As filed with the Securities and Exchange Commission on December 15, 2005
Registration No. __________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------------------------------------------
SAMARITAN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0431538
------ ----------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
Eugene Boyle
Chief Financial Officer
Samaritan Pharmaceuticals, Inc.
101 Convention Center Drive, Suite 310 101 Convention Center Drive, Suite 310
Las Vegas, Nevada 89109 Las Vegas, Nevada 89109
Telephone: (702) 735-7001 Telephone: (702) 735-7001
Telecopier: (702) 737-7016 8731 Telecopier: (702) 737-7016
-------------------------- ---- --------------------------
(Address and telephone number of (Primary Standard Industrial (Name, address and telephone number
principal Executive offices and Classification Number) of agent for service)
principal place of business)
With Copies To:
Clayton E. Parker, Esq. Matthew L. Ogurick, Esq.
Kirkpatrick & Lockhart Nicholson Graham LLP Kirkpatrick & Lockhart Nicholson Graham LLP
201 South Biscayne Boulevard, Suite 2000 201 South Biscayne Boulevard, Suite 2000
Miami, Florida 33131 Miami, Florida 33131
Telephone: (305) 539-3300 Telephone: (305) 539-3300
Facsimile: (305) 358-7095 Facsimile: (305) 358-7095
Approximate date commencement of proposed sale to the public: As soon as
practicable and from time to time after this registration statement becomes
effective. If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, please check the following box.[X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
============================================================================================================================
Proposed
Maximum
Proposed Maximum Aggregate Amount Of
Title Of Each Class Of Amount To Be Offering Price Offering Registration
Securities To Be Registered Registered Per Share (1) Price (1) Fee
----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.001 per share 16,700,000 shares (2) $0.40 $6,680,000 $786.24
----------------------------------------------------------------------------------------------------------------------------
TOTAL 16,700,000 shares (2) $0.40 $6,680,000 $786.24
============================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933. For the
purposes of this table, we have used the last reported market sale
price of our Common Stock on November 29, 2005.
(2) 16,700,000 of these shares are being registered pursuant to that
certain Purchase Agreement II with Fusion Capital, as amended,
including 1,700,000 shares which have already been issued to Fusion
Capital as a commitment fee.
----------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
SUBJECT TO COMPLETION DATED DECEMBER 15, 2005
The information in this prospectus (this "Prospectus") is not complete and may
be changed. These securities may not be sold until this registration statement
filed with the U.S. Securities and Exchange Commission (the "SEC") is effective.
This Prospectus is not an offer to sell securities and we are not soliciting
offers to buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS
SAMARITAN PHARMACEUTICALS, INC.
16,700,000 Shares of Common Stock
This Prospectus relates to the registration of 16,700,000 shares of the common
stock ("Common Stock") of Samaritan Pharmaceuticals, Inc. ("Samaritan"), and
such 16,700,000 shares shall be offered for sale from time to time by
Fusion Capital Fund II, LLC ("Fusion Capital") pursuant to the terms of a common
stock purchase agreement, as amended (the "Purchase Agreement II"), including
1,700,000 shares previously issued to Fusion Capital as a commitment fee. Please
refer to Section entitled "Selling Shareholder" for information on Fusion
Capital beginning on page 38 herein. All costs associated with this registration
will be borne by Samaritan. The prices at which Fusion Capital may sell the
shares pursuant to the Purchase Agreement II will be determined by the
prevailing market price for the shares or in negotiated transactions.
Our Common Stock is quoted on the American Stock Exchange under the symbol
"LIV". On November 29, 2005, the last reported market sale price for our Common
Stock as reported on the American Stock Exchange was $0.40 per share.
----------------
Fusion Capital is an "underwriter" within the meaning of the Securities Act of
1933, as amended.
----------------
Investing in our Common Stock involves a high degree of risk. You should
consider the "Risk Factors" beginning on page 4 before purchasing our Common
Stock.
Neither the SEC nor any state securities commission has approved or disapproved
of these securities or passed upon the adequacy or accuracy of this Prospectus.
Any representation to the contrary is a criminal offense.
The date of this Prospectus is _______________________, 2005.
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY...........................................................1
FORWARD-LOOKING STATEMENTS...................................................3
RISK FACTORS.................................................................4
DESCRIPTION OF BUSINESS.....................................................12
USE OF PROCEEDS.............................................................19
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS....................20
THE FUSION TRANSACTION......................................................21
DILUTION....................................................................25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................26
LEGAL PROCEEDINGS...........................................................31
MANAGEMENT..................................................................32
PRINCIPAL SHAREHOLDERS......................................................40
DESCRIPTION OF CAPITAL STOCK................................................42
SHARES ELIGIBLE FOR FUTURE SALE.............................................44
SELLING SHAREHOLDER.........................................................45
PLAN OF DISTRIBUTION........................................................46
LEGAL MATTERS...............................................................48
EXPERTS.....................................................................48
WHERE YOU CAN FIND MORE INFORMATION.........................................48
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...................................................49
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES.................................................50
FINANCIAL STATEMENTS........................................................F-i
PART II.....................................................................II-1
SIGNATURES..................................................................II-6
i
PROSPECTUS SUMMARY
General
This summary highlights certain information found in greater detail elsewhere in
this Prospectus (this "Prospectus"). This summary may not contain all of the
information that may be important to you. We urge you to read this entire
Prospectus carefully, including the risks of investing in our common stock
("Common Stock") discussed under the Section entitled "Risk Factors" and the
financial statements and other information that is incorporated by reference
into this Prospectus, before making an investment decision. In addition, this
Prospectus summarizes other documents which we urge you to read. All references
in this Prospectus to "Samaritan", the "Company", "we", "us" and "our" refer to
Samaritan Pharmaceuticals, Inc.
Our Company
We are a small cap biopharmaceutical company focused on the development of novel
therapeutic and diagnostic products. We have devoted substantially all of our
resources to undertaking our drug discovery and development programs.
The majority of our resources have been expended in the pursuit of FDA required
preclinical studies and Phase II/III clinical trials for Samaritan's HIV drug
SP-01A (Sphirewall), an oral entry inhibitor. In a previous Phase I/II study,
SP-01A was observed to significantly lower the amount of HIV in blood, improve
quality of life (how well subjects have felt), have a favorable safety profile
(minimal side effects) and be well-tolerated. Moreover, in vitro testing of
SP-01A: (a) demonstrated comparable or greater efficacy than currently approved
anti-HIV drugs in preventing HIV virus replication; (b) was observed to have
minimal toxic effect on human cells; and (c) demonstrated significant efficacy
in preventing virus replication of HIV virus strains that resist currently
approved anti-HIV treatments. The goal of our SP-01A monotherapy study, which is
currently recruiting patients, is to further look at the dose response, efficacy
and safety of SP-01A as monotherapy, given as a capsule to be swallowed, in the
treatment of HIV-infected patients.
In addition, and at the same time, Samaritan has devoted major resources to its
Alzheimer's technology, which features: (a) three (3) therapeutics: SP-04,
SP-08, and SP-233; (b) two (2) stem cell/neuron differentiation therapies:
SP-sc4 and SP-sc7; (c) a predictive Alzheimer's diagnostic; and (d) an
Alzheimer's animal model. Samaritan has also devoted resources to its cancer
drug SP-C007, a breast cancer diagnostic and our cholesterol recognition
peptide, which plays a role in transforming and binding LDL cholesterol while
subsequently raising HDL.
Samaritan has established its European headquarters in Athens, Greece which we
believe will provide access to the markets of East Europe, Asia and Africa,
regions with a high proportion of HIV patients and a target population for our
most advanced drug, SP-01A. "Samaritan Pharmaceuticals Europe" is currently
seeking to build a sales and marketing infrastructure through distribution
agreements for niche high valued products from other companies in the fields of
HIV/Infectious diseases, CNS, Cancer/Oncology and Cardiovascular diseases for
the undeveloped regions of Greece, Bulgaria, Romania, Croatia, Serbia, Bosnia
and Slovenia. Samaritan Pharmaceuticals Europe: (a) has established a
manufacturing arm in Ireland with Pharmaplaz, LTD, (b) plans to develop its
pipeline of drugs through clinical trials in preparation for European approval,
(c) plans to increase its university research collaborations and (d) plans to
apply for applicable European grants.
Samaritan is a Nevada corporation. We were formed in September 1994 and became a
public company in October 1997. Our principal executive offices are located at
101 Convention Center Drive, Suite 310, Las Vegas, Nevada 89109. Our telephone
number is (702) 735-7001. The address of our website is
www.samaritanpharmaceuticals.com. Information on our website is not part of this
Prospectus.
The Offering
On May 12, 2005, we entered into a common stock purchase agreement, as amended
(the"Purchase Agreement II") with Fusion Capital Fund II, LLC ("Fusion Capital")
pursuant to which Fusion Capital has agreed, under certain conditions, to
purchase on each trading day $40,000 of our Common Stock up to an aggregate of
$40,000,000 over a fifty (50) month period subject to earlier termination at our
discretion. We may also elect, at our discretion, to sell more of our Common
Stock to Fusion Capital than the $40,000 daily amount. The purchase price of the
shares of Common Stock will be equal to a price based upon the future market
price of the Common Stock without any fixed discount to the market price. Fusion
Capital does not have the right or the obligation to purchase shares of our
Common Stock in the event that the price of our Common Stock is less than $0.25.
1
Fusion Capital, the selling shareholder under this Prospectus, is offering for
sale up to 16,700,000 shares of our Common Stock, including the 1,700,000 shares
which have previously been issued to Fusion Capital as a commitment fee. In
connection with entering into the Purchase Agreement II, we authorized the sale
to Fusion Capital of up to 15,000,000 shares of our Common Stock for a maximum
proceeds of $40,000,000. We only have the right to receive $40,000 per trading
day under the Purchase Agreement II will be 15,000,000 shareswith Fusion Capital
unless our stock price equals or exceeds $1.50, in which case the daily amount
may be increased under certain conditions as the price of our Common Stock
increases. Fusion Capital shall not have the right nor the obligation to
purchase any shares of our Common Stock on any trading days that the market
price of our Common Stock is less than $0.25. Since we are registering
16,700,000 shares to be offered for sale from time to time by Fusion Capital
pursuant to this Prospectus, the selling price of our Common Stock to Fusion
Capital will have to average at least $2.67 per share for us to receive the
maximum proceeds of $40,000,000 without registering additional shares of Common
Stock. Assuming a purchase price of $0.40 per share (the last reported market
sale price of our Common Stock on November 29, 2005) and the purchase by Fusion
Capital of the full 15,000,000 shares under the Purchase Agreement II (excluding
the 1,700,000 shares previously issued to Fusion Capital as a commitment fee). ,
proceeds to us would only be $6,000,000 unless we choose to register more than
15,000,000 shares, which we have the right, but not the obligation, to do.
Subject to approval by our Board of Directors, we have the right but not the
obligation to sell more than 15,000,000 shares to Fusion Capital. In the event
we elect to sell more than the 15,000,000 shares, we will be required to file a
new registration statement and have it declared effective by the U.S. Securities
& Exchange Commission. The number of shares ultimately offered for sale by
Fusion Capital is dependent upon the number of shares purchased by Fusion
Capital under the Purchase Agreement II. In order to be in compliance with the
rules and regulations of the American Stock Exchange, the Company would be
required to obtain shareholder approval to sell more than 26,643,192 shares of
our Common Stock (i.e., 19.9% of our issued and outstanding shares as of May 12,
2005, the date of the Purchase Agreement II).
As of November 14, 2005, there were 136,198,761 shares of our Common Stock
issued and outstanding, including the 1,700,000 shares we issued to Fusion
Capital as a commitment fee and excluding the 15,000,000 shares to be offered by
Fusion Capital pursuant to this Prospectus which Fusion Capital has not yet
purchased from us. If all of the shares offered by this Prospectus were issued
and outstanding as of the date hereof, the number of shares offered by this
Prospectus would represent 13.74% of the total Common Stock outstanding.
2
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements
include statements regarding, among other things: (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans, and (e) our anticipated needs for
working capital. Forward-looking statements, which involve assumptions and
describe our future plans, strategies, and expectations, are generally
identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend," or "project" or the negative of
these words or other variations on these words or comparable terminology. This
information may involve known and unknown risks, uncertainties, and other
factors that may cause our actual results, performance, or achievements to be
materially different from the future results, performance, or achievements
expressed or implied by any forward-looking statements. These statements may be
found under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business", as well as in this Prospectus generally.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including, without
limitation, the risks outlined under "Risk Factors" and matters described in
this Prospectus generally. In light of these risks and uncertainties, there can
be no assurance that the forward-looking statements contained in this filing
will in fact occur. In addition to the information expressly required to be
included in this filing, we will provide such further material information, if
any, as may be necessary to make the required statements, in light of the
circumstances under which they are made, not misleading.
3
RISK FACTORS
You should carefully consider the risks described below before purchasing our
Common Stock. Our most significant risks and uncertainties are described below;
however, they are not the only risks we face. If any of the following risks
actually occur, our business, financial condition, or results or operations
could be materially adversely affected, the trading of our Common Stock could
decline, and you may lose all or part of your investment therein. You should
acquire shares of our Common Stock only if you can afford to lose your entire
investment.
We Have A Limited Operating History With Significant Losses And Expect Losses To
Continue For The Foreseeable Future
We have yet to establish any history of profitable operations. We have incurred
annual operating losses of $4,864,361 and $5,520,531 during the years ended
December 31, 2004 and 2003, respectively. As a result, at September 30, 2005, we
had an accumulated deficit of $32,255,304. Our revenues have not been sufficient
to sustain our operations. We expect that our revenues will not be sufficient to
sustain our operations for the foreseeable future. Our profitability will
require the successful commercialization of one or more of drugs for AIDS,
Alzheimer's, Cancer and Cardiovascular disease. No assurances can be given when
this will occur or that we will ever be profitable.
We Will Require Additional Financing To Sustain Our Operations And Without It We
Will Not Be Able To Continue Operations
We do not currently have sufficient financial resources to fund our operations.
At September 30, 2005, we had a limited working capital of$1,342,067 and
$850,095 in cash. Therefore, we need additional funds to continue operations.
We only have the right to receive $40,000 per trading day under the
Purchase Agreement II with Fusion Capital unless our stock price equals or
exceeds $1.50, in which case the daily amount may be increased under certain
conditions as the price of our Common Stock increases. Fusion Capital shall not
have the right nor the obligation to purchase any shares of our Common Stock on
any trading days that the market price of our Common Stock is less than $0.25.
Since we are registering 16,700,000 shares to be offered for sale from time to
time by Fusion Capital pursuant to this Prospectus, the selling price of our
Common Stock to Fusion Capital will have to average at least $2.67 per share for
us to receive the maximum proceeds of $40,000,000 without registering additional
shares of Common Stock. Assuming a purchase price of $2.67 per share (the last
reported market sale price of our Common Stock on November 29, 2005) and the
purchase by Fusion Capital of the full 15,000,000 shares under the Purchase
Agreement II (excluding the 1,700,000 shares previously issued as a commitment
fee), proceeds to us would only be $6,000,000 unless we choose to register more
than 15,000,000 shares, which we have the right, but not the obligation, to do.
Subject to approval by our Board of Directors, we have the right but not the
obligation to issue more than 15,000,000 shares to Fusion Capital. In the event
we elect to issue more than 15,000,000 shares offered hereby, we will be
required to file a new registration statement and have it declared effective by
the U.S. Securities & Exchange Commission (the "SEC"). In order to be in
compliance with the rules and regulations of the American Stock Exchange, the
Company would be required to obtain shareholder approval to sell more than
26,643,192 shares of our Common Stock (i.e., 19.9% of our issued and outstanding
shares as of May 12, 2005, the date of the Purchase Agreement II).
To the extent we rely on Fusion Capital as a source of funding will depend on a
number of factors including, the prevailing market price of our Common Stock and
the extent to which we are able to secure working capital from other sources.
Specifically, Fusion Capital shall not have the right or the obligation to
purchase any shares of our Common Stock on any trading days that the market
price of our Common Stock is less than $0.25. If obtaining sufficient financing
from Fusion Capital were to prove unavailable or prohibitively dilutive, we will
need to secure another source of funding in order to satisfy our working capital
needs. Even if we are able to access the full $40,000,000 under the Purchase
Agreement II, we may still need additional capital to fully implement our
business, operating and development plans. Should the financing we require to
sustain our working capital needs be unavailable or prohibitively expensive when
we require it, the consequences would be a material adverse effect on our
business, operating results, financial condition and prospects.
4
We Have A Substantial Accumulated Deficit And Limited Working Capital
The Company had an accumulated deficit of $32,255,304 as of September 30, 2005.
Since the Company presently has no source of revenues and is committed to
continuing its product research and development program, significant
expenditures and losses will continue until development of new products is
completed and such products have been clinically tested, approved by the FDA and
successfully marketed. In addition, the Company has funded its operations
primarily through the sale of Company securities, and has had limited working
capital for its product development and other activities. We do not believe that
debt financing from financial institutions will be available until at least the
time that one of our products is approved for commercial production.
We Have No Current Product Sales Revenues Or Profits
The Company has devoted its resources to developing a new generation of
therapeutic drug products, but such products cannot be marketed until clinical
testing is completed and governmental approvals have been obtained. Accordingly,
there is no current source of revenues, much less profits, to sustain the
Company's present activities, and no revenues will likely be available until,
and unless the new products are clinically tested, approved by the FDA and
successfully marketed, either by the Company or a marketing partner, an outcome
which the Company is not able to guarantee.
The Sale Of Our Common Stock To Fusion Capital May Cause Dilution And The
Sale Of The Shares Of Common Stock Acquired By Fusion Capital Could Cause The
Price Of Our Common Stock To Decline
The purchase price for the Common Stock to be sold to Fusion Capital pursuant to
the Purchase Agreement II will fluctuate based on the price of our Common Stock.
All shares in this offering are freely tradable. Fusion Capital may sell none,
some or all of the shares of Common Stock purchased from us at any time. We
expect that the shares offered by this Prospectus will be sold over a period of
up to fifty (50) months from the date of this Prospectus. Depending upon market
liquidity at the time, a sale of shares under this offering at any given time
could cause the trading price of our Common Stock to decline. The sale of a
substantial number of shares of our Common Stock under this offering, or
anticipation of such sales, could make it more difficult for us to sell equity
or equity-related securities in the future at a time and at a price that we
might otherwise wish to effect sales.
The sale of shares to Fusion Capital pursuant to the Purchase Agreement II will
have a dilutive impact on our shareholders. For illustrative purposes, if we
assume that we issued 15,000,000 shares of Common Stock under the Purchase
Agreement II (i.e., the number of shares being registered in connection with the
Purchase Agreement II in this registration statement) at an assumed offering
price of $0.40 per share (the last reported market sale price of our Common
Stock on November 29, 2005), less offering expenses of $85,000, our net tangible
book value as of September 30, 2005 would have been $8,799,576 or $0.0583 per
share. Such an offering would represent an immediate increase in net tangible
book value to existing shareholders of $0.0371 per share and an immediate
dilution to new shareholders of $0.3417 per share. The 15,000,000 shares of
Common Stock offered by this Prospectus in connection with the Purchase
Agreement II represent approximately 13.74% of our total outstanding Common
Stock as of November 14, 2005. As a result, our net income per share could
decrease in future periods, and the market price of our Common Stock could
decline. In addition, the lower our stock price is, the more shares of Common
Stock we will have to issue under the Purchase Agreement II to draw down the
full amount. If our stock price is lower, then our existing shareholders would
experience greater dilution.
Existing Shareholders Will Experience Significant Dilution From Our Sale
Of Shares Under The Purchase Agreement II With Fusion Capital And Any Other
Equity Financing
The sale of shares pursuant to the Purchase Agreement II with Fusion Capital or
any other future equity financing transaction will have a dilutive impact on our
shareholders. As a result, our net income or loss per share could decrease in
future periods, and the market price of our Common Stock could decline. In
addition, the lower our stock price is, the more shares of Common Stock we will
have to issue under the Purchase Agreement II in order to draw down the full
amount. If our stock price is lower, then our existing shareholders would
experience greater dilution. We cannot predict the actual number of shares of
Common Stock that will be issued pursuant to the Purchase Agreement II or any
other future equity financing transaction, in part, because the purchase price
of the shares will fluctuate based on prevailing market conditions and we do not
know the exact amount of funds we will need.
The Market Price Of Our Common Stock Is Highly Volatile, Which Could Hinder Our
Ability To Raise Additional Capital
5
The market price of our Common Stock has been and is expected to continue to be
highly volatile. Factors, including regulatory matters, concerns about our
financial condition, operating results, litigation, government regulation,
developments or disputes relating to agreements, title to our properties or
proprietary rights, may have a significant impact on the market price of our
stock. The range of the high and low bid prices of our Common Stock over the
last three (3) full fiscal years has been between $0.12 and $1.69. In addition,
potential dilutive effects of future sales of shares of Common Stock by
shareholders and by the Company, and subsequent sale of Common Stock by the
holders of warrants and options could have an adverse effect on the price of our
securities, which could hinder our ability to raise additional capital to fully
implement our business, operating and development plans.
Penny Stock Regulations Affect Our Stock Price, Which May Make It More Difficult
For Investors To Sell Their Stock
Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by certain penny stock rules adopted by the SEC. Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
Nasdaq system, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer must also provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. Our securities will be subject to the penny stock rules, and
investors may find it more difficult to sell their securities.
It Is Uncertain That The Company Will Have Access To Future Capital Or
Government Grants
It is not expected that the Company will generate positive cash flow from
operations for at least the next several years. As a result, substantial
additional equity or debt financing or the receipt of one or more government
grants for research and development and/or clinical development will be required
to fund our activities. We cannot be certain that we will be able to consummate
any such financing on favorable terms, if at all, or receive any such government
grants or that such financing or government grants will be adequate to meet our
capital requirements. Any additional equity financing could result in
substantial dilution to shareholders, and debt financing, if available, will
most likely involve restrictive covenants which preclude the Company from making
distributions to shareholders and taking other actions beneficial to
shareholders. If adequate funds are not available, the Company may be required
to delay or reduce the scope of its drug development program or attempt to
continue development by entering into arrangements with collaborative partners
or others that may require the Company to relinquish some or all of its rights
to proprietary drugs. The inability to fund its capital requirements would have
a material adverse effect on the Company.
The Company Is Not Certain That It Will Be Successful In The Development Of Its
Drug Candidates
The successful development of any new drug is highly uncertain and is subject to
a number of significant risks. Our drug candidates, all of which are in a
development stage, require significant, time-consuming and costly development,
testing and regulatory clearance. This process typically takes several years and
can require substantially more time. Risks include, among others, the
possibility that a drug candidate will (a) be found to be ineffective or
unacceptably toxic, (b) have unacceptable side effects, (c) fail to receive
necessary regulatory clearances, (d) not achieve broad market acceptance, (e) be
subject to competition from third parties who may market equivalent or superior
products or (f) be affected by third parties holding proprietary rights that
will preclude the Company from marketing a drug product. There can be no
assurance that the development of drug candidates will demonstrate the efficacy
and safety of a drug candidate as a therapeutic drug, or, even if demonstrated,
that there will be sufficient advantages to its use over other drugs or
treatments so as to render the drug product commercially viable. In the event
that the Company is not successful in developing and commercializing one or more
drug candidates, investors are likely to realize a loss of their entire
investment.
Positive results in preclinical and early clinical trials do not ensure that
future clinical trials will be successful or that drug candidates will receive
any necessary regulatory approvals for the marketing, distribution or sale of
such drug candidates.
6
Success in preclinical and early clinical trials does not ensure that
large-scale clinical trials will be successful. Clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent
regulatory approvals. The length of time necessary to complete clinical trials
and to submit an application for marketing approval for a final decision by a
regulatory authority varies significantly and may be difficult to predict.
The Company Will Face Intense Competition From Other Companies In The
Pharmaceutical Industry
The Company is engaged in a segment of the pharmaceutical industry that is
highly competitive and rapidly changing. If successfully developed and approved,
any of the Company's drug candidates will likely compete with several existing
therapies. In addition, other companies are pursuing the development of
pharmaceuticals that target the same diseases as are targeted by the drugs being
developed by the Company. The Company anticipates that it will face intense and
increasing competition in the future as new products enter the market and
advanced technologies become available. We cannot assure that existing products
or new products developed by competitors will not be more effective, or more
effectively marketed and sold than those by the Company. Competitive products
may render the Company's drugs obsolete or noncompetitive prior to the Company's
recovery of development and commercialization expenses.
Many of the Company's competitors will also have significantly greater
financial, technical and human resources and will likely be better equipped to
develop, manufacture and market products. In addition, many of these competitors
have extensive experience in preclinical testing and clinical trials, obtaining
FDA and other regulatory approvals and manufacturing and marketing
pharmaceutical products. A number of these competitors also have products that
have been approved or are in late-stage development and operate large,
well-funded research and development programs. Smaller companies may also prove
to be significant competitors, particularly through collaborative arrangements
with large pharmaceutical and biotechnology companies. Furthermore, academic
institutions, government agencies and other public and private research
organizations are becoming increasingly aware of the commercial value of their
inventions and are actively seeking to commercialize the technology they have
developed. Accordingly, competitors may succeed in commercializing products more
rapidly or effectively than the Company, which would have a material adverse
effect on the Company.
There Is No Assurance That The Company's Products Will Have Market Acceptance
The success of the Company will depend in substantial part on the extent to
which a drug product, once approved, achieves market acceptance. The degree of
market acceptance will depend upon a number of factors, including (a) the
receipt and scope of regulatory approvals, (b) the establishment and
demonstration in the medical community of the safety and efficacy of a drug
product, (c) the product's potential advantages over existing treatment methods
and (d) reimbursement policies of government and third party payors. We cannot
predict or guarantee that physicians, patients, healthcare insurers or
maintenance organizations, or the medical community in general, will accept or
utilize any drug product of the Company.
The unavailability of health care reimbursement for any of our products will
likely adversely impact our ability to market effectively such products and
whether health care reimbursement will be available for any of our products is
uncertain.
The Company's ability to commercialize its technology successfully will depend
in part on the extent to which reimbursement for the costs of such products and
related treatments will be available from government health administration
authorities, private health insurers and other third-party payors. Significant
uncertainty exists as to the reimbursement status of newly-approved medical
products. The Company cannot guarantee that adequate third-party insurance
coverage will be available for the Company to establish and maintain price
levels sufficient for realization of an appropriate return on its investments in
developing new therapies. Government, private health insurers, and other
third-party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products approved for marketing by the FDA. Accordingly, even if coverage and
reimbursement were provided by government, private health insurers, and
third-party payors for uses of the Company's products, the market acceptance of
these products would be adversely affected if the amount of reimbursement
available for the use of the Company's therapies proved to be unprofitable for
health care providers.
Uncertainties Related To Health Care Reform Measures May Affect The Company's
Success
There have been a number of federal and state proposals during the last few
years to subject the pricing of health care goods and services, including
prescription drugs, to government control and to make other changes to the U.S.
health care system. It is uncertain which legislative proposals will be adopted
or what actions federal, state, or private payors for health care treatment and
services may take in response to any health care reform proposals or
legislation. The Company cannot predict the effect health care reforms may have
on its business, and there is no guarantee that any such reforms will not have a
material adverse effect on the Company.
7
Further Testing Of Our Drug Candidates Will Be Required And There Is No
Assurance Of FDA Approval
The FDA and comparable agencies in foreign countries impose substantial
requirements upon the introduction of medical products, through lengthy and
detailed laboratory and clinical testing procedures, sampling activities and
other costly and time-consuming procedures. Satisfaction of these requirements
typically takes several years or more and varies substantially based upon the
type, complexity, and novelty of the product.
The effect of government regulation and the need for FDA approval will delay
marketing of new products for a considerable period of time, impose costly
procedures upon the Company's activities, and provide an advantage to larger
companies that compete with the Company. There can be no assurance that FDA or
other regulatory approval for any products developed by the Company will be
granted on a timely basis or at all. Any such delay in obtaining, or failure to
obtain, such approvals would materially and adversely affect the marketing of
any contemplated products and the ability to earn product revenue. Further,
regulation of manufacturing facilities by state, local, and other authorities is
subject to change. Any additional regulation could result in limitations or
restrictions on the Company's ability to utilize any of its technologies,
thereby adversely affecting the Company's operations.
Human pharmaceutical products are subject to rigorous preclinical testing,
clinical trials, and other approval procedures mandated by the FDA and foreign
regulatory authorities. Various federal and foreign statutes and regulations
also govern or influence the manufacturing, safety, labeling, storage, record
keeping and marketing of pharmaceutical products. The process of obtaining these
approvals and the subsequent compliance with appropriate U.S. and foreign
statutes and regulations are time-consuming and require the expenditure of
substantial resources. In addition, these requirements and processes vary widely
from country to country.
Among the uncertainties and risks of the FDA approval process are the following:
(a) the possibility that studies and clinical trials will fail to prove the
safety and efficacy of the drug, or that any demonstrated efficacy will be so
limited as to significantly reduce or altogether eliminate the acceptability of
the drug in the marketplace, (b) the possibility that the costs of development,
which can far exceed the best of estimates, may render commercialization of the
drug marginally profitable or altogether unprofitable and (c) the possibility
that the amount of time required for FDA approval of a drug may extend for years
beyond that which is originally estimated. In addition, the FDA or similar
foreign regulatory authorities may require additional clinical trials, which
could result in increased costs and significant development delays. Delays or
rejections may also be encountered based upon changes in FDA policy and the
establishment of additional regulations during the period of product development
and FDA review. Similar delays or rejections may be encountered in other
countries.
The Company's Success Will Be Dependent On Licenses And Proprietary Rights It
Receives From Other Parties, And On Any Patents It May Obtain
Our success will depend in large part on the ability of the Company and its
licensors to (a) maintain license and patent protection with respect to their
drug products, (b) defend patents and licenses once obtained, (c) maintain trade
secrets, (d) operate without infringing upon the patents and proprietary rights
of others and (e) obtain appropriate licenses to patents or proprietary rights
held by third parties if infringement would otherwise occur, both in the United
States and in foreign countries. The Company has obtained licenses to patents
and other proprietary rights from Georgetown University.
The patent positions of pharmaceutical companies, including those of the
Company, are uncertain and involve complex legal and factual questions. There is
no guarantee that the Company or its licensors have or will develop or obtain
the rights to products or processes that are patentable, that patents will issue
from any of the pending applications or that claims allowed will be sufficient
to protect the technology licensed to the Company. In addition, we cannot be
certain that any patents issued to or licensed by the Company will not be
challenged, invalidated, infringed or circumvented, or that the rights granted
thereunder will provide competitive disadvantages to the Company.
Litigation, which could result in substantial cost, may also be necessary to
enforce any patents to which the Company has rights, or to determine the scope,
validity and unenforceability of other parties' proprietary rights, which may
affect the rights of the Company. U.S. patents carry a presumption of validity
and generally can be invalidated only through clear and convincing evidence.
There can be no assurance that the Company's licensed patents would be held
valid by a court or administrative body or that an alleged infringer would be
found to be infringing. The mere uncertainty resulting from the institution and
continuation of any technology-related litigation or interference proceeding
could have a material adverse effect on the Company pending resolution of the
disputed matters.
The Company may also rely on unpatented trade secrets and expertise to maintain
its competitive position, which it seeks to protect, in part, by confidentiality
agreements with employees, consultants and others. There can be no assurance
that these agreements will not be breached or terminated, that the Company will
have adequate remedies for any breach or that trade secrets will not otherwise
become known or be independently discovered by competitors.
8
The Company's License Agreements May Be Terminated In The Event Of A Breach
The license agreements pursuant to which the Company has licensed its core
technologies for its potential drug products permit the licensors, respectively
Georgetown University, to terminate such agreements under certain circumstances,
such as the failure by the licensee to use its reasonable best efforts to
commercialize the subject drug or the occurrence of any uncured material breach
by the licensee. The license agreements also provide that the licensor is
primarily responsible for obtaining patent protection for the licensed
technology, and the licensee is required to reimburse the licensor for costs it
incurs in performing these activities. The license agreements also require the
payment of specified royalties. Any inability or failure to observe these terms
or pay these costs or royalties may result in the termination of the applicable
license agreement in certain cases. The termination of any license agreement
would have a material adverse effect on the Company.
Protecting Our Proprietary Rights Is Difficult And Costly
The patent positions of pharmaceutical and biotechnology companies can be highly
uncertain and involve complex legal and factual questions. Accordingly, we
cannot predict the breadth of claims allowed in these companies' patents or
whether the Company may infringe or be infringing these claims. Patent disputes
are common and could preclude the commercialization of our products. Patent
litigation is costly in its own right and could subject us to significant
liabilities to third parties. In addition, an adverse decision could force us to
either obtain third-party licenses at a material cost or cease using the
technology or product in dispute.
The Company's Success Is Dependent On Its Key Personnel
The Company is dependent on a small management group and on independent
researchers, some of whom are inventors of the patents licensed to the Company
for core technologies and drugs developed at Georgetown University. Scientific
personnel may from time to time serve as consultants to the Company and may
devote a portion of their time to the Company's business, as well as continue to
devote substantial time to the furtherance of the Company's sponsored research
at Georgetown University and at other affiliated institutions as may be agreed
to in the future, but such personnel are not employees of the Company and are
not bound under written employment agreements. The services of such persons are
important to the Company, and the loss of any of these services may adversely
affect the Company.
Our success is dependent upon the continued services and performance of Dr.
Janet Greeson, our Chief Executive Officer, President and Chairman of the Board
of Directors, and Dr. Vassilios Papadopoulos, Chief Scientist of the Science of
Technology Advisory Committee on the Board of Directors and our Key Consultant.
Please refer to the Section entitled "Management" for a description of Dr.
Papadopoulos' relationship as Key Consultant to the Company. We do not maintain
key man insurance on either of these individuals. We have a five (5) year
employment agreement with Dr. Greeson that expires in 2006 and a verbal
employment arrangement with Dr. Papadopoulos. The loss of their services could
delay our product development programs and our research and development efforts
at Georgetown University. In addition, the loss of Dr. Greeson is grounds for
our Research Collaboration with Georgetown University to terminate. In addition,
competition for qualified employees among companies in the biotechnology and
biopharmaceutical industry is intense and we cannot assure you that we would be
able to recruit qualified personnel on commercially acceptable terms, or at all,
to replace them.
We May Be Unable To Retain Skilled Personnel And To Maintain Key Relationships
The success of our business depends, in large part, on our ability to attract
and retain highly qualified management, scientific and other personnel, and on
our ability to develop and maintain important key relationships with leading
research institutions, consultants and advisors. Competition for these types of
personnel and relationships is intense from numerous pharmaceutical and
biotechnology companies, universities and other research institutions. There can
be no assurance that the Company will be able to attract and retain such
individuals on commercially acceptable terms or at all, and the failure to do so
would have a material adverse effect on the Company.
We Currently Have No Sales Or Marketing Capability
The Company does not have marketing or sales personnel. The Company will have to
develop a sales force, or rely on marketing partners or other arrangements with
third parties for the marketing, distribution and sale of any drug product that
is ready for distribution. There is no guarantee that the Company will be able
to establish marketing, distribution or sales capabilities or arrange with third
parties to perform those activities on terms satisfactory to the Company, or
that any internal capabilities or third party arrangements will be
cost-effective.
9
In addition, any third parties with which the Company may establish marketing,
distribution or sales arrangements may have significant control over important
aspects of the commercialization of a drug product, including market
identification, marketing methods, pricing, composition of sales force and
promotional activities. There can be no assurance that the Company will be able
to control the amount and timing of resources that any third party may devote to
the products of the Company or prevent any third party from pursuing alternative
technologies or products that could result in the development of products that
compete with, and/or the withdrawal of support for, the products of the Company.
The Company Does Not Have Internal Manufacturing Capabilities And May Not Be
Able To Develop Efficient Manufacturing Capabilities Or Contract For Such
Services From Third Parties Such As Pharmaplaz, LTD On Commercially Acceptable
Terms
The Company will not have any manufacturing capacity. When required, the Company
will seek to establish relationships with third party manufacturers for the
manufacture of clinical trial material and the commercial production of a drug
product just as it has with Pharmaplaz, LTD in Ireland. There can be no
assurance that the Company will be able to establish relationships with third
party manufacturers on commercially acceptable terms or that third party
manufacturers will be able to manufacture a drug product on a cost-effective
basis in commercial quantities under good manufacturing practices mandated by
the FDA.
The dependence upon third parties for the manufacture of products may adversely
affect future costs and the ability to develop and commercialize a drug product
on a timely and competitive basis. Further, there can be no assurance that
manufacturing or quality control problems will not arise in connection with the
manufacture of the drug product or that third party manufacturers will be able
to maintain the necessary governmental licenses and approvals to continue
manufacturing such products. Any failure to establish relationships with third
parties for its manufacturing requirements on commercially acceptable terms
would have a material adverse effect on the Company.
The Company Does Not Have Its Own Research Facilities And Will Be Dependent On
Third Parties For Drug Development Which Could Subject Us To Product Liability
Claims
The Company does not have its own research and development facilities and
engages consultants and independent contract research organizations to design
and conduct clinical trials in connection with the development of a drug. As a
result, these important aspects of a drug's development will be outside the
direct control of the Company. In addition, there can be no assurance that such
third parties will perform all of their obligations under arrangements with the
Company or will perform those obligations satisfactorily.
In the future, we anticipate that we will need to obtain additional or increased
product liability insurance coverage and it is uncertain that such increased or
additional insurance coverage can be obtained on commercially reasonable terms.
The business of the Company will expose us to potential product liability risks
that are inherent in the testing, manufacturing and marketing of pharmaceutical
products. There can be no assurance that product liability claims will not be
asserted against the Company. The Company intends to obtain additional limited
product liability insurance for its clinical trials, directly or through its
marketing development partners or CRO (Contract Research Organization) partners,
when they begin in the U.S. and to expand its insurance coverage if and when the
Company begins marketing commercial products. However, there can be no assurance
that the Company will be able to obtain product liability insurance on
commercially acceptable terms or that the Company will be able to maintain such
insurance at a reasonable cost or in sufficient amounts to protect against
potential losses. A successful product liability claim or series of claims
brought against the Company could have a material adverse effect on the Company.
Insurance Coverage Is Increasingly More Difficult To Obtain Or Maintain
Obtaining insurance for our business, property and products is increasingly more
costly and narrower in scope, and we may be required to assume more risk in the
future. If we are subject to third party claims or suffer a loss or damage in
excess of our insurance coverage, we may be required to share that risk in
excess of our insurance limits. Furthermore, any first- or third-party claims
made on any of our insurance policies may impact our ability to obtain or
maintain insurance coverage at reasonable costs or at all in the future.
10
The Market Price Of Our Shares, Like That Of Many Biotechnology Companies, Is
Highly Volatile
Market prices for our Common Stock and the securities of other medical and
biomedical technology companies have been highly volatile and may continue to be
highly volatile in the future. Factors such as announcements of technological
innovations or new products by the Company or its competitors, government
regulatory action, litigation, patent or proprietary rights developments and
market conditions for medical and high technology stocks in general can have a
significant impact on any future market for our Common Stock.
We Are Not Paying Dividends On Our Common Stock
The Company has never paid cash dividends on its Common Stock and does not
intend to do so in the foreseeable future.
The Issuance Of More Common Shares Or Our Preferred Stock May Adversely Affect
Our Common Stock
The Board of Directors is authorized to issue additional shares of Common Stock
and to designate one (1) or more series of preferred stock and to fix the
rights, preferences, privileges and restrictions thereof, without any action by
the shareholders. The designation and issuance of such shares of our preferred
stock may adversely affect the Common Stock if the rights, preferences and
privileges of such preferred stock (a) restrict the declaration or payment of
dividends on our Common Stock, (b) dilute the voting power of our Common Stock,
(c) impair the liquidation rights of our Common Stock or (d) delay or prevent a
change in control of the Company from occurring, among other possibilities.
Under Provisions Of The Company's Articles Of Incorporation, Bylaws And Nevada
Law, The Company's Management May Be Able To Block Or Impede A Change In
Control
The issuance of preferred stock may make it more difficult for a third party to
acquire, or may discourage a third party from acquiring, a majority of our
voting stock. These and other provisions in our Articles of Incorporation
(restated as last amended June 10, 2005) and in our Bylaws (restated as last
amended April 18, 2005), as well as certain provisions of Nevada law, could
delay or impede the removal of incumbent Directors and could make it more
difficult to effect a merger, tender offer or proxy contest involving a change
of control of the Company, even if such events could be beneficial to the
interest of the shareholders as a whole. Such provisions could limit the price
that certain investors might be willing to pay in the future for our Common
Stock.
Officers' And Directors' Liabilities Are Limited Under Nevada Law
Pursuant to the Company's Articles of Incorporation (restated as last amended
June 10, 2005) and Bylaws (restated as last amended April 18, 2005), as
authorized under applicable Nevada law, Directors are not liable for monetary
damages for breach of fiduciary duty, except in connection with a breach of the
duty of loyalty for (a) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (b) for dividend payments
or stock repurchases illegal under Nevada law or (c) any transaction in which a
Director has derived an improper personal benefit. The Company's Articles of
Incorporation (restated as last amended June 10, 2005) and Bylaws (restated as
last amended April 18, 2005) provide that the Company must indemnify its
officers and Directors to the fullest extent permitted by Nevada law for all
expenses incurred in the settlement of any actions against such persons in
connection with their having served as officers or Directors.
11
DESCRIPTION OF BUSINESS
General
We are a small cap biopharmaceutical company focused on the development
of novel therapeutic and diagnostic products. We have devoted substantially all
of our resources to undertaking our drug discovery and development programs.
The majority of our resources have been expended in the pursuit of FDA
required preclinical studies and Phase II/III clinical trials for Samaritan's
HIV drug SP-01A (Sphirewall), an oral entry inhibitor. In a previous phase I/II
study, SP-01A was observed to significantly lower the amount of HIV in blood,
improve quality of life (how well subjects have felt), have a favorable safety
profile (minimal side effects) and be well tolerated. Moreover, in vitro testing
of SP-01A: (a) demonstrated comparable or greater efficacy than currently
approved anti-HIV drugs in preventing HIV virus replication; (b) was observed to
have minimal toxic effect on human cells; and (c) demonstrated significant
efficacy in preventing virus replication of HIV virus strains that resist
currently approved anti-HIV treatments. The goal of our SP-01A monotherapy
study, which is currently recruiting patients, is to further look at the dose
response, efficacy and safety of SP-01A as monotherapy, given as a capsule to be
swallowed, in the treatment of HIV-infected patients.
In addition, and at the same time, Samaritan has devoted major
resources to its Alzheimer's technology, which features: (a) three (3)
therapeutics: SP-04, SP-08, and SP-233; (b) two (2) stem cell, neuron
differentiation therapies: SP-sc4 and SP-sc7; (c) a predictive Alzheimer's
diagnostic; and (d) an Alzheimer's animal model. Samaritan has devoted resources
to its cancer drug SP-C007, a breast cancer diagnostic and our cholesterol
recognition peptide, which plays a role in transforming and binding LDL
cholesterol while subsequently raising HDL.
Samaritan has established its European headquarters in Athens, Greece
which will allow access to the markets of East Europe, Asia and Africa, regions
with a high proportion of HIV patients and a target population for our most
advanced drug SP-01A. "Samaritan Pharmaceuticals Europe" is currently seeking to
build, a sales and marketing infrastructure, through distribution agreements for
niche, high valued products from other companies in the fields of HIV/Infectious
diseases, CNS, Cancer/Oncology and Cardiovascular diseases; for the normally
undeveloped regions of Greece, Bulgaria, Romania, Croatia, Serbia, Bosnia and
Slovenia. Samaritan Pharmaceuticals Europe: (a) established a manufacturing arm
in Ireland with Pharmaplaz, LTD, (b) plans to develop its pipeline of drugs
through clinical trials in preparation for European approval, (c) plans to
increase its university research collaborations and (d) plans to apply for
applicable European grants.
Samaritan was formed in September 1994 and became a public company in
October 1997. Our principal executive offices are located at 101 Convention
Center Drive, Suite 310, Las Vegas, NV 89109, and our telephone number is (702)
735-7001. The address of our website is www.samaritanpharmaceuticals.com.
Information on our website is not part of this Prospectus.
Business Model
We believe that Samaritan fills a unique niche in that it brings
commercial drug development expertise, and the financial resources to further
university innovation; innovation that could be reluctantly left on a
scientist's bench due to a university's lack of expertise, or a university's
economic priorities.
Samaritan brings a business acumen to university discoveries, which
includes an expertise in accomplishing Pre-IND FDA preclinicals, FDA regulatory
affairs, patent applications (IP), NIH grants, clinical study drug production,
chemistry, manufacturing and controls, stability studies, and human clinical
trials "proof of concept studies" with all its related preclinical studies
required to get FDA drug approval. In addition, Samaritan brings a specialized
relationship based business development program to market and license its
innovation with potential partners in the pharmaceutical industry.
Samaritan strives to develop drugs for indications that have a
potential annual commercial value of at least $300,000,000 a year to ultimately
interest major pharmaceuticals in-licensing. Samaritan believes its
collaborations will foster greater scientific creativity due to autonomy, and
therefore advance drug candidates more rapidly by decreasing the average travel
time from lab to patients.
12
Management Team
Samaritan's management team is focused on creating shareholder value.
Together they have created a viable business model that it believes will be the
uphill road map for Samaritan's future. The management team is collectively,
bright, entrepreneurial, energetic, perseverant, and devoted full time to
creating potential value drivers and shareholder value.
Samaritan has shaped its current pipeline of drugs by in-licensing
innovative discoveries through its Research Collaboration with Georgetown
University; and its strategic focus is to use this model, with other top tier
universities, to create a substantial pipeline and gain its own commercial
presence.
Overview Of Samaritan's Research Pipeline
Samaritan's proprietary HIV drug SP-01A headlines the Company's
pipeline. SP-01A is an HIV oral entry inhibitor that works by blocking the
ability for the HIV virus to infect CD4+ cells. In Phase I/II clinical trials,
SP-01A demonstrated "proof of concept" with significance in two (2) crucial
areas, viral load and improvement in quality of life. The drug was also observed
to be a favorable safety profile, be well-tolerated and the data suggests that
SP-01A is a promising drug for patients experiencing "drug resistance". The
innovative concept underlying the mechanism of action of SP-01A was the basis
used to develop two (2) new HIV drug candidates, SP-10 and SP-03, both with
robust HIV entry inhibitor properties.
Samaritan's Alzheimer's technology features four (4) promising
therapeutics, SP-04, SP-04m, SP-08, and SP-233; two (2) stem cell neuron
differentiation therapies, SP-sc4 and SP-sc7; a predictive diagnostic; and an
animal model. The stem cell therapy drugs have been shown, in cell cultures and
in animals, to awaken dormant brain stem cells and to transform (differentiate)
them into new neurons. The Alzheimer's diagnostic is a simple blood test that
has proven superior to the invasive spinal taps and MRIs currently used.
Finally, the Alzheimer's animal model offers a model to rapidly screen and
develop innovative drugs for Alzheimer's disease.
Samaritan's cancer program features a promising cancer drug, SP-C007,
and a breast cancer diagnostic. The diagnostic provides a predictive prognosis
of cancerous tumor aggressiveness with more than twice the accuracy rate than
that of current technologies.
Samaritan's cholesterol recognition peptide technology plays a role in
binding and taking out cholesterol from LDL, thus offering an immediate response
to hypercholesterolemia.
Samaritan's Drug Development Programs
Samaritan is currently advancing two (2) distinct drug development
programs:
AIDS/HIV Program
o SP-01A for HIV Resistance (oral entry inhibitor); PII/III
Clinical trials 2005-2006.
o SP-10 for HIV Resistance (oral entry inhibitor); Preclinicals
being readied to apply for Investigational New Drug (IND)
application with the FDA.
Alzheimer's Program
o SP-233 for Alzheimer's; Preclinicals being readied to apply for
Investigational New Drug (IND) application with the FDA.
o SP-004 and SP-04m for Alzheimer's; Preclinicals being readied to
apply for Investigational New Drug (IND) application with the
FDA.
13
AIDS/HIV Drug Development Program
Background: Currently approved antiretroviral medications target either
the HIV viral reverse transcriptase (RT), Nucleoside Reverse Transcriptase
Inhibitors (NRTIs), Non-Nucleoside Reverse Transcriptase Inhibitors (NNRTIs),
and the viral Protease Inhibitors (PIs), or they inhibit viral fusion with host
cells (Fusion Inhibitors). A regimen using a combination of these agents is
considered the standard of care and, when effective, results in suppression of
the virus below the detection limits.
The long-term use of antiretroviral therapy is sometimes hampered by
poor compliance due to pill burden, by the route of administration when the oral
delivery is impossible, food restrictions, and major side effects that impact
quality of life. Furthermore, one of the major reasons for therapy failure is
the emergence of resistant virus against one or more of the anti-HIV medications
or, to some extent, an entire class of drug (cross-resistance).
Enfuvirtide (Fuzeon(TM)) was recently approved as an HIV-1 fusion/entry
inhibitor, a new class of treatment that inhibits the fusion of the HIV-1 virus
to the CD4+ cell membrane by preventing the conformational changes required for
this fusion. Since the mechanism of action of Enfuvirtide is different from
other classes of anti-HIV medication, it is effective in patients who have
failed other therapies due to emergence of resistant virus. However, a recent
study demonstrated the emergence of resistance to Enfuvirtide due to different
mutations of the viral glycoprotein gp41. The rapid rate of mutation of HIV-1
and conferred resistance of the virus to current therapies continues to
necessitate a need for additional new therapeutic agents.
To that end, Samaritan has advanced a hypothesis regarding the
immuno-modulating and anti-viral effects of SP-01A in the treatment of HIV
infection.
SP-01A Hypothesis: Samaritan hypothesized that the HIV-associated
dysregulation of cortisol levels may play a role in the pathophysiology of AIDS
including modulation of cell-mediated immunity. Experimental evidence suggested
that cortisol and its receptors were critically involved at some level in the
regulation of immune function in HIV infection. Therefore, it was reasonable to
hypothesize that treatment with a cortisol-modulating agent may improve the
immune function in HIV-infected patients.
In pursuing this hypothesis, we discovered that the modulatory effect
of SP-01A on the stress-induced corticosteroid increase may be related to a
reduction of the expression of the cholesterol synthesis key enzyme HMG-CoA
reductase mRNA leading to a reduction in cholesterol synthesis. Several
observations have also established that inhibitors of cholesterol synthesis
inhibit cell fusion formation induced by HIV-l and that drugs extracting
cholesterol from the cellular membrane exert an anti-HIV-1 effect, in-vitro.
Taken together, Samaritan's preclinical data appears to suggest that
the effect of SP-01A on cholesterol synthesis leads to a modification of the
cholesterol content of the host cell membrane, which, in turn, reduces the HIV-1
virus replication by rendering it much more difficult for the virus to enter and
infect the cell.
SP-10 Second HIV Drug Development in Conjunction with SP-01A: SP-10 was
discovered in the Samaritan Laboratories at Georgetown University and the
discovery was a result of the Samaritan/Georgetown University collaboration.
After its discovery, continuous HIV preclinical studies demonstrated that SP-10
exhibited antiviral properties by blocking the entry of HIV and multi
drug-resistant HIV viruses into the cells. Moreover, SP-10 has shown very low
toxicity, suggesting that it lacks serious side effects. Toxicity is a major
problem with most current antivirals, along with the development of drug
resistance. So far, all of the current antivirals on the market are
demonstrating drug resistance.
Since SP-01A is intended to be administered in combination with current
antiviral therapy for the indication of HIV drug resistance, Samaritan decided
to pursue SP-10 as an overall antiviral for HIV that could be administered alone
or in combination with the normally administered triple therapy for both HIV in
general and drug resistance.
In pursuing the preclinical development of SP-01A as an antiviral for
drug resistance, we decided, at the same time, to accomplish the same
preclinical data required by the FDA for SP-01A for SP-10 although we intend to
study SP-10 as a stand alone antiviral.
So far, preclinical data taken together for SP-01A and SP-10 suggests
that these compounds reduce HIV virus replication by modifying the structure of
the host cell membrane thus rendering it impossible for the HIV virus to enter
and infect the cell. They both can be classified as oral entry inhibitors and
could prove more effective than today's antiretroviral therapy because they
would prevent HIV from invading healthy cells, rather than going after the virus
when it might be too late as it has already inserted itself into these cells.
14
SP-01A Development.
Proof of Concept/Phase I/II Study: The safety and dose response of
orally administered SP-01A in HIV-infected patients was assessed in a Phase I/II
study. The study was an eight (8) week non-randomized, open-label study
conducted at a single investigational site (AIDS Research Alliance, West
Hollywood, CA) with twenty-nine (29) patients infected with HIV-1 who were being
treated with concomitant triple combination antiretroviral therapy for at least
eight (8) weeks prior to study initiation.
Upon submitting Phase I/II clinical study efficacy data, and upon
evaluation by the FDA, Samaritan's IND/protocol was transferred to the
Anti-Viral Division of the FDA, which in turn requested further supporting
antiviral preclinical studies, such as demonstration of anti-HIV-1 drug
resistance and numerous other studies where SP-01A confirmed its results as an
antiretroviral therapy. In addition, the inhibitory effect of SP-01A on the
entry of HIV and multi drug resistant HIV viral strains reinforced our
conviction of a new mechanism of action which targets the host cell, rather than
the virus itself, rendering therefore SP-01A less susceptible than any other
drug on the market, to emerging resistances. Studies to investigate whether
SP-01A induces resistance are underway.
SP-01 A Phase II/III Development: Samaritan expects to commence "A
Multi-Center Double-Blind, Randomized, Placebo-Controlled Study of Orally
Administered SP-01A as Monotherapy Treatment of HIV-Infected Patients" trial to
demonstrate efficacy as an antiviral and gather dosage data in preparation for
later stage PIII clinical trials, assuming positive outcome data.
Why Samaritan Chooses Drug Resistance Indication
Resistance: The Ability of the HIV Virus to Mutate and Survive "We keep
returning to the same issue: Whatever we throw at HIV, this simple but highly
mutable virus finds a way to dodge it". This was the comment made by clinicians
and researchers at The 11th Conference on Retroviruses and Opportunistic
Infections (Boston; February 10 - 14, 2003). The subject was resistance; the
ability of the human immunodeficiency virus (HIV) to mutate such that
antiretroviral agents, designed to inhibit its replication, are no longer
effective.
HIV Resistant Mutant Strains Are Evolving at a Record Pace: From 1995
to 2000, the frequency of resistance mutations increased from eight percent (8%)
to twenty-two and seven-tenths percent (22.7%). Simultaneously, the frequency of
multi-drug resistance increased from three and eight-tenths percent (3.8%) to
ten and two-tenths percent (10.2%).
Resistance Among Newly-Infected Patients: It is estimated that the
prevalence of transmitted resistance to antiretroviral drugs is between one
percent (1%) and eleven percent (11%) among persons in North America who are
newly infected with HIV. The frequency of high-level resistance to one or more
drugs increased from three and four-tenths percent (3.4%) during the period from
1995 to 1998, to twelve and four-tenths percent (12.4%) during the period from
1999 to 2000 and the frequency of multi-drug resistance increased from one and
one-tenth percent (1.1%) to six and two-tenths percent (6.2%). Moreover,
phenotypic resistance has increased at least three-fold in five (5) years:
resistance to nucleoside reverse transcriptase inhibitors (NRTI) a two hundred
sixty-nine percent (269%) increase; resistance to non-nucleoside reverse
transcriptase inhibitors (NNRTI) a three hundred seventy-four percent (374%)
increase; resistance to protease inhibitors (PI) a two thousand percent (2,000%)
increase.
Resistance Among Treatment-Experienced Patients: An estimated ten
percent (10%) to twenty percent (20%) of all people with HIV/AIDS that undergo
HAART therapy are treatment failures.
The Concerns of Resistance: There is a need for novel new therapies
with the ability to suppress and maintain inhibition of viral replication upon
initiation of therapy. This virus must not be able to develop resistance to this
therapy. In lieu of such a therapy, there is a need for treatment modalities
with the ability to maintain or even increase the efficacy of first and
subsequent HAART regimens.
Alzheimer's Drug Development Program
Samaritan has a long-term commitment to developing innovative and
unique treatments for Alzheimer's disease. It is widely recognized that new
approaches are vitally needed to help suffering patients and their families in
the fight against Alzheimer's disease. Samaritan believes the best strategy
against Alzheimer's disease may be to prevent, reduce or slow its onset to spare
patients, families and the healthcare system much of the tremendous burdens and
tragedies that accompany this illness.
15
One of the major problems with the diagnosis and treatment of
neurological diseases, such as Alzheimer's disease, is the inability of
clinicians to determine the onset of disease. Recent evidence suggests that
inflammation and increase in free radicals may play a large role in the specific
cause of Alzheimer's disease.
Alzheimer's Diagnostic: In Samaritan's quest to find an accurate
diagnostic, inventors have surprisingly found that central nervous system DHEA
is increased in patients having Alzheimer's, in contrast to decreased levels of
DHEA found in the periphery (blood). Although this finding agrees with previous
reports that DHEA levels in Alzheimer's patients are abnormally low and have
been recommending taking DHEA supplements as a means of prevention, it suggests
that brain DHEA formation is separate from peripheral DHEA levels, thus
questioning the use of DHEA as a means of Alzheimer's disease prevention.
Samaritan inventors have identified a distinct mechanism for DHEA formation in
brain from precursors that they are able to follow in the blood; using a
chemical reaction, that allows the prediction of DHEA levels in brain. This
research has been the basis of Samaritan's Alzheimer's diagnostic test and
granting of research funds from the National Institute of Health (NIH).
SP-233 Alzheimer's Drug: Excessive accumulation in the brain of the
beta-amyloid peptide, due either to overproduction and/or decreased clearance
and the formation of senile plaques, is one of the hallmarks of Alzheimer
disease. SP-233 was identified based on its ability to protect neurons against
beta-amyloid-induced toxicity. SP-233 was shown to bind to beta-amyloid peptide,
prevent its oligomerization and entry into neurons, protect neuronal
mitochondria from beta-amyloid-induced damage, and maintain neuronal cell energy
levels. Samaritan's preclinical data is suggesting SP-233 as a new unique
approach for Alzheimer's disease therapy.
SP-233 Development: Detailed studies on the mechanism of action of
SP-233, in rodent and human neurons, have been performed and the toxicity of the
compound in "in-vitro" studies has been studied. Samaritan has performed the
majority of the preclinical studies required to apply to the FDA for an IND and
is currently performing toxicology studies.
SP-004/SP-04m Alzheimer's Drug: Alzheimer's disease is characterized by
multifaceted pathology involving a number of dysregulated molecular mechanisms
that include, at least, changes in: (a) cholinergic transmission, (b) sigma-1
receptor-mediated pathways, and (c) increased free radical production. Even
though the improvement of the cholinergic transmission of the patients suffering
from Alzheimer's is necessary (the basis of most of today's therapies),
targeting acetyl cholinesterase solely is certainly not sufficient, in
relationship to the numerous pathways involved in Alzheimer's disease pathology.
Under the Research Collaboration with Georgetown University, a number of
compounds were developed with the goal to express multiple properties allowing
them to act simultaneously at two (2) distinct targets, important in neuronal
function, i.e., enzyme acetyl cholinesterase, and the sigma-1 receptor SP-004
and SP-04m efficacy has been validated in vitro, and in animal models, in vivo.
SP-004/SP-04m Development: Detailed studies on the mechanism of action
of SP-004 and SP-04m have been performed and the toxicity of the compound
in-vitro has been studied. Preclinical toxicology studies will be now undertaken
required to apply to the FDA for an IND.
Alzheimer's Stem Cell Drugs: Samaritan is fast tracking its development
of its neuronal stem cell therapy drugs (SP-sc4 and SP-sc7) that can induce
dormant brain neuronal stem cells to differentiate rapidly into adult neuron
cells as a novel treatment for Alzheimer's disease and other neurodegenerative
disorders. Repairing brain damage by replacing the lost neurons and restoring
neuronal function is certainly the most ambitious and exciting challenge
physicians and scientists are currently facing. In that aspect, the concept of
stem cell therapy is extremely promising. Hence, the access to the
differentiation of stem cells into neurons may serve as a database of
specialized cells for regenerative medicine as a treatment for neurodegenerative
diseases and brain stroke.
SP-sc4 and SP-sc7 Development: Screening a database/collection of
naturally occurring compounds, the Georgetown University group under the
Samaritan/Georgetown University collaborative agreement identified compounds
that were efficacious in inducing in-vitro and in rats' in vivo neural stem cell
differentiation and neurogenesis. Further in vivo studies in animal models of
neurodegenerative disease are in progress in order to validate the use of these
compounds in regenerating the neuronal network from pre-existing stem cells in
the adult.
16
Alzheimer's Rat Model: One of the limiting factors in screening for the
compounds displaying neuroprotective properties is the lack of an animal model
allowing for the rapid evaluation of the efficacy of the compounds under
investigation. In our race to find a way to stop the spread of Alzheimer's
disease, we decided to develop an animal model that mimics the human phenotype
of Alzheimer's disease pathology. Considering the critical role of beta-amyloid
peptide in Alzheimer's disease development, we undertook a non-transgenic
approach to induce an "Alzheimer's-like" neuropathology in rats, in which a
proprietary formulation is administered directly in the brain of the rat
producing a microenvironment resembling that which may occur in an Alzheimer's
diseased brain. Four (4) weeks treatment of the rats with the solution induced
memory impairment accompanied by increased hyperphosphorylated Tau protein
levels in CSF, both part of the Alzheimer's disease phenotype seen in patients.
Further histopathology of the rat brains indicated the presence of neuritic
plaques, tangles, neuronal loss and gliosis, typical features of postmortem
Alzheimer's disease human brain specimens. Thus, we believe that this
Alzheimer's Rat Model will likely provide us with the means to rapidly screen
and develop therapeutic and diagnostic tools for controlling the disease and
might also prove to be a useful approach to unveiling the mechanisms underlying
the onset and progression of Alzheimer's disease.
Our Alzheimer's Rat Model is being validated by Samaritan for use to
test the efficacy of SP compounds and is due for publication. It is also
expected to be validated by other academic scientists specializing in this area
of research in the near future.
Planned Drug Development: SP-1000 Cardiovascular cholesterol drug
peptide that binds and removes cholesterol from LDL.
NIH Grants
1R41 NS048688 STTR ($188,000) entitled "Plasma Diagnostic for
Alzheimer's Disease". 1R41 AG024684 STTR ($100,000) entitled "SP004, a o1 ligand
with AchE inhibition properties".
Samaritan has in-licensed seventeen (17) potential breakthrough
discoveries from Georgetown University and has filed nineteen (19) related
patent applications to protect its growing pipeline of innovation. This pipeline
is supported by a number of peer-reviewed journals that support its credentials.
Peer Reviewed Publications
Pharmacology 2006; 76:19-33; "Beta-Amyloid and Oxidative Stress
Jointly Induce Neuronal Death, Amyloid Deposits, Gliosis, and Memory Impairment
in the Rat Brain".
Neuropharmacology 2005; "Identification, design, synthesis, and
pharmacological activity of (4-ethyl-piperaz-1-yl)-phenylmethanone derivatives
with neuroprotective properties against a-amyloid-induced toxicity".
Pharmacology 2005;74:65-78. "Local Anesthetic Procaine Protects Rat
Pheochromocytoma PC12 Cells against beta-Amyloid-Induced Neurotoxicity".
Steroids 2004; 69:1-16. "Identification of naturally occurring
spirostenols preventing beta-amyloid-induced neurotoxicity".
Analytical Biochemistry 2004; 324: 123-130. "A capillary as
chromatography/mass spectrometric method for the quantification of
hydroxysteroids in human plasma".
Neurobiology of Aging 2003; 24:57-65. February "Oxidative
Stress-mediated DHEA Formation in Alzheimer's Disease Pathology" Journal of
Pharmacology Experimental Therapeutics 2003; 307:1148-1157. "Inhibition of
Adrenal Corticol Steroid Formation by Procaine Is Mediated by Reduction of the
cAMP-Induced 3-Hydroxy-3-methylglutaryl-coenzyme A Reductase Messenger
Ribonucleic Acid Levels".
Journal of Receptor & Signal Transduction Research 2003; 23:225-238
"Expression of Peripheral Benzodiazepine Receptor (PBR) in Human Tumors
Relationship to Breast, Colorectal and Prostate Tumor Progression".
Journal of Neurochemistry 2002; 83: 1110-1119. "22R-Hydroxycholesterol
Protects Neuronal Cells from a-Amyloid-Induced Cytoxicity by Binding to
a-Amyloid Peptide".
Proceedings of the National Academy of Sciences USA 2001; 98:
1267-1272. "Cholesterol binding at the cholesterol recognition/interaction amino
acid consensus (CRAC) of the peripheral type Benzodiazepine receptor and
inhibition of steroidogenesis by an HIV TAT-CRAC peptide".
17
Molecular Endocrinology 2001; 15:2211-2228. "Identification,
Localization, and Function in Steroidogenesis of PAP7: A Peripheral-Type
Benzodiazepine Receptor- and PKA (RIa) - Associated Protein".
Endocrinology 1998; 139:4991-4997. "Peripheral-Type Benzodiazepine
Receptor Function in Cholesterol Transport. Identification of a Putative
Cholesterol Recognition/Interaction Amino Acid Sequence and Consensus Pattern".
Collaborations
Georgetown University. On June 8, 2001 Samaritan executed a research
collaboration (the "Research Collaboration") with Georgetown University to
further develop Samaritan's pipeline. Commencing on April 1, 2004, the Research
Collaboration term was extended to 2014 and the budget has been increased to
$1,000,000 per year. The $1,000,000 is paid by Samaritan over four (4) quarterly
payments of $250,000, is unallocated and covers the general research and
development effort.
Under the Research Collaboration, Samaritan receives worldwide
exclusive rights to any novel therapeutic agents or diagnostic technologies that
may result from the Research Collaboration. Dr. Vassilios Papadopoulos and Dr.
Janet R. Greeson lead our team of eight (8) research professionals (including
five (5) Ph.D. level research scientists) who have expertise in the fields of
endocrinology, pharmacology, cell biology, organic and steroid chemistry, and
computer modeling. We are not obligated to pay Georgetown University any
milestone payments. Georgetown University is entitled to receive royalties based
on our revenue from product sales and sublicenses, if any. Samaritan has assumed
responsibility, at its own expense, for the process of seeking any regulatory
approvals for and conducting clinical trials with respect to any licensed
product or application of the licensed technology. Samaritan controls and has
the financial responsibility for the prosecution and maintenance in respect to
any patent rights related to the licensed technology.
Pharmaplaz, LTD. Samaritan and Pharmaplaz, LTD, a pharmaceutical
company based outside of Dublin, Ireland, entered into a broad strategic
collaboration agreement for the production and supply of Samaritan's lead
compound SP-01A, and Samaritan's pipeline of drugs, which expand across a
variety of therapeutic areas to include AIDS, Alzheimer's, cancer and
cardiovascular disease. Under the terms of the alliance, Pharmaplaz, LTD will
collaborate with Samaritan's pipeline development, scale up, and manufacturing
requirements, while working on drug formulation and testing, production of pilot
batches, development of analytical methods, drug specifications, process
validations and drug optimization. The companies will also work together to
secure regulatory approval by the FDA for selected products in the U.S. markets.
Employees
As of the date of this Prospectus we have eight (8) employees that work
directly for Samaritan and thirteen (13) Ph.D. scientists that work under the
Research Collaboration with Georgetown University. In addition, we make
extensive use of consultants including Dr. Papadopoulos, our Key Consultant.
Description Of Property
The Company's executive offices are currently located at 101 Convention
Center Drive, Suite 310, Las Vegas, Nevada 89109. On October 3, 2005, the
Company expanded its premises to a 2,601 square foot office space which is
rented at a base rent of $4,551.75 per month. In addition, under the Research
Collaboration Georgetown University provides office and laboratory space at the
Samaritan Research Laboratories, Biochemistry and Molecular Biology Dept.,
Med/Dent Bldg, 3900 Reservoir Road NW, Washington, DC 20057.
18
USE OF PROCEEDS
This Prospectus relates to the registration of 16,700,000 shares of our Common
Stock. We will receive no proceeds from any sale of shares of Common Stock in
this offering. However, we may receive up to $40,000,000 in proceeds from the
sale of our Common Stock to Fusion Capital under the Purchase Agreement II, as
is more fully described in the Section entitled "The Fusion Transaction" herein.
Any proceeds we receive from Fusion Capital under the Purchase Agreement II will
be used for working capital and general corporate purposes.
19
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the American Stock Exchange under the
symbol "LIV". As of November 14, 2005, there were approximately nine hundred
(900) holders of record of Common Stock. Certain of the shares of Common Stock
are held in "street" name and may, therefore, be held by numerous beneficial
owners. The Company has never paid a cash dividend on its Common Stock. The
payment of dividends may be made at the discretion of the Board of Directors of
the Company and will depend upon, among other things, the Company's operations,
its capital requirements, and its overall financial condition. The following
table sets forth the range of high and low bid prices for our Common Stock for
each quarter within the last three (3) fiscal years. Such quotes reflect
inter-dealer prices without retail mark-up, mark-down or commission and may not
represent actual transactions. The quotations may be rounded for presentation.
FISCAL YEAR ENDED
----------------------------------------------------------------------------------------
December 31, 2005 December 31, 2004 December 31, 2003 December 31, 2002
------------------- ------------------- ------------------- -------------------
High Low High Low High Low High Low
-------- ------- ------- ------- -------- ------- -------- -------
First Quarter $0.90 $0.45 $0.72 $0.33 $0.20 $0.13 $0.28 $0.13
Second Quarter $0.63 $0.35 $1.69 $0.51 $0.26 $0.15 $0.18 $0.12
Third Quarter $0.66 $0.33 $1.40 $0.77 $0.90 $0.18 $0.28 $0.15
Fourth Quarter - - $1.30 $0.80 $0.72 $0.30 $0.22 $0.15
EQUITY COMPENSATION PLAN INFORMATION
Number Of
Securities To Weighted
Be Issued Upon Average
Exercise Of Exercise Price
Outstanding Of Outstanding Number Of
Options, Options, Securities
Warrants And Warrants And Remaining For
Name Of Plan Rights Rights Future Issuance
---------------------------------------------------------------- -------------- -------------- ---------------
Equity compensation plans approved by security holders (1)(2) 24,076,018 $0.56 5,248,646
Equity compensation plans not approved by security holders (3) 31,990,749 $0.40 0
-------------- -------------- ---------------
Total 56,066,767 $0.48 5,248,646
============== ============== ===============
(1) The Amended Samaritan Pharmaceuticals, Inc. 2001 Stock Incentive Plan
was filed as Exhibit 4.2 to the Company's Quarterly Report on Form
10-QSB, as filed with the SEC on August 16, 2004 and is incorporated by
reference herein.
(2) The Samaritan Pharmaceuticals, Inc. 2005 Stock Incentive Plan was
filed with the SEC on Schedule 14A as filed with the SEC on April 29,
2005 and is incorporated by reference herein.
(3) Samaritan has entered into "Rabbi Trust" agreements to fund deferred
compensation benefits, with an institutional trustee providing for the
payment out of the assets of the trusts of benefits accrued under our
various benefit plans, employment agreements and other employment
arrangements as the Company specifies from time to time. To the extent
not already irrevocable, the trusts would become irrevocable upon a
change of control of Samaritan. The Company may contribute to the
trusts from time to time, and additional funding could be required upon
a change of control. The Rabbi Trust agreements are subject to their
terms and to the claims of our general creditors in specified
circumstances, to make payments under the terms of the benefit plans,
employment agreements and other employment arrangements from time to
times specified by the Company.
Dividends
We have not paid any dividends on our Common Stock and do not anticipate paying
any cash dividends in the foreseeable future. We intend to retain any earnings
to finance the growth of the business. We cannot assure you that we will ever
pay cash dividends. Whether we pay any cash dividends in the future will depend
on the financial condition, results of operations and other factors that the
Board of Directors will consider.
20
THE FUSION TRANSACTION
General
On May 12, 2005, we entered into a common stock purchase agreement, as amended
(the"Purchase Agreement II") with Fusion Capital Fund II, LLC ("Fusion Capital")
pursuant to which Fusion Capital has agreed, under certain conditions, to
purchase on each trading day $40,000 of our common stock ("Common Stock") up to
an aggregate of $40,000,000 over a fifty (50) month period, subject to earlier
termination at our discretion. We may elect, in our discretion, to sell more of
our Common Stock to Fusion Capital than the $40,000 daily amount. The purchase
price of the shares of Common Stock will be equal to a price based upon the
future market price of the Common Stock without any fixed discount to the market
price. Fusion Capital does not have the right or the obligation to purchase
shares of our Common Stock in the event that the price of our Common Stock is
less than $0.25.
Fusion Capital, the selling shareholder under this Prospectus, is offering for
sale up to 16,700,000 shares of our Common Stock (including the 1,700,000 shares
previously issued to Fusion Capital as a commitment fee). In connection with
entering into the Purchase Agreement II, we authorized the sale to Fusion
Capital of up to 15,000,000 shares of our Common Stock for a maximum proceeds of
$40,000,000 (excluding the 1,700,000 shares previously issued to Fusion Capital
as a commitment fee). Assuming Fusion Capital purchases all $40,000,000 of our
Common Stock, we estimate that the maximum number of shares we will sell to
Fusion Capital under the Purchase Agreement II will be 15,000,000 shares
(exclusive of the 1,700,000 shares issued to Fusion Capital as the commitment
fee). The number of shares ultimately offered for sale by Fusion Capital is
dependent upon the number of shares purchased by Fusion Capital under the
Purchase Agreement II.
Purchase Of Shares Under The Purchase Agreement II
Under the Purchase Agreement II, on each trading day Fusion Capital is obligated
to purchase a specified dollar amount of our Common Stock. Subject to our right
to suspend such purchases at any time, and our right to terminate the agreement
with Fusion Capital at any time, each as described below, Fusion Capital shall
purchase on each trading day during the term of the agreement $40,000 of our
Common Stock. This daily purchase amount may be decreased by us at any time. We
also have the right to increase the daily purchase amount at any time, provided
however, we may not increase the daily purchase amount above $40,000 unless our
stock price is above $1.50 per share for five (5) consecutive trading days. The
purchase price per share is equal to the lesser of:
o the lowest sale price of our Common Stock on the purchase
date; or
o the average of the three (3) lowest closing sale prices of our
Common Stock during the twelve (12) consecutive trading days
prior to the date of a purchase by Fusion Capital.
The purchase price will be adjusted for any reorganization, recapitalization,
non-cash dividend, stock split, or other similar transaction occurring during
the trading days in which the closing bid price is used to compute the purchase
price. Fusion Capital may not purchase shares of our Common Stock under the
Purchase Agreement II if Fusion Capital, together with its affiliates, would
beneficially own more than nine and nine-tenths percent (9.9%) of our common
stock outstanding at the time of the purchase by Fusion Capital. Fusion Capital
has the right at any time to sell any shares purchased under the Purchase
Agreement II which would allow it to avoid the nine and nine-tenths percent
(9.9%) limitation. Therefore, we do not believe that Fusion Capital will ever
reach the nine and nine-tenths percent (9.9%) limitation.
The following table sets forth the amount of proceeds we would receive from
Fusion Capital from the sale of shares of our Common Stock offered by this
Prospectus at varying purchase prices pursuant to the Purchase Agreement II:
21
Percentage Of Outstanding Proceeds From The Sales Of
After Giving Effect To The Shares To Fusion Capital
Assumed Number Of Shares To Be Issuance To Fusion Under The
Purchase Price Issued If Full Purchase(1) Capital(2) Purchase Agreement II
-------------- -------------------------- -------------------------- --------------------------
$0.25 15,000,000 9.9% $3,750,000
$0.30 15,000,000 9.9% $4,500,000
$0.40(3) 15,000,000 9.9% $6,000,000
$0.50 15,000,000 9.9% $7,500,000
$1.00 15,000,000 9.9% $15,000,000
$1.50 15,000,000 9.9% $22,500,000
$2.00 15,000,000 9.9% $30,000,000
$2.50 15,000,000 9.9% $37,500,000
$3.00 13,333,334 8.9% $40,000,000
--------------------
(1) We are registering 15,000,000 shares of Common Stock in this
registration statement to be issued to Fusion Capital pursuant to the
Purchase Agreement II.
(2) Based on 136,198,761 shares issued and outstanding as at November 14,
2005, which includes the issuance of 1,700,000 shares of Common Stock
previously issued to Fusion Capital as a commitment fee and the number
of shares issuable at the corresponding assumed purchase prices as set
forth in the adjacent column.
(3) The last reported market sale price of our Common Stock on November 29,
2005.
In connection with entering into the Purchase Agreement II, we authorized the
sale to Fusion Capital of up to 15,000,000 shares of our Common Stock. We
estimate that we will sell no more than 15,000,000 shares to Fusion Capital
under the Purchase Agreement II (exclusive of the 1,700,000 previously shares
issued to Fusion Capital as a commitment fee), all of which are included in this
offering. We have the right to terminate the Purchase Agreement II without any
payment or liability to Fusion Capital at any time, including in the event that
all 15,000,000 shares are sold to Fusion Capital under the Purchase Agreement
II. Subject to approval by our Board of Directors, we have the right but not the
obligation to sell more than 15,000,000 shares to Fusion Capital. In the event
we elect to sell more than the 15,000,000 shares offered hereby previously
exclusive of the 1,700,000 shares issued to Fusion Capital as a commitment fee,
we will be required to file a new registration statement and have it declared
effective by the SEC. In order to be in compliance with the rules and
regulations of the American Stock Exchange, the Company would be required to
obtain shareholder approval to sell more than 26,643,192 shares of our Common
Stock (i.e., 19.9% of our issued and outstanding shares as of May 12, 2005, the
date of the Purchase Agreement II).
Minimum Purchase Price
Under the Purchase Agreement II, we have set a minimum purchase price ("floor
price") of $0.25. However, Fusion Capital shall not have the right nor the
obligation to purchase any shares of our Common Stock in the event that the
purchase price would be less than the floor price. Specifically, Fusion Capital
shall not have the right or the obligation to purchase shares of our Common
Stock on any trading day that the market price of our common stock is below
$0.25.
Our Right To Suspend Purchases
We have the unconditional right to suspend purchases at any time for any reason
effective upon one (1) trading day's notice. Any suspension would remain in
effect until our revocation of the suspension. To the extent we need to use the
cash proceeds of the sales of common stock under the Purchase Agreement II for
working capital or other business purposes, we do not intend to restrict
purchases under the Purchase Agreement II.
Our Right To Increase And Decrease The Amount To Be Purchased
Under the Purchase Agreement II, Fusion Capital has agreed to purchase on each
trading day during the fifty (50) month term of the Purchase Agreement II,
$40,000 of our Common Stock or an aggregate of $40,000,000. We have the
unconditional right to decrease the daily amount to be purchased by Fusion
Capital at any time for any reason effective upon one (1) trading day's notice.
In our discretion, we may elect to sell more of our Common Stock to Fusion
Capital than the $40,000 daily amount. First, in respect of the daily purchase
amount, we have the right to increase the daily purchase amount as the market
price of our Common Stock increases. Specifically, for every $0.25 increase in
the Threshold Price (as defined herein below) above $1.25, the Company shall
have the right to increase the daily purchase amount by up to an additional
$5,000. For example, if the Threshold Price is $1.75 we would have the right to
increase the daily purchase amount to up to an aggregate of $50,000. The
"Threshold Price" is the lowest sale price of our Common Stock during the five
(5) trading days immediately preceding our notice to Fusion Capital to increase
the daily purchase amount. If at any time during any trading day the sale price
of our Common Stock is below the Threshold Price, the applicable increase in the
daily purchase amount will be void.
22
In addition to the daily purchase amount, we may elect to require Fusion Capital
to purchase on any single trading day our shares in an amount up to $250,000,
provided that our share price is above $0.80 during the five (5) trading days
prior thereto. The price at which such shares would be purchased will be the
lowest purchase price during the previous fifteen (15) trading days prior to the
date that such purchase notice was received by Fusion Capital. We may increase
this amount to $500,000 if our share price is above $1.25 during the five (5)
trading days prior to our delivery of the purchase notice to Fusion Capital.
This amount may also be increased to up to $1,000,000 if our share price is
above $2.50 during the five (5) trading days prior to our delivery of the
purchase notice to Fusion Capital. We may deliver multiple purchase notices;
however at least ten (10) trading days must have passed since the most recent
non-daily purchase was completed.
Events Of Default
Generally, Fusion Capital may terminate the Purchase Agreement II without any
liability or payment to the Company upon the occurrence of any of the following
events of default:
o the effectiveness of the registration statement of which this
Prospectus is a part of lapses for any reason (including,
without limitation, the issuance of a stop order) or is
unavailable to Fusion Capital for sale of our Common Stock
offered hereby and such lapse or unavailability continues for
a period of five (5) consecutive trading days or for more than
an aggregate of twenty (20) trading days in any three hundred
sixty-five (365) day period;
o suspension by our principal market of our Common Stock from
trading or failure of the Common Stock to be listed for a
period of three (3) consecutive trading days;
o the de-listing of our Common Stock from our principal market
provided our Common Stock is not immediately thereafter
trading on the Nasdaq National Market, the Nasdaq SmallCap
Market, or the New York Stock Exchange;
o the transfer agent's failure for five (5) trading days to
issue to Fusion Capital shares of our Common Stock which
Fusion Capital is entitled to under the Purchase Agreement II;
o any material breach of the representations or warranties or
covenants contained in the Purchase Agreement II or any
related agreements by the Company which has or which could
have a material adverse affect on us subject to a cure period
of five (5) trading days;
o any participation or threatened participation in insolvency or
bankruptcy proceedings by or against us;
o a material adverse change in our business; or
o the issuance of an aggregate of 26,643,192 shares of Common
Stock (19.99% of the 133,282,603 outstanding shares of Common
Stock as of the date of the Purchase Agreement II) if we fail
to obtain the requisite shareholder approval.
Our Termination Rights
We have the unconditional right at any time for any reason to give notice to
Fusion Capital terminating the Purchase Agreement II. Such notice shall be
effective one (1) trading day after Fusion Capital receives such notice.
Effect Of Performance Of The Purchase Agreement II On Our Shareholders
All shares registered in this offering will be freely tradable. It is
anticipated that shares registered in this offering will be sold over a period
of up to fifty (50) months from the date of this Prospectus. The sale of a
significant amount of shares registered in this offering at any given time could
cause the trading price of our Common Stock to decline and to be highly
volatile. Fusion Capital may ultimately purchase all of the shares of Common
Stock registered in this offering, and it may sell some, none or all of the
shares of Common Stock it acquires upon purchase. Therefore, the purchases under
the Purchase Agreement II may result in substantial dilution to the interests of
other holders of our Common Stock. However, we have the right at any time for
any reason to (a) reduce the daily purchase amount, (b) suspend purchases of the
Common Stock by Fusion Capital and (c) terminate the Purchase Agreement II.
23
No Short-Selling Or Hedging By Fusion Capital
Fusion Capital has agreed that neither it nor any of its affiliates shall engage
in any direct or indirect short-selling or hedging of our Common Stock during
any time prior to the termination of the Purchase Agreement II.
Commitment Shares Issued To Fusion Capital
Under the terms of the Purchase Agreement II, Fusion Capital has received
1,700,000 shares of our Common Stock as a commitment fee. Unless an event of
default occurs, these shares must be held by Fusion Capital until twenty-four
(24) months from the date of the Purchase Agreement II or the date the Purchase
Agreement II is terminated.
No Variable Priced Financings
Until the termination of the Purchase Agreement II, we have agreed not to issue,
or enter into any agreement with respect to the issuance of, any variable priced
equity or variable priced equity-like securities unless we have obtained Fusion
Capital's prior written consent.
24
DILUTION
The net tangible book value of Samaritan as of September 30, 2005 was $2,884,576
or $0.0212 per share of Common Stock. Net tangible book value per share is
determined by dividing the tangible book value of Samaritan (total assets less
total liabilities) by the number of outstanding shares of our Common Stock.
Since this offering is being made solely by the selling stockholder and none of
the proceeds will be paid to Samaritan, our net tangible book value will be
unaffected by this offering. Our net tangible book value, however, will be
impacted by the Common Stock to be issued under the Purchase Agreement II. The
amount of dilution will depend on the offering price and number of shares to be
issued under the Purchase Agreement II. The following example shows the dilution
to new investors at an offering price of $0.40 per share (the last reported
market sale price of our Common Stock as of November 29, 2005).
If we assume that Samaritan had issued 15,000,000 shares of Common Stock to
Fusion Capital (i.e., the number of shares being issued in this registration
statement pursuant to the Purchase Agreement II) at an assumed offering price of
$0.40 per share, less offering expenses of $85,000, our net tangible book value
as of September 30, 2005 would have been $8,799,576 or $0.0583 per share. Such
an offering would represent an immediate increase in net tangible book value to
existing shareholders of $0.0371 per share and an immediate dilution to new
shareholders of $0.3417 per share. The following table illustrates the per share
dilution:
Assumed public offering price per share $0.4000
Net tangible book value per share before this offering $0.0212
Increase attributable to new investors $0.0371
-------
Net tangible book value per share after this offering $0.0583
-------
Dilution per share to new shareholders $0.3417
=======
The offering price of our Common Stock is based on the then-existing market
price. In order to give prospective investors an idea of the dilution per share
they may experience, we have prepared the following table showing the dilution
per share at various assumed offering prices:
ASSUMED NO. OF SHARES TO BE DILUTION PER SHARE TO
OFFERING PRICE ISSUED(1) NEW INVESTORS
-------------- ------------------- ---------------------
$0.40 15,000,000 $0.3417
$0.30 15,000,000 $0.2517
$0.20 15,000,000 $0.1616
$0.10 15,000,000 $0.0715
---------------------
(1) Samaritan is registering 15,000,000 shares of Common Stock pursuant to the
Purchase Agreement II with Fusion Capital, excluding 1,700,000 shares
previously issued to Fusion Capital as a commitment fee.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction - Forward Looking Statements
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), Samaritan Pharmaceuticals,
Inc. (the "Company" or "Samaritan") is hereby providing cautionary statements
identifying important factors that could cause the Company's actual results to
differ materially from those projected in forward-looking statements made
herein. Any statements that express, or involve discussions as to, expectations,
beliefs, plans, objectives, assumptions of future events or performance are not
statements of historical facts and may be forward-looking. These forward-looking
statements are based largely on Samaritan's expectations and are subject to a
number of risks and uncertainties, including but not limited to, economic,
competitive, regulatory, growth strategies, available financing and other
factors discussed elsewhere in this report and in documents filed by Samaritan
with the U.S. Securities and Exchange Commission ("SEC"). Many of these factors
are beyond Samaritan's control. Actual results could differ materially from the
forward-looking statements made. In light of these risks and uncertainties,
there can be no assurance that the results anticipated in the forward-looking
information contained in this report will, in fact, occur.
Any forward-looking statement speaks only as of the date on which such statement
is made, and Samaritan undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of each
such factor on the business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
General
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements (unaudited) and the Notes thereto included
herein. The information contained below includes statements of Samaritan's or
management's beliefs, expectations, hopes, goals and plans that, if not
historical, are forward-looking statements subject to certain risks and
uncertainties that could cause actual results to differ materially from those
anticipated in the forward-looking statements.
Overview
We are a small cap biopharmaceutical company focused on the development of novel
therapeutic and diagnostic products. We have devoted substantially all of our
resources to undertaking our drug discovery and development programs.
The majority of our resources have been expended in the pursuit of FDA required
preclinical studies and Phase II/III clinical trials for Samaritan's HIV drug
SP-01A (Sphirewall), an oral entry inhibitor. In a previous Phase I/II study,
SP-01A was observed to significantly lower the amount of HIV in blood, improve
quality of life (how well subjects have felt), have a favorable safety profile
(minimal side effects) and be well-tolerated. Moreover, in vitro testing of
SP-01A: (a) demonstrated comparable or greater efficacy than currently approved
anti-HIV drugs in preventing HIV virus replication; (b) was observed to have
minimal toxic effect on human cells; and (c) demonstrated significant efficacy
in preventing virus replication of HIV virus strains that resist currently
approved anti-HIV treatments. The goal of our SP-01A monotherapy study, which is
currently recruiting patients, is to look further at the dose response, efficacy
and safety of SP-01A as monotherapy, given as a capsule to be swallowed, in the
treatment of HIV-infected patients.
In addition, and at the same time, Samaritan has devoted major resources to its
Alzheimer's technology, which features: (a) three (3) therapeutics: SP-04, SP-08
and SP-233; (b) two (2) stem cell, neuron differentiation therapies: SP-sc4 and
SP-sc7; (c) a predictive Alzheimer's diagnostic; and (d) an Alzheimer's animal
model. Samaritan has also devoted resources to its cancer drug SP-C007, a breast
cancer diagnostic and its cholesterol recognition peptide, which plays a role in
transforming and binding LDL cholesterol while subsequently raising HDL.
26
Samaritan has established its European headquarters in Athens, Greece, which we
believe will allow access to the markets of East Europe, Asia and Africa,
regions with a high proportion of HIV patients, a target population for our most
advanced drug SP-01A. Samaritan Pharmaceuticals Europe is currently seeking to
build a sales and marketing infrastructure through distribution agreements for
niche high valued products from other companies in the fields of HIV/Infectious
diseases, CNS, Cancer/Oncology and Cardiovascular diseases for the normally
undeveloped regions of Greece, Bulgaria, Romania, Croatia, Serbia, Bosnia and
Slovenia. Samaritan Pharmaceuticals Europe: (a) has established a manufacturing
arm in Ireland with Pharmaplaz, LTD, (b) plans to develop its pipeline of drugs
through clinical trials in preparation for European approval, (c) plans to
increase its university research collaborations and (d) plans to apply for
applicable European grants.
Plan And Results Of Operations
We have used the proceeds from private placements of our capital stock primarily
to expand our preclinical and clinical efforts as well as for general working
capital. At this time, we are beginning to commit additional resources to the
development of SP-01A as well as for the development of our other drugs.
Additional details regarding the human trials and INDs that the Company plans to
file may be found in the section entitled "Description of Business" in the
Company's Annual Report on Form 10-KSB as filed with the SEC on April 15, 2005
for the fiscal year ended December 31, 2004.
Results of Operations For The Three (3) Months Ended September 30, 2005
As Compared To The Three (3) Months Ended September 30, 2004
During the quarter ended September 30, 2005, we incurred research expenditures
pursuant to a grant we received from the U.S. Department of Health and Human
Services. We recognized grant revenue of $120,179, the extent of such qualifying
expenditures.
We incurred research and development expenses of $824,204 for the quarter ended
September 30, 2005, as compared to $475,432 for the quarter ended September 30,
2004. This increase of $348,772, or seventy-three percent (73%), was primarily
attributable to (a) the continuation of our Phase IIb HIV clinical trial, (b)
our increase in financial commitment with Georgetown University, (c) additional
expenses incurred to development of SP-01A, including payments to Pharmaplaz,
LTD for the manufacturing of SP-01A and (d) for performing the work necessary to
complete the chemistry, manufacturing and controls (CMC) section of New Drug
Application for the FDA, which will be submitted with studies conducted under
the IND for SP-01A. We expect that research and development expenditures
relating to drug discovery and development will increase during the last quarter
of 2005 and into subsequent years due to FDA clinical trials which include the
continuation and expansion of clinical trials (i) for our HIV drug program, (ii)
our Alzheimer's drug program, (iii) the initiation of trials for other potential
indications and (iv) additional study expenditures for potential pharmaceutical
candidates. Research and development expenses may fluctuate from period to
period depending upon the stage of certain projects and the level of
pre-clinical testing and clinical trial-related activities. In conjunction with
the additional research and development activities we expect to conduct, we
anticipate adding two (2) administrative staff members and four (4) research and
development support personnel over the next twelve (12) months. On June 1, 2004,
we also hired a Chief Drug Development Officer at an annual salary of $300,000,
plus benefits, pursuant to that certain employment agreement set forth as
Exhibit 10.6 herein and incorporated by reference hereto.
General and administrative expenses increased to $628,357 for the quarter ended
September 30, 2005, as compared to $489,397 for the quarter ended September 30,
2004. This increase of $138,960, or twenty-eight percent (28%), was primarily
attributable to an increase in amortization of fees with third party agreements.
Depreciation and amortization amounted to $25,534 for the quarter ended
September 30, 2005, as compared to $7,690 for the quarter ended September 30,
2004. This increase of $17,844, or two hundred thirty-two percent (232%), was
primarily attributable to research equipment purchases during the second quarter
of 2005.
We had a net loss of $1,344,515 for the quarter ended September 30, 2005, as
compared to $959,172 for the quarter ended September 30, 2004. The loss per
share for both quarterly periods was $0.01 per share. The increased loss of
$385,343, relates primarily to increased expenses as described above, offset by
grant income of $120,179.
Results Of Operations For The Nine (9) months Ended September 30, 2005
As Compared To The Nine (9) Months Ended September 30, 2004
27
We incurred research and development expenses of $2,365,103 for the nine (9)
months ended September 30, 2005, as compared to $896,321 for the nine (9) months
ended September 30, 2004. This increase of $1,468,782, or one hundred sixty-four
percent (164%), was primarily attributable to (a) the initiation and
continuation of our Phase IIb HIV clinical trial, (b) our increase in financial
commitment with Georgetown University, (c) additional expenses relating to the
development of SP-01A, including payments to Pharmaplaz, LTD for the
manufacturing of SP-01A and (d) performing the work necessary to complete the
chemistry, manufacturing and controls (CMC) section of New Drug Application for
the FDA, which will be submitted with studies conducted under the IND for
SP-01A. We expect that research and development expenditures relating to drug
discovery and development will increase during the last quarter of 2005 and
subsequent years due to FDA clinical trials which include the continuation and
expansion of clinical trials for (i) our HIV drug program, (ii) our Alzheimer's
drug program, (iii) the initiation of trials for other potential indications and
(iv) additional study expenditures for potential pharmaceutical candidates.
Research and development expenses may fluctuate from period to period depending
upon the stage of certain projects and the level of pre-clinical testing and
clinical trial-related activities. In conjunction with the additional research
and development activities we expect to conduct, we anticipate adding two (2)
administrative staff members and four (4) research and development support
personnel over the next twelve (12) months. On June 1, 2004, we also hired a
Chief Drug Development Officer at an annual salary of $300,000, plus benefits,
pursuant to that certain employment agreement set forth as Exhibit 10.6 herein
and incorporated by reference hereto.
General and administrative expenses decreased to $1,844,385 for the nine (9)
months ended September 30, 2005, from $1,912,499 for the quarter ended September
30, 2004. This decrease of $68,114, or four percent (4%), was primarily
attributable to a reduction in stock-based consulting and compensation costs,
offset by increases in other G & A items.
Depreciation and amortization amounted to $50,286 for the nine (9) months ended
September 30, 2005, as compared to $21,151 for the nine (9) months ended
September 30, 2004. This increase of $29,135, or one hundred thirty-eight
percent (138%), was primarily due to research equipment purchases during the
second quarter of 2005.
Net interest expense amounted to $(47,878) and $(19,378) for nine (9) months
ended September 30, 2005 and 2004, respectively. The credit balance in the
interest expense account is attributable to offsetting interest earned from
holding our cash in marketable securities and certificates of deposits. Most of
the initial investment in marketable securities was made during the quarter
ended September 30, 2004. Therefore, 2004 lacks the first six (6) months of
earnings reflected in 2005.
We had a net loss of $4,076,467 for the nine (9) months ended September 30, 205,
as compared to $2,810,593 for the nine (9) months ended September 30, 2004. The
loss per share for the nine (9) month period ending September 30, 2005 was $0.03
as compared to $0.02 for the nine (9) month period ended September 30, 2004. The
year-to-date loss increase ($1,440,218) reflects the increase in research
expenses but it is offset somewhat by the decline in G & A expense.
The net loss since our inception on September 5, 1994 through September 30, 2005
was $32,255,304. We expect losses to continue for the near future, and such
losses will likely increase as human clinical trials are undertaken in the
United States. Future profitability will be dependent upon our ability to
complete the development of our pharmaceutical products, obtain necessary
regulatory approvals and effectively market such products. In addition, future
profitability will require that the Company establish agreements with other
parties for the clinical testing, manufacturing, commercialization and sale of
its products.
As of September 30, 2005, the Company's cash position was $850,095 and the
Company had $1,242,763 of marketable securities. We are continuing efforts to
raise additional capital and to execute our research and development plans. Even
if we are successful in raising sufficient money to carry out these plans,
additional clinical development is necessary to bring our products to market,
which will require a significant amount of additional capital.
Liquidity And Capital Resources
Cash used in operating activities during the nine (9) month period ended
September 30, 2005 was $(3,390,771), as compared to $(2,144,668) for the nine
(9) month period ended September 30, 2004. This increase is primarily
attributable to (a) additional expenses related to development of SP-01A and (b)
the initiation of our clinical trial, including payments to Pharmaplaz, LTD for
performing work to complete the chemistry and manufacturing and controls (CMC)
information that will be submitted for studies conducted under the IND for
SP-01A.
Cash provided by investing activities was $402,416 for the nine (9) month period
ended September 30, 2005, as compared to $(2,392,177) for the nine (9) month
period ended September 30, 2004. During the quarter ended September 30, 2004, we
invested $2,250,000 in proceeds from an offering of our common stock into
marketable securities until such time as the money was needed. The current
period's activity includes redemption of one such marketable security offset by
investments in equipment and patent registration costs.
Cash provided by financing activities was $1,399,999 for the nine (9) month
period ended September 30, 2005, as compared to $7,845,939 for the nine (9)
month period ended September 30, 2004, a decrease of $6,445,940 or eighty-two
percent (82%). Last year's results include proceeds from a private placement,
which is not the case for the same period 2005 when no private placements were
conducted.
28
Current assets as of September 30, 2005 were $1,674,325 as compared to
$3,759,819 as of September 30, 2004. This decrease of $2,085,494, or fifty-five
percent (55%), is primarily attributable to the use of proceeds from the 2004
private placement to fund development stage activities. This is offset somewhat
by proceeds received through our equity financing arrangement with Fusion
Capital. Current liabilities as of September 30, 2005 were $332,258 as compared
to $417,333 as of September 30, 2004, a decrease of $85,075 or twenty percent
(20%).
On April 22, 2003, we entered into a common stock purchase agreement ("Purchase
Agreement I") with Fusion Capital Fund II, LLC ("Fusion Capital"), pursuant to
which Fusion Capital agreed to purchase our common stock from time to time at
our option up to an aggregate amount of $10,000,000. The SEC declared the
Company's registration statement on Form SB-2 effective on October 9, 2003
(Commission Registration No. 333-105818). The number of registered, yet
unissued, shares remaining under this registration statement as of September 30,
2005 was 969,893.
On May 12, 2005, we entered into a second common stock purchase agreement, as
amended ("Purchase Agreement II") with Fusion Capital pursuant to which Fusion
Capital has agreed to purchase our common stock from time to time at our option
up to an aggregate amount of $40,000,000 over fifty (50) months from the date
the SEC declares effective a registration statement covering the shares of
common stock to be purchased by Fusion Capital pursuant to such Purchase
Agreement II. Purchase Agreement II is subject to the declaration of
effectiveness by the SEC of a registration statement covering the shares of
common stock to be purchased by Fusion Capital and such shares will be priced
based on the market price of our shares at the time of sale to Fusion Capital.
In general, we have the right to sell to Fusion Capital up to $40,000 of our
common stock on each business day and may increase that amount to as much as
$1,000,000 in any one (1) day depending on the market price of our shares. We
have the right to control timing and the amount of shares we sell to Fusion
Capital.
The Company's dependence on raising additional capital will continue at least
until the Company is able to commercially market one of its products at
significant sales level. Depending on profit margins and other factors, the
Company may still need additional funding to continue research and development
efforts. The Company's future capital requirements and the adequacy of its
financing depend upon numerous factors, including the successful
commercialization of the Company's drug candidates, progress in its product
development efforts, progress with preclinical studies and clinical trials, the
cost and timing of production arrangements, the development of effective sales
and marketing activities, the cost of filing, prosecuting, defending and
enforcing intellectual property rights, competing technological and market
developments, and the development of strategic alliances for the marketing of
its products.
We do not believe that debt financing from financial institutions will be
available until at least the time that one of our products is approved for
commercial production. To date, none of our proprietary products has reached a
commercial stage, and hence, we do not have, nor do we anticipate revenue in the
near future. We have been unprofitable since our inception and have incurred
significant losses. We will continue to have significant general and
administrative expenses, including expenses related to clinical studies, our
Research Collaboration with Georgetown University and patent registration costs.
We have funded our operations through a series of private placements and through
our purchase agreements with Fusion Capital, which we believe will assist the
Company in meetings its cash needs. Except for Purchase Agreement I and Purchase
Agreement II, no commitment exists for continued investments, or for any
underwriting.
Even with our financing arrangements with Fusion Capital (as discussed above),
we may require substantial additional funds to sustain our operations and to
grow our business. The amount of which will depend, among other things, on (i)
the rate of progress and the cost of our research and product development
programs and clinical trial activities, (ii) the cost of preparing, filing,
prosecuting, maintaining and enforcing patent claims and other intellectual
property rights and (iii) the cost of developing manufacturing and marketing
capabilities, if we decide to undertake those activities. The clinical
development of a therapeutic product is a very expensive and lengthy process and
may be expected to utilize $5 million to $20 million over a three (3) to six (6)
year development cycle. Although we believe we could license the manufacturing
and marketing rights to our products in return for up-front licensing and other
fees and royalties on any sales, there can be no assurance that we will be able
to do so in the event we seek to do so. We need to obtain additional funds to
develop our therapeutic products and our future access to capital is uncertain.
The allocation of limited resources is an ongoing issue for us as we move from
research activities into the more costly clinical investigations required to
bring therapeutic products to market.
29
The extent to which we rely on Fusion Capital as a source of funding will depend
on a number of factors, including the prevailing market price of our common
stock and the extent to which we are able to secure working capital from other
sources. Even if we are able to access the full amounts under Purchase Agreement
I and Purchase Agreement II, we may still need additional capital to fully
implement our business, operating and development plans. If we are unable to
obtain additional financing, we might be required to delay, scale back or
eliminate certain of our research and product development programs or clinical
trials, or be required to license third parties to commercialize products or
technologies that we would otherwise undertake ourselves, or cease certain
operations all together, any of which might have a material adverse effect upon
us. If we raise additional funds by issuing equity securities, dilution to
stockholders may result, and new investors could have rights superior to
existing holders of shares. Should the financing we require to sustain our
working capital needs be unavailable or prohibitively expensive when we require
it, the consequences would be a material adverse effect on our business,
operating results, financial condition and prospects.
We have been able to meet our cash needs during the past twelve (12) months
through a combination of funds received through private placements and funds
received under Purchase Agreement I. We intend to continue to explore avenues to
obtain the capital needed for our operations through private placements and by
sale of our shares to Fusion Capital.
Quantitative And Qualitative Information About Market Risk
We do not engage in trading market-risk sensitive instruments and do not
purchase hedging instruments or "other than trading" instruments that are likely
to expose us to market risk, whether interest rate, foreign currency exchange,
commodity price or equity price risk. We have no outstanding debt instruments,
have not entered into any forward or future contracts, and have purchased no
options and entered into no swaps. We have no credit lines or other borrowing
facilities, and do not view ourselves as subject to interest rate fluctuation
risk at the present time.
Recently Issued Accounting Standards
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123 (revised 2004), "Share-Based Payment", or SFAS 123R, which establishes
standards for transactions in which an entity exchanges its equity instruments
for goods or services. SFAS 123R requires companies to expense the value of
employee stock options and similar awards.
Share-based payments will be measured at fair value on the grant date, based on
the estimated number of awards that are expected to vest. SFAS 123R applies to
all unvested share-based awards outstanding at the company's adoption date. SFAS
123R eliminates the exception to account for such awards using the intrinsic
method previously allowable under Accounting Principals Board Opinion No. 25
"Accounting for Stock Issued to Employees". SFAS 123R will be effective for our
fiscal year beginning January 1, 2006.
In April 2005, the FASB issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations", which clarifies that an entity is
required to recognize a liability for the fair value of a conditional asset
retirement obligation when incurred if the liability's fair value can be
reasonably estimated. The fair value of a liability for the conditional asset
retirement obligation should be recognized when incurred, which is generally
upon acquisition, construction, or development and (or) through the normal
operation of the asset. 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.
Interpretation No. 47 is effective no later than the end of fiscal years
beginning after December 15, 2005. The adoption of these new pronouncements did
not have, or are not expected to have, a material effect on the Company's
consolidated financial position or results of operations.
30
LEGAL PROCEEDINGS
We are, from time to time, involved in various legal proceedings in the ordinary
course of our business. While it is impossible to predict accurately or to
determine the eventual outcome of these matters, the Company believes that the
outcome of these proceedings will not have a material adverse effect on the
financial statements of the Company. Other than routine litigation that is
incidental to our business, there are no legal proceedings or actions pending at
this time.
31
MANAGEMENT
The following table sets forth the name, age and position of our executive
officers, Directors, key employees and key consultants as of the date hereof:
Name Age Served Since Positions with Company
--------------------------------- --- ------------ ----------------------
Dr. Janet R. Greeson (1)(2)(3) 62 10/19/1997 CEO, President and Chairman of the Board
Mr. Eugene J. Boyle (4) 40 05/20/2000 CFO, COO and Director
Dr. Thomas Lang 55 06/20/2004 Chief Drug Development Officer
Ms. Kristi C. Eads 35 11/20/2000 Vice President of Investor Relations and
Corporate Secretary
Mr. George Weaver 40 07/20/2003 Regulatory Affairs Officer
Dr. Laurent Lecanu (2)(5) 37 6/10/2005 Director
Mr. Douglas D. Bessert (5)(6) 48 03/20/2001 Director
Dr. Erasto R. C. Saldi (1)(2)(3) 45 05/20/2003 Director
Mr. Welter Holden (1)(3)(7) 75 10/19/1997 Director
Mr. H. Thomas Winn (5)(6) 65 03/19/1999 Director
Ms. Cynthia C. Thompson (3)(5)(7) 45 03/19/1999 Director
Dr. Vassilios Papadopoulos (2) 45 03/20/2001 Chief Scientist and Key Consultant
Dr. Christos Dakas 44 06/29/2005 Managing Director, Samaritan Pharmaceuticals Europe
---------------
(1) Member of the Nominating Committee.
(2) Member of the Science and Technology Advisory Committee.
(3) Class I Director, term expires 2007.
(4) Class II Director, term expires 2006.
(5) Class III Director, term expires 2008.
(6) Member of the Audit and Finance Committee.
(7) Member of the Compensation and Governance Committee.
Dr. Janet R. Greeson. Dr. Greeson has served as the Company's CEO, President and
Chairman of the Board since October 30, 2000 and has led the bold initiative
that transformed Samaritan from a "one drug" Company to an innovative "Drug
Development Pipeline" Biopharmaceutical Company. She strategically created a
long-term value and growth model, with the Samaritan/Georgetown University
collaboration; and intends to duplicate this growth model with other top tier
Universities, as a solid strategy to continually build Samaritan's value and
sustain its future profitability.
Dr. Greeson is a successful healthcare professional with over two (2) decades of
corporate experience focused on emerging growth situations, leadership
development, and mergers and acquisitions. Although she has worked with
Samaritan for nine (9) years, as CEO for the past four (4) years she has
demonstrated a relentless perseverance and determination to succeed in the face
of unrelenting change. She is extremely motivated and equipped to attack
problems and seize realistic opportunities, with capability, courage and
confidence. Dr. Greeson is a co-inventor of eighteen (18) patent applications,
and presently has nine "peer reviewed" journal publications. She is a best
selling author of "It's Not What You Are Eating, It's What's Eating You"; and a
renowned public speaker, whose guest appearances on numerous radio and TV Talk
shows, has opened the door to tell the Samaritan story, in a concise and
professional manner. Dr. Greeson has an eclectic past, once working with Mother
Theresa and was privileged to be the U.S. Congressional Nominee for the State of
Nevada in 1994, winning the primary without spending a dollar to campaign. She
currently fulfills her altruistic energies with the Samaritan Innovative Science
Foundation. Dr. Greeson holds a BA, from Florida Technological University in
1978; an MA from Rollins College in 1979; and a PhD from Columbia Pacific
University in 1987.
Mr. Eugene J. Boyle. Mr. Boyle is a co-founder of Samaritan, has served as a
Director since 2000 and has served as Chief Financial Officer and Chief
Operations Officer since June 16, 2000. Mr. Boyle attended Notre Dame and
received a BSE from Tulane University. He is a veteran of the U.S. Navy serving
as a Lt. during the Gulf War. Upon discharge, he then returned to graduate
school earning his MBA in Entrepreneurship from Babson College in Boston,
Massachusetts, and his Juris Doctor from Concord Law School in Los Angeles,
California. He devotes his time to the business development aspects of
Samaritan, SEC filings, patent prosecution and numerous other legal and business
affairs. Mr. Boyle is also a founder of the "Samaritan Innovative Science
Foundation", dedicated to provide free HIV drugs to children of the world; a
BioFutureBus to further science with children; and to develop often overlooked
orphan drugs for the benefit of the world community. In the past, Mr. Boyle was
employed by Columbia/HCA (NYSE:HCA) as its Chief Operations Officer for the
southeast region and also assisted with mergers and acquisitions of numerous
hospitals. He also has served on the Advisory Board of Nevada Gold and Casinos
(AMEX:UWN). Mr. Boyle is a Charted Financial Analyst candidate and has passed
the Series 7 and 63 securities brokerage registered representative exams,
although he is not a practicing representative.
32
Dr. Thomas Lang. Dr. Lang has served as the Chief Drug Development Officer for
Samaritan since 2004. Prior to joining the Company he was the CEO and President
of Strategic Development Consulting in 2003 and the former Vice Chairman and
President of Serono Inc. the U.S. Company of Serono, S.A., the world's third
largest biotech company from 1995 through 2003. Dr. Lang is a highly regarded
senior executive with over twenty-five (25) years of experience in the
pharmaceutical and biotech industry. Dr. Lang holds technical degrees in
Chemistry and Pharmacy, an MBA degree, a Ph.D. degree and is a registered
pharmacist in the State of New Jersey. Prior to founding Strategic Development
Consulting, Dr. Lang had a very successful career with such companies as
Ciba-Geigy, Janssen, Warner-Lambert, Organon, and, most recently, Serono. After
joining Serono in 1995, Dr. Lang held increasingly senior executive level
positions within Serono while successfully guiding the company's short and
long-term tactical and strategic planning for overall product development and
commercialization of its traditional and advanced biotech products in the
therapeutic areas of Fertility, Growth, Metabolism & Immunology, and Multiple
Sclerosis in the U.S. This has lead to the commercialization of seven (7)
products (five (5) of which were recombinant products), which currently account
for more than ninety-five percent (95%) of the Company's sales.
Ms. Kristi C. Eads. Ms. Eads has served as Vice President of Investor Relations,
for the Company since January of 2004 and Corporate Secretary since January 26,
2004. Ms. Eads oversees all communications with the investment community, both
public and private. Ms. Eads brings with her a diverse experience in investor
and corporate relations, accounting and marketing. Prior to joining Samaritan,
Ms. Eads' work related experience in advertising, banking and the political
arena has enhanced her overall ability to communicate the objectives of
Samaritan. Ms. Eads has a Bachelor of Arts from the University of Oregon and is
a Juris Doctorate Degree candidate with Concord University.
Mr. George Weaver. Mr. Weaver has served as the Regulatory Affairs Officer for
Samaritan since 2003. Mr. Weaver majored in chemistry, minored in business
economics and was one of a select group of students to successfully petition
UCLA and participate in an accelerated Pre-Medicine/Medicine program. After
working as an environmental toxicology consultant for two (2) years, Mr. Weaver
earned a Bachelor's of Science in Environmental Engineering and assumed an
appointed position as Chair of Industry Waste Classification and Toxicology
Focus Group under the California Department of Toxic Substances Control
Regulatory Structure Update. Mr. Weaver also worked for and under contract with
the U.S. Navy Public Works Center. Mr. Weaver is responsible for several
environmental and toxicological advances within the Department of Defense
including a notable contribution to the DOD Uniform National Discharge Standards
(UNDS) guidelines created jointly with the United States Environmental
Protection Agency and the U.S. Coast Guard; development of the U.S. Navy's
toxicological profile guidelines for hazardous materials and wastes in San
Diego, California; and significant contribution to the development of Department
of Defense radiological, biohazardous, and infectious materials permitting
guidelines.
Dr. Laurent Lecanu, D.Pharm., Ph.D. Dr. Lecanu has served as a Director since
June 10, 2005. Dr. Lecanu received his D.Pharm. in pharmaceutical chemistry and
his Ph.D. in neuropharmacology from the School of Pharmaceutical and Biological
Sciences at University of Paris (V), Paris, France. Dr. Lecanu is also a former
Intern of Paris Hospitals, France, where he demonstrated excellence in the
management and performance of clinical trials for new medications. Dr Lecanu's
contribution to Samaritan Research Laboratories brings more than seven (7) years
experience in biomedical research. He is a highly skilled specialist of "in
vivo" experimental research (preclinical research), mainly in the development of
animal models for neurodegenerative diseases. He also has several years of
experience in biomedical research including the development of novel therapeutic
entities targeted to Alzheimer's disease. Dr Lecanu's experience includes being
a Research Associate Professor at the Departments of Pharmacodynamics and
Pharmaceutical Physiology at the School of Pharmacy and Medicine of the
University of Burgundy, France. In 2001, the French National Academy of Pharmacy
awarded him the Prize of the French Association for Experimental Therapeutics.
Dr. Lecanu manages the day-to-day operations of Samaritan Laboratories at
Georgetown University and is co-inventor on numerous patents that Samaritan has
licensed from Georgetown University.
Mr. Douglas D. Bessert. Mr. Bessert has served as a Director since 2001 and has
shown an enormous ability to raise private capital with an extensive network of
contacts. Mr. Bessert has over twenty (20) years of financial and investor
relationship experience, with an emphasis in small entrepreneurial companies. In
the past, he served as a Branch Manager at a stock brokerage firm in charge of
nine (9) other brokers, handling all compliance and investor problems for the
office. Mr. Bessert was the Founder and CFO of Thorofare Resources Inc., a
regional oil and gas company with production and employees in eight (8) states.
He was also a financial consultant that managed portfolios for over two hundred
and thirty (230) clients and managing in excess of $43,000,000 in assets. During
his tenure as a financial consultant, he was heavily involved in leveraged
buyouts, raising private capital and acquisitions of many entities. Mr. Bessert
received his BS in Marketing from the University of Wyoming.
33
Dr. Erasto R. C. Saldi. Dr. Saldi has served as a Director of the Company since
2003. Currently, Dr. Saldi is setting up a network of primary clinics in Las
Vegas with the intent of establishing these clinics as research centers for
clinical trials. From 1999 to 2004, Dr. Saldi was the Medical Director of
Fremont Medical Clinic, Desert Lane Care Center, and Cheyenne Care Center, where
he improved physician compliance and formulated patient care protocols. From
1996 to 1997, he was Chief Resident, Internal Medicine and from 1997 to 1998 he
served as Assistant Clinical Professor, Internal Medicine at the University of
Nevada School of Medicine, Las Vegas, Nevada Dr. Saldi has also has extensive
experience as an Internist, Principal Investigator and manager of clinical
research trials.
Mr. Welter "Budd" Holden. Mr. Holden is a co-founder, has served as a Director
since 1997 and is the Chairman of the Nomination Committee. Mr. Holden has
assisted the Company in recruiting and networking patients for clinical trials.
He is a well-known designer who has consulted with the rich and famous
throughout his whole life. He is a renowned networker and has presented
Samaritan to many of his past clients and venture capital groups, including
principals of pharmaceutical companies. Although for the past five (5) years Mr.
Holden has been an independent consultant providing architectural and interior
design advice, he devotes the majority of his time to Samaritan. Mr. Holden is
the Chairman of our Business Advisory Board and acts as liaison to the
"Samaritan Innovative Science Foundation". He received his B.A. in architectural
and interior design from the Pratt Institute in New York, New York.
Mr. H. Thomas Winn. Mr. Winn has served as a Director since 1999 and is the
Chairman of the Audit Committee. Mr. Winn has been Chairman, President and CEO
of Nevada Gold & Casinos, Incorporated (AMEX:UWN) ("UWN") since 1994. Under Mr.
Winn's leadership, UWN has successfully concentrated on acquisition and
development of premier gaming and entertainment venture, and is currently
involved in seven (7) gaming projects in Colorado, California, New Mexico and
Arizona. Since 1983, Mr. Winn has served as President of Aaminex Capital
Corporation, a financial consulting and venture capital firm involved in food
and beverage, real estate, mining and environmental activities. Mr. Winn has
formed numerous investment limited partnership and capital formation ventures
ranging from motion pictures to commercial real estate and mining projects.
Ms. Cynthia C. Thompson. Ms. Thompson has served as a Director since 1999 and is
the Chairman of the Compensation and Governance Committee. Ms. Thompson is
President/CEO and founder of Quest Entertainment, Inc. She leads Quest's efforts
in providing technology solutions to the gaming industry focusing primarily on
slot machines and table game innovations. She began her extensive financial
background in corporate finance and institutional sales at leading Wall Street
investment firms. Ms. Thompson also serves on the Board of Restaurant
Connections International, Inc. and is a founder and financial advisor to Nevada
Gold & Casinos, Inc. (AMEX:UWN).
Dr. Vassilios Papadopoulos, D.Pharm., Ph.D. Dr. Papadopoulos had served as a
Director from 2001 through June 2005 and has been recently promoted into a more
prestigious position at Georgetown University, which has conflicted him out of
holding any position on Boards of public companies. His position as a "Key
Consultant" has resolved any conflict issues. He will continue to serve as Chief
Scientist of the Science and Technology Advisory Committee, which Committee
serves as an advisor to the Board. Dr. Papadopoulos is Professor and Chair at
the Department of Biochemistry & Molecular Biology at Georgetown University
Medical Center. Dr. Papadopoulos and his group of scientists originally assisted
Samaritan with work on using Procaine (HCL) to control stress-induced cortisol
production by the human adrenal cells. Dr. Papadopoulos has over twenty (20)
years of experience and over one hundred forty (140) peer review article
publications in the Biopharmaceutical field and numerous patents in the field of
steroid biosynthesis, Alzheimer's disease and cancer.
Dr. Christos Dakas, D.Pharm., Ph.D. Dr. Christos Dakas, joined Samaritan in June
2005 to oversee European operations, including Samaritan Ireland
Pharmaceuticals, Limited. Prior to joining Samaritan, Dr. Dakas had a successful
career in various executive positions with Gerolymatos, Genesis Pharma, and most
recently Arriani Pharmaceuticals. A pharmaceutical chemist by training with a
number of published papers, he holds degrees from the University of Toronto,
Kings College of University of London, and the University of Wales in Cardiff.
Committees
The Company has formed, by the determination of the Board of Directors, an Audit
Committee with Independent Director Mr. H. Thomas Winn as Chairman. Mr. Winn is
a "qualified financial expert" as such term is used in Item 7(d)(3)(iv) of
Schedule 14A (240.14a-101 of this chapter) under the Exchange Act. The Company
has also formed a Compensation and Governance Committee, with Independent
Director Ms. Cynthia C. Thompson as Chairman; a Nomination Committee with
Independent Director Mr. Welter Holden as Chairman; and a Science and Technology
Advisory Committee with Dr. Papadopoulos as Chief Scientist and Key Consultant
to the Board. It should also be noted that no Director, executive officer, key
employee or key consultant of the Company has any family relationships with any
other Director, executive officer, key employee or key consultant of the
Company, except that Mr. Boyle is the son of Dr. Greeson.
34
Compensation Of Directors
Cash Compensation. At the present time the members of the Board of Directors is
not compensated in cash.
Share-based Compensation. At the present time the members of the Board of
Directors are not compensated with shares.
Compliance With Section 16(a) Of The Securities Act Of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our Directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of our equity securities to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other of
our equity securities. Officers, Directors and greater than ten percent (10%)
shareholders are required by SEC regulations to furnish us copies of all Section
16(a) forms they file.
Based on available information, we believe that all filings with respect to
Section 16(a) are now current.
Code of Ethics
Samaritan has adopted The Samaritan Pharmaceuticals, Inc. Code of Conduct (the
"Code"), a formal code of ethics that applies to our principal executive officer
and principal accounting officer. The Code was filed as Exhibit 14.1 to the
Company's Form 10-KSB as filed with the SEC on April 15, 2003.
Executive Compensation
The Compensation and Governance Committee of the Board of Directors administers
our executive compensation program. Each member of the Committee is a
non-employee and Independent Director. The Committee is responsible for
establishing salaries and administering the incentive programs for our Chief
Executive Officer and other executive officers.
Compensation Philosophy
The Compensation Committee has designed Samaritan's compensation program based
on the philosophy that all of our executives are important to our success, with
our executive officers setting the direction of our business and having overall
responsibility for our results. Like other pharmaceuticals companies, we operate
in a highly competitive and difficult economic environment. Accordingly, the
Compensation Committee has structured Samaritan's compensation to accomplish
several goals: (a) to attract and retain very talented individuals, (b) to
reward creativity in maximizing business opportunities and (c) to enhance
shareholder value by achieving our short-term and long-term business objectives.
Base Salary
The Compensation Committee considers peer data as well as individual performance
when approving base salaries for executive officers. The Compensation and
Governance Committee evaluates individual performance based on the achievement
of corporate or divisional operating goals and subjective criteria, as well as
the Chief Executive Officer's evaluation of the other executive officers. No
specific weight is assigned to any particular factor. Dr. Greeson, Mr. Boyle and
Dr. Thomas Lang each have employment agreements negotiated at arm's length with
the Compensation and Governance Committee, and each such agreement provides for
a minimum annual base salary. In setting base salaries, the Board has considered
(a) the contributions made by each executive to our Company, (b) compensation
paid by peer companies to their executive officers and (c) outside compensation
reports.
35
Stock Options
The short and long-term compensation program includes stock options granted
under the Amended Samaritan Pharmaceuticals, Inc. 2001 Stock Incentive Plan and
the Samaritan Pharmaceuticals, Inc. 2005 Stock Incentive Plan as well as
non-qualified stock options. The Amended Samaritan Pharmaceuticals, Inc. 2001
Stock Incentive Plan and the Samaritan Pharmaceuticals, Inc. 2005 Stock
Incentive Plan are designed to (a) reward executives for achieving long-term
financial performance goals over a three (3) year to ten (10) year period, (b)
provide retention incentives for executives and (c) tie a significant portion of
an executive's total compensation to our long-term performance. Stock options
for our executive officers, key employees and key consultants are part of our
incentive program and link the enhancement of shareholder value directly to
their total compensation. The Compensation and Governance Committee determines
the number of stock options granted based upon several factors: (a) level of
responsibility, (b) expected contribution towards our performance and (c) total
compensation strategy for mix of base salary, short-term incentives and
long-term incentives. The following tables and notes present information
concerning the compensation of the Company's Chief Executive Officer and to the
Company's most-highly compensated executive officers other than the Company's
Chief Executive Officer as of December 31, 2004:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
-------------------------------------------- ---------------------------------------------------
Securities Other
Name And Principal Accrual Underlying Compensation
Position Year Salary Salary Restricted Stock Awards Options(4)
---------------------- -------- ----------- ---------- ----------------- --------------- ---------------
Dr. Janet R. Greeson 2004 $437,582 - - $4,253,560 $19,559
CEO, President and 2003 $247,687 - $169,058 $2,582,238 $ 8,871
Chairman (1) 2002 $264,983 - $131,917 $1,532,210 $ 9,337
Mr. Eugene J. Boyle 2004 $278,645 $13,076 - $2,126,780 $600
CFO, COO (2) 2003 $156,200 - $121,630 $1,291,119 $1,200
2002 $97,533 - $167,067 $766,105 $3,667
Mr. Thomas Lang 2004 $173,538 - - $1,300,000 -
Chief Drug Development
Officer (3)(5)
George Weaver 2004 $89,863 $30,137 - - -
Regulatory Affairs 2003 $18,462 - $51,538 $50,000 -
Officer
(1) The Company and Dr. Greeson have entered into an employment agreement,
a copy of which is attached as Exhibit 10.9 to the Company's Quarterly
Report on Form 10-QSB as filed with the U.S. Securities and Exchange
Commission on August 14, 2002.
(2) The Company and Mr. Boyle have entered into an employment agreement, a
copy of which is attached as Exhibit 10.8 to the Company's Quarterly
Report on Form 10-QSB as filed with the U.S. Securities and Exchange
Commission on August 14, 2002.
(3) The Company and Mr. Lang have entered into an employment agreement, a
copy of which is attached as Exhibit 10.6 to the Company's Quarterly
Report on Form 10-QSB, as filed with the U.S. Securities and Exchange
Commission on August 16, 2004.
(4) The amounts shown in this column cover amounts for the payment of
Medicare/Social Security taxes, life insurance premiums and life
annuity premiums for the benefit of the particular employee, and the
employers matching contribution to the particular employees 401(k).
(5) Excludes payments to Strategic Development Consulting, Inc., a company
Dr. Lang was an employee of prior to being hired pursuant to his
employment agreement with Samaritan. Payments to Strategic Development
Consulting, Inc. included $50,000 and a five (5) year option for 25,000
shares with an exercise price of $0.50 for work prior to June 2004.
Excludes a one-time grant of 75,000 restricted shares into the George
Weaver Deferred Compensation Trust at the end of 2004.
OPTION GRANTS IN LAST FISCAL YEAR
Number of Percentage Of
Securities Total Options Grant Date
Underlying Granted To Exercise Base Present
Name Options Granted Employees Price Expiration Date Value(4)
------------------------ --------------- ------------- ------------- --------------- ------------
Dr. Janet R. Greeson (1) 4,253,560 54% $0.34 01/02/2014 $467,891
Mr. Eugene J. Boyle (2) 2,126,780 27% $0.34 01/02/2014 $233,945
Mr. Thomas Lang (3) 1,300,000 17% $1.08 06/16/2014 $507,000
Mr. Thomas Lang (3) 100,000 * $1.00 06/16/2007 $28,000
Mr. George Weaver 50,000 * $0.34 01/02/2014 $5,500
36
(1) The Company and Dr. Greeson have entered into an employment agreement,
a copy of which is attached as Exhibit 10.9 to the Company's Quarterly
Report on Form 10-QSB as filed with the U.S. Securities and Exchange
Commission on August 14, 2002.
(2) The Company and Mr. Boyle have entered into an employment agreement, a
copy of which is attached as Exhibit 10.8 to the Company's Quarterly
Report on Form 10-QSB as filed with the U.S. Securities and Exchange
Commission on August 14, 2002.
(3) The Company and Mr. Lang have entered into an employment agreement, a
copy of which is attached as Exhibit 10.6 to the Company's Quarterly
Report on Form 10-QSB, as filed with the U.S. Securities and Exchange
Commission on August 16, 2004.
(4) The grant date present values per option share were derived using the
Black-Scholes option pricing model in accordance with the rules and
regulations of the U.S. Securities and Exchange Commission and are not
intended to forecast future appreciation of the Company's stock price.
The options expiring on January 2, 2014 had a grant date present value
of $0.11 per option share. The Black-Scholes model with no dividend was
used with the following assumptions: volatility of twenty-five percent
(25%) based on a historical weekly average over five (5) years;
risk-free interest of three and seventy-two tenths percent (3.72%)
based on a U.S. Treasury rate of five (5) years; and a ten (10) year
option life. The options expiring on January 16, 2014 had a grant date
present value of $0.39 per option share. The Black-Scholes model with
no dividend was used with the following assumptions: volatility of
twenty-five percent (25%) based on a historical weekly average over
five (5) years; risk free interest of three and seventy-two tenths
percent (3.72%) based on a U.S. Treasury rate of five (5) year and a
ten (10) year option life. The options expiring on January 16, 2007 had
a grant date present value of $0.28 per option share. The Black-Scholes
model with no dividend was used with the following assumptions:
volatility of twenty-five percent (25%) based historical weekly average
over five (5) years, risk free interest of three and seventy-two tenths
percent (3.72%) based on a U.S. Treasury rate of five (5) years and a
five (5) year option life.
* Less than one percent (1%).
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number Of Securities
Underlying Number Of Unexercised
Shares Acquired Unexercised Options In-The-Money Options
Name On Exercise(1) Value Realized(2) At Fiscal Year-End At Fiscal Year-End (3)
------------------------ --------------- ----------------- --------------------- ----------------------
Dr. Janet Greeson 4,141,941 - 11,679,902 $5,345,785
Mr. Eugene J. Boyle 1,986,163 - 5,395,028 $2,539,631
Mr. Thomas Lang (4) - - 1,325,000 $12,000
Mr. George Weaver - - 50,000 $32,000
--------------------
(1) These options were exercised and reloaded pursuant to terms stated in
the Amended Samaritan Pharmaceuticals, Inc. 2001 Stock Option Plan.
(2) The Company engaged these executives pursuant to employment agreements
which allow each executive to defer compensation into Rabbi Trust
Agreements described herein below under the subsection entitled "Trust
Under Samaritan Pharmaceuticals, Inc.
Deferred Compensation Plan."
(3) Value of unexercised in-the-money options is calculated based on the
fair market value of the underlying securities without restriction,
minus the exercise price, and assumes sale of the underlying securities
on December 31, 2004, the last trading day for 2004, at a price of
$0.98 per share, the fair market value of the Common Stock on such
date.
(4) Executive received a grant of 1,200,000 options. One-quarter (1/4) of
said options vest every year. The price of the options was $1.08 with a
term of ten (10) years. Upon termination of the executive, as provided
hereinafter, such executive's 1,200,000 options (vested and non-vested)
shall expire within thirty (30) days.
401(k) Plan
We adopted a tax-qualified employee savings and retirement plan, or 401(k) plan,
covering our full-time employees located in the United States. The 401(k) plan
is intended to qualify under Section 401(k) of the Internal Revenue Code of
1986, as amended (the "Code"), so that contributions to the 401(k) plan by
employees, and the investment earnings thereon, are not taxable to employees
until withdrawn from the 401(k) plan. Under the 401(k) plan, employees may elect
to reduce their current compensation up to the statutorily prescribed annual
limit and have the amount of such contribution contributed to the 401(k) plan.
The 401(k) plan does permit additional matching contributions to the 401(k) plan
by us on behalf of participants in the 401(k).
Employment Agreements
On January 1, 2001, the Company entered into an employment agreement with Dr.
Janet R. Greeson pursuant to which Dr. Greeson shall serve as the Company's
Chief Executive Officer, President and Chairman of the Board for a term of five
(5) years. Dr. Greeson is entitled to a base salary of $350,000 per year and
stock options based on a formula not to be less than 250,000 options per year.
Dr. Greeson is also entitled to convert her salary into shares of the Company
based on a formula as set forth in the employment agreement. Dr. Greeson may
participate in all of our existing benefit programs and in all future benefit
programs if the Company offers such programs to any other employee. If the
agreement terminates by reason of Dr. Greeson's death, disability, incapacity or
37
termination of employment by us other than for cause, Dr. Greeson will be
entitled to continuation of base salary and health and similar benefits for
defined periods, payment of stock options and deferred compensation awards. Dr.
Greeson agreed to a non-compete clause for the term of her employment. In the
event of a change of control, Dr. Greeson would also vest in her options. Dr.
Greeson would also no longer be subject to non-competition undertakings. If a
change of control were followed by termination of employment resulting from a
change of control, in lieu of the severance benefits described above, Dr.
Greeson would be entitled to receive a payment equal to approximately three (3)
times her base salary and yearly options. For up to three (3) years following
such termination, we would also be obligated to provide continued health and
other insurance and disability benefits. We would also be obligated to pay all
legal fees and expenses reasonably incurred by Dr. Greeson in seeking
enforcement of contractual rights following a change of control. If change of
control payments and benefits result in an excise tax under the so-called
"golden parachute" provisions of the Code, we would be obligated to pay a tax
gross-up payment. Dr. Greeson has also been awarded options based on increases
in market capitalization starting with the market capitalization of $12,500,000.
On January 1, 2001, the Company entered into an employment agreement with Mr.
Eugene Boyle pursuant to which Mr. Boyle shall serve as the Company's Chief
Financial Officer for a term of five (5) years. Mr. Boyle is entitled to a base
salary of $240,000 per year and stock options based on a formula not to be less
than 250,000 options per year. Mr. Boyle is also entitled to convert his salary
into shares of the Company based on a formula as set forth in the agreement. Mr.
Boyle is also allowed to participate in all of our existing benefit programs and
in all future benefit programs, if the Company offers such programs to any other
employee. If the agreement terminates by reason of Mr. Boyle's death,
disability, incapacity or termination of employment by us other than for cause,
Mr. Boyle will be entitled to continuation of base salary and health and similar
benefits for defined periods, payment of stock options and deferred compensation
awards. Mr. Boyle agreed to a non-compete clause for the term of his employment.
In the event of a change of control, Mr. Boyle would also vest in his options.
Mr. Boyle would also no longer be subject to non-competition undertakings. If a
change of control were followed by termination of employment resulting from a
change of control, in lieu of the severance benefits described above, Mr. Boyle
would be entitled to receive a payment equal to approximately three (3) times
his base salary and yearly options. For up to three (3) years following such
termination, we would also be obligated to provide continued health and other
insurance and disability benefits. We would also be obligated to pay all legal
fees and expenses reasonably incurred by Mr. Boyle in seeking enforcement of
contractual rights following a change of control. If change of control payments
and benefits result in an excise tax under the so-called "golden parachute"
provisions of the Code, we would be obligated to pay a tax gross-up payment. Mr.
Boyle has also been awarded options based on increases in market capitalization
starting with the market capitalization of $12,500,000.
On June 1, 2004, the Company entered into a verbal employment agreement with Mr.
Thomas Lang pursuant to which Mr. Lang shall serve as the Company's Chief Drug
Development Officer for a term of four (4) years. Mr. Lang is entitled to a base
salary of $300,000 per year which may be paid in stock pursuant to a formula as
set forth in the agreement. Mr. Lang is entitled to receive bonus payments of
(a) $50,000 for FDA approval to move to Phase III or Phase II/III for HIV drug
SP-01A and (b) $50,000 for each Investigational New Drug Applications "granted"
by the FDA. Mr. Lang has received a one-time signing bonus of 100,000 options to
purchase our Common Stock at $1.00 per share, such options to expire after three
(3) years. Mr. Lang is entitled to moving expenses up to $30,000. Mr. Lang shall
receive a grant of 1,200,000 options, one-quarter (1/4) of which shall vest each
year. The price of the options shall be $1.08 with a term of ten (10) years.
Upon termination of the employment agreement, such 1,200,000 options (vested and
non-vested) shall expire within thirty (30) days thereafter. Mr. Lang shall have
the opportunity to participate in all of the Company's qualified defined benefit
and defined contribution retirement plans (subject to eligibility requirements
in such plans), three (3) weeks paid vacation (and paid holidays observed by the
Company.
On June 1, 2000, the Company entered into a agreement with Dr. Vassilios
Papadopoulos pursuant to which Dr. Papadopoulos shall serve as a Key Consultant
to the Company for a monthly rate of $5,000. This engagement agreement does not
prohibit Dr. Papadopoulos from being employed by other entities. Dr.
Papadopoulos has disclosed that he receives payments and benefits from other
entities including Georgetown University. Dr. Papadopoulos has the option to
convert his compensation into shares and he receives 250,000 warrants per year
for the term of the agreement.
On June 29, 2005 the Company entered into an employment arrangement with
Christos Dakas to serve as the European Business Development and Managing
Director of Samaritan Pharmaceuticals S.A. in Greece, once such entity is
established ("Samaritan Pharmaceuticals Europe"). Mr. Dakas shall receive a base
salary of (euro)105,280 per year, a car allowance equal to (euro)12,852 per year
and a performance based bonus to be awarded annually at the discretion of the
CEO of the Company. Mr. Dakas also is entitled to receive 100,000 Company stock
options priced at one hundred ten percent (110%) of the market price effective
July 11, 2005 and said options expire after three (3) years, or after thirty
(30) days after Mr. Dakas leaves his employ with Samaritan Pharmaceuticals
Europe. Mr. Dakas shall be entitled to health insurance and other benefit
programs per Samaritan Pharmaceuticals Europe.
38
Trust Under Samaritan Pharmaceuticals, Inc. Deferred Compensation Plan
The Company has entered into "Rabbi Trust" agreements with select management and
highly-compensated employees and has appointed a trustee that is a non-Director
and officer providing for the payment out of the assets of the Rabbi Trust
agreements accrued under the Company's various benefit plans, employment
agreements and other employment arrangements as the Company may specify from
time to time. To the extent not already irrevocable, the Rabbi Trust agreements
would become irrevocable upon a change of control of Samaritan. The Company may
make contributions to the Rabbit Trust agreements from time to time, and
additional funding may be required upon a change of control. To the extent
funded, the Rabbi Trust agreements are to be used, subject to their terms and to
the claims of the Company's general creditors in specified circumstances, to
make payments under the terms of the benefit plans, employment agreements and
other employment arrangements as the Company may specify from time to time.
39
PRINCIPAL SHAREHOLDERS
The following table sets forth information we know with respect to the
beneficial ownership of our Common Stock as of November 14, 2005, for each
person or group of affiliated persons whom we know to beneficially own more than
five percent (5%) of our Common Stock. The table also sets forth such
information for our Directors and executive officers, individually and as a
group. Unless otherwise indicated in the footnotes, the address for each listed
shareholder is: c/o Samaritan Pharmaceuticals, Inc., 101 Convention Center
Drive, Suite 310, Las Vegas, Nevada 89109.
Percentage Of Total
---------------------------------------------------------------------------------------
Percentage Of Total
Total Number Of Number Of Shares
Number Of Options Number Of Shares Options And Shares And Options
Beneficial Owner Beneficially Owned Beneficially Owned Beneficially Owned Beneficially Owned
-------------------------- -------------------- ------------------- -------------------- --------------------
Dr. Janet R. Greeson 11,328,788 200,000 11,528,788 8.46%
Mr. Eugene J. Boyle 8,036,116 319,250 8,355,366 6.13%
Mr. Thomas Lang 1,325,000 107,143 1,432,143 1.05%
Ms. Kristi C. Eads 170,000 195,000 365,000 *
Mr. George Weaver 50,000 - 50,000 *
Dr. Laurent Lecanu - - 50,000 *
Mr. Douglas D. Bessert - 50,000 20,000 *
Dr. Erasto R.C. Saldi 25,000 20,000 25,000 *
Mr. Welter Holden 100,000 2,509,421 2,609,421 1.92%
Mr. H. Thomas Winn 100,000 - 100,000 *
Ms. Cynthia C. Thompson 100,000 10,000 110,000 *
All executive officers and
Directors as a group (eleven
persons) 21,234,904 3,410,814 24,645,718 18.10%
Dr. Vassilios Papadopoulos 1,250,000 50,000 1,300,000 *
Christos Dakas 100,000 - 100,000 *
---------------
(1) Applicable percentage of beneficial ownership is based on 136,198,761
shares of Common Stock issued and outstanding as of November 14, 2005.
Beneficial ownership is determined in accordance with the rules of the
U.S. Securities and Exchange Commission. Except as indicated otherwise,
to our knowledge, the persons named in this table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them. Options to purchase shares of Common Stock
that are exercisable within sixty (60) days of November 14, 2005 are
deemed to be beneficially owned by the person holding such options for
the purpose of computing ownership of such person, but are not treated
as outstanding for the purpose of computing the ownership of any other
person.
* Less than one percent (1%).
40
If an officer or Director had previously elected to exercise options or deferred
compensation through a program that involves the crediting of deferred shares of
Common Stock held pursuant to the Trust Under Samaritan Pharmaceuticals, Inc.
Deferred Compensation Plan (the Rabbi Trust") for distribution to the executive
after termination of employment, the shares were excluded from the above
calculation. As of November 14, 2005, the Company has issued 31,990,749 shares
into the Rabbi Trust agreements with credit allocations for the benefit of each
of the following individuals: Dr. Janet R. Greeson (13,298,509), Mr. Eugene J.
Boyle (6,973,188), Mr. Doug Bessert (3,751,245), Dr. Vassilios Papadopoulos
(500,000), Mr. George Weaver (600,117), Mr. Welter Holden (518,237), Ms. Cynthia
C. Thompson (100,000), Mr. H. Thomas Winn (80,000), Ms. Kristi C. Eads (75,000)
and Dr. Erasto R. C. Saldi (20,000), Samaritan has Rabbi Trust agreements with
Dr. Thomas Lang and Mr. Brian Sullivan, however no credit allocations have been
made to these accounts.
41
DESCRIPTION OF CAPITAL STOCK
Common Stock
Our authorized capital stock consists of 250,000,000 authorized shares of Common
Stock, par value $0.001 per share, of which 136,198,761 shares are issued and
outstanding as of November 14, 2005. The holders of our Common Stock are
entitled to one (1) vote for each share on all matters voted on by shareholders,
including the election of Directors and, except as otherwise required by law, or
provided in any resolution adopted by our Board of Directors with respect to any
series of preferred stock, exclusively possess all voting power. Under our
Articles of Incorporation (as amended and restated), voting rights are
non-cumulative so that shareholders holding more than fifty percent (50%) of our
outstanding shares of Common Stock are able to elect all members of our Board of
Directors. Holders of shares of our Common Stock are entitled to share ratably
in dividends, if any, as may be declared, from time to time by our Board of
Directors in its discretion, from funds legally available to be distributed. In
the event of a liquidation, dissolution or winding up of the Company, the
holders of shares of common stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. Holders of our common stock
have no preemptive rights to purchase our common stock. There are no conversion
rights or redemption or sinking fund provisions with respect to our common
stock.
Preferred Stock
Our authorized capital stock also includes 5,000,000 shares of preferred stock,
par value $0.001 per share, of which zero (0) shares are issued and outstanding
as of the date of this Prospectus.
Provisions In Our Articles Of Incorporation And By-Laws That Would Delay, Defer
Or Prevent A Change In Control
Our Articles of Incorporation (restated as last amended June 10, 2005) authorize
a class of preferred stock commonly known as a "blank check" preferred stock.
Specifically, the preferred stock may be issued from time to time by the Board
of Directors as shares of one (1) or more classes or series. Our Board of
Directors, subject to the provisions of our Articles of Incorporation (restated
as last amended June 10, 2005) and limitations imposed by law, is authorized to
adopt resolutions; to issue the shares; to fix the number of shares; to change
the number of shares constituting any series; and to provide for or change the
following: the voting powers; designations; preferences; and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions, including the following: dividend rights, including whether
dividends are cumulative; dividend rates; terms of redemption, including sinking
fund provisions; redemption prices; conversion rights and liquidation
preferences of the shares constituting any class or series of the preferred
stock.
In each such case, we will not need any further action or vote by our
shareholders. One of the effects of undesignated preferred stock may be to
enable the Board of Directors to render more difficult or to discourage an
attempt to obtain control of us by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of our management.
The issuance of shares of preferred stock pursuant to the board of director's
authority described above may adversely affect the rights of holders of common
stock. For example, preferred stock issued by us may rank prior to the common
stock as to dividend rights, liquidation preference or both, may have full or
limited voting rights and may be convertible into shares of common stock.
Accordingly, the issuance of shares of preferred stock may discourage bids for
the common stock at a premium or may otherwise adversely affect the market price
of the common stock.
Staggering Board Of Directors
Our Bylaws (restated as last amended April 18, 2005), which were approved by the
Directors on April 19, 2005, provide that our Board of Directors shall consist
of eight (8) Directors that shall be divided into three (3) classes. The
authorized number of Directors may from time to time be increased to not more
than fifteen (15) or decreased to not less than three (3) by resolution of the
Board of Directors. A single class of Directors shall be elected each year at
the annual meeting, and each Director shall be elected to serve for a term
ending on the date of the third annual meeting of shareholders after his
election and until his successor has been elected and duly qualified, subject to
any transition periods. This provision in our Bylaws (restated as last amended
April 18, 2005) would delay, defer or prevent a change in control of Samaritan.
Our Board of Directors or shareholders may remove a Director at any time, with
or without cause.
42
Amendment Of Our Bylaws
Our Bylaws (restated as last amended April 18, 2005) may be adopted, amended or
repealed by (a) the affirmative vote of more than eighty percent (80%) of our
outstanding shares or (b) our Board of Directors.
Nevada Laws
The Nevada Business Corporation Law contains a provision governing "Acquisition
of Controlling Interest". This law provides generally that any person or entity
that acquires twenty percent (20%) or more of the outstanding voting shares of a
publicly-held Nevada corporation in the secondary public or private market may
be denied voting rights with respect to the acquired shares, unless a majority
of the disinterested shareholders of the corporation elects to restore such
voting rights in whole or in part. The control share acquisition act provides
that a person or entity acquires "control shares" whenever it acquires shares
that, but for the operation of the control share acquisition act, would bring
its voting power within any of the following three ranges: (a) twenty percent
(20%) to thirty-three and one-third percent (33 1/3%), (b) thirty-three and
one-third percent (33 1/3%) to fifty percent (50%) or (c) more than fifty
percent (50%). A "control share acquisition" is generally defined as the direct
or indirect acquisition of either ownership or voting power associated with
issued and outstanding control shares. The shareholders or Board of Directors of
a corporation may elect to exempt the stock of the corporation from the
provisions of the control share acquisition act through adoption of a provision
to that effect in the Articles of Incorporation or Bylaws of the corporation.
Our Articles of Incorporation and Bylaws do not exempt our common stock from the
control share acquisition act. The control share acquisition act is applicable
only to shares of "Issuing Corporations" as defined by the act. An Issuing
Corporation is a Nevada corporation, which; (a) has two hundred (200) or more
shareholders, with at least one hundred (100) of such shareholders being both
shareholders of record and residents of Nevada; and (b) does business in Nevada
directly or through an affiliated corporation.
At this time, we do not have one hundred (100) shareholders of record resident
of Nevada. Therefore, the provisions of the control share acquisition act do not
apply to acquisitions of our shares and will not until such time as these
requirements have been met. At such time as they may apply to us, the provisions
of the control share acquisition act may discourage companies or persons
interested in acquiring a significant interest in or control of Samaritan,
regardless of whether such acquisition may be in the interest of our
shareholders.
The Nevada "Combination with Interested Shareholders Statute" may also have an
effect of delaying or making it more difficult to effect a change in control of
Samaritan Pharmaceuticals. This statute prevents an "interested shareholder" and
a resident domestic Nevada corporation from entering into a "combination",
unless certain conditions are met. The statute defines "combination" to include
any merger or consolidation with an "interested shareholder", or any sale,
lease, exchange, mortgage, pledge, transfer or other disposition, in one
transaction or a series of transactions with an "interested shareholder" having;
(a) an aggregate market value equal to five percent (5%) or more of the
aggregate market value of the assets of the corporation; (b) an aggregate market
value equal to five percent (5%) or more of the aggregate market value of all
outstanding shares of the corporation; or (c) representing ten percent (10%) or
more of the earning power or net income of the corporation. An "interested
shareholder" means the beneficial owner of ten percent (10%) or more of the
voting shares of a resident domestic corporation, or an affiliate or associate
thereof. A corporation affected by the statute may not engage in a "combination"
within three (3) years after the interested shareholder acquires its shares
unless the combination or purchase is approved by the Board of Directors before
the interested shareholder acquired such shares. If approval is not obtained,
then after the expiration of the three-year period, the business combination may
be consummated with the approval of the Board of Directors or a majority of the
voting power held by disinterested shareholders, or if the consideration to be
paid by the interested shareholder is at least equal to the highest of: (a) the
highest price per share paid by the interested shareholder within the three
years immediately preceding the date of the announcement of the combination or
in the transaction in which he became an interested shareholder, whichever is
higher; (b) the market value per common share on the date of announcement of the
combination or the date the interested shareholder acquired the shares,
whichever is higher; or (c) if higher for the holders of preferred stock, the
highest liquidation value of the preferred stock.
Transfer Agent
The transfer agent for the common stock is Securities Transfer Corporation, 2591
Dallas Parkway, Suite 102, Frisco, Texas 75034.
43
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our Common Stock in the public market following
this offering could negatively affect the market price of our Common Stock. Such
sales could also impair our future ability to raise capital through the sale of
our equity securities.
At the time of this Prospectus, we have outstanding 136,348,761 shares of our
common stock (including the 1,700,000 shares issued to Fusion Capital pursuant
to the Purchase Agreement II as a commitment fee). Of these shares,
approximately:
o 66,885,775 shares will be freely tradable by persons
other than "affiliates" without restriction under the
Securities Act of 1933, as amended; and
o 69,462,986 shares will be "restricted" securities within
the meaning of Rule 144 under the Securities Act of 1933, as
amended, and may not be sold in the absence of registration
under the Securities Act of 1933, as amended, unless an
exemption from registration is available, including the
exemption provided by Rule 144. As of the date of this
Prospectus, 41,105,617 shares are held by affiliates of
Samaritan, and may only be sold pursuant to Rule 144.
In general, under Rule 144, a person or persons whose shares are aggregated,
including any affiliate of Samaritan who has beneficially owned restricted
securities for at least one (1) year, would be entitled to sell within any three
(3) month period, a number of shares that does not exceed one percent (1%) of
the number of shares of Common Stock then outstanding.
Sales under Rule 144 are also subject to manner of sale and notice requirements
and to the availability of current public information about Samaritan. Under
Rule 144(k), a person who is not considered to have been an affiliate of
Samaritan at any time during the ninety (90) days preceding a sale, and who has
beneficially owned restricted securities for at least two (2) years, including
the holding period of any prior owner except an affiliate of Samaritan, may sell
these shares without following the terms of Rule 144.
44
SELLING SHAREHOLDER
The following table presents information regarding Fusion Capital, the selling
shareholder under this Prospectus. Neither the principals of Fusion Capital nor
any affiliates of Fusion Capital have held a position or office, or have had any
other material relationship with us.
Percentage Of Number of Shares To Percentage Of
Number of Shares Outstanding Shares Be Sold/Offered Outstanding Shares
Beneficially Owned Beneficially Owned Pursuant To The Beneficially Owned
Selling Shareholder Before Offering Before Offering(1) Offering After Offering(2)
--------------------------------- -------------------- ------------------ -------------------- ------------------
Fusion Capital Fund II, LLC(3) 6,392,193 4.69% 16,700,000 3.1%
----------
(1) As of the date hereof, 1,700,000 shares of our Common Stock have been
issued to Fusion Capital pursuant to the Purchase Agreement II with
Fusion Capital as a commitment fee. Fusion Capital may acquire up to an
additional 15,000,000 shares under the Purchase Agreement II.
Percentage of outstanding shares is based on 136,198,761 shares of
Common Stock outstanding as of November 14, 2005. Fusion Capital may
not purchase shares of our Common Stock under the Purchase Agreement II
if Fusion Capital, together with its affiliates, would beneficially own
more than nine and nine-tenths percent (9.9%) of our Common Stock
outstanding at the time of the purchase by Fusion Capital. Fusion
Capital has the right at any time to sell any shares purchased under
the Purchase Agreement II which would allow it to avoid the nine and
nine-tenths percent (9.9%) limitation. Therefore, we do not believe
that Fusion Capital will ever reach the nine and nine-tenths percent
(9.9% ) limitation.
(2) Percentage of outstanding shares is based on 136,198,761 shares of
Common Stock outstanding as of November 14, 2005, together with such
additional 15,000,000 shares of Common Stock that may be acquired by
Fusion Capital from us pursuant to the Purchase Agreement II after the
date hereof.
(3) Steven G. Martin and Joshua B. Scheinfeld, the principals of Fusion
Capital, are deemed to be beneficial owners of all of the shares of
Common Stock owned by Fusion Capital. Messrs. Martin and Scheinfeld
have shared voting and disposition power over the shares being offered
under this Prospectus.
45
PLAN OF DISTRIBUTION
We are registering 16,700,000 shares of our Common Stock pursuant to this
Prospectus and such 16,700,000 shares shall be offered to be sold by Fusion
Capital pursuant to the "Purchase Agreement II. Fusion Capital is sometimes
referred to herein as a selling shareholder.
The Common Stock may be sold or distributed from time to time by Fusion Capital
directly to one (1) or more purchasers or through brokers, dealers, or
underwriters who may act solely as agents at market prices prevailing at the
time of sale, at prices related to the prevailing market prices, at negotiated
prices, or at fixed prices, which may be changed. The sale of the Common Stock
offered by this Prospectus pursuant to the Purchase Agreement II may be effected
in one or more of the following methods:
o ordinary brokers' transactions;
o transactions involving cross or block trades;
o through brokers, dealers, or underwriters who may act solely
as agents;
o "at the market" into an existing market for the Common Stock;
o in other ways not involving market makers or established
trading markets, including direct sales to purchasers or sales
effected through agents;
o in privately negotiated transactions; or
o any combination of the foregoing.
In order to comply with the securities laws of certain states, if applicable,
the shares may be sold only through registered or licensed brokers or dealers.
In addition, in certain states, the shares may not be sold unless they have been
registered or qualified for sale in the state or an exemption from the
registration or qualification requirement is available and complied with.
Brokers, dealers, underwriters, or agents participating in the distribution of
the shares as agents may receive compensation in the form of commissions,
discounts, or concessions from a selling shareholder and/or purchasers of the
common stock for whom the broker-dealers may act as agent. The compensation paid
to a particular broker-dealer may be less than or in excess of customary
commissions.
Fusion Capital Is An "Underwriter" Within The Meaning Of The Securities Act
Neither we nor Fusion Capital can presently estimate the amount of compensation
that any agent will receive. We know of no existing arrangements between Fusion
Capital, any other shareholder, broker, dealer, underwriter, or agent relating
to the sale or distribution of the shares offered by this Prospectus. At the
time a particular offer of shares is made, a prospectus supplement, if required,
will be distributed that will set forth the names of any agents, underwriters or
dealers and any compensation from a selling shareholder and any other required
information.
We will pay all of the expenses incident to the registration, offering, and sale
of the shares to the public other than commissions or discounts of underwriters,
broker-dealers, or agents. We have also agreed to indemnify Fusion Capital and
related persons against specified liabilities, including liabilities under the
Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our Directors, officers, and controlling persons, we have been
advised that in the opinion of the SEC this indemnification is against public
policy as expressed in the Securities Act and is therefore, unenforceable.
46
Fusion Capital And Its Affiliates Have Agreed Not To Engage In Any
Direct Or Indirect Short Selling Or Hedging Of Our Common Stock During
The Term Of The Purchase Agreement II.
We have advised Fusion Capital that while it is engaged in a distribution of the
shares included in this Prospectus it is required to comply with Regulation M
promulgated under the Securities Exchange Act of 1934, as amended. With certain
exceptions, Regulation M precludes a selling shareholder, any affiliated
purchasers, and any broker-dealer or other person who participates in the
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any bids
or purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect the
marketability of the shares offered hereby this Prospectus.
This offering will terminate on the date that Fusion Capital has sold all shares
offered by this Prospectus.
47
LEGAL MATTERS
Burton, Bartlett & Glogovac has passed upon the validity of the shares of our
Common Stock offered hereby.
EXPERTS
Sherb & Co., LLP, an independent registered public accounting firm, has audited
our consolidated balance sheet as of December 31, 2004, and the consolidated
statements of operations, shareholders' equity, and cash flows for the two (2)
years in the period ended December 31, 2004 as set forth in this Prospectus. The
financial statements are included in reliance on such reports given upon the
authority of Sherb & Co., LLP as experts in accounting and auditing. Sherb &
Co., LLP does not have any ownership interest in Samaritan.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act of
1934, as amended, and file reports, proxy statements and other information with
the U.S. Securities and Exchange Commission (the "SEC"). These reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at 100 F Street, N.E., Washington,
D.C. 20549 and at the SEC's regional offices. You can obtain copies of these
materials from the Public Reference Section of the SEC upon payment of fees
prescribed by the SEC. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC's web site contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of that site is
http://www.sec.gov.
We have filed a registration statement on Form SB-2 with the SEC under the
Securities Act with respect to the securities offered in this Prospectus. This
Prospectus, which is filed as part of a registration statement, does not contain
all of the information set forth in the registration statement, some portions of
which have been omitted in accordance with the SEC's rules and regulations.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to in this Prospectus are not necessarily complete
and are qualified in their entirety by reference to each such contract,
agreement or other document which is filed as an exhibit to the registration
statement. The registration statement may be inspected without charge at the
public reference facilities maintained by the SEC, and copies of such materials
can be obtained from the Public Reference Section of the SEC at prescribed
rates.
48
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Feldman Sherb & Co., P.C., a professional corporation of certified public
accountants ("Feldman") was our independent accounting firm for the fiscal years
ended December 31, 2001 and 2000 and the four (4) month, ten (10) day period
ended May 10, 2002. The report of Feldman on our 2001 and 2000 consolidated
financial statements contained no adverse opinion, disclaimer of opinion or
modification of the opinion except that their report on the 2001 financial
statements contains an explanatory paragraph that states that "the accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern. The Company has incurred significant losses and as more
fully described in Note 1, the Company anticipates that additional funding will
be necessary to sustain the Company's operations through the year ending
December 31, 2002. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty."
Feldman was merged into Grassi & Co., CPA's, P.C. ("Grassi"), and the principal
accountants who had been responsible for the Company's audit during the years
ended December 31, 2001 and 2000 left and started their own firm called Sherb &
Co., LLP ("Sherb"). As a result, on May 11, 2002, the Company dismissed Grassi
and selected Sherb to serve as independent public accountants for the fiscal
year 2002.
During the two (2) most recent fiscal years and through May 10, 2002, Registrant
has not consulted with Sherb regarding the application of accounting principles
to a specific or contemplated transaction. Neither the Company nor anyone on its
behalf consulted with Sherb regarding the type of audit opinion that might be
rendered on the Company's financial statements or any matter that was the
subject of a disagreement or event as defined at Item 304(a)(2) of Regulation
S-B.
The decision to change accountants was recommended and approved by the Board of
Directors of the Company. During the period from January 1, 1999 to May 10,
2002, and through the date hereof, there were no disagreements with Feldman on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Feldman, would have caused it to make reference to the
subject matter of the disagreements in connection with its reports on the
Company's financial statements as described on Item 304(a)(1)(iv)(A). In
addition, there were no such events as described under Item 304(a)(1)(iv)(B) of
Regulation S-B during such periods.
On September 24, 2002, the Company has provided Grassi with a copy of the
disclosures it is making herein in response to Item 304(a) of Regulation S-B,
and has requested that Grassi provide its response letter, addressed to the SEC
pursuant to Item 304(a)(3) of Regulation S-B, stating whether it agrees with the
statements made by the Company and, if not, stating the respects in which it
does not agree. A copy of Grassi's letter is attached as an exhibit to Form 8-K
as filed with the SEC on September 27, 2002.
49
DISCLOSURE OF COMMISSION POSITION
OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Directors and officers are indemnified by our Bylaws against amounts
actually and necessarily incurred by them in connection with the defense of any
action, suit or proceeding in which they are a party by reason of being or
having been Directors or officers of the Company or Samaritan. Our Articles of
Incorporation as amended and restated, provide that no Director or officer shall
be personally liable for damages for breach of any fiduciary duty as a Director
or officer involving any act or omission made by any such Director or officer.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to such Directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by us of expenses incurred or paid by such Director, officer or
controlling person in the successful defense of any action, suit or proceeding,
is asserted by such Director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
This Prospectus is not an offer or solicitation in respect to these securities
in any jurisdiction in which such offer or solicitation would be unlawful. This
Prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission. The registration statement that contains this
Prospectus (including the exhibits to the registration statement) contains
additional information about our company and the securities offered under this
Prospectus. That registration statement can be read at the SEC web site or at
the SEC's offices mentioned herein under the heading "Where You Can Find More
Information". We have not authorized anyone else to provide you with different
information or additional information. You should not assume that the
information in this Prospectus, or any supplement or amendment to this
Prospectus, is accurate at any date other than the date indicated on the cover
page of such documents.
50
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO
FINANCIAL STATEMENTS
PAGE
-----------
Samaritan Pharmaceuticals, Inc. Consolidated Financial Statements
For The Years Ended December 31, 2004 and 2003
Report of Independent Registered Public Accounting Firm..... F-ii
Consolidated Financial Statements:
Balance Sheet............................................. F-1
Statements of Operations and Comprehensive Income......... F-2
Statements of Shareholders' Deficit....................... F-3 - F-6
Statements of Cash Flows.................................. F-7
Notes to Financial Statements................................ F-8 - F-15
Samaritan Pharmaceuticals, Inc. Consolidated Financial Statements
For the Period Ended September 30, 2005 (Unaudited)
Consolidated Balance Sheet as of September 30, 2005......... F-16
Consolidated Statements of Operations for the period from
Inception (September 5, 2994) to September 30, 2004, and
for the Three (3) Months and Nine (9) Months Ended
September 30, 2005 and 2004................................. F-17
Consolidated Statements of Shareholders' Equity (Deficit)
for the period from Inception (September 5, 1994) to
September 30, 2005.......................................... F-18 - F-21
Consolidated Statements of Cash Flows for the period from
Inception (September 5, 1994) to September 30, 2005 and for
the Nine (9) Months Ended September 30, 2005 and 2004....... F-22
Notes to Interim Financial Statements....................... F-23 - F-26
F-i
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Samaritan Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheet of
Samaritan Pharmaceuticals, Inc. (a development stage company) as of December 31,
2004 and the related consolidated statements of operations and comprehensive
income, shareholders' equity and cash flows for the years ended December 31,
2004 and 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, the consolidated financial position of Samaritan Pharmaceuticals, Inc.
(a development stage company) as of December 31, 2004 and the consolidated
results of its operations and its cash flows for the years ended December 31,
2004 and 2003 in conformity with accounting principles generally accepted in the
United States of America.
The accompanying cumulative statements of operations and comprehensive
income, shareholders' equity and cash flows regarding the period from inception
(September 5, 1994) through December 31, 2004, include activity prior to our
engagement as auditors upon which we or the predecessor auditor have not
performed procedures. Therefore, we do not express an opinion on them.
/s/ Sherb & Co., LLP
----------------------------
Sherb & Co., LLP
Certified Public Accountants
New York, New York
March 31, 2005
F-ii
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
December 31, 2004
ASSETS
CURRENT ASSETS:
Cash $ 2,438,451
Marketable securities 1,490,812
Interest receivable 23,238
Prepaid expenses 53,111
-------------
TOTAL CURRENT ASSETS 4,005,612
PROPERTY AND EQUIPMENT 37,221
-------------
OTHER ASSETS:
Patent registration costs 430,060
Purchased technology rights 30,879
Marketable securities 492,608
Note receivable 250,000
Deposits 2,779
-------------
TOTAL OTHER ASSETS 1,206,326
-------------
$ 5,249,159
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 147,753
Accrued expenses 22,414
-------------
TOTAL CURRENT LIABILITIES 170,167
-------------
SHAREHOLDERS' EQUITY:
Common stock, 200,000,000 shares authorized at $.001
par value, 132,030,199 issued and outstanding 132,030
Additional paid-in capital 33,697,043
Deferred compensation (304,416)
Treasury stock (250,248)
Accumulated other comprehensive income (16,580)
Accumulated deficit during development stage (28,178,837)
-------------
TOTAL SHAREHOLDERS' EQUITY 5,078,992
-------------
$ 5,249,159
=============
See accompanying notes to the consolidated financial statements.
F-1
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME
FROM INCEPTION (SEPTEMBER 5, 1994) TO DECEMBER 31, 2004
AND FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
From
Inception
(September 5, 1994) December 31,
To ---------------------- ------------------
December 31, 2004 2004 2003
---------------------------- ---------------------- ------------------
(Unaudited)
REVENUES $ 300,000 $ - $ 250,000
---------------------------- ---------------------- ------------------
EXPENSES:
Research and development 6,283,470 1,543,921 838,208
Interest, net 13,276 (36,730) 6,334
General and administrative 21,403,387 3,561,302 4,902,213
Depreciation and amortization 1,147,834 27,218 23,776
Other income (369,130) (231,350) -
---------------------------- ---------------------- ------------------
28,478,837 4,864,361 5,770,531
---------------------------- ---------------------- ------------------
NET LOSS (28,178,837) (4,864,361) (5,520,531)
Other Comprehensive Income
Unrealized loss on marketable securities (16,580) (16,580) -
---------------------------- ---------------------- -----------------
Total Comprehensive Income $ (28,195,417) $ (4,880,941) $ (5,520,531)
============================ ====================== =================
Loss per share, basic and diluted $ (0.86) $ (0.04) $ (0.07)
============================ ====================== =================
Weighted average number of shares outstanding:
Basic and diluted 32,931,183 124,483,372 79,767,085
============================ ====================== =================
See accompanying notes to the consolidated financial statements
F-2
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(UNAUDITED)
FROM INCEPTION (SEPTEMBER 5, 1994) TO December 31, 2004
Shares
Number Par Value Reserved Additional
of Common for Paid in
Shares Stock Conversion Capital Warrants
------------- ---------- ---------- ------------ -----------
Inception at September 5, 1994 - $ - $ - - $ -
Shares issued for cash, net of
offering costs 6,085,386 609 - 635,481 -
Warrants issued for cash - - - - 5,000
Shares issued as compensation
for services 714,500 71 - 1,428,929 -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1996 6,799,886 680 - 2,064,410 5,000
Issuance of stock, prior to
acquisition 206,350 21 - 371,134 -
Acquisition of subsidiary for
stock 1,503,000 150 - 46,545 -
Shares of parent redeemed, par
value $.0001 (8,509,236) (851) - 851 -
Shares of public subsidiary
issued, par value $.001 7,689,690 7,690 820 (8,510) -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1997 7,689,690 7,690 820 2,474,430 5,000
Conversion of parent's shares 696,022 696 (696) - -
Shares issued for cash, net of
offering costs 693,500 694 - 605,185 -
Shares issued in cancellation
of debt 525,000 525 - 524,475 -
Shares issued as compensation 400,000 400 - 349,600 -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1998 10,004,212 10,005 124 3,953,690 5,000
Conversion of parent's shares 13,000 13 (13) - -
Shares issued in cancellation
of debt 30,000 30 - 29,970 -
Shares issued for cash, net of
offering costs 45,000 45 - 41,367 -
Shares issued as compensation 3,569,250 3,569 - 462,113 -
Detachable warrants issued - - - - 152,125
Detachable warrants exercised 100,000 100 - 148,900 (149,000)
Debentures converted to stock 1,682,447 1,682 - 640,438 -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1999 15,443,909 15,444 111 5,276,478 8,125
Conversion of parent's shares 128,954 129 (111) (18) -
Shares issued for cash, net of
offering costs 1,575,192 1,575 - 858,460 -
Shares issued in cancellation
of debt 875,000 875 - 660,919 -
Shares issued in cancellation
of accounts payable 100,000 100 - 31,165 -
Shares issued as compensation 3,372,945 3,373 - 2,555,094 -
Warrants exercised 38,807 39 - 3,086 (3,125)
Warrants expired - - - 5,000 (5,000)
Net loss - - - - -
------------ --------- ---------- ------------ -----------
December 31, 2000 21,534,807 21,535 - 9,390,184 -
See accompanying notes to the consolidated financial statements
F-3
Shares issued for cash, net of
offering cost 6,497,088 6,497 - 1,257,758 -
Shares issued as compensation 9,162,197 9,162 - 1,558,599 -
Shares issued for previously
purchased shares 342,607 342 - 188,208 -
Shares issued in cancellation
of accounts payable 200,000 200 - 68,880 -
Amortization of deferred
compensation - - - - -
Stock options issued for
services - - - 439,544 -
Net loss - - - - -
------------ ---------- ---------- ------------ -----------
December 31, 2001 37,736,699 37,736 - 12,903,173 -
Shares issued for cash, net of
offering costs 18,657,500 18,658 - 2,077,641 -
Shares issued as compensation 3,840,525 3,841 - 1,044,185 -
Shares issued for previously
purchased shares 50,000 50 - 4,950 -
Shares issued in cancellation
of accounts payable 4,265,184 4,265 - 539,291 -
Amortization of deferred
compensation - - - - -
Shares issued in cancellation
of notes payable - - - - -
Stock options issued for
services - - - 225,000 -
Net loss - - - - -
------------ ---------- ---------- ------------ -----------
December 31, 2002 64,549,908 64,550 16,794,240
Shares issued for cash, net of
offering costs 17,493,664 17,493 - 2,392,296 -
Shares issued as compensation 4,062,833 4,063 - 549,779 -
Shares issued for previously
purchased shares 1,160,714 1,161 - 161,339 -
Shares issued in cancellation
of accounts payable and
accrued compensation 9,615,870 9,616 - 3,448,950 -
Shares issued in cancellation
of notes payable - - - - -
Shares issued in connection
with equity financing 3,125,000 3,125 (3,125) -
Exercise of stock options 7,770,892 7,771 - 1,112,077 -
Shares reacquired in settlement
of judgement (1,564,048) (1,564) - 251,812 -
Stock options issued for
services - - - 145,000 -
Net loss - - - -
------------ ---------- ---------- ------------ -----------
December 31, 2003 106,214,833 106,215 - 24,852,368 -
Shares issued for cash, net
of offering costs 11,426,733 11,427 - 4,289,511 -
Shares issued as compensation,
expensed 2,081,249 2,081 - 1,788,397 -
Amortization of deferred
compensation - - - - -
Shares issued for previously
purchased shares 83,332 83 - 12,417 -
Exercise of stock options 16,950,468 16,951 - 4,841,869 -
Exercise of warrants 635,000 635 - 449,365 -
Shares issued in connection
with equity financing 8,758,240 8,758 - 3,091,243 -
Stock retired in settlement of
subscriptions receivable (13,869,656) (13,870) - (5,964,798) -
Shares reacquired in settlement
of judgement (250,000) (250) - (231,100) -
Stock options issued for services - - - 567,771 -
Other comprehensive income (loss) - - - - -
Net Loss - - - - -
------------ ---------- ---------- ------------ -----------
December 31, 2004 132,030,199 $ 132,030 $ - $33,697,043 $ -
============ ========== ========== ============ ===========
See accompanying notes to the consolidated financial statements
F-4
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STATE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FROM INCEPTION (SEPTEMBER 5, 1994) TO December 31, 2004
Accumulated
Other Stock Total
Deferred Comprehensive Subscriptions Treasury Accumulated Shareholders'
Compensation Income Receivable Shares Deficit Deficit
------------- ------------ ------------ ----------- ------------- ---------------
Inception at September 5, 1994 $ - - $ - $ - $ - $ -
Shares issued for cash, net of
offering costs - - - - - 636,090
Warrants issued for cash - - - - - 5,000
Shares issued as compensation
for services - - - - - 1,429,000
Net loss - - - - (2,152,843) (2,152,843)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1996 - - - - (2,152,843) (82,753)
Issuance of stock, prior to
acquisition - - - - - 371,155
Acquisition of subsidiary
for stock - - - - - 46,695
Shares of parent redeemed,
par value $.0001 - - - - - -
Shares of public subsidiary
issued, par value $.001 - - - - - -
Net loss - - - - (979,635) (979,635)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1997 - - - - (3,132,478) (644,538)
Conversion of parent's shares - - - - - -
Shares issued for cash, net
of offering costs - - - - - 605,879
Shares issued in cancellation
of debt - - - - - 525,000
Shares issued as compensation - - - - - 350,000
Net loss - - - - (1,009,945) (1,009,945)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1998 - - - - (4,142,423) (173,604)
Conversion of parent's shares - - - - - -
Shares issued in cancellation
of debt - - - - - 30,000
Shares issued for cash, net of
offering costs - - - - - 41,412
Shares issued as compensation - - - - - 465,682
Detachable warrants issued - - - - - 152,125
Detachable warrants exercised - - - - - -
Debentures converted to stock - - - - - 642,120
Net loss - - - - (1,671,255) (1,671,255)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1999 - - - - (5,813,678) (513,520)
Conversion of parent's shares - - - - - -
Shares issued for cash, net of
offering costs - - - - - 860,035
Shares issued in cancellation
of debt - - - - - 661,794
Shares issued in cancellation
of accounts payable - - - - - 31,265
Shares issued as compensation (759,560) - - - - 1,798,907
Warrants exercised - - - - - -
Warrants expired - - - - - -
Net loss - - - - (3,843,308) (3,843,308)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 2000 (759,560) - - - (9,656,986) (1,004,827)
See accompanying notes to the consolidated financial statements
F-5
Shares issued for cash, net
of offering costs - - - - - 1,264,255
Shares issued as compensation (230,512) - - - - 1,337,249
Shares issued for previously
purchased shares - - - - - 188,550
Shares issued in cancellation
of accounts payable - - - - - 69,080
Amortization of deferred
compensation 495,036 - - - - 495,036
Stock options issued for
services - - - - - 439,544
Net loss - - - - (4,079,806) (4,079,806)
----------- ------------- ------------ ----------- ------------- ---------------
December 31, 2001 (495,036) - - - (13,736,792) (1,290,919)
Shares issued for cash, net
of offering costs - - - - - 2,096,299
Shares issued as compensation - - - - - 1,048,026
Shares issued for previously
purchased shares - - - - - 5,000
Shares issued in cancellation
of accounts payable - - - - - 543,556
Amortization of deferred
compensation 495,036 - - - - 495,036
Shares issued in cancellation
of notes payable - - - - - -
Stock options issued for
services - - - - - 225,000
Net loss - - - - (4,057,153) (4,057,153)
----------- ------------- ------------ ----------- ------------- ---------------
December 31, 2002 - - - - (17,793,945) (935,155)
Shares issued for cash, net of
offering costs - - - - - 2,409,789
Shares issued as compensation - - - - - 553,842
Shares issued for previously
purchased shares - - - - - 162,500
Shares issued in cancellation
of accounts payable and
accrued compensation - - - - - 3,458,566
Shares issued in cancellation
of notes payable - - - - - -
Shares issued in connection
with equity financing - - - - - -
Exercise of stock options - - (1,119,848) - - -
Shares reacquired in settlement
of judgement - - - (250,248) - -
Stock options issued for
services - - - - - 145,000
Net loss - - - - (5,520,531) (5,520,531)
----------- ------------- ------------ ----------- ------------- ---------------
December 31, 2003 - - (1,119,848) (250,248) (23,314,476) 274,011
Shares issued for cash, net
of offering costs - - - - - 4,300,938
Shares issued as compensation,
expensed (544,416) - - - - 1,246,062
Amortization of deferred
compensation 240,000 - - - - 240,000
Shares issued for previously
purchased shares - - - - - 12,500
Exercise of stock options - - (4,858,820) - - -
Exercise of warrants - - - - - 450,000
Shares issued in connection
with equity financing - - - - - 3,100,001
Stock retired in settlement of
subscriptions receivable - - 5,978,668 - - -
Shares reacquired in settlement
of judgement - - - - - (231,350)
Stock options issued for services - - - - - 567,771
Other comprehensive income (loss) - (16,580) - - - (16,580)
Net Loss - - - - (4,864,361) (4,864,361)
------------ ------------- ----------- ---------- ------------ ----------------
December 31, 2004 $ (304,416) $ (16,580) $ - $(250,248) $(28,178,837) $ 5,078,992
============ ============= =========== ========== ============ ================
See accompanying notes to the consolidated financial statements
F-6
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FROM INCEPTION (SEPTEMBER 5, 1994) AND FOR THE YEARS
ENDED DECEMBER 31, 2004 AND 2003
From For the Years
Inception Ended
(September 5, 1994) December 31,
To ------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: DECEMBER 31, 2004 2004 2003
----------------- ----- -----
Net loss $ (28,178,837) $ (4,864,361) $ (5,520,531)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,147,834 27,218 23,776
Stock based compensation 9,590,130 1,246,062 2,859,705
Stock options issued for services 1,377,315 567,771 145,000
Amortization of deferred compensation 1,230,072 240,000 -
Other income (231,350) (231,350) -
(Increase) decrease in assets:
Interest receivable and prepaids (89,589) (55,092) (18,256)
Deposits 12,941 - 12,941
Increase (decrease) in liabilities:
Deferred revenue - - (250,000)
Accounts payable and accrued expenses 2,030,980 (218,144) 513,524
----------------- ---------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES (13,110,504) (3,287,896) (2,233,841)
----------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of technology (108,969) - -
Purchase of furniture and equipment (115,963) (17,316) (13,902)
Note receivable (250,000) (250,000) -
Purchase of marketable securities (2,000,000) (2,000,000) -
Patent registration costs (439,479) (227,862) (4,832)
----------------- ---------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (2,914,411) (2,495,178) (18,734)
----------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from warrants 607,125 450,000 -
Proceeds from debentures 642,120 - -
Proceeds from stock issued for cash 12,583,570 4,300,939 2,409,790
Proceeds from equity financing 3,100,001 3,100,001
Proceeds from common stock to be issued 206,050 - 12,500
Short-term loan repayments (288,422) - (156,955)
Short-term loan proceeds 1,612,922 - -
----------------- ---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,463,366 7,850,940 2,265,335
----------------- ---------------- ----------------
CHANGE IN CASH 2,438,451 2,067,866 12,760
CASH AT BEGINNING OF YEAR - 370,585 357,825
----------------- ---------------- ----------------
CASH AT END OF YEAR $ 2,438,451 $ 2,438,451 $ 370,585
================= ================ ================
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Purchase of net, non-cash assets of subsidiary
for stock $ 195 $ - $ -
Short-term debt retired through issuance
of stock $ 1,890,695 $ - $ -
Issuance of common stock, previously subscribed $ 180,000 $ 12,500 $ 162,500
Treasury stock acquired through settlement
of judgement $ 250,248 $ - $ 250,248
Stock subscriptions receivable $ 1,119,848 $ - $ 1,119,848
Stock retired in settlement of subscriptions
receivable $ (5,978,668) $ (5,978,668) $ -
Stock received in settlement $ (231,350) $ (231,350) $ -
Stock as compensation for services $ 5,175,792 $ 1,246,062 $ 3,929,730
Stock issued in cancellation of accounts payable $ 4,248,938 $ - $ 1,815,203
Exercise of stock options $ 4,858,820 $ 4,858,820 $ -
See accompanying notes to the consolidated financial statements
F-7
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Samaritan Pharmaceuticals, Inc. ("the Company") was formed in
September 1994 and became public in October 1997. Our principal executive
offices are located in Las Vegas, Nevada.
Samaritan Pharmaceuticals is working to ensure a longer and better life, for
patients suffering with AIDS, Alzheimer's, Cancer, and Cardiovascular disease.
Samaritan is a pipeline-driven Biopharmaceutical company, with a clear focus on
advancing early stage innovative drugs through clinical development, to become
commercially valuable compounds.
B. Basis of Consolidation
The accompanying financial statements include the accounts of the Company and
its wholly owned subsidiary. All intercompany balances and transactions have
been eliminated in consolidation.
C. Cash Equivalents
The Company considers all highly liquid temporary cash investments with an
original maturity of three months or less to be cash equivalents.
D. Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using the
straight line method over the estimated useful lives of the assets.
E. Intangibles
1) Legal fees associated with filing patents are recorded at cost. Amortization,
once the patent is approved, will be calculated using the straight-line method,
over the estimated useful lives of the patents.
The Company has 1 issued U.S. patent and had 13 pending patent applications in
the U.S. to protect its proprietary methods and processes. The Company also
filed corresponding foreign patent applications for certain of these U.S. patent
applications. As of December 31, 2004, its patent portfolio outside the U.S.
comprised 1 issued patent and over 13 pending patent applications. The issued
U.S. patent and pending patent applications relate to Alzheimer's, Cancer,
Cardiovascular, and HIV indications. Certain U.S. patents may be eligible for
patent term extensions under the Hatch-Waxman Act may be available to Samaritan
for the lost opportunity to market and sell the invention during the regulatory
review process.
F-8
The Company reviews patent costs for impairment by comparing the carrying value
of the patents with the fair value. Fair value is estimated using the present
value of expected future cash flows. The Company believes it will recover the
full amount of the patent costs based on forecasts of sales of the products
related to the patents.
2) Purchased technology rights are recorded at cost and are being amortized
using the straight line method over the estimated useful life of the technology.
Amortization was approximately $10,896 for the years ended December 31, 2004 and
2003. Accumulated amortization at December 31, 2004 was $78,090. Amortization
expense associated with these technology rights for the next five years will be
$10,896 per year.
F. Earnings (loss) per share
The Company reports loss per common share in accordance with Statement of
Financial Accounting Standards ("SFAS") no. 128, "Earnings Per Share." The per
share effects of potential common shares such as warrants, options, convertible
debt and convertible preferred stock have not been included, as the effect would
be antidilutive. The Company has 20,942,930 options outstanding at December 31,
2004, which were not included.
G. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
H. Income Taxes
Pursuant to Statement of Financial Accounting Standards No. 109 ("SFAS 109")
"Accounting for Income Taxes", the Company accounts for income taxes under the
liability method. Under the liability method, a deferred tax asset or liability
is determined based upon the tax effect of the differences between the financial
statement and tax basis of assets and liabilities as measured by the enacted
rates, which will be in effect when these differences reverse.
I. Research and Development Costs
Research and development costs are expensed when incurred. Research and
development costs for the three (3) and nine (9) months ended September 30,
2005, were $824,204 and $2,365,103, respectively. Research and development costs
for the three months and nine months ended September 30, 2004, were $475,432 and
$896,321, respectively.Research and development costs are expensed when
incurred.
J. Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable assets related to
those on a quarterly basis for impairment whenever circumstances and situations
change such that there is an indication that the carrying amounts may not be
recovered. At December 31, 2004, the Company does not believe that any
impairment has occurred.
F-9
K. Fair Value of Financial Instruments
Statement of Financial Accounting Standard No. 107 "Disclosures about Fair Value
of Financial Instruments" (SFAS 107) requires the disclosure of fair value
information about financial instruments whether or not recognized on the balance
sheet, for which it is practicable to estimate the value. Where quoted market
prices are not readily available, fair values are based on quoted market prices
of comparable instruments. The carrying amount of cash, accounts payable and
accrued expenses approximates fair value because of the short maturity of those
instruments.
L. Stock Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123"), encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations.
Accordingly, compensation cost for the Company's stock at the date of the grant
over the amount of an employee must pay to acquire the stock. The Company has
adopted the "disclosure only" alternative described in SFAS 123 and SFAS 148,
which require pro forma disclosures of net income and earnings per share as if
the fair value method of accounting had been applied.
M. Marketable Securities
At December 31, 2004, the Company holds three brokered Certificates of Deposit
with a total market value of $1,983,420. Unrealized gains and losses, determined
by the difference between historical purchase price and the market value at each
balance sheet date, are recorded as a component of Accumulated Other
Comprehensive loss in Shareholder's Deficit. Realized gains and losses will be
determined by the difference between historical purchase price and gross
proceeds received when the marketable securities are sold.
N. New Accounting Pronouncements
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149 ("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities". This statement amends SFAS 133 to provide clarification on
the financial accounting and reporting of derivative instruments and hedging
activities and requires contracts with similar characteristics to be accounted
for on a comparable basis. The Company is in the process of assessing the effect
of SFAS 149 and does not expect the adoption of this statement, which will be
effective for contracts entered into or modified after June 30, 2003, to have a
material effect on its financial position or results of operations.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150
("SFAS 150"), "Accounting for Certain Financial Instruments and Characteristics
of both Liabilities and Equity". SFAS 150 establishes standards on the
classification and measurement of financial instruments with characteristics of
both liabilities and equity. SFAS 150 became effective for financial instruments
entered into or modified after May 31, 2003. The adoption of SFAS 150 is not
expected to have a material effect on the Company's financial position or
results of operations.
F-10
In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
companies to recognize in the statement of operations the grant- date fair value
of stock options and other equity-based compensation issued to employees. FAS
No. 123R is effective beginning in the Company's second quarter of fiscal 2006.
The Company is in process of evaluating the impact of this pronouncement on its
financial position.
In December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of
Nonmonetary Assets." The Statement is an amendment of APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. The Company believes that the adoption of
this standard will have no material impact on its financial statements.
Management does not believe that any recently issued but not yet effective
accounting pronouncements if currently adopted would have a material effect on
the accompanying financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following as of December 31,
2004:
Estimated Useful Life
(Years)
---------------------
Furniture and Fixtures 3-7 $106,494
Software 3 9,470
Accumulated depreciation (78,743)
---------
$ 37,221
=========
Depreciation expense for the years ended December 31, 2004 and 2003 was $16,322
and $12,880 respectively.
3. SHAREHOLDERS' EQUITY
On June 27, 2003, the Company amended its articles of incorporation to increase
the authorized number of shares to 200 million and on April 24, 2001, a class of
5 million shares of preferred stock. There are no outstanding preferred stock
shares at December 31, 2004.
A. 2001 Stock Option Plan (the "2001 Plan").
The short and long-term compensation program includes stock options granted
under the Stock Incentive Plan as well as non-qualified stock options. The
Option Plan is designed to reward executives for achieving long-term financial
performance goals over a three-year to ten-year period, provide retention
incentives for executives, and tie a significant portion of an executive's total
compensation to long-term performance. Stock options for executive officers and
key associates are part of the incentive program and link the enhancement of
shareholder value directly to their total compensation.
F-11
Shares Available under the Plan: The number of awards that may be granted under
the 2001 Plan in each calendar year will not exceed twenty percent (20%) of (i)
the total shares of common stock outstanding on a fully diluted basis, without
taking into account awards outstanding under the 2001 Plan that are exercisable
for or convertible into common stock or that are unvested stock awards (referred
to as "outstanding awards"), at the close of business on the last day of the
preceding calendar year, less (ii) the number of shares subject to "outstanding
awards" at the close of business on that date.
There were 25,000,806 options granted and 20,924,930 options remaining
outstanding pursuant to the plan as of December 31, 2004.
The following table summarizes the Company's stock options outstanding at
December 31, 2004:
Weighted average
Shares exercise price
----------- -----------------
Outstanding and exercisable
at December 31, 2002 8,994,208 $ .25
Granted 14,758,942 .22
Exercised (7,770,892) (.14)
Expired (20,000) (.10)
----------------- -----------------
Outstanding and exercisable
at December 31, 2003 15,962,258 $ .34
Granted 25,000,806 .51
Exercised (17,585,468) (.30)
Expired (2,452,666) (.51)
----------------- ------------------
Outstanding and exercisable
at December 31, 2004 20,924,930 $ .56
================= ==================
The Company applies APB No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its stock options. As a result no
compensation expense has been recognized for employee and director stock
options. Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net loss would have been reported as
follows:
December 31,
2004 2003
------------- -------------
Net Loss:
As reported $ (4,864,361) $ (5,520,531)
Pro Forma $ (8,927,246) $ (7,796,531)
Basic and diluted loss per
common share:
As reported $ (0.04) (0.07)
Pro Forma $ (0.07) (0.10)
F-12
The Company utilizes the Black-Scholes option-pricing model to calculate the
fair value of each individual issuance of options with the following assumptions
used for grants during the year ended December 31, 2004 and 2003. The per-share
weighted average fair value of stock options granted during 2004 and 2003 was
$0.24 and $0.19, respectively, on the date of grant using the Black Scholes
pricing model and the following assumptions for the year ended December 31, 2004
and 2003:
2004 2003
---------- ---------
Expected dividend yield 0% 0%
Risk-free interest rate 5% 5%
Annualized volatility 82% 122%
At December 31, 2004 the range of exercise price for all of the Company's
outstanding stock options was $.10 - $1.26, with an average remaining life of
five years and an average exercise price of $.56.
C. Stock as compensation and settlement of debt
The Company issues stock as compensation for services valuing such issues
premised upon the fair market value of the stock.
During the year ended December 31, 2004, the Company issued an aggregate of
2,081,249 shares of common stock in consideration of services rendered or to be
rendered to the Company. Such shares were valued at an aggregate of $1,790,478
ranging from $.16 - $1.19 per share, representing the fair value of the shares
issued. The issuances were recorded as non-cash compensation expense and
deferred compensation. The unamortized balance of deferred compensation at
December 31, 2004 is $304,416.
During the year ended December 31, 2003, the Company issued an aggregate of
4,062,833 shares of common stock in consideration of services rendered or to be
rendered to the Company. Such shares were valued at an aggregate of $553,842
ranging from $.16-$.71 per share, representing the fair value of the shares
issued. The issuances were recorded as non-cash compensation expense. During the
year ended December 31, 2003 the Company exchanged 12,740,870 shares of the
Company's common stock in settlement of accounts payable, accrued salaries for
officers and equity financing totaling $1,152,703. To the extent that the market
value of shares issued as payment of accrued salaries exceeded the recorded
amount of accrued salaries, such amount was recognized as additional
compensation. The amount of additional compensation recorded at December 31,
2003 was $2,305,863.
During the year ended December 31, 2004, the Company also issued 8,758,240
shares in connection with the common stock purchase agreement with Fusion
Capital (Note 9).
D. Private Placement
During the year ended December 31, 2004, through various private placements, the
Company sold 11,426,733 shares for $4,300,938. During the year 2003, through
various private placements, the Company sold 17,493,664 shares for $2,409,789.
F-13
4. INCOME TAXES
The Company has net operating losses at December 31, 2004 of approximately
$15,200,000 expiring through 2024. Utilization of these losses may be limited by
the "change of ownership" rules as set forth in section 382 of the Internal
Revenue Code.
Deferred income tax assets as of December 31, 2004 of $5,320,000 as a result of
net operating losses, have been fully offset by valuation allowances. The
valuation allowances have been established equal to the full amounts of the
deferred tax assets, as the Company is not assured that it is more likely than
not that these benefits will be realized.
A reconciliation of the statutory U.S. Federal rate (35%) and effective rates is
as follows:
Years Ended December 31,
--------------------------------------
2004 2003
--------------- --------------
Expected income tax benefit at
Federal statutory rate $ 1,732,000 $ 1,932,000
Permanent differences (647,000) (1,052,000)
Benefit not recognized (1,085,000) (880,000)
--------------- --------------
$ - $ -
=============== ==============
5. COMMITMENTS AND CONTINGENCIES
A. The Company leases various facilities under operating lease agreements
expiring through April 2005. Rental expense for the years ended December 31,
2004 and 2003 was $49,883 and $40,006 respectively. Future minimum annual lease
payments under the facilities lease agreements for agreements lasting more than
one year are as follows:
2005 $11,120
B. During the year ended December 31, 2004, the Company amended its research
collaboration and licensing agreement with Georgetown University ("Georgetown"),
which terminates in 2014. As consideration for Georgetown's performance under
this Agreement the Company shall pay Georgetown $1,000,000 per year in quarterly
installments commencing with the quarter ended March 31, 2004.
C. The Company has entered into employment agreements with two officers. These
agreements started January 1, 2001 and are for five years with annual
compensation for both at $780,000, with an annual increase not less than 5% per
year. Each officer at their option can receive payment in Company common stock
calculated at the lowest closing price of the stock quoted for the period for
which the salary has been earned, divided by the current discount rate for
restricted stock offered by the Company.
F-14
Each officer is entitled to a bonus payable in ten year warrants based on a
calculation of the Company's market capitalization but each officer has foregone
their bonus despite reaching the performance goal. In addition each officer is
guaranteed annual incentive stock options of the greater of $250,000 or a
percentage of the issued and outstanding shares on the anniversary date of the
agreement. The percentage ranges from 1% to 4%. Such options vest 25% each
quarter and are priced at the lowest closing price of the Company's common stock
in the quarter preceding the grant. The options terminate after ten years.
6. LITIGATION
Samaritan, from time to time, is involved in various legal proceedings in the
ordinary course of its business.
7. RELATED PARTY TRANSACTIONS
In the ordinary course of business, we entered into transactions with Clay
County Holdings ("CCH"). These transactions include loans made to and from CCH.
In the past, CCH had made a loan to Samaritan which Samaritan paid off in 2003.
During 2004, Samaritan created a notes receivable with CCH for $250,000 which
amount bears interest at a rate of 12% per annum. The note receivable is secured
by pledge of common stock in Samaritan owned by CCH. CCH is also an affiliate of
Nevada Gold and Casinos through CCH ownership of over 10% of Nevada Gold and
Casinos common stock. A Director of the Company is the CEO of Nevada Gold and
Casinos but is not a shareholder of CCH.
8. OTHER INCOME
Other income consists of the return of 250,000 shares of common stock that had
been issued as compensation to a consultant in a prior year. The shares were
returned due to the fact that the services were not performed. The shares were
valued at their original issuance value, $231,350.
9. FUSION TRANSACTION
On April 22, 2003, the Company entered into a common stock purchase agreement
with Fusion Capital Fund II, LLC, pursuant to which Fusion Capital has agreed to
purchase shares our common stock from time to time at the Company's option up to
an aggregate amount of $10,000,000. The SEC declared effective the Company's
registration statement on Form SB-2, Commission Registration No. 333-105818 on
October 9, 2003. In the year ended December 31, 2004, the Company sold 8,758,240
shares of common stock to Fusion Capital for gross proceeds of $3,100,000. The
proceeds from these sales were used for general corporate purposes and working
capital.
10. RISKS AND UNCERTAINTIES
Marketability of the product is dependent, among other things, upon securing
additional capital to successfully complete the clinical testing of the product,
securing FDA approval, and procurement of viable patents.
F-15
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 2005
ASSETS
CURRENT ASSETS:
Cash $ 850,095
Accounts receivable 5,661
Interest receivable 44,347
Prepaid expenses 25,732
Marketable securities 748,490
----------------
TOTAL CURRENT ASSETS 1,674,325
----------------
PROPERTY AND EQUIPMENT, net 203,898
----------------
OTHER ASSETS:
Patent registration costs 568,852
Purchased technology rights 22,707
Marketable securities 494,273
Note receivable 250,000
Deposits 2,779
----------------
TOTAL OTHER ASSETS 1,338,611
----------------
$ 3,216,834
================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 332,258
----------------
TOTAL CURRENT LIABILITIES 332,258
----------------
SHAREHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized,
0 issued and outstanding -
Common stock, 250,000,000 shares authorized at $.001
par value, 136,028,761 issued and outstanding 136,029
Additional paid-in capital 36,517,779
Deferred compensation (1,239,538)
Accumulated other comprehensive income (24,142)
Treasury stock (250,248)
Deficit accumulated during development stage (32,255,304)
----------------
TOTAL SHAREHOLDERS' EQUITY 2,884,576
----------------
$ 3,216,834
================
See accompanying notes to the consolidated financial statements (unaudited).
F-16
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FROM INCEPTION (SEPTEMBER 5, 1994), TO SEPTEMBER 30, 2005, AND FOR THE FOR THE
NINE MONTHS AND THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
From For the Nine For the Three
Inception Months Ended Months Ended
(September 5, 1994) September 30, September 30,
To ---------------------------------- -----------------------------
September 30, 2005 2005 2004 2005 2004
------------------- ----------------- ------------- ------------- -------------
REVENUES: $ 435,429 $ 135,429 $ - $ 120,179 $ -
------------------- ----------------- ------------- ------------- -------------
EXPENSES:
Research and development 8,648,573 2,365,103 896,321 824,204 475,432
Interest (34,602) (47,878) (19,378) (13,401) (13,347)
General and administrative 23,247,772 1,844,385 1,912,499 628,357 489,397
Forgiveness of debt (369,130) - - - -
Depreciation and amortization 1,198,120 50,286 21,151 25,534 7,690
------------------- ----------------- ------------- ------------- -------------
32,690,733 4,211,896 2,810,593 1,464,694 959,172
------------------- ----------------- ------------- ------------- -------------
NET INCOME (LOSS) (32,255,304) (4,076,467) (2,810,593) (1,344,515) (959,172)
Other Comprehensive Income
Unrealized loss on marketable securities (7,238) 9,342 - 3,647 -
Foreign currency translation adjustment (16,904) (16,904) - (1,528) -
------------------- ----------------- ------------- ------------- -------------
Total Comprehensive Income $ (32,279,446) $ (4,084,029) $ (2,810,593) $ (1,342,396) (959,172)
=================== ================= ============= ============= =============
Loss per share, basic and diluted: $ (0.81) $ (0.03) $ (0.02) $ (0.01) $ (0.01)
------------------- ----------------- ------------- ------------- -------------
Basic and diluted $ (0.81) $ (0.03) $ (0.02) $ (0.01) $ (0.01)
=================== ================= ============= ============= =============
Weighted average number of shares
outstanding:
Basic and diluted 39,811,783 134,034,155 122,420,653 135,767,894 130,749,005
=================== ================= ============= ============= =============
See accompanying notes to consolidated financial statements
F-17
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
FROM INCEPTION (SEPTEMBER 5, 1994) TO September 30, 2005
Shares
Number Par Value Reserved Additional
of Common for Paid in
Shares Stock Conversion Capital Warrants
------------- ---------- ---------- ------------ -----------
Inception at September 5, 1994 - $ - $ - - $ -
Shares issued for cash, net of
offering costs 6,085,386 609 - 635,481 -
Warrants issued for cash - - - - 5,000
Shares issued as compensation
for services 714,500 71 - 1,428,929 -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1996 6,799,886 680 - 2,064,410 5,000
Issuance of stock, prior to
acquisition 206,350 21 - 371,134 -
Acquisition of subsidiary for
stock 1,503,000 150 - 46,545 -
Shares of parent redeemed, par
value $.0001 (8,509,236) (851) - 851 -
Shares of public subsidiary
issued, par value $.001 7,689,690 7,690 820 (8,510) -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1997 7,689,690 7,690 820 2,474,430 5,000
Conversion of parent's shares 696,022 696 (696) - -
Shares issued for cash, net of
offering costs 693,500 694 - 605,185 -
Shares issued in cancellation
of debt 525,000 525 - 524,475 -
Shares issued as compensation 400,000 400 - 349,600 -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1998 10,004,212 10,005 124 3,953,690 5,000
Conversion of parent's shares 13,000 13 (13) - -
Shares issued in cancellation
of debt 30,000 30 - 29,970 -
Shares issued for cash, net of
offering costs 45,000 45 - 41,367 -
Shares issued as compensation 3,569,250 3,569 - 462,113 -
Detachable warrants issued - - - - 152,125
Detachable warrants exercised 100,000 100 - 148,900 (149,000)
Debentures converted to stock 1,682,447 1,682 - 640,438 -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1999 15,443,909 15,444 111 5,276,478 8,125
Conversion of parent's shares 128,954 129 (111) (18) -
Shares issued for cash, net of
offering costs 1,575,192 1,575 - 858,460 -
Shares issued in cancellation
of debt 875,000 875 - 660,919 -
Shares issued in cancellation
of accounts payable 100,000 100 - 31,165 -
Shares issued as compensation 3,372,945 3,373 - 2,555,094 -
Warrants exercised 38,807 39 - 3,086 (3,125)
Warrants expired - - - 5,000 (5,000)
Net loss - - - - -
------------ --------- ---------- ------------ -----------
December 31, 2000 21,534,807 21,535 - 9,390,184 -
See accompanying notes to the consolidated financial statements
F-18
Shares issued for cash, net of
offering cost 6,497,088 6,497 - 1,257,758 -
Shares issued as compensation 9,162,197 9,162 - 1,558,599 -
Shares issued for previously
purchased shares 342,607 342 - 188,208 -
Shares issued in cancellation
of accounts payable 200,000 200 - 68,880 -
Amortization of deferred
compensation - - - - -
Stock options issued for
services - - - 439,544 -
Net loss - - - - -
------------ ---------- ---------- ------------ -----------
December 31, 2001 37,736,699 37,736 - 12,903,173 -
Shares issued for cash, net of
offering costs 18,657,500 18,658 - 2,077,641 -
Shares issued as compensation 3,840,525 3,841 - 1,044,185 -
Shares issued for previously
purchased shares 50,000 50 - 4,950 -
Shares issued in cancellation
of accounts payable 4,265,184 4,265 - 539,291 -
Amortization of deferred
compensation - - - - -
Shares issued in cancellation
of notes payable - - - - -
Stock options issued for
services - - - 225,000 -
Net loss - - - - -
------------ ---------- ---------- ------------ -----------
December 31, 2002 64,549,908 64,550 - 16,794,240 -
Shares issued for cash, net of
offering costs 17,493,664 17,493 - 2,392,296 -
Shares issued as compensation 4,062,833 4,063 - 549,779 -
Shares issued for previously
purchased shares 1,160,714 1,161 - 161,339 -
Shares issued in cancellation
of accounts payable and
accrued compensation 9,615,870 9,616 - 3,448,950 -
Shares issued in cancellation
of notes payable - - - - -
Shares issued in connection
with equity financing 3,125,000 3,125 - (3,125) -
Exercise of stock options 7,770,892 7,771 - 1,112,077 -
Shares reacquired in settlement
of judgement (1,564,048) (1,564) - 251,812 -
Stock options issued for
services - - - 145,000 -
Net loss - - - - -
------------ ---------- ---------- ------------ -----------
December 31, 2003 106,214,833 106,215 - 24,852,368 -
Shares issued for cash, net
of offering costs 11,426,733 11,427 - 4,289,511 -
Shares issued as compensation,
expensed 2,081,249 2,081 - 1,788,397 -
Amortization of deferred
compensation - - - - -
Shares issued for previously
purchased shares 83,332 83 - 12,417 -
Exercise of stock options 16,950,468 16,951 - 4,841,869 -
Exercise of warrants 635,000 635 - 449,365 -
Shares issued in connection
with equity financing 8,758,240 8,758 - 3,091,243 -
Stock retired in settlement of
subscriptions receivable (13,869,656) (13,870) - (5,964,798) -
Shares reacquired in settlement
of judgement (250,000) (250) - (231,100) -
Stock options issued for services - - - 567,771 -
Other comprehensive income (loss) - - - - -
Net loss - - -
------------ ---------- ---------- ------------ -----------
December 31, 2004 132,030,199 132,030 - 33,697,043 -
Shares issued as compensation 1,948,900 1,949 - 1,357,735 -
Amortization of deferred
compensation - - - - -
Shares issued in connection
with equity financing 2,049,662 2,050 - 1,397,949 -
Stock options issued for services - - - 65,052 -
Other comprehensive income (loss) - - - - -
Net loss - - - - -
------------ ---------- ---------- ------------ -----------
September 30, 2005 136,028,761 $ 136,029 $ - $36,517,779 $ -
============ ========== ========== ============ ===========
See accompanying notes to the consolidated financial statements
F-19
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STATE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION (SEPTEMBER 5, 1994) TO September 30, 2005
Accumulated
Other Stock Total
Deferred Comprehensive Subscriptions Treasury Accumulated Shareholders'
Compensation Income Receivable Shares Deficit (Deficit)
------------- ------------ ------------ ----------- ------------- ---------------
Inception at September 5, 1994 $ - - $ - $ - $ - $ -
Shares issued for cash, net of
offering costs - - - - - 636,090
Warrants issued for cash - - - - - 5,000
Shares issued as compensation
for services - - - - - 1,429,000
Net loss - - - - (2,152,843) (2,152,843)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1996 - - - - (2,152,843) (82,753)
Issuance of stock, prior to
acquisition - - - - - 371,155
Acquisition of subsidiary
for stock - - - - - 46,695
Shares of parent redeemed,
par value $.0001 - - - - - -
Shares of public subsidiary
issued, par value $.001 - - - - - -
Net loss - - - - (979,635) (979,635)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1997 - - - - (3,132,478) (644,538)
Conversion of parent's shares - - - - - -
Shares issued for cash, net
of offering costs - - - - - 605,879
Shares issued in cancellation
of debt - - - - - 525,000
Shares issued as compensation - - - - - 350,000
Net loss - - - - (1,009,945) (1,009,945)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1998 - - - - (4,142,423) (173,604)
Conversion of parent's shares - - - - - -
Shares issued in cancellation
of debt - - - - - 30,000
Shares issued for cash, net of
offering costs - - - - - 41,412
Shares issued as compensation - - - - - 465,682
Detachable warrants issued - - - - - 152,125
Detachable warrants exercised - - - - - -
Debentures converted to stock - - - - - 642,120
Net loss - - - - (1,671,255) (1,671,255)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1999 - - - - (5,813,678) (513,520)
Conversion of parent's shares - - - - - -
Shares issued for cash, net of
offering costs - - - - - 860,035
Shares issued in cancellation
of debt - - - - - 661,794
Shares issued in cancellation
of accounts payable - - - - - 31,265
Shares issued as compensation (759,560) - - - - 1,798,907
Warrants exercised - - - - - -
Warrants expired - - - - - -
Net loss - - - - (3,843,308) (3,843,308)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 2000 (759,560) - - - (9,656,986) (1,004,827)
See accompanying notes to the consolidated financial statements
F-20
Shares issued for cash, net
of offering costs - - - - - 1,264,255
Shares issued as compensation (230,512) - - - - 1,337,249
Shares issued for previously
purchased shares - - - - - 188,550
Shares issued in cancellation
of accounts payable - - - - - 69,080
Amortization of deferred
compensation 495,036 - - - - 495,036
Stock options issued for
services - - - - - 439,544
Net loss - - - - (4,079,806) (4,079,806)
----------- ------------- ------------ ----------- ------------- ---------------
December 31, 2001 (495,036) - - - (13,736,792) (1,290,919)
Shares issued for cash, net
of offering costs - - - - - 2,096,299
Shares issued as compensation - - - - - 1,048,026
Shares issued for previously
purchased shares - - - - - 5,000
Shares issued in cancellation
of accounts payable - - - - - 543,556
Amortization of deferred
compensation 495,036 - - - - 495,036
Shares issued in cancellation
of notes payable - - - - - -
Stock options issued for
services - - - - - 225,000
Net loss - - - - (4,057,153) (4,057,153)
----------- ------------- ------------ ----------- ------------- ---------------
December 31, 2002 - - - - (17,793,945) (935,155)
Shares issued for cash, net of
offering costs - - - - - 2,409,789
Shares issued as compensation - - - - - 553,842
Shares issued for previously
purchased shares - - - - - 162,500
Shares issued in cancellation
of accounts payable and
accrued compensation - - - - - 3,458,566
Shares issued in cancellation
of notes payable - - - - - -
Shares issued in connection
with equity financing - - - - - -
Exercise of stock options - - (1,119,848) - - -
Shares reacquired in settlement
of judgement - - - (250,248) - -
Stock options issued for
services - - - - - 145,000
Net loss - - - - (5,520,531) (5,520,531)
----------- ------------- ------------ ----------- ------------- ---------------
December 31, 2003 - - (1,119,848) (250,248) (23,314,476) 274,011
Shares issued for cash, net
of offering costs - - - - - 4,300,938
Shares issued as compensation,
expensed (544,416) - - - - 1,246,062
Amortization of deferred
compensation 240,000 - - - - 240,000
Shares issued for previously
purchased shares - - - - - 12,500
Exercise of stock options - - (4,858,820) - - -
Exercise of warrants - - - - - 450,000
Shares issued in connection
with equity financing - - - - - 3,100,001
Stock retired in settlement of
subscriptions receivable - - 5,978,668 - - -
Shares reacquired in settlement
of judgement - - - - - (231,350)
Stock options issued for services - - - - - 567,771
Other comprehensive income (loss) - (16,580) - - - (16,580)
Net loss - - - - (4,864,361) (4,864,361)
------------ ------------- ----------- ---------- ------------ ----------------
December 31, 2004 (304,416) (16,580) - (250,248) (28,178,837) 5,078,992
Shares issued as compensation (1,352,034) - - - - 7,650
Amortization of deferred
compensation 416,912 - - - - 416,912
Shares issued in connection with
equity financing - - - - - 1,399,999
Stock options issued for services - - - - - 65,052
Other comprehensive income (loss) - (7,562) - - - (7,562)
Net loss - - - - (4,076,467) (4,076,467)
------------ ------------- ----------- ---------- ------------ ----------------
September 30, 2005 $(1,239,538) $ (24,142) $ - $(250,248) $(32,255,304) $ 2,884,576
============ ============= =========== ========== ============ ================
See accompanying notes to the consolidated financial statements
F-21
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FROM INCEPTION (SEPTEMBER 5, 1994) TO SEPTEMBER 30,2005 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2005 AND 2004
From For the Nine Months
Inception Ended
(September 5, 1994) September 30,
To ----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: June 30, 2005 2005 2004
-------------------- --------------- ----------------
Net loss $ (32,255,304) $ (4,076,467) $ (2,810,593)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,198,120 50,286 21,151
Stock based compensation 9,597,780 7,650 195,706
Stock options issued for services 1,442,367 65,052 503,269
Amortization of deferred compensation 1,646,984 416,912 -
Foreign currency loss (16,904) (16,904) -
Other income (231,350) - -
Change in assets:
Accounts receivable (5,661) (5,661) 13,007
Interest receivable and prepaids (83,319) 6,270 (91,232)
Deposits 12,941 - -
Change in liabilities: - - -
Accounts payable and accrued expenses 2,193,071 162,091 24,024
-------------------- --------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES (16,501,275) (3,390,771) (2,144,668)
-------------------- --------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in note receivable (250,000) - -
Purchase of technology (108,969) - -
Purchase of furniture and equipment (324,754) (208,791) (17,316)
Redemption of marketable securities (1,250,000) 750,000 (2,250,000)
Patent registration costs (578,272) (138,793) (124,861)
-------------------- --------------- ----------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (2,511,995) 402,416 (2,392,177)
-------------------- --------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from warrants 607,125 - 450,000
Proceeds from debentures 642,120 - -
Proceeds from stock issued for cash 12,583,570 - 4,290,939
Proceeds from equity financing 4,500,000 1,399,999 3,100,000
Common stock to be issued 206,050 - 5,000
Short-term loan repayments (288,422) - -
Short-term loan proceeds 1,612,922 - -
-------------------- --------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,863,365 1,399,999 7,845,939
-------------------- --------------- ----------------
CHANGE IN CASH 850,095 (1,588,356) 3,309,094
CASH AT BEGINNING OF PERIOD - 2,438,451 370,585
-------------------- --------------- ----------------
CASH AT END OF PERIOD $ 850,095 $ 850,095 $ 3,679,679
==================== =============== ================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ - $ 468 $ -
NON-CASH FINANCING & INVESTING ACTIVITIES:
Purchase of net, non-cash assets of subsidiary
for stock $ 195 $ - $ -
Short-term debt retired through issuance
of stock $ 1,890,695 $ - $ -
Issuance of common stock, previously subscribed $ 180,000 $ - $ 12,500
Treasury stock acquired through settlement
of judgement $ 250,248 $ - $ -
Stock subscriptions receivable $ 1,119,848 $ - $ -
Stock received in settlement $ (231,350) $ -
Stock as compensation for services $ 6,527,826 $ 1,352,034 $ -
Stock issued in cancellation of accounts payable $ 4,248,938 $ - $ -
Exercise of stock options $ 4,858,820 $ - $ -
Stock retired in settlement of subscriptions
receivable $ (5,978,668) $ - $ (1,440,787)
See accompanying notes to the consolidated financial statements (unaudited)
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2005
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
disclosures required for annual financial statements. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related footnotes for the year ended December 31, 2004,
included in the Form 10-KSB for the year then ended.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's financial
position as of September 30, 2005, and the results of operations and cash flows
for the nine (9) month period ending September 30, 2005 have been included. The
results of operations for the nine (9) month period ended September 30, 2005 are
not necessarily indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-KSB as filed with the U.S.
Securities and Exchange Commission on April 15, 2005 for the year ended December
31, 2004.
Note 2. Summary of Significant Accounting Policies
General
Samaritan Pharmaceuticals, Inc. trades on the American Stock Exchange under the
symbol LIV and its principal executive office is located in Las Vegas, Nevada.
Samaritan Pharmaceuticals, Inc. is working to ensure a longer and better life
for patients suffering with AIDS, Alzheimer's, Cancer and Cardiovascular
disease. Samaritan is a pipeline-driven biopharmaceutical company with a clear
focus on advancing early stage innovative drugs through clinical development
with our ultimate goal of bringing our novel therapeutics and diagnostic
products to market.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All intercompany balances and
transactions have been eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid temporary cash investments with an
original maturity of three (3) months or less to be cash equivalents.
Revenue Recognition
During the quarter ended September 30, 2005, the Company incurred research
expenditures pursuant to a grant received from the US Department of Health and
Human Services. The Company recognized grant revenue of $120,179, the extent of
such qualifying expenditures.
F-23
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using the
straight line method over the estimated useful lives of the assets.
Intangibles
1) Legal fees associated with filing patents are recorded at cost. Amortization,
once the patent is approved, will be calculated using the straight-line method,
over the estimated useful lives of the patents.
The Company has been issued one (1) U.S. patent and has seventeen (17) pending
licensed patent applications in the U.S. to protect its proprietary methods and
processes. The Company also has several licenses corresponding to foreign patent
applications for some of these U.S. patent applications. As of September 30,
2005, the Company patent portfolio outside the U.S. comprised of two (2)
licensed issued patents and seventeen (17) licensed pending patent applications.
The issued U.S. patent and pending patent applications relate to Alzheimer's,
Cancer, Cardiovascular and HIV indications.
Certain U.S. patents may be eligible for patent term extensions under the
Hatch-Waxman Act for the lost opportunity to market and sell the invention
during the regulatory review process.
The Company reviews patent costs for impairment by comparing the carrying value
of the patents with the fair value. Fair value is estimated using the present
value of expected future cash flows. The Company believes it will recover the
full amount of the patent costs based on forecasts of sales of the products
related to the patents.
2) Purchased technology rights are recorded at cost and are being amortized
using the straight line method over the estimated useful life of the technology.
Loss Per Share
The Company reports loss per common share in accordance with Statement of
Financial Accounting Standards ("SFAS") no. 128, "Earnings Per Share." The per
share effects of potential common shares such as warrants, options, convertible
debt and convertible preferred stock have not been included, as the effect would
be antidilutive. The Company had 24,076,018 options outstanding at September 30,
2005, which were not included.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Income Taxes
Pursuant to Statement of Financial Accounting Standards No. 109 ("SFAS 109")
"Accounting for Income Taxes", the Company accounts for income taxes under the
liability method. Under the liability method, a deferred tax asset or liability
is determined based upon the tax effect of the differences between the financial
statement and tax basis of assets and liabilities as measured by the enacted
rates, which will be in effect when these differences reverse.
F-24
Research and Development Costs
Research and development costs are expensed when incurred. Research and
development costs for the three (3) and nine (9) months ended September 30,
2005, were $824,204 and $2,365,103, respectively. Research and development costs
for the three months and nine months ended September 30, 2004, were $475,432 and
$896,321, respectively.
Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable assets related to
those on a quarterly basis for impairment whenever circumstances and situations
change such that there is an indication that the carrying amounts may not be
recovered.
Fair Value of Financial Instruments
Statement of Financial Accounting Standard No. 107 "Disclosures about Fair Value
of Financial Instruments" ("SFAS 107") requires the disclosure of fair value
information about financial instruments whether or not recognized on the balance
sheet, for which it is practicable to estimate the value. Where quoted market
prices are not readily available, fair values are based on quoted market prices
of comparable instruments. The carrying amount of cash, accounts receivable,
accounts payable and accrued expenses approximates fair value because of the
short maturity of those instruments.
Marketable Securities
At September 30, 2005, the Company held two (2) brokered Certificates of Deposit
with a total market value of $1,242,763. Unrealized gains and losses, determined
by the difference between historical purchase price and the market value at each
balance sheet date, are recorded as a component of Accumulated Other
Comprehensive loss in Shareholder's Equity. Realized gains and losses will be
determined by the difference between historical purchase price and gross
proceeds received when the marketable securities are sold.
Note 3. Stock Based Compensation
In December 2004, the FASB finalized SFAS No. 123R "Share-Based Payment" ("SFAS
123R"), amending SFAS No. 123, effective December 15, 2005. SFAS 123R will
require the Company to expense stock options based on grant date fair value in
its financial statements. Further, adoption of SFAS No. 123R will require
additional accounting related to income tax effects and additional disclosure
regarding cash flow effects resulting from share-based payments arrangements.
The adoption of SFAS 123R will not affect the Company's cash flows or financial
position, but may have an adverse impact on results of operations if options are
granted in the future. In December 2004, the FASB issued SFAS No. 153,
"Exchanges of Nonmonetary Assets - an amendment for APB Opinion No. 29". This
statement amends APB Opinion No. 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general exception
for exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if future cash flows of the entity
are expected to change significantly as a result of the exchange. The provisions
of SFAS No. 153 are effective for the Company's year ended December 31, 2006.
Management is currently evaluating the impact of the adoption of SFAS No. 153 on
the Company's consolidated financial position, liquidity, or results of
operations.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations.
[Accordingly, compensation cost for the Company's stock at the date of the grant
over the amount of an employee must pay to acquire the stock.] The Company has
adopted the "disclosure only" alternative described in SFAS 123 and SFAS 148,
which require pro forma disclosures of net income and earnings per share as if
the fair value method of accounting had been applied.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company's net loss would have been reported as follows:
F-25
Nine (9) Nine (9) Three (3) Three (3)
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
-------------- -------------- -------------- -------------
Net Loss:
As reported $(4,076,467) $(2,810,593) $(1,344,515) $(959,172)
Pro Forma $(5,406,298) $(3,910,593) $(1,344,515) $(959,172)
Basic and diluted loss per common share:
As reported $ (0.03) $ (0.02) $ (0.01) $ (0.01)
Pro Forma $ (0.04) $ (0.02) $ (0.01) $ (0.01)
The Company utilizes the Black-Scholes option-pricing model to calculate the
fair value of each individual issuance of options with the following assumptions
used for grants during the three months and nine months ended September 30,
2005. The per-share weighted average fair value of stock options granted during
the three months and nine months ended September 30, 2005 was $0.15 and $0.43,
respectively. On the date of grant using the Black-Scholes pricing model and the
following assumptions were used for the three (3) and nine (9) months ended
September 30, 2005:
Three (3) Nine (9)
Months Months
--------- --------
Expected dividend yield 0% 0%
Risk-free interest rate 5% 5%
Annualized volatility 46% 44%
At September 30, 2005, the range of exercise price for all of the Company's
outstanding stock options was $0.10 to $1.26, with an average remaining life of
five (5) years and an average exercise price of $0.60.
Note 4. Stockholders' Equity
Stock As Compensation And Settlement Of Debt
The Company issues stock as compensation for services valuing such issues
premised upon the fair market value of the stock.
During the three (3) months ended September 30, 2005, the Company issued 15,000
shares of common stock in consideration of services rendered or to be rendered
to the Company. Such shares were valued at an aggregate of $7,650 at $0.51 per
share, representing the fair value of the shares issued. The issuances were
recorded as non-cash compensation expense.
During the three (3) months ended September 30, 2005, the Company also issued
298,040 shares in connection with the common stock purchase agreement with
Fusion Capital. The gross proceeds for these shares was $150,000.
Authorized Capital Stock
The Company has 250,000,000 authorized shares of common stock and 5,000,000
authorized shares of preferred stock.
Stock Options
The following table summarizes the Company's stock options outstanding at
September 30, 2005:
Weighted
average
Shares exercise price
---------- --------------
Outstanding and exercisable at December 31, 2004 20,924,930 $ 0.56
Granted 3,201,088 0.88
Exercised - -
Expired (50,000) (1.00)
---------- --------------
Outstanding and exercisable at September 30, 2005 24,076,018 $ 0.60
F-26
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
None of our Directors will have personal liability to us or any of our
shareholders for monetary damages for breach of fiduciary duty as a Director
involving any act or omission of any such Director since provisions have been
made in the Articles of Incorporation (restated as last amended June 10, 2005)
limiting such liability. The foregoing provisions shall not eliminate or limit
the liability of a Director (a) for any breach of the Director's duty of loyalty
to us or our shareholders, (b) for acts or omissions not in good faith or, which
involve intentional misconduct or a knowing violation of law, (c) under
applicable Sections of the Nevada Revised Statutes, (d) the payment of dividends
in violation of Section 78.300 of the Nevada Revised Statutes or (e) for any
transaction from which the Director derived an improper personal benefit.
Our Bylaws provide for indemnification of the Directors, officers, and employees
of Samaritan in most cases for any liability suffered by them or arising out of
their activities as Directors, officers, and employees of Samaritan if they were
not engaged in willful misfeasance or malfeasance in the performance of his or
her duties; provided that in the event of a settlement the indemnification will
apply only when the Board of Directors approves such settlement and
reimbursement as being for the best interests of the Company. Our Bylaws
(restated as last amended April 18, 2005), therefore, limit the liability of
Directors to the maximum extent permitted by Nevada law (Section 78.751).
Our officers and Directors are accountable to us as fiduciaries, which mean they
are required to exercise good faith and fairness in all dealings affecting us.
In the event that a shareholder believes the officers and/or Directors have
violated their fiduciary duties to us, the shareholder may, subject to
applicable rules of civil procedure, be able to bring a class action or
derivative suit to enforce the shareholder's rights, including rights under
certain federal and state securities laws and regulations to recover damages
from and require an accounting by management. Shareholders who have suffered
losses in connection with the purchase or sale of their interest in Samaritan in
connection with such sale or purchase, including the misapplication by any such
officer or Director of the proceeds from the sale of these securities, may be
able to recover such losses from us.
The Company has entered into indemnification agreements with each of its
Directors and officers, indemnifying them against expenses, settlements,
judgments and fines incurred in connection with any threatened, pending or
completed action, suit, arbitration or proceeding, where the individual's
involvement is by reason of the fact that he or she is or was a Director or
officer or served at our request as a Director of another organization (except
that indemnification is not provided against judgments and fines in a derivative
suit unless permitted by Nevada law). An individual may not be indemnified if he
or she is found not to have acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of Samaritan
except to the extent Nevada law shall permit broader contractual
indemnification. The indemnification agreements provide procedures, presumptions
and remedies designed to substantially strengthen the indemnity rights beyond
those provided by Samaritan's Articles of Incorporation (restated as last
amended June 10, 2005) and by Nevada law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered:
Registration Fees $ 786.24
Legal Fees and Expenses $ 50,000.00
Accounting Fees $ 20,000.00
Miscellaneous $ 14,213.76
-----------
Total $ 85,000.00
===========
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following discussion sets forth securities sold by the Company in the recent
past, including any during the period covered by this registration statement.
These securities were shares of Common Stock of the Company, they were sold for
cash unless otherwise noted, they were sold in private transactions to persons
believed to be of a class of "accredited investors" not affiliated with the
Company unless otherwise noted, and purchasing the shares with an investment
intent, and the Company relied upon, among other possible exemptions, Section
4(2) of the Securities Act of 1933, as amended. It's reliance on said exemption
was based upon the fact that no public solicitation was used by the Company in
the offer or sale, and that the securities were legend shares, along with a
notation at the respective transfer agent, restricting the shares from sale or
transfer as in customary with reference to Rule 144 of the U.S. Securities and
Exchange Commission ("SEC").
During the year ended December 31, 2004, the Company issued an aggregate of
2,081,249 shares of Common Stock in consideration of services rendered or to be
rendered to the Company. Such shares were valued at an aggregate of $1,790,478
ranging from $0.16-$1.19 per share, representing the fair value of the shares
issued. The issuances were recorded as non-cash compensation expense. During the
year ended December 31, 2004 the Company exchanged 11,426,733 shares of the
Company Stock for $4,300,938.
During the year ended December 31, 2003, the Company issued an aggregate of
4,062,833 shares of Common Stock in consideration of services rendered or to be
rendered to the Company. Such shares were valued at an aggregate of $553,842
ranging from $0.16 to $0.71 per share, representing the fair value of the shares
issued. The issuances were recorded as non-cash compensation expense. During the
year ended December 31, 2003 the Company exchanged 12,740,870 shares of the
Common Stock in settlement of accounts payable, accrued salaries for officers
and equity financing totaling $1,152,703. To the extent that the market value of
shares issued as payment of accrued salaries exceeded the recorded amount of
accrued salaries, such amount was recognized as additional compensation. The
amount of additional compensations recorded at December 31, 2003 was $2,305,863.
During the year 2003, through various private placements, the Company sold
17,493,664 shares for $2,409,789.
During the year ended December 31, 2002, the Company issued an aggregate of
3,840,525 shares of Common Stock in consideration of services rendered or to be
rendered to the Company. Such shares were valued at an aggregate of $1,048,026
ranging from $0.17-$0.25 per share, representing the fair value of the shares
issued. The issuances were recorded as non-cash compensation expense. During the
year ended December 31, 2002 the Company exchanged 4,265,184 shares of the
Company's Common Stock in settlement of accounts payable.
ITEM 27. EXHIBITS
Listed below are all exhibits filed as part of this report. Some exhibits are
filed by the Registrant with the SEC pursuant to Rule 12b-32 under the
Securities Exchange Act of 1934, as amended.
EXHIBIT NO. DESCRIPTION LOCATION
----------- ------------------------------------------------ -------------------------------------------------
2.1 Agreement and Plan of Reorganization Incorporated by reference to Exhibit 2.1 to the
Company's Form 10-SB12G as filed with the U.S.
Securities and Exchange Commission on July 21,
1999
3.1 Articles of Incorporation, restated as last Incorporated by reference to Exhibit 3.1 to the
amended June 10, 2005 Company's Current Report on Form 8-K as filed
with the U.S. Securities and Exchange Commission
on July 8, 2005
3.2 Bylaws, restated as last amended April 18, 2005 Incorporated by reference to Exhibit 3.2 to the
Company's Current Report on Form 8-K as filed
with the U.S. Securities and Exchange Commission
on July 8, 2005
4.1 Form of Common Stock Certificate Incorporated by reference to Exhibit 4.1 to the
Company's Current Report Form 10-SB12G as filed
with the U.S. Securities and Exchange Commission
on July 21, 1999
4.2 Amended Samaritan Pharmaceuticals, Inc. 2001 Incorporated by reference to Exhibit 4.2 to the
Stock Option Plan Company's Quarterly Report on Form 10-QSB as
filed with the U.S. Securities and Exchange
Commission on August 16, 2004
II-2
EXHIBIT NO. DESCRIPTION LOCATION
----------- ------------------------------------------------ -------------------------------------------------
4.3 Samaritan Pharmaceuticals, Inc. 2005 Stock Incorporated by reference to Schedule 14-A
Option Plan Information Statement as filed with the U.S.
Securities and Exchange Commission on April 29,
2005 and approved by the shareholders on
June 10, 2005
5.1 Opinion re: legality Provided herewith
10.1 Assignment of Invention, dated September 6, 2000, Incorporated by reference to Exhibit 10.1 to the
by and between Linda Johnson and the Company Company's Quarterly Report on Form 10-QSB as
filed with the U.S. Securities and Exchange
Commission on August 14, 2002
10.2 Assignment of Invention, dated May 14, 2999, by Incorporated by reference to Exhibit 10.2 to the
and between Linda Johnson and Spectrum Company's Quarterly Report on Form 10-QSB as
Pharmaceuticals Corporation filed with the U.S. Securities and Exchange
Commission on August 14, 2002
10.3 Assignment of Invention, dated May 22, 1990, by Incorporated by reference to Exhibit 10.3 to the
and between Alfred T. Sapse and Spectrum Company's Quarterly Report on Form 10-QSB as
Pharmaceutical Corporation filed with the U.S. Securities and Exchange
Commission on August 14, 2002
10.4 Common Stock Purchase Agreement (Purchase Incorporated by reference to Exhibit 10.1 to the
Agreement I), dated April 22, 2003, by and Company's Current Report on Form 8-K as filed
between the Company and Fusion Capital Fund II, with the U.S. Securities and Exchange Commission
LLC on April 25, 2003
10.5 Registration Rights Agreement, dated April 22, Incorporated by reference to Exhibit 10.2 to the
2003, by and between the Company and Fusion Company's Current Report on Form 8-K as filed
Capital Fund II, LLC with the U.S. Securities and Exchange Commission
on April 25, 2003
10.6 Employment Agreement, dated as of January 1, Incorporated by reference to Exhibit 10.6 to the
2001, by and between Samaritan Pharmaceuticals, Company's Quarterly Report on Form 10-QSB as
Inc. and Mr. Thomas Lang filed with the U.S. Securities and Exchange
Commission on August 16, 2004
10.7 Form of Trust Under Samaritan Pharmaceuticals, Incorporated by reference to Exhibit 10.10 to
Inc. Deferred Compensation Plan the Company's Quarterly Report on Form 10-QSB as
filed with the U.S. Securities and Exchange
Commission on August 14, 2002
10.8 Employment Agreement, dated as of June 1, 2004, Incorporated by reference to Exhibit 10.8 to the
by and between Samaritan Pharmaceuticals, Inc. Company's Quarterly Report on Form 10-QSB as
and Eugene Boyle filed with the U.S. Securities and Exchange
Commission on August 14, 2002
10.9 Employment Agreement, dated as of January 1, Incorporated by reference to Exhibit 10.9 to the
2001, by and between Samaritan Pharmaceuticals, Company's Quarterly Report on Form 10-QSB as
Inc. and Janet Greeson filed with the U.S. Securities and Exchange
Commission on August 14, 2002
10.10 Master Clinical Trial and Full Scale Incorporated by reference to Exhibit 10.10 to
Manufacturing Agreement, dated October 5, 2004, the Company's Quarterly Report on Form 10-QSB as
by and between the Company and Pharmaplaz, LTD filed with the U.S. Securities and Exchange
Commission on November 15, 2004
10.11 Common Stock Purchase Agreement (Purchase Incorporated by reference to Exhibit 10.11 to
Agreement II), dated May 12, 2005, as amended, the Company's Quarterly Report on Form 10-QSB as
by and between the Company and Fusion Capital filed with the U.S. Securities and Exchange
Fund II, LLC Commission on May 13, 2005
II-3
EXHIBIT NO. DESCRIPTION LOCATION
----------- ------------------------------------------------ -------------------------------------------------
10.12 Amendment to Common Stock Purchase Agreement, Provided herewith
dated December 19, 2005, by and between the
Company and Fusion Capital Fund II, LLc
10.13 Registration Rights Agreement, dated May 12, Incorporated by reference to Exhibit 10.12 to
2005, by and between the Company and Fusion the Company's Quarterly Report on Form 10-QSB as
Capital Fund II, LLC filed with the U.S. Securities and Exchange
Commission on May 13, 2005
10.14 Norbrook Supply Agreement Incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K as filed
with the U.S. Securities and Exchange Commission
on September 27, 2005
10.15 Research Collaboration and Licensing Agreement, Incorporated by reference to Exhibit 10.10 to
dated June 8, 2001, by and between Georgetown the Company's Registration Statement on Form
University and Samaritan Pharmaceuticals, Inc. SB-2 as filed with the U.S. Securities and
Exchange Commission on July 30, 2003
13.1 Samaritan Pharmaceuticals, Inc. Annual Report on Filed on Form 10-KSB on April 15, 2005 and
Form 10-KSB incorporated herein by reference
14.1 The Samaritan Pharmaceuticals, Inc. Code of Incorporated by reference to Exhibit 14.1 to the
Conduct Company's Form 10-KSB as filed with the U.S.
Securities and Exchange Commission on April 15,
2003
16.1 Letter Regarding Change in Certifying Accountant Incorporated by reference to Exhibit 16.1 to the
Company's Current Report on Form 8-K as filed
with the U.S. Securities and Exchange Commission
on September 27, 2002
21 List of Subsidiaries Incorporated by reference to Exhibit 21 to the
Company's Quarterly Report on Form 10-QSB as
filed with the U.S. Securities and Exchange
Commission on August 15, 2005
23.1 Consent of Independent Registered Public Provided herewith
Accounting Firm
23.2 Consent of Nevada Counsel Provided herewith (contained in Exhibit 5.1
provided herewith)
II-4
ITEM 28. UNDERTAKINGS
The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a twenty percent (20%) change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) To include any additional or changed material information on the
plan of distribution.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to the registrant's directors, officers, and controlling
persons pursuant to the foregoing provisions, or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a directors, officers or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned in the City of Las
Vegas, Nevada, on December 15, 2005.
SAMARITAN PHARMACEUTICALS, INC.
By: /s/ Dr. Janet R. Greeson
---------------------------
Dr. Janet R. Greeson
Chief Executive Officer
By: /s/ Mr. Eugene Boyle
---------------------------
Mr. Eugene Boyle
Chief Financial Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated:
SIGNATURE TITLE DATE
------------------------------------ ------------------------------------ ---------------------
/s/ Dr. Janet R. Greeson Chief Executive Officer and Director December 15, 2005
------------------------------------
Dr. Janet R. Greeson (Principal Executive Officer)
/s/ Mr. Eugene Boyle Chief Financial Officer and Director December 15, 2005
------------------------------------
Mr. Eugene Boyle (Principal Financial Officer and
Principal Accounting Officer)
/s/ Mr. Welter Holden Director December 15, 2005
------------------------------------
Mr. Welter Holden
/s/ Mr. Doug Bessert Director December 15, 2005
------------------------------------
Mr. Doug Bessert
/s/ Ms. Cynthia C. Thompson Director December 15, 2005
------------------------------------
Ms. Cynthia C. Thompson
/s/ Mr. H. Thomas Winn Director December 15, 2005
------------------------------------
Mr. H. Thomas Winn
/s/ Dr. Laurent Lecanu Director December 15, 2005
------------------------------------
Dr. Laurent Lecanu
/s/ Dr. Erasto R. Saldi Director December 15, 2005
------------------------------------
Dr. Erasto R. C. Saldi
II-6