section 13 of 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended February 28, 2004 or

(  ) Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
transition period from _________________ to _________________.

Commission file number      0-19866      

Protide Pharmaceuticals, Inc.
(Exact name of small business issuer
as specified in its charter)

MINNESOTA	36-3384240
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
1311 Helmo Avenue, Saint Paul, Minnesota	55128
(Address of principal executive offices)	(Zip Code)

Issuers telephone number, including area code:(651) 730-1500

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the past 12 months (or for such shorter periods that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes __X__  No _____

State the number of shares outstanding of each the issuer's classes of common equity, as of the latest practicable date.

The number of shares of common stock, par value $.01 per share, outstanding on March 31, 2004 was 4,029,134.

Transitional small business format disclosure:

Yes _____  No __X__

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Table of Contents

Protide Pharmaceuticals, Inc.

Report on Form 10-QSB
for fiscal quarter ended
February 28, 2004

PART I — FINANCIAL INFORMATION

          Page

ITEM 1.

Financial Statements

Balance Sheet as of August 31, 2003

and February 28, 2004

  3

Statement of Operations — Three months ended

February 28, 2004 and February 28, 2003, and

six months ended February 28, 2004 and

February 28, 2003

  5

Statement of Changes in Shareholders’ Equity

for the year ended August 31, 2003 and the

six months ended February 28, 2004

  6

Statement of Cash Flows — Six months ended

February 28, 2004 and February 28, 2003

  7

Notes to Financial Statements

  8

ITEM 2.

Management’s Discussion and Analysis of Financial

Conditions and Results of Operations

  9

PART II — OTHER INFORMATION

 13

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PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

PROTIDE PHARMACEUTICALS, INC.
BALANCE SHEET

ASSETS	February 28, 2004			August 31, 2003
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	109,698		$	118,720
Certificates of deposit		71,500			82,746
Trade receivables		76,041			46,128
Inventories		42,667			53,028
Other		1,983			3,145
Total current assets		301,889			303,767
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Laboratory and production equipment		229,474			229,474
Office furniture and equipment		94,822			94,822
Leasehold improvements		138,426			138,426
		462,722			462,722
Less accumulated depreciation		(447,759	)		(439,241	)
		14,963			23,481
OTHER ASSETS
Patents, net		39,560			41,316
TOTAL ASSETS	$	356,412		$	368,564

See Notes to Financial Statements.

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PROTIDE PHARMACEUTICALS, INC.
BALANCE SHEET

LIABILITIES AND SHAREHOLDERS’ EQUITY	February 28, 2004			August 31, 2003
	(Unaudited)
CURRENT LIABILITIES
Accounts payable	$	14,128		$	17,547
Accrued liabilities		30,908			29,276
Bank note payable - current		71,498			71,498
Total current liabilities		116,534			118,321
SHAREHOLDERS’ EQUITY
Common stock issued and outstanding		40,291			40,291
Additional paid-in capital		5,832,291			5,832,291
		5,872,582			5,872,582
Accumulated deficit		(5,632,704	)		(5,622,339	)
Total shareholders’ equity		239,878			250,243
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	356,412		$	368,564

See Notes to Financial Statements.

4

PROTIDE PHARMACEUTICALS, INC.
STATEMENT OF OPERATIONS
(Unaudited)

	Three months ended February 28,						Six months ended February 28,
	2004			2003			2004			2003
Revenues
Net sales	$	170,197		$	160,897		$	282,544		$	282,057
Cost of products sold		29,328			26,939			59,258			61,987
Gross Margin		140,869			133,958			223,286			220,070
Operating Expenses
Research and development		37,644			37,670			73,050			73,121
Sales and operations		30,403			27,849			57,956			56,489
Administration		48,062			51,673			102,524			110,673
Total operating expenses		116,109			117,192			233,530			240,283
Operating Income (Loss)		24,760			16,766			(10,244	)		(20,213	)
Other Income (Expense)
Interest and investment income		610			848			1,301			1,807
Other income		0			0			0			0
Interest expense		(707	)		(731	)		(1,422	)		(1,462	)
Total other income, net		(97	)		117			(121	)		345
Net Income (Loss)	$	24,663		$	16,883			($ 10,365	)		($ 19,868	)
Basic and diluted loss per
common share	$	0.01		$	0.00			($ 0.00	)		($ 0.00	)
Weighted average number of
common shares outstanding		4,029,134			4,029,134			4,029,134			4,029,134

See Notes to Financial Statements

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PROTIDE PHARMACEUTICALS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)

	Common Stock				Additional Paid-in Capital		Accumulated Deficit			Total
	Shares		Amount
Balance at August 31, 2003		4,029,134	$	40,291	$	5,832,291		($5,622,339	)	$	250,243
Net loss for the period								(10,365	)		(10,365	)
Balance at February 28, 2004		4,029,134	$	40,291	$	5,832,291		($5,632,704	)	$	239,878

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PROTIDE PHARMACEUTICALS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)

	Six months ended February 28,
	2004			2003
Cash Flows From Operating Activities:
Net loss for the period		($ 10,365	)		($ 19,868	)
Adjustments to reconcile net loss to
Net cash used in operating activities:
Depreciation and amortization		10,274			15,309
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable		(29,913	)		(12,515	)
Inventories		10,361			(914	)
Other		1,162			(1,104	)
Increase (decrease) in:
Accounts payable		(3,419	)		(11,158	)
Accrued liabilities		1,632			3,862
Net cash used in operating activities		(20,268	)		(31,260	)
Cash Flows from Investing Activities:
Maturity of bank certificates of deposit, net		11,246			0
Capital expenditures		0			0
Net cash from investing activities		11,246			0
Cash Flows from Financing:
Proceeds from issuing common stock subscriptions		0			0
Principal payments on bank note payable		0			0
Net cash provided by financing activities		0			0
Net decrease in cash
and cash equivalents		(9,022	)		(31,260	)
Cash and Cash Equivalents:
Beginning of period		118,720			200,751
End of period	$	109,698		$	169,491

See Notes to Financial Statements.

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PROTIDE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — February 28, 2004

NOTE A — BASIS OF PRESENTATION

        The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310 of Regulation S-B. 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 only of normal recurring adjustments) considered necessary for a fair presentation have been included.

        The organization and business of the Company, accounting policies followed by the Company and other information is contained in the notes to the Company’s financial statements filed as part of the Company’s August 31, 2003 Form 10-KSB. This quarterly report should be read in connection with such annual report.

NOTE B — CASH AND CASH EQUIVALENTS

        For purposes of reporting the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

NOTE C — SHORT-TERM INVESTMENTS

        As of February 28, 2004, the Company had investments of $71,500 in certificates of deposit. Certificates of deposit are made only with the highest rated banks. The Company also utilizes a money market fund, which is restricted by its charter to Tier 1 instruments, for a portion of its investments. At times throughout the year, the Company’s cash, cash equivalents and certificates of deposit in financial institutions may exceed FDIC insurance limits. The Company has not experienced any losses in such accounts.

NOTE D — NOTES PAYABLE BANK

        During April 1997 the Company borrowed $100,000 from a local bank with the proceeds used for financing a portion of the tenants’ improvements in the Company’s new facility. In February 2001 the loan was renegotiated with a different bank and has been renewed annually. The new loan is secured by a certificate of deposit at this bank. The interest rate for this loan, currently 4%, is tied to the certificate of deposit rate.

NOTE E — LOSS PER COMMON SHARE

        Basic income (loss) per share is computed based upon the weighted average number of common shares outstanding during the period. Stock options for 337,000 shares were not included in the computation of diluted loss per share for the six month period as the results were antidilutive. For the three month period the inclusion of the 337,000 shares in the computation of diluted earnings did not change the basic income per share.

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ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                    OF OPERATIONS

Introduction
        a. Background and Products

        In January 2001 Celox Laboratories, Inc. and Protide Pharmaceuticals, Inc., merged with the surviving corporation named Protide Pharmaceuticals, Inc.

        Protide Pharmaceuticals, Inc. (“Protide” or the “Company”) is a biotechnology company devoted to the discovery, development and commercialization of technologies and processes in clinical cell therapy and transfusion medicine, specifically in the areas of cancer, genetic disorders, cell engineering and transplantation. Protide also provides contract manufacturing for companies and educational institutions.

        Celox Laboratories, Inc. manufactures and markets proprietary cell biology and various other standard products for the growth of human and mammalian cells. The Company’s proprietary products consist of serum-free supplements and cell cryopreservation solutions. The Company also manufactures basal media formulations, a series of buffered saline solutions, other cell biology reagents, and a variety of custom formulations. Celox additionally will continue to manufacture contract solutions for manufacturing companies.

        During the first quarter of fiscal 2001 the Company introduced the new product STEMSOL^TM. STEMSOL^TM is a sterile filtered, USP Grade Dimethyl Sulfoxide (DMSO) used in a cryopreservation solution for, among other things, bone marrow, peripheral-blood stem cells and cord blood preservations. In addition, DMSO/Dextran was introduced in the first quarter of fiscal 2001 and is also used as a cryopreservative for cord blood stem cells. These products are labeled for research use only, not for human use.

        During the third quarter of fiscal 2000, the Company entered into an agreement to manufacture specialized solutions for the processing of pancreatic islet cells. These cells may be used instead of whole organ transplants. During the first quarter of fiscal 2002 an order was received from a second transplant center for these specialized solutions. The revenue from this order was reflected in the second quarter of fiscal 2002. Orders for these solutions have continued in fiscal 2004.

        b. ViaStem^TM

        In March 1995, the Company filed a patent application for ViaStem™ in the U.S. Patent and Trademark Office. The Company received the U.S. Patent in early December 1996. This patent provides protection of the Company’s ViaStem™ technology through March of 2015. A second U.S. Patent was received in August 1998. This second patent broadened the patented uses of ViaStem™ in bone marrow transplantation and related therapies. The Company has also filed the documents needed for an International Patent Application as required by the Patent Cooperation Treaty. Viastem™ currently has gained patent approval in New Zealand, Australia, Canada, Russia, Mexico, Japan and the European Community.

        On March 12, 2003 the Company signed an agreement with the University of Minnesota Physicians Outreach Laboratories (UMPOL), a Minnesota nonprofit Corporation, to complete the preclinical testing for the Company’s ViaStem^TM product. This agreement was terminated by the Company in September 2003 due to the failure of the University of Minnesota to perform under the donor study agreement.

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        c. Distribution/Marketing

        The Company continues to sell its products on a direct basis to customers in the United States as well as to seventeen different countries around the world. In addition the Company has formed the following distribution avenues:

        The Company has a nonexclusive worldwide distribution agreement with MP Biomedicals, Inc., Costa Mesa, CA. Under the agreement, MP Biomedicals is marketing Celox’ TCM^TM, TCH™, TM-235™ serum replacement products as well as Cellvation™. MP Biomedicals manufactures and markets medical and biotechnology products worldwide.

        In 1997, the Company began providing its proprietary products to Sigma Chemical Company (NASDAQ:SIAL), St. Louis, MO. under a private label distribution agreement for worldwide distribution.

        The Company’s Celox product line is distributed in Japan through Funakoshi Co., LTD, a well-established Japanese distributor.

        The Company also has distribution of its STEMSOL^TM and DMSO/Dextran products in Europe and the Pacific Rim through various non-exclusive agreements with local distributors.

        Employment Agreement

        On March 22, 2004 the Company received a letter from Milo R. Polovina, President & CEO which notified the Company of material breaches in the terms of the employment agreement between Mr. Polovina and the Company.

        Government Regulations

        In July 2002, the Sarbannes-Oxley Act of 2002 was signed into law. This Act is intended to provide increased investor protection through various new reporting requirements, internal audit requirements and Company officer certifications. Section 404 of this act requires management to file an internal control report with the annual report on Form 10-K effective for fiscal years ended after September 15, 2003. Because of the lack of liquidity of micro-cap stocks and the expected large expense anticipated to be incurred to comply with Section 404 (both professional fees and filing costs), on March 8, 2004 the Company filed a Form 15 with the Securities and Exchange Commission (SEC) to terminate registration of Protide Pharmaceuticals’ common stock under the Securities Exchange Act of 1934.

Upon filing of the Form 15, the obligations of Protide Pharmaceuticals to file with the SEC certain reports and forms, including 10-KSB, 10-QSB and 8-K ceased. Upon the final effective date of the Form 15, which is anticipated to be within 90 days of filing, the obligations of Protide Pharmaceuticals to file proxy statements with the SEC will cease and Protide Pharmaceuticals’ common stock will no longer be eligible for quotation on the OTC Bulletin Board. There is no guarantee that a public market will exist for the common stock of Protide Pharmaceuticals.

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        Results of Operations

        During the quarter ended February 28, 2004, the Company had net sales of $170,197 which was an increase of $9,300 or 6% from $160,897 reported in the same quarter for the prior fiscal year. For the six month period ended February 28, 2004, the Company had net sales of $282,544 versus $282, 057 in the six months ended February 28, 2003. The increase between years for the three month reporting period as compared to the previous fiscal year is attributable to an increase in orders from the Pacific Rim countries coupled with and increase in demand for specialized contract manufacturing. The amount and timing of orders from distributors also impacted the current quarter sales. The increase for the three month period ended February 28, 2004 brought the six month sales total up to the same level as for the six months ended in February, 2003.

        The Company had a net income of $24,663 for the quarter ended February 28, 2004 compared to a net income of $16,883 for the same period in the previous fiscal year. For the six months ended February 28, 2004 the Company incurred a loss of ($10,365) as compared to a loss of ($19,868) for the same reporting period in fiscal 2003. The increase in net income in the three month reporting period as compared to the income of $16,883 in the previous fiscal year results from a 6% increase in sales as reported above as well by a decrease in operating expenses. For the six month reporting period the decreased loss was due to level sales, decreased cost of sales and lower operating expenses. On a per share basis for the three months ended February 28, 2004, the income of $24,663 resulted in a per share gain of $0.01 as compared to $0.00 for the quarter ended February 28, 2003. For the six months ended February 28, 2004 the loss of ($10,365) resulted in ($0.00) per share compared to a per share loss of ($0.00) in the six months ended February 28, 2003.

        The cost of products sold was $29,328 or 17% of net sales for the three months ended February 28, 2004, as compared to $26,939 or 17% of net sales for the three months ended February 28, 2003. For the six months ended February 28, 2004, the cost of products sold was $59,258 (21%) versus $61,987 (22%) for the six months ended February 28, 2003. The decreased percentage for the six month period results from the mix of products sold to higher margin products as compared to the previous fiscal year.

        Operating income of $24,760 was generated for the quarter ended February 28, 2004 compared to operating income of $16,766 for the same period in the previous fiscal year. For the six months ended February 28, 2004 an operating loss of ($10,244) was incurred as compared to an operating loss of ($20,213) for the six months ended February 28, 2003. The increase in operating income for the current quarter as compared to the previous fiscal year results from an increase in sales coupled with a modest decrease in operating expenses. The decreased loss between years for the six month reporting period results from level sales and decreased operating expenses.

        Operating expenses decreased $1,083 (1%) to $116,109 from $117,192 for the quarter ended February 28, 2004 as compared to the comparable reporting period in the prior fiscal year. Operating expenses decreased $6,753 (3%) to $233,530 from $240,283 for the six months ended February 28, 2003. The decrease between the respective three month and six month reporting periods resulted from lower administrative expenses offset by increased sales and operations expenses.

        Research and development costs decreased by $26 to $37,644 from $37,670 for the three months ended February 28, 2004 as compared to the three months ended February 28, 2003. For the six months ended February 28, 2004 research and development cost decreased by $71 to $73,050 from $73,121. The small decrease between years for the both reporting periods results from steady expenditures in the research and development area for the respective years. The Company expects the costs of research and development to fluctuate based on the status of preclinical and clinical trials for ViaStem^TM.

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        Sales and operations expenses increased by $2,554 (9%) to $30,403 from $27,849 for the three months ended February 28, 2004 as compared the comparable reporting period in the previous fiscal year. For the six months ended February 28, 2004 sales and operations expenses increased $1,467 (3%) to $57,956 from $56,489. The increase for the three month reporting period as compared to the comparable period in the prior fiscal year results from increased commissions due to increased sales and by increased shipping supplies expenditures. The increase seen in the six month reporting period resulted from increased freight charges and shipping supplies. The Company expects that sales and operations expenses will fluctuate based on sales volume, introduction of new products, new studies, and as new advertising materials are developed.

        Administrative expenses decreased by $3,611 (7%) for the three months ended February 28, 2004 compared to the comparable period in the previous fiscal year to $48,062 from $51,673 For the six month reporting period administrative expenses decreased by $8,149 to $102,524 from $110,673. The decrease for the three month as well as for the six month reporting period as compared to the previous year is due to lower salaries & benefits and lower depreciation expense offset by higher health insurance premiums.

Liquidity and Capital Resources

        Capital resources on hand at February 28, 2004 include cash and short-term investments of $109,698 and net working capital of $185,355 This represents a decrease of $9,022 (8%) in cash and short-term investments and a decrease of $91 in net working capital as compared to August 31, 2003.

        The Company is leasing approximately 9,500 square feet of office, laboratory and warehouse space in St. Paul, MN under a seven year lease through April 2004. The lease was extended for a two (2) year period beginning April 1, 2004. The Company moved into the new facility during March 1997. As partial payment for tenant improvements in the new facility, the Company borrowed $100,000 from a local bank. The loan is secured by a certificate of deposit at this bank. The interest rate for this loan, currently 4%, is tied to the certificate of deposit rate. The loan is for a one year term with a maturity in February 2005.

        The Company intends to pursue additional financing, subject to prevailing market conditions. There is no guarantee however, that the Company will be able to successfully raise an adequate amount of additional funds with terms that are favorable to the Company. In addition, there can be no assurance that the Company will be able to obtain the necessary FDA approvals for ViaStem^TM. If required future financing is unavailable for any reason, the Company may be forced to discontinue operations.

        The Company anticipates spending approximately $10,000 during fiscal 2004 on capital expenditures. This does not include costs for preclinical and clinical trials for ViaStem^TM. Through February 2004 the Company has made no capital expenditures. The Company believes that its capital resources on hand at February 28, 2004 with revenues from product sales, will be sufficient to meet its cash requirements for the fiscal year, however, additional capital will be required to fund future operations and product testing.

Forward Looking Information

        Information contained in this Form 10-QSB contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “plan”, “anticipate”, “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. There are certain important factors that could cause results to differ materially from those anticipated by some of these forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. The factors, among others, that could cause actual results to differ materially include the Company’s ability to obtain FDA approval for its clinical products, the ability of the Company to raise additional capital and the ability to execute its business plan.

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PART II — OTHER INFORMATION

ITEM I. — LEGAL PROCEEDINGS

        The Company is not presently involved in any material legal proceedings.

ITEM 2. — CHANGES IN SECURITIES

      None

ITEM 3. — DEFAULTS UPON SENIOR SECURITIES

      None

ITEM 4. — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None

ITEM 5. — OTHER INFORMATION

      None

ITEM 6. — (A) EXHIBITS

31 Section 302 Certification of Officers

32 Section 906 Certification of Officers

(B) REPORTS ON FORM 8-K

On March 8, 2004 the Company filed a Form 8-K which disclosed a Form 15 filing with the SEC to terminate the registration of its common stock under the Securities and Exchange Act of 1934. Concurrently, the Company filed as an exhibit a Press Release announcing the filing of the Form 15.

SIGNATURES

        In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PROTIDE PHARMACEUTICALS, INC.
Dated: April 13, 2004	By:/S/ Milo R. Polovina          Milo R. Polovina, President & CEO (Principal Financial Officer)

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