Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-129680
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OFFERING
PROSPECTUS
ZIOPHARM
Oncology, Inc.
7,462,095
Shares
Common
Stock
The
selling stockholders identified on pages 44-54 of this prospectus are offering
on a resale basis a total of 7,462,095 shares of our common stock, including
482,407 shares issuable upon the exercise of outstanding warrants. We will
not
receive any proceeds from the sale of these shares by the selling
stockholders.
Our
common stock is quoted on the Over-the-Counter Bulletin Board under the symbol
“ZIOP.” On April 13, 2006, the last sale price for our common stock as
reported on the OTC Bulletin Board was $4.80.
________________
The
securities offered by this prospectus involve a high degree of
risk.
See
“Risk Factors” beginning on page 6.
________________
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved these securities or determined that this prospectus
is
truthful or complete. A representation to the contrary is a criminal
offense.
The
date
of this Prospectus is April 14, 2006.
Table
of Contents
PROSPECTUS
SUMMARY
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3
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RISK
FACTORS
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6
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NOTE
REGARDING FORWARD-LOOKING STATEMENTS
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14
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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15
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DESCRIPTION
OF BUSINESS
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21
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MANAGEMENT
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30
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EXECUTIVE
COMPENSATION
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33
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CHANGES
IN OUR CERTIFYING ACCOUNTANT
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38
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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39
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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40
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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42
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USE
OF PROCEEDS
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43
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SELLING
STOCKHOLDERS
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44
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PLAN
OF DISTRIBUTION
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55
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DESCRIPTION
OF CAPITAL STOCK
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57
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DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
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57
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ABOUT
THIS PROSPECTUS
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58
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WHERE
YOU CAN FIND MORE INFORMATION
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58
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VALIDITY
OF COMMON STOCK
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58
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EXPERTS
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58
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FINANCIAL
STATEMENTS
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F-1
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PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this prospectus. Because
it is a summary, it may not contain all of the information that is important
to
you. Accordingly, you are urged to carefully review this prospectus in its
entirety.
Our
Company
We
are a
biopharmaceutical company that is seeking to develop and commercialize a
diverse, risk-sensitive portfolio of in-licensed cancer drugs that address
unmet
medical needs. Our management and advisors are focused on licensing and
developing proprietary drug candidate families that are related to cancer
therapeutics on the market and where the application of new biology and our
drug
development expertise will facilitate clinical development, risk management
and
expedited regulatory approval. We expect to commercialize our products on our
own in North America but recognize that promising clinical trial results in
cancers with a high incidence and prevalence might also be addressed in a
commercial partnership with one or more other companies with the requisite
financial resources. Currently, we are in Phase I and Phase I/II studies for
two
product candidates known as ZIO-101 and ZIO-201. We currently intend to continue
with clinical development of ZIO-101 for advanced myeloma and ZIO-201 for
advanced sarcoma. None of our product candidates have been approved by the
United States Food and Drug Administration (the “FDA”) or any other regulatory
body. Further, we have not received any commercial revenues to date, and until
we receive the necessary approvals from the FDA or a similar foreign regulatory
authority, we will not have any commercial revenues.
Our
Current Product Candidates: ZIO-101 and ZIO-201
· |
ZIO-101
is
an organic arsenic compound covered by issued U.S. patents and
applications internationally. A form of commercially available inorganic
arsenic (arsenic trioxide (Trisenox®) or ATO) has been approved for the
treatment of acute promyelocytic leukemia (APL), a precancerous condition,
and is on the compendia listing for the therapy of multiple myeloma
as
well as having been studied for the treatment of various other cancers.
Nevertheless, ATO has been shown to be toxic to the heart and liver,
limiting its use as an anti-cancer agent. Inorganic arsenic has also
been
shown to cause cancer of the skin and lung in humans. The toxicity
of
arsenic generally is correlated to its accumulation in organs and
tissues.
To date, the Company’s preclinical and Phase I studies have demonstrated
that ZIO-101 (and organic arsenic in general) is considerably less
toxic
than inorganic arsenic, particularly with regard to heart toxicity.
In
vitro testing of ZIO-101 using the National Cancer Institute’s human
cancer cell panel detected activity against lung, colon, brain, melanoma,
ovarian and kidney cancer. Moderate activity was detected against
breast
and prostate cancer. In addition to solid tumors, in vitro testing
in both
the National Cancer Institute’s cancer cell panel and in vivo testing in a
leukemia animal model demonstrated substantial activity against
hematological cancers (cancers of the blood and blood-forming tissues)
such as leukemia, lymphoma, myelodysplastic syndromes and multiple
myeloma.
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Phase
I
testing of ZIO-101 is ongoing with two safety and dose finding studies at the
University of Texas M. D. Anderson Cancer Center. As of December 2, 2005,
monitored safety data for 8 patients enrolled in the ongoing Phase I clinical
study (blood cancers) through to completion at the 109 mg/m2 dose-level cohort
are available. The ongoing Phase I study in solid cancers recently completed
the
420 mg/m2/d x 5 d dose level with no dose limiting toxicities identified.
Monitored safety data, as of November 30, 2005, is available for 16 subjects
through to completion of enrollment at the 214 mg/m2 dose level cohort. The
Company has seen encouraging signs of clinical activity in both of these studies
including impact on blood and bone marrow blast cells in patients with acute
myelogenous leukemia (AML) and one patient with metastatic renal cell carcinoma
where metastases to the brain resolved. The Company recently initiated a phase
I/II advanced multiple myeloma (SGL2001) study to be conducted in the U.S.,
Canada and Europe designed to determine maximum tolerated dose and to assess
clinical activity in this specific indication. This study began at a dose of
109
mg/m2 utilizing the same dosing regimen as the ongoing phase I studies. The
Company expects to pursue registration in the U.S. for the treatment of advanced
multiple myeloma with a potentially pivotal trial to begin in 2007.
· |
ZIO-201,
or isophosphoramide mustard (IPM), is a proprietary stabilized metabolite
of ifosfamide that is also related to cyclophosphamide. A patent
application for pharmaceutical composition has been filed.
Cyclophosphamide and ifosfamide are alkylating agents. The Company
believes cyclophosphamide is the most widely used alkylating agent
in
cancer therapy and is used to treat breast cancer and non-Hodgkin’s
lymphoma. Ifosfamide has been shown to be effective in high dose
by
itself, or in combination in treating sarcoma and lymphoma. Although
ifosfamide-based treatment generally represents the standard of care
for
sarcoma, it is not licensed for this indication by the FDA. Our
preclinical studies have shown that, in animal and laboratory models,
IPM
evidences activity against leukemia and solid tumors. These studies
also
indicate that ZIO-201 has a better pharmacokinetic and safety profile
than
ifosfamide or cyclophosphamide, offering the possibility of safer
and more
efficacious therapy with ZIO-201. Ifosfamide is metabolized to IPM.
In
addition to IPM, another metabolite of ifosfamide is acrolein, which
is
toxic to the kidneys and bladder. The presence of acrolein can mandate
the
administration of a protective agent called mesna, which is inconvenient
and expensive. Chloroacetaldehyde is another metabolite of ifosfamide
and
is toxic to the central nervous system, causing “fuzzy brain” syndrome for
which there is currently no protective measure. Similar toxicity
concerns
pertain to high-dose cyclophosphamide, which is widely used in bone
marrow
and blood cell transplantation. Because ZIO-201 is independently
active—without acrolein or chloroacetaldehyde metabolites—the Company
believes that the administration of ZIO-201 may avoid many of the
toxicities of ifosfamide and cyclophosphamide without compromising
efficacy. In addition to anticipated lower toxicity, ZIO-201 (and
without
the coadministration of mesna) may have other advantages over ifosfamide
and cyclophosphamide. ZIO-201 likely cross-links DNA differently
than
ifosfamide or cyclophosphamide metabolites, resulting in a different
activity profile. Moreover, in some instances ZIO-201 appears to
show
activity in ifosfamide- and/or cyclophosphamide-resistant cancer
cells.
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Phase
I
testing of ZIO-201 is ongoing at two sites in the U.S. (Karmanos Cancer Center
at Wayne State University in Detroit and Premiere Oncology in Los Angeles).
This
study is treating patients at a dose of 787 mg/m2. IPM has been administered
without the “uroprotectant” mesna and the toxicities associated with acrolein
and chloroacetaldehyde have not been observed. Kidney toxicity seen with
ifosfamide has occurred in the higher dose cohorts. One patient with advanced
mesothelioma continues to have stable disease following 15 cycles of therapy
with ZIO-201 as a single agent. The Company recently initiated a phase I/II
trial in advanced sarcoma at the University of Texas M. D. Anderson Cancer
Center (the “MDACC”). The MDACC will be joined by additional centers in the
U.S., Canada and Europe in the coming months. Additional studies in
patients with advanced sarcoma will begin shortly in the U.S. and plans for
a
phase I/II study in pediatric sarcoma are well advanced. The Company expects
to
pursue registration in the U.S. for the treatment of advanced sarcoma with
a
potentially pivotal trial to begin in 2007.
We
were
originally incorporated in Colorado in September 1998 (under the name Net
Escapes, Inc.) and later changed our name to “EasyWeb, Inc.” in February 1999.
We were re-incorporated in Delaware on May 16, 2005 under the same name. On
September 13, 2005, we completed a “reverse” acquisition of privately held
ZIOPHARM, Inc., a Delaware corporation. To effect this transaction, we caused
ZIO Acquisition Corp., our wholly-owned subsidiary, to merge with and into
ZIOPHARM, Inc., with ZIOPHARM, Inc. surviving as our wholly owned subsidiary.
In
accordance with the terms of the merger, the outstanding common stock of
ZIOPHARM, Inc. automatically converted into the right to receive an aggregate
of
approximately 97.3% of our outstanding Common Stock (after giving effect to
the
transaction). Following the merger, we caused ZIOPHARM, Inc. to merge with
and
into us and we changed our name to “ZIOPHARM Oncology, Inc.” Although
Easy Web was the legal acquirer in the transaction, ZIOPHARM, Inc. became the
registrant with the Securities and Exchange Commission because under generally
accepted accounting principles the transaction was accounted for as a reverse
acquisition. Accordingly, the historical financial statements of ZIOPHARM,
Inc.
have become our historical financial statements.
Our
executive offices are located at 1180 Avenue of the Americas, 19th Floor, New
York, NY 10036, and our telephone number is (646) 214-0700. Our internet site
is
www.ziopharm.com. None of the information on our internet site is part of this
prospectus.
Risk
Factors
For
a
discussion of the risks you should consider before purchasing shares of our
common stock, you are urged to carefully review and consider the section
entitled “Risk Factors” beginning on page 6 of this prospectus.
The
Offering
The
shares offered by this prospectus were originally covered by our prospectuses
dated November 9, 2005 and November 18, 2005, each as supplemented to date,
which originally covered the resale of an aggregate of 7,723,614 shares of
our
common stock by the selling stockholders identified in such prospectuses.
The
selling stockholders identified on pages 44-54 of this prospectus are offering
on a resale basis a total of 7,462,095 shares of our common stock, of which
482,407 shares are issuable upon exercise of outstanding warrants and options.
The
shares offered by such selling stockholders reflect those shares of our common
stock remaining unsold by the selling stockholders identified in our November
9,
2005 and November 18, 2005 prospectuses.
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Common
stock offered
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7,462,095
shares
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Common
stock outstanding before the offering(1)
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7,272,992
shares
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Common
stock outstanding after the offering(2)
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7,755,399
shares
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Common
Stock OTC Bulletin Board symbol
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ZIOP
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(1)
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Based
on the number of shares outstanding as of March 27, 2006, not including
1,576,980 shares issuable upon exercise of various warrants and options
to
purchase our common stock.
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(2) |
Assumes
the issuance of all shares offered hereby that are issuable upon
exercise
of warrants.
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RISK
FACTORS
An
investment in our common stock is very risky. You may lose the entire amount
of
your investment. Prior to making an investment decision, you should carefully
review this entire prospectus and consider the following risk
factors:
We
currently have no product revenues and will need to raise additional capital
to
operate our business.
To
date,
we have generated no product revenues. Until and unless we receive approval
from
the FDA and/or other regulatory authorities for our product candidates, we
cannot sell our drugs and will not have product revenues. Currently, our only
product candidates are ZIO-101(organic arsenic) and ZIO-201 (isophosphoramide
mustard), and they are not approved by the FDA for sale.
We
will need to seek additional sources of financing which may not be available
on
favorable terms, if at all.
As
of
December 31, 2005, we had incurred approximately $15.4 million of cumulative
net
losses and had approximately $8.9 million of cash and cash equivalents.
Currently, we expect that we will have sufficient cash to fund our operations
into the third quarter of 2006. The Company’s consolidated financial statements
as of December 31, 2005 have been prepared under the assumption that the Company
will continue as going concern for the year ending December 31, 2006. The
Company’s independent registered public accounting firm, Vitale, Caturano &
Company, Ltd., has issued a report dated March 9, 2006 that included an
explanatory paragraph referring to the Company’s significant operating losses
and expressing substantial doubt in its ability to continue as a going concern
(See Note (1) in the Notes to Consolidated Financial Statements) without
additional capital becoming available. The Company’s ability to continue as a
going concern is dependent upon its ability to obtain additional equity or
debt
financing, attain further operating efficiencies and, ultimately, to generate
revenue. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. Although we expect our cash on-hand
to fund our operations into the third quarter of 2006, changes may occur that
would consume our existing capital prior to that time, including the progress
of
our research and development efforts, changes in governmental regulation and
acquisitions of additional product candidates. If we do not succeed in raising
additional funds on acceptable terms, we may be unable to complete planned
preclinical and clinical trials or obtain approval of any product candidates
from the FDA and other regulatory authorities. In addition, we could be forced
to discontinue product development, reduce or forego sales and marketing efforts
or forego attractive business opportunities. Any additional sources of financing
will likely involve the issuance of our equity securities, which will have
a
dilutive effect on our existing stockholders.
We
are not currently profitable and may never become profitable.
We
have a
history of losses and expect to incur substantial losses and negative operating
cash flow for the foreseeable future, and we may never achieve or maintain
profitability. Even if we succeed in developing and commercializing one or
more
product candidates, we expect to incur substantial losses for the foreseeable
future and may never become profitable. We expect also to continue to incur
significant operating and capital expenditures and anticipate that our expenses
will increase substantially in the foreseeable future as we:
·
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Continue
to undertake preclinical development and clinical trials for product
candidates;
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Scale
up the formulation and manufacturing of our product candidates;
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Seek
regulatory approvals for product candidates;
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Implement
additional internal systems and infrastructure; and
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·
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Hire
additional personnel.
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We
also
expect to experience negative cash flow for the foreseeable future as we fund
our operating losses and capital expenditures. This may result in a negative
impact on the value of our common stock.
We
have a limited operating history upon which to base an investment decision.
Prior
to
the Merger, ZIOPHARM, Inc. was a development-stage company that was incorporated
in September 2003. To date, we have not demonstrated an ability to perform
the
functions necessary for the successful commercialization of any product
candidates. The successful commercialization of any product candidates will
require us to perform a variety of functions, including:
·
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Continuing
to undertake preclinical development and clinical
trials;
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·
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Participating
in regulatory approval processes;
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·
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Formulating
and manufacturing products; and
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·
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Conducting
sales and marketing activities.
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Our
operations have been limited to organizing and staffing our Company, acquiring,
developing and securing our proprietary product candidates, undertaking
preclinical trials and clinical trials of our product candidates ZIO-101 and
ZIO-201, and manufacturing ZIO-101 and ZIO- 201. These operations provide a
limited basis for you to assess our ability to commercialize our product
candidates and the advisability of investing in our securities.
We
may not obtain the necessary U.S. or worldwide regulatory approvals to
commercialize any product candidate.
We
may
not be able to obtain the approvals necessary to commercialize our product
candidates, ZIO-101 and ZIO-201, or any product candidate that we may acquire
or
develop in the future for commercial sale. We will need FDA approval to
commercialize our product candidates in the U.S. and approvals from regulatory
authorities in foreign jurisdictions equivalent to the FDA to commercialize
our
product candidates in those jurisdictions. In order to obtain FDA approval
of
any product candidate, we must submit to the FDA a New Drug Application (NDA),
demonstrating that the product candidate is safe for humans and effective for
its intended use. This demonstration requires significant research and animal
tests, which are referred to as preclinical studies, as well as human tests,
which are referred to as clinical trials. Satisfaction of the FDA’s regulatory
requirements typically takes many years, depending upon the type, complexity
and
novelty of the product candidate, and will require substantial resources for
research, development and testing. We cannot predict whether our research,
development, and clinical approaches will result in drugs that the FDA considers
safe for humans and effective for their intended uses. The FDA has substantial
discretion in the drug approval process and may require us to conduct additional
preclinical and clinical testing or to perform post-marketing studies. The
approval process may also be delayed by changes in government regulation, future
legislation or administrative action or changes in FDA policy that occur prior
to or during our regulatory review. Delays in obtaining regulatory approvals
may:
·
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Delay
commercialization of, and our ability to derive product revenues
from, our
product
candidates;
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·
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Impose
costly procedures on us; and
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·
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Diminish
any competitive advantages that we may otherwise enjoy.
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Even
if
we comply with all FDA requests, the FDA may ultimately reject one or more
of
our NDAs. We cannot be sure that we will ever obtain regulatory clearance for
our product candidates, ZIO-101 and ZIO-201. Failure to obtain FDA approval
of
our product candidates will severely undermine our business by leaving us
without a saleable product, and therefore without any potential revenue source,
until another product candidate can be developed. There is no guarantee that
we
will ever be able to develop or acquire another product candidate.
In
foreign jurisdictions, we similarly must receive approval from applicable
regulatory authorities before we can commercialize any drugs. Foreign regulatory
approval processes generally include all of the risks associated with the FDA
approval procedures described above.
Our
product candidates are in early stages of clinical trials, and we cannot be
certain when we will be able to file an NDA with the FDA.
Our
product candidates, ZIO-101 and ZIO-201, are in early stages of development
and
require extensive clinical testing. Notwithstanding our current clinical trial
plans for each of our existing product candidates, we may not be able to
commence additional trials or see results from these trials within our
anticipated timelines. As such, we cannot predict with any certainty if or
when
we might submit an NDA for regulatory approval of our product candidates or
whether such an NDA will be accepted.
Clinical
trials are very expensive, time-consuming and difficult to design and implement.
Human
clinical trials are very expensive and difficult to design and implement, in
part because they are subject to rigorous regulatory requirements. The clinical
trial process is also time consuming. We estimate that clinical trials of our
product candidates will take at least several years to complete. Furthermore,
failure can occur at any stage of the trials, and we could encounter problems
that cause us to abandon or repeat clinical trials. The commencement and
completion of clinical trials may be delayed by several factors,
including:
·
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Unforeseen
safety issues;
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·
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Determination
of dosing issues;
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·
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Lack
of effectiveness during clinical trials;
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·
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Slower
than expected rates of patient recruitment;
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·
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Inability
to monitor patients adequately during or after treatment; and
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·
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Inability
or unwillingness of medical investigators to follow our clinical
protocols.
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We
are
hopeful that we may be able to obtain “Fast Track” and or “Orphan Drug” status
from the FDA for one or more of our product candidates. Fast Track allows the
FDA to facilitate development and expedite review of drugs that treat serious
and life-threatening conditions so that an approved product can reach the market
expeditiously. Fast Track status does not apply to a product alone, but applies
to a combination of a product and the specific indications for which it is
being
studied. Therefore, it is a drug’s development program for a specific indication
that receives Fast Track designation. Orphan Drug status promotes the
development of products that demonstrate the promise for the diagnosis and
treatment of one disease or condition and affords certain financial and market
protection benefits to successful applicants. However, there is no guarantee
that any of our product candidates will be granted Fast Track or Orphan Drug
status by the FDA or that, even if such product candidate is granted such
status, the product candidate’s clinical development and regulatory approval
process will not be delayed or will be successful.
In
addition, we or the FDA may suspend our clinical trials at any time if it
appears that we are exposing participants to unacceptable health risks or if
the
FDA finds deficiencies in our IND submission or in the conduct of these trials.
Therefore, we cannot predict with any certainty the schedule for future clinical
trials.
The
results of our clinical trials may not support our product candidate claims.
Even
if
our clinical trials are completed as planned, we cannot be certain that their
results will support approval of our product candidates. Success in preclinical
testing and early clinical trials does not ensure that later clinical trials
will be successful, and we cannot be sure that the results of later clinical
trials will replicate the results of prior clinical trials and preclinical
testing. The clinical trial process may fail to demonstrate that our product
candidates are safe for humans and effective for indicated uses. This failure
would cause us to abandon a product candidate and may delay development of
other
product candidates. Any delay in, or termination of, our clinical trials will
delay the filing of our NDAs with the FDA and, ultimately, our ability to
commercialize our product candidates and generate product revenues. In addition,
our clinical trials involve small patient populations. Because of small sample
size, the results of these clinical trials may not be indicative of future
results.
Even
if
the FDA approves our product candidates, physicians and patients may not accept
and use them. Acceptance and use of our products will depend upon a number
of
factors including:
·
|
Perceptions
by members of the health care community, including physicians, regarding
the safety and effectiveness of our drugs;
|
·
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Cost-effectiveness
of our products relative to competing products;
|
·
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Availability
of reimbursement for our products from government or other healthcare
payers; and
|
·
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Effectiveness
of marketing and distribution efforts by us and our licensees and
distributors, if any.
|
Because
we expect sales of our current product candidates, if approved, to generate
substantially all of our product revenues for the foreseeable future, the
failure of a drug to find market acceptance would harm our business and could
require us to seek additional financing in order to fund the development of
future product candidates.
Our
drug development program materially depends upon third-party researchers who
are
outside our control.
We
materially rely upon independent investigators and collaborators, such as
universities and medical institutions, to conduct our preclinical and clinical
trials under agreements with us. These collaborators are not our employees
and
we cannot control the amount or timing of resources that they devote to our
programs. These investigators may not assign as great a priority to our programs
or pursue them as diligently as we would if we were undertaking such programs
ourselves. If outside collaborators fail to devote sufficient time and resources
to our drug development programs, or if their performance is substandard, the
approval of our FDA applications, if any, and our introduction of new drugs,
if
any, will be delayed. These collaborators may also have relationships with
other
commercial entities, some of whom may compete with us. If our collaborators
assist our competitors to our detriment, our competitive position would be
harmed.
We
rely exclusively on third parties to formulate and manufacture our product
candidates.
We
do not
have experience in drug formulation or manufacturing and do not intend to
establish our own manufacturing facilities. We lack the resources and expertise
to formulate or manufacture our own product candidates. We currently are
contracting for the commercial scale manufacture of our product candidates.
We
intend to contract with one or more manufacturers to manufacture, supply, store
and distribute drug supplies for our clinical trials. If a product candidate
we
develop or acquire in the future receives FDA approval, we will rely on one
or
more third-party contractors to manufacture our drugs. Our anticipated future
reliance on a limited number of third-party manufacturers exposes us to the
following risks:
·
|
We
may be unable to identify manufacturers on acceptable terms or at
all
because the number of potential manufacturers is limited and the
FDA must
approve any replacement contractor. This approval would require new
testing and compliance inspections. In addition, a new manufacturer
would
have to be educated in, or develop substantially equivalent processes
for,
production of our products after receipt of FDA approval, if any.
|
·
|
Our
third-party manufacturers might be unable to formulate and manufacture
our
drugs in the volume and of the quality required to meet our clinical
needs
and commercial needs, if any.
|
·
|
Our
future contract manufacturers may not perform as agreed or may not
remain
in the contract manufacturing business for the time required to supply
our
clinical trials or to successfully produce, store and distribute
our
products.
|
·
|
Drug
manufacturers are subject to ongoing periodic unannounced inspection
by
the FDA, the Drug Enforcement Administration (the “DEA”), and
corresponding state agencies to ensure strict compliance with good
manufacturing practices and other government regulations and corresponding
foreign standards. We do not have control over third-party manufacturers’
compliance with these regulations and standards.
|
·
|
If
any third-party manufacturer makes improvements in the manufacturing
process for our products, we may not own, or may have to share, the
intellectual property rights to the innovation.
|
Each
of
these risks could delay our clinical trials, the approval, if any, of our
product candidates by the FDA or the commercialization of our product candidates
or result in higher costs or deprive us of potential product
revenues.
We
do not have experience selling, marketing or distributing products and we have
no internal capability to do so.
We
currently have no marketing, sales or distribution capabilities. If and when
we
become reasonably certain that we will be able to commercialize our current
or
future products, we anticipate allocating resources to the marketing, sales
and
distribution of our proposed products in North America, however, we cannot
assure that we will be able to market, sell and distribute our products
successfully. Our future success also may depend, in part, on our ability to
enter into and maintain collaborative relationships for such capabilities and
to
encourage the collaborator’s strategic interest in the products under
development and such collaborator’s ability to successfully market and sell any
such products. Although we intend to pursue certain collaborative arrangements
regarding the sale and marketing of our products, there can be no assurance
that
we will be able to establish or maintain our own sales operations or affect
collaborative arrangements, or that if we are able to do so, our collaborators
will have effective sales forces. There can also be no assurance that we will
be
able to establish or maintain relationships with third party collaborators
or
develop in-house sales and distribution capabilities. To the extent that we
depend on third parties for marketing and distribution, any revenues we receive
will depend upon the efforts of such third parties, and there can be no
assurance that such efforts will be successful. In addition, there can also
be
no assurance that we will be able to market and sell our products in the United
States or overseas.
If
we cannot compete successfully for market share against other drug companies,
we
may not achieve sufficient product revenues and our business will suffer.
The
market for our product candidates is characterized by intense competition and
rapid technological advances. If a product candidate receives FDA approval,
it
will compete with a number of existing and future drugs and therapies developed,
manufactured and marketed by others. Existing or future competing products
may
provide greater therapeutic convenience or clinical or other benefits for a
specific indication than our products, or may offer comparable performance
at a
lower cost. If our products fail to capture and maintain market share, we may
not achieve sufficient product revenues and our business will
suffer.
We
will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have products already approved or
in
development. In addition, many of these competitors, either alone or together
with their collaborative partners, operate larger research and development
programs or have substantially greater financial resources than we do, as well
as significantly greater experience in:
·
|
Developing
drugs;
|
·
|
Undertaking
preclinical testing and human clinical trials;
|
·
|
Obtaining
FDA and other regulatory approvals of drugs;
|
·
|
Formulating
and manufacturing drugs; and
|
·
|
Launching,
marketing and selling drugs.
|
If
we fail to adequately protect or enforce our intellectual property rights or
secure rights to patents of others, the value of our intellectual property
rights would diminish.
Our
success, competitive position and future revenues will depend in part on our
ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights
of
third parties.
To
date,
we have exclusive rights to certain U.S. and foreign intellectual property.
We
anticipate filing additional patent applications both in the U.S. and in other
countries, as appropriate. However, we cannot predict:
·
|
The
degree and range of protection any patents will afford us against
competitors, including
whether
third parties will find ways to invalidate or otherwise circumvent
our
patents;
|
·
|
If
and when patents will issue;
|
·
|
Whether
or not others will obtain patents claiming aspects similar to those
covered by our patents and patent applications; or
|
·
|
Whether
we will need to initiate litigation or administrative proceedings
which
may be costly whether we win or lose.
|
Our
success also depends upon the skills, knowledge and experience of our scientific
and technical personnel, our consultants and advisors as well as our licensors
and contractors. To help protect our proprietary know-how and our inventions
for
which patents may be unobtainable or difficult to obtain, we rely on trade
secret protection and confidentiality agreements. To this end, it is our policy
generally to require our employees, consultants, advisors and contractors to
enter into agreements which prohibit the disclosure of confidential information
and, where applicable, require disclosure and assignment to us of the ideas,
developments, discoveries and inventions important to our business. These
agreements may not provide adequate protection for our trade secrets, know-how
or other proprietary information in the event of any unauthorized use or
disclosure or the lawful development by others of such information. If any
of
our trade secrets, know-how or other proprietary information is disclosed,
the
value of our trade secrets, know-how and other proprietary rights would be
significantly impaired and our business and competitive position would
suffer.
If
we infringe the rights of third parties we could be prevented from selling
products, forced to pay damages, and defend against
litigation.
If
our
products, methods, processes or other technologies infringe the proprietary
rights of other parties, we could incur substantial costs and we may have
to:
·
|
Obtain
licenses, which may not be available on commercially reasonable terms,
if
at all;
|
·
|
Abandon
an infringing drug candidate;
|
·
|
Redesign
our products or processes to avoid infringement;
|
·
|
Stop
using the subject matter claimed in the patents held by others;
|
·
|
Pay
damages; or
|
·
|
Defend
litigation or administrative proceedings which may be costly whether
we
win or lose, and which could result in a substantial diversion of
our
valuable management resources.
|
Our
ability to generate product revenues will be diminished if our drugs sell for
inadequate prices or patients are unable to obtain adequate levels of
reimbursement.
Our
ability to commercialize our drugs, alone or with collaborators, will depend
in
part on the extent to which reimbursement will be available from:
·
|
Government
and health administration authorities;
|
·
|
Private
health maintenance organizations and health insurers; and
|
·
|
Other
healthcare payers.
|
Significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. Healthcare payers, including Medicare, are challenging the prices
charged for medical products and services. Government and other healthcare
payers increasingly attempt to contain healthcare costs by limiting both
coverage and the level of reimbursement for drugs. Even if our product
candidates are approved by the FDA, insurance coverage may not be available,
and
reimbursement levels may be inadequate, to cover our drugs. If government and
other healthcare payers do not provide adequate coverage and reimbursement
levels for our products, once approved, market acceptance of such products
could
be reduced.
We
may not be able to successfully manage our growth.
Our
success will depend upon the expansion of our operations and the effective
management of our growth, which will place a significant strain on our
management and on our administrative, operational and financial resources.
To
manage this growth, we must expand our facilities, augment our operational,
financial and management systems and hire and train additional qualified
personnel. If we are unable to manage our growth effectively, our business
may
be harmed.
Our
business will subject us to the risk of liability claims associated with the
use
of hazardous materials and chemicals.
Our
contract research and development activities may involve the controlled use
of
hazardous materials and chemicals. Although we believe that our safety
procedures for using, storing, handling and disposing of these materials comply
with federal, state and local laws and regulations, we cannot completely
eliminate the risk of accidental injury or contamination from these materials.
In the event of such an accident, we could be held liable for any resulting
damages and any liability could have a materially adverse effect on our
business, financial condition and results of operations. In addition, the
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of hazardous or radioactive materials and waste
products may require our contractors to incur substantial compliance costs
that
could materially adversely affect our business, financial condition and results
of operations.
We
rely on key executive officers and scientific and medical advisors, and their
knowledge of our business and technical expertise would be difficult to replace.
We
are
highly dependent on our principal scientific, regulatory and medical advisors.
We do not have “key person” life insurance policies on any of our officers. The
loss of the technical knowledge and management and industry expertise of any
of
our key personnel could result in delays in product development, loss of
customers and sales and diversion of management resources, which could adversely
affect our operating results.
If
we are unable to hire additional qualified personnel, our ability to grow our
business may be harmed.
We
will
need to hire additional qualified personnel with expertise in preclinical
testing, clinical research and testing, government regulation, formulation
and
manufacturing, as well as sales and marketing. We compete for qualified
individuals with numerous biopharmaceutical companies, universities and other
research institutions. Competition for such individuals is intense, and we
cannot be certain that our search for such personnel will be successful.
Attracting and retaining qualified personnel will be critical to our
success.
We
may incur substantial liabilities and may be required to limit commercialization
of our products in response to product liability lawsuits.
The
testing and marketing of medical products entail an inherent risk of product
liability. If we cannot successfully defend ourselves against product liability
claims, we may incur substantial liabilities or be required to limit
commercialization of our products. Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against potential product
liability claims could prevent or inhibit the commercialization of
pharmaceutical products we develop, alone or with collaborators. We currently
carry clinical trial insurance and product liability insurance.
There
are certain interlocking relationships among us and certain affiliates of a
significant stockholder of ours, which may present potential conflicts of
interest.
Lindsay
A. Rosenwald, M.D., who may be deemed to beneficially own approximately 17.52%
of our common stock, is Chairman and Chief Executive Officer of Paramount
BioCapital, Inc., an investment banking firm that served as placement agent
in
connection with a private placement of ZIOPHARM, Inc.’s Series A Convertible
Preferred Stock that was completed in May 2005. Paramount BioCapital also served
as a finder in connection with the Company’s option and research agreements with
Southern Research Institute. The Company paid fees and issued securities to
Paramount BioCapital or its designees in connection with these transactions
and
Paramount BioCapital currently has a right of first refusal to act as the
placement agent for the private sale of our securities until May 31, 2008.
Dr.
Michael Weiser and Timothy McInerney, each of whom is a member of the Company’s
board of directors, are also full-time employees of Paramount BioCapital. See
“Certain Relationships and Related Transactions.”
Paramount
BioCapital, Dr. Rosenwald, Dr. Weiser, and Mr. McInerney are not obligated
pursuant to any agreement or understanding with us to make any additional
products or technologies available to us, nor can there be any assurance that
any biomedical or pharmaceutical products or technologies identified in the
future by such parties will be made available to us. In addition, certain of
our
current officers and directors, as well as officers or directors that may be
hereafter appointed, may from time to time serve as officers or directors of
other biopharmaceutical or biotechnology companies. There can be no assurance
that such other companies will not have interests in conflict with our own.
Because
we became public by means of a reverse merger, we may not be able to attract
the
attention of major brokerage firms.
Additional
risks may exist as a result of our becoming a public reporting company through
a
“reverse merger.” Security analysts of major brokerage firms may not provide
coverage of the Company. Because we became public through a reverse merger,
there is no incentive to brokerage firms to recommend the purchase of our common
stock. No assurance can be given that brokerage firms will want to provide
analyst coverage of our Company in the future.
We
are subject to Sarbanes-Oxley and the reporting requirements of federal
securities laws, which can be expensive.
As
a
public reporting company, we are subject to the Sarbanes-Oxley Act of 2002,
as
well as the information and reporting requirements of the Securities Exchange
Act of 1934, as amended, and other federal securities laws. As a result, we
incur significant legal, accounting and other expenses that we did not incur
as
a private company, including costs associated with our public company reporting
requirements and corporate governance requirements. As an example of public
reporting company requirements, we evaluate the effectiveness of disclosure
controls and procedures and of our internal control over financing reporting
in
order to allow management to report on such controls.
As
a
company with limited capital and human resources, our management has identified
that there is a lack of segregation of duties due to the limited number of
employees within our company’s financial and administrative functions.
Management believes that, based on the employees involved and the control
procedures in place, risks associated with such lack of segregation are not
significant and that the potential benefits of adding employees to segregate
duties more clearly do not justify the associated added expense. However,
management continues to evaluate this segregation of duties. Furthermore,
management is aware that many of our currently existing internal controls are
undocumented. Our management will be working to document such internal controls
over the coming year. In the event we identify significant deficiencies or
material weaknesses in our internal control over financial reporting that we
cannot remediate in a timely manner, investors and others may lose confidence
in
the reliability of our financial statements and the trading price of our common
stock and ability to obtain any necessary equity or debt financing could suffer.
Our
common stock trades only in an illiquid trading market.
Trading
of our common stock is conducted on the Over-The-Counter Bulletin Board
(“OTCBB”). This has an adverse effect on the liquidity of our common stock, not
only in terms of the number of shares that can be bought and sold at a given
price, but also through delays in the timing of transactions and reduction
in
security analysts’ and the media’s coverage of our Company and its common stock.
This may result in lower prices for our common stock than might otherwise be
obtained and could also result in a larger spread between the bid and asked
prices for our common stock.
There
is not now, and there may not ever be an active market for shares of our common
stock.
In
general, there has been limited trading activity in shares of the Company’s
common stock. The small trading volume may make it more difficult for our
stockholders to sell their shares as and when they choose. Furthermore, small
trading volumes generally depress market prices. As a result, you may not always
be able to resell shares of our common stock publicly at the time and prices
that you feel are fair or appropriate.
Because
it is a “penny stock,” you may have difficulty selling shares of our common
stock.
Our
common stock is a “penny stock” and is therefore subject to the requirements of
Rule 15g-9 under the Securities and Exchange Act of 1934. Under this rule,
broker-dealers who sell penny stocks must provide purchasers of these stocks
with a standardized risk-disclosure document prepared by the Securities and
Exchange Commission. Under applicable regulations, our common stock will
generally remain a “penny stock” until and for such time as it meets certain per
share price requirements (as determined in accordance with SEC regulations),
or
until we meet certain net asset or revenue thresholds.
The
penny
stock rules severely limit the liquidity of securities in the secondary market,
and many brokers choose not to participate in penny stock transactions. As
a
result, there is generally less trading in penny stocks. If you become a holder
of our common stock, you may not always be able to resell shares of our common
stock publicly at the time and prices that you feel are fair or
appropriate.
We
have never paid dividends and do not intend to do so for the foreseeable future.
We
have
never paid dividends on our capital stock and we do not anticipate that we
will
pay any dividends for the foreseeable future. Accordingly, any return on an
investment in our Company will be realized, if at all, only when you sell shares
of our common stock.
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements contained in this prospectus that are forward-looking in nature
are
based on the current beliefs of our management as well as assumptions made
by
and information currently available to management, including statements related
to the markets for our products, general trends in our operations or financial
results, plans, expectations, estimates and beliefs. In addition, when used
in
this prospectus, the words “may,” “could,” “should,” “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “plan,” “predict” and similar expressions and
their variants, as they relate to us or our management, may identify
forward-looking statements. These statements reflect our judgment as of the
date
of this prospectus with respect to future events, the outcome of which is
subject to risks, which may have a significant impact on our business, operating
results or financial condition. You are cautioned that these forward-looking
statements are inherently uncertain. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results or outcomes may vary materially from those described herein.
We
undertake no obligation to update forward-looking statements. The risks
identified under the heading “Risk Factors” in this prospectus, among others,
may impact forward-looking statements contained in this prospectus.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview:
ZIOPHARM
Oncology, Inc. is a biopharmaceutical company that is seeking to develop and
commercialize a diverse, risk-sensitive portfolio of in-licensed cancer drugs
that address unmet medical needs. Our principal focus is on the licensing and
development of proprietary drug candidate families that are related to cancer
therapeutics that are already on the market or in development. We believe this
strategy will result in lower risk and expedited drug development programs.
We
expect to commercialize our products on our own in North America but recognize
that promising clinical trial results in cancers with a high incidence and
prevalence might also be addressed in a commercial partnership with another
company with the requisite financial resources. Currently, we are in U.S. phase
I and I/II studies for two product candidates known as ZIO-101 and ZIO-201.
We
currently intend to continue with clinical development of ZIO-101 for advanced
myeloma and ZIO-201 for advanced sarcoma and to study preclinically product
candidates (ZIO-102, ZIO-202, etc.) in the same product families while licensing
additional candidates.
We
currently have two products in development:
|
·
|
ZIO-101
is an organic arsenic compound covered by issued U.S. patents and
applications internationally. A form of commercially available inorganic
arsenic (arsenic trioxide (Trisenox®) or ATO) has been approved for the
treatment of acute promyelocytic leukemia (APL), a precancerous condition,
and is on the compendia listing for the therapy of multiple myeloma
as
well as having been studied for the treatment of various other cancers.
Nevertheless, ATO has been shown to be toxic to the heart and liver,
limiting its use as an anti-cancer agent. Inorganic arsenic has also
been
shown to cause cancer of the skin and lung in humans. The toxicity
of
arsenic generally is correlated to its accumulation in organs and
tissues.
Our preclinical and phase I clinical studies to date have demonstrated
that ZIO-101 (and organic arsenic in general) is considerably less
toxic
than inorganic arsenic, particularly with regard to heart toxicity.
In
vitro testing of ZIO-101 using the National Cancer Institute’s human
cancer cell panel detected activity against lung, colon, brain, melanoma,
ovarian and kidney cancer. Moderate activity was detected against
breast
and prostate cancer. In addition to solid tumors, in vitro testing
in both
the National Cancer Institute’s cancer cell panel and in vivo testing in a
leukemia animal model demonstrated substantial activity against
hematological cancers (cancers of the blood and blood-forming tissues)
such as leukemia, lymphoma, myelodysplastic syndromes and multiple
myeloma.
|
Phase
I
testing of ZIO-101 is ongoing with two safety and dose finding studies at The
University of Texas M. D. Anderson Cancer Center (“MDACC”). As of December 2,
2005, monitored safety data for 8 patients enrolled in the ongoing phase I
clinical study (blood cancers) through to completion at the 109 mg/m2
(milligrams per meter squared) dose-level cohort are available. The ongoing
phase I study in solid cancers recently completed the 420 mg/m2/d x 5 d dose
level with no dose limiting toxicities identified. Monitored safety data, as
of
November 30, 2005, is available for 16 subjects through to completion of
enrollment at the 214 mg/m2 dose level cohort. The Company has seen encouraging
signs of clinical activity in both of these studies including impact on blood
and bone marrow blast cells in patients with acute myelogenous leukemia (AML)
and one patient with metastatic renal cell carcinoma where metastasis to the
brain resolved. The Company recently initiated a phase I/II advanced multiple
myeloma study to be conducted in the U.S., Canada and Europe designed to
determine maximum tolerated dose and to assess clinical activity in this
specific indication. This study began at a dose of 109 mg/m2 utilizing the
same
dosing regimen
as the ongoing phase I studies. The Company expects to pursue registration
in
the U.S. for the treatment of advanced multiple myeloma with a potentially
pivotal trial to begin in 2007.
|
·
|
ZIO-201,
or isophosphoramide mustard (IPM), is a proprietary stabilized metabolite
of ifosfamide that is also related to cyclophosphamide. A patent
application for pharmaceutical composition has been filed.
Cyclophosphamide and ifosfamide are alkylating agents. The Company
believes cyclophosphamide is the most widely used alkylating agent
in
cancer therapy and is used to treat breast cancer and non-Hodgkin’s
lymphoma. Ifosfamide has been shown to be effective in high dose
by
itself, or in combination in treating sarcoma and lymphoma. Although
ifosfamide-based treatment generally represents the standard of care
for
sarcoma, it is not licensed for this indication by the FDA. Our
preclinical studies have shown that, in animal and laboratory models,
IPM
evidences activity against leukemia and solid tumors. These studies
also
indicate that ZIO-201 has a better pharmacokinetic and safety profile
than
ifosfamide or cyclophosphamide, offering the possibility of safer
and more
efficacious therapy with ZIO-201. Ifosfamide is metabolized to IPM.
In
addition to IPM, another metabolite of ifosfamide is acrolein, which
is
toxic to the kidneys and bladder. The presence of acrolein can mandate
the
administration of a protective agent called mesna, which is inconvenient
and expensive. Chloroacetaldehyde is another metabolite of ifosfamide
and
is toxic to the central nervous system, causing “fuzzy brain” syndrome for
which there is currently no protective measure. Similar toxicity
concerns
pertain to high-dose cyclophosphamide, which is widely used in bone
marrow
and blood cell transplantation. Because ZIO-201 is independently
active—without acrolein or chloroacetaldehyde metabolites—we believe that
the administration of ZIO-201 may avoid many of the toxicities of
ifosfamide and cyclophosphamide without compromising efficacy. In
addition
to anticipated lower toxicity, ZIO-201 (and without the co-administration
of mesna) may have other advantages over ifosfamide. In preclinical
studies ZIO-201 likely cross-links DNA differently than ifosfamide
or
cyclophosphamide metabolites, resulting in a different activity profile.
Moreover, in some instances ZIO-201 appears to show activity in
ifosfamide- and/or cyclophosphamide-resistant cancer
cells.
|
Phase
I
testing of ZIO-201 is ongoing at two sites in the U.S. (Karmanos Cancer Center
at Wayne State University in Detroit and Premiere Oncology in Los Angeles).
This
study is treating patients at a dose of 787 mg/m2. IPM has been administered
without the “uroprotectant” mesna and the toxicities associated with acrolein
and chloroacetaldehyde have not been observed. Kidney toxicity seen with
ifosfamide has occurred in the higher dose cohorts. One patient with advanced
mesothelioma continues to have stable disease following 15 cycles of therapy
with ZIO-201 as a single agent. The Company recently initiated a phase I/II
trial in advanced sarcoma at The University of Texas M. D. Anderson Cancer
Center. The MDACC will be joined by additional centers in the U.S., Canada
and
Europe in the coming months. Additional studies in patients with advanced
sarcoma will begin shortly in the U.S. and plans for a phase I/II study in
pediatric sarcoma are well advanced. The Company expects to pursue registration
in the U.S. for the treatment of advanced sarcoma and a pivotal trial to begin
in 2007.
Currently,
we are in U.S. phase I/II studies for both of these drug candidates. In January
2006, we initiated a phase I/II with ZIO-101 in advanced multiple myeloma and
in
February 2006 with ZIO-201 in advanced sarcoma. We intend to continue with
clinical development of ZIO-101 for advanced myeloma and ZIO-201 for advanced
sarcoma. However, the successful development of our product candidates is highly
uncertain. Product development costs and timelines can vary significantly for
each product candidate and are difficult to accurately predict. Various statutes
and regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of each product. The lengthy process
of
seeking these approvals, and the subsequent compliance with applicable statutes
and regulations, require the expenditure of substantial resources. Any failure
by us to obtain, or any delay in obtaining, regulatory approvals could
materially adversely affect our business. To date, we have not received approval
for the sale of any drug candidates in any market and, therefore, have not
generated any revenues from our drug candidates.
We
were
originally incorporated in Colorado in September 1998 (under the name Net
Escapes, Inc.) and later changed our name to “EasyWeb, Inc.” in February 1999.
We were re-incorporated in Delaware on May 16, 2005 under the same name. On
September 13, 2005, we completed a “reverse” acquisition of privately held
ZIOPHARM, Inc., a Delaware corporation. To effect this transaction, we caused
ZIO Acquisition Corp., our wholly-owned subsidiary, to merge with and into
ZIOPHARM, Inc., with ZIOPHARM, Inc. surviving as our wholly owned subsidiary.
In
accordance with the terms of the merger, the outstanding common stock of
ZIOPHARM, Inc. automatically converted into the right to receive an aggregate
of
approximately 97.3% of our outstanding common stock (after giving effect to
the
transaction). Following the merger, we caused ZIOPHARM, Inc. to merge with
and
into us and we changed our name to “ZIOPHARM Oncology, Inc.”
Plan
of Operation
Our
plan
of operation for the fiscal year ended December 31, 2006, is to continue
implementing our business strategy, including the clinical development of our
two lead product candidates, ZIO-101 and ZIO-201. We also intend to expand
our
drug candidate portfolio by seeking additional drug candidates through
in-licensing arrangements. We expect our principal expenditures during those
12
months to include:
|
· |
Fees
and milestone payments required under the license agreements relating
to
our existing product candidates and additional in-licensed candidates;
|
|
· |
Clinical
trial expenses, including the costs incurred with respect to the
conduct
of clinical trials for ZIO-101 and ZIO-201 and preclinical costs
associated with back-up candidates ZIO-102 and ZIO-202;
|
|
· |
Costs
related to the scale-up and manufacture of ZIO-101 and
ZIO-201;
|
|
· |
Rent
for our facilities; and
|
|
· |
General
corporate and working capital, including general and administrative
expenses.
|
As
part
of our plan for additional employees, we anticipate hiring several additional
full-time employees in medical, regulatory and administrative support. In
addition, we intend to use senior advisors, consultants, clinical research
organizations and third parties to perform certain aspects of product
development, manufacturing, clinical and preclinical development, and regulatory
and quality assurance functions.
At
our
current and desired pace of clinical development of our two product candidates,
over the next 12 months we expect to spend approximately $5.9 million on
clinical trials (including milestone payments that we expect to be triggered
under the license agreements relating to our product candidates), approximately
$3.2 million on manufacturing costs, $244,000 on facilities, rent and other
facilities related costs, and approximately $9.4 million on general
corporate and working capital. We believe that we currently have sufficient
capital to fund development and commercialization activities of ZIO-101 and
ZIO-201 into the third quarter of 2006. See “Liquidity and Capital Resources”
below.
Product
Candidate Development and Clinical Trials
ZIO-101.
ZIO-101,
organic arsenic, is being developed presently to treat advanced myeloma. As
a
follow-on to the ongoing phase I trials, a phase I/II trial in advanced multiple
myeloma was initiated in January 2006. With the completion of patient enrollment
of this trial in 2006, we expect to initiate a registration trial in advanced
multiple myeloma. We will continue to explore the use of ZIO-101 in solid tumors
as well as other phase II trials. Preclinical development will continue with
a
back-up compound designated as ZIO-102. Additional compounds are being
synthesized under our agreement with The University of Texas M.D. Anderson
Cancer Center and the Texas A&M University System. Technology transfer and
scale-up for the commercial manufacture of the active pharmaceutical ingredient,
its lyophilization, and final product specification will continue through the
period leading to the expected registration trial 2007. Preclinical development
will continue with additional compounds and routes of
administration.
ZIO-201.
ZIO-201,
stabilized isophosphoramide mustard, is being developed presently to treat
advanced sarcoma. As follow-on to the ongoing phase I trial, a phase I/II trial
in advanced sarcoma was initiated in February 2006 and other trials are in
the
advanced planning stage. With the completion of patient enrollment of this
trial
in 2006, we expect to initiate a registration trial in advanced sarcoma.
Technology transfer and scale-up for the commercial manufacture of the active
pharmaceutical ingredient, its lyophilization, and final product specification
will continue through the period leading to the expected registration trial
in
the first half of 2007. Preclinical development with continue with back-up
analogues.
Results
of Operations for the fiscal year ended December 31, 2005 versus December 31,
2004
Revenues.
We had
no revenues for the fiscal year ended December 31, 2005 and 2004.
Research
and development expenses.
For the
year ended December 31, 2005, research and development expenses increased to
approximately $5.6 million from approximately $2.1 million in the twelve-month
period ended December 31, 2004, an increase of approximately 163%. The increase
is attributable to an increase of $1.2 million spent on clinical trials, $1.9
in
manufacturing related costs, $0.2 million in pre-clinical costs, and $0.3
million in employee related costs as we built infrastructure to support the
research and development efforts. For the next year, we expect research and
development spending to continue to increase as we continue to progress our
clinical trials and continue with commercial scale-up manufacturing
activities.
General
and administrative expenses.
For the
year ended December 31, 2005, general and administrative expenses increased
to
approximately $4.2 million from approximately $3.6 million in the year ended
December 31, 2004, and increase of approximately 17%. The increase is primarily
attributable to a nonrecurring payment of $425,000 due on closing of the merger.
For the next year, we expect general and administrative spending to approximate
the same level as seen in the year ended December 31, 2005.
Other
income (expense).
Other
income increased to approximately $270,000 in the year ended December 31, 2005
from approximately $21,000 in the year ended December 31, 2004, an increase
of
approximately 1117%. Other income during the year ended December 31, 2005 was
primarily comprised of interest income. The increase in the period is due to
higher cash balances available for investing purposes.
Net
income (loss). For
the
reasons described above, the net loss increased to approximately $9.5 million
in
the year ended December 31, 2005 from approximately $5.7 million in the year
ended December 31, 2005, an increase of approximately 67%,.
Liquidity
and Capital Resources
As
of
December 31, 2005, we had approximately $8.9 million in cash and cash
equivalents. We believe we currently have sufficient capital to fund development
and commercialization activities of ZIO-101 and ZIO-201 into the third quarter
of 2006. Because our business does not generate any cash flow, however, we
will
need to raise additional capital to continue development of the product
candidates beyond that time. We expect to raise such additional capital by
either borrowing money or by selling shares of our capital stock. To the extent
additional capital is not available when we need it, we may be forced to abandon
our development and commercialization efforts, which would have a material
adverse effect on the prospects of our business. Further, our assumptions
relating the expected costs of development and commercialization and timeframe
for completion are dependent on numerous factors other than available financing,
including significant unforeseen delays in the clinical trial and regulatory
approval process, which could be extremely costly. In addition, our estimates
assume that we will be able to enroll a sufficient number of patients in each
clinical trial.
The
Company anticipates that losses will continue for the foreseeable future. At
December 31, 2005, the Company’s accumulated deficit was approximately $15.4
million. The Company has incurred significant losses from operations and has
an
accumulated deficit that raises substantial doubt about the Company’s ability to
continue as a going concern. The Company’s ability to continue operations after
its current cash resources are exhausted depends on its ability to obtain
additional financing and achieve profitable operations, as to which no
assurances can be given.
Our
actual cash requirements may vary materially from those now planned because
of a
number of factors including:
|
· |
changes
in the focus and direction of our research and development
programs;
|
|
· |
competitive
and technical advances;
|
|
· |
costs
of commercializing any of product
candidates;
|
|
· |
costs
of filing, prosecuting, defending and enforcing any patent claims
and any
other intellectual property rights;
|
We
will
need to raise additional capital to continue to fund our research and
development and operations after we exhaust our current cash resources in order
to continue our long-term plans for clinical trials and new product development.
We expect to finance our cash needs through the sale of equity securities and
possibly strategic collaborations or debt financings or through other sources
that may be dilutive to existing stockholders. There can be no assurance that
any such financing can be realized by the Company, or if realized, what the
terms thereof may be, or that any amount that Company is able to raise will
be
adequate to support the Company’s working capital requirements until it achieves
profitable operations.
When
we
seek to raise additional capital to fund our operations, funding may not be
available to us on acceptable terms, or at all. If we are unable to raise
additional funds when needed., we may not be able to market our products as
planned or continue development and regulatory approval of our products, or
we
could be required to delay, scale back or eliminate some or all our research
and
development programs. If we raise additional funds through equity sales, these
sales may be highly dilutive to existing investors.
Since
inception, our primary source of funding for our operations has been the
private
sale of our securities. During the twelve months ended December 31, 2005,
we
received $4,815 proceeds from the exercise of stock options and gross proceeds
of approximately $18.1 million ($16.8 net of issuance costs) as a result
of the
sale by ZIOPHARM, Inc. of Series A Convertible Preferred Stock in a private
placement transaction. During the twelve months ended December 31, 2004,
we
received proceeds of approximately $4.5 million as a result of the sale by
ZIOPHARM, Inc. of common stock in a private placement transaction.
At
December 31, 2005, working capital was approximately $6.8 million, compared
to
working capital deficit of approximately $445,000 at December 31, 2004. The
increase in working capital reflects the approximately $16.8 million in net
proceeds received in ZIOPHARM, Inc.’s sale of Series A Preferred stock offset by
the use of funds for operations.
Capital
expenditures were approximately $130,000 for the year ended December 31, 2005.
We anticipate capital expenditures will be approximately $100,000 for the fiscal
year ended December 31, 2006.
The
Company’s significant lease obligation payable is as follows:
Payments
due by Period
|
|
|
|
Total
|
|
Less
than 1 Year
|
|
1
-
3 Years
|
|
4
-
5 Years
|
|
After
5 Years
|
|
Operating
lease
|
|
$
|
846,151
|
|
$
|
189,776
|
|
$
|
398,038
|
|
$
|
258,337
|
|
$
|
—
|
|
Critical
Accounting Policies and Significant Estimates
The
preparation of financial statements requires the Company to make estimates
and
judgments that affect the reported amounts of assets, liabilities, revenue
and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, the Company evaluates its estimates, including those related
to
accounting for stock-based compensation and research and development activities.
The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under difference assumptions
or
conditions.
Research
and development expenses consist primarily of salaries and related personnel
costs, fees paid to consultants and outside service providers for development,
legal expenses resulting from intellectual property prosecution and
organizational affairs and other expenses relating to the design, development,
testing, and enhancement of our product candidates. We expense our research
and
development costs as they are incurred. General and administrative expenses
consist primarily of salaries and related expenses for executive, finance and
other administrative personnel, recruitment expenses, professional fees and
other corporate expenses, including business development and general legal
activities.
Our
results include non-cash compensation expense as a result of the issuance of
stock option and warrants grants. We account for stock-based awards to employees
using the intrinsic value method as prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. We follow the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, for disclosure purposes. All stock-based awards to
non-employees are accounted for at their fair value in accordance with SFAS
No.
123 and Emerging Issues Task Force (EITF) 96-18, Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. The fair value of each stock option
is estimated at the date of grant using the Black-Scholes option pricing model.
We have adopted the disclosure provisions of SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS
No.
123, for all stock-based awards as of December 31, 2004. Had we applied the
fair
value recognition provisions of SFAS No. 123, our net loss for the year ended
December 31, 2004 and 2005 would have increased by approximately $110,000 and
$844,000, respectively. We expect to record additional non-cash compensation
expense in the future, which may be significant. The Company’s most critical
estimates consist of accounting for stock-based compensation.
Recent
Accounting Pronouncements
In
December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123R, Share-Based Payment ("SFAS
No. 123R"). This Statement is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation, and supersedes Accounting Principles Board Opinion
No.
25, Accounting for Stock Issued to Employees, and its related implementation
guidance. SFAS No. 123R focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
The Statement requires entities to recognize stock compensation expense for
awards of equity instruments to employees based on the grant-date fair value
of
those awards (with limited exceptions). SFAS No. 123R is effective for the
first
fiscal year beginning after December 15, 2005. Based on current options
outstanding, we anticipate the adoption of this statement to result in
approximately $765,000 of additional compensation expense to be recognized
in
the year of adoption.
Off-Balance
Sheet Arrangements
We
do not
have any “off-balance sheet agreements,” as that term is defined by SEC
regulation.
DESCRIPTION
OF BUSINESS
General
ZIOPHARM
Oncology, Inc. is a biopharmaceutical company that is seeking to develop and
commercialize a diverse, risk-sensitive portfolio of in-licensed cancer drugs
that address unmet medical needs. Our principal focus is on the licensing and
development of proprietary drug candidate families that are related to cancer
therapeutics that are already on the market or in development. We believe this
strategy will result in lower risk and expedited drug development programs.
We
expect to commercialize our products on our own in North America but recognize
that promising clinical trial results in cancers with a high incidence and
prevalence might also be addressed in a commercial partnership with another
company with the requisite financial resources. Currently, we are in U.S. phase
I and I/II studies for two product candidates known as ZIO-101 and ZIO-201.
We
currently intend to continue with clinical development of ZIO-101 for advanced
myeloma and ZIO-201 for advanced sarcoma and to study preclinically product
candidates (ZIO-102, ZIO-202, etc.) in the same product families while licensing
additional candidates.
Our
corporate office is located at 1180 Avenue of the Americas, 19th Floor, New
York, NY 10036, and our telephone number is (646) 214-0700. Our business and
development operations are located in Charlestown, Massachusetts.
Cancer
Overview
Cancer
is
a group of diseases characterized by either the runaway growth of cells or
the
failure of cells to die normally. Often, cancer cells spread to distant parts
of
the body, where they can form new tumors. Cancer can arise in any organ of
the
body and, according to the American Cancer Society, strikes one of every two
American men and one of every three American women at some point in their lives.
It
is
reported that there are more than 100 different varieties of cancer divided
into
six major categories. Carcinomas, the most common type of cancer, originate
in
tissues that cover a surface or line a cavity of the body. Sarcomas begin in
tissue that connects, supports or surrounds other tissues and organs. Lymphomas
are cancers of the lymph system, the circulatory system that bathes and cleanses
the body’s cells. Leukemias involve blood-forming tissues and blood cells. As
their name indicates, brain tumors are cancers that begin in the brain, and
skin
cancers, including dangerous melanomas, originate in the skin. Cancers are
considered metastatic if they spread via the blood or lymphatic system to other
parts of the body to form secondary tumors.
Cancer
is
caused by a series of mutations, or alterations, in genes that control cells’
ability to grow and divide. Some mutations are inherited; others arise from
environmental factors such as smoking or exposure to chemicals, radiation,
or
viruses that damage cells’ DNA. The mutations cause cells to divide relentlessly
or lose their normal ability to die.
The
cost
of cancer to the healthcare system is significant. The National Institute of
Health estimates that the overall cost of cancer in 2004 was $189.8 billion.
This cost includes an estimate of $69.4 billion in direct medical expenses,
$16.9 billion in indirect morbidity costs, and $103.5 billion in indirect
mortality costs.
Cancer
Treatments
Major
treatments for cancer include surgery, radiotherapy, and chemotherapy. There
are
many different drugs that are used to treat cancer, including cytotoxics or
antineoplastics, hormones, and biologics. There are also many experimental
treatments under investigation including radiation sensitizers, vaccines, gene
therapy and immunotoxins. We believe cancer treatment represents a significant
unmet medical need.
Radiotherapy.
Also
called radiation therapy, radiotherapy is the treatment of cancer and other
diseases with ionizing radiation. Ionizing radiation deposits energy that
injures or destroys cells in the area being treated - the target tissue - by
damaging their genetic material, making it impossible for these cells to
continue growing. Although radiation damages both cancer cells and normal cells,
the latter are able to repair themselves and regain proper function.
Radiotherapy may be used to treat localized solid tumors, such as cancers of
the
skin, tongue, larynx, brain, breast, or uterine cervix. It can also be used
to
treat leukemia and lymphoma.
Scientists
are also looking for ways to increase the effectiveness of radiation therapy.
Two types of investigational drugs are being studied for their effect on cells
exposed to radiation. Radiosensitizers increase the damage done to tumor cells
by radiation; and radioprotectors protect normal tissues from the effects of
radiation.
Cytotoxics.
Cytotoxics are anticancer drugs that destroy cancer cells by stopping them
from
multiplying. Healthy cells can also be harmed with the use of cytotoxics,
especially those that divide quickly. Harm to healthy cells is what causes
side
effects. These cells usually repair themselves after chemotherapy. Chemotherapy
can be used for different purposes which include curing cancer (when the patient
remains free of evidence of cancer cells), controlling cancer (by preventing
the
cancer from spreading), and to relieving symptoms of cancer (such as pain,
helping patients live more comfortably).
Cytotoxic
agents act primarily on macromolecular synthesis, repair or activity, which
affects the production or function of DNA, RNA or protein. Although there are
many cytotoxic agents, there is a considerable amount of overlap in their
mechanisms of action. As such, the choice of a particular agent or group of
agents is generally not a consequence of a prior prediction of antitumor
activity by the drug, but instead the result of empirical clinical
trials.
Supportive
Care.
The
treatment of a cancer may include the use of chemotherapy, radiation therapy,
biologic response modifiers, surgery, or some combination of all of these or
other therapeutic options. All of these treatment options are directed at
killing or eradicating the cancer that exists in the patient’s body.
Unfortunately, the delivery of many cancer therapies adversely affects the
body’s normal organs. The undesired consequence of harming an organ not involved
with cancer is referred to as a complication of treatment or a side
effect.
Side
effects, or complications of treatment cause inconvenience, discomfort, and
occasionally, may even be fatal. Additionally and perhaps more importantly,
side
effects may also prevent doctors from delivering the prescribed dose of therapy
at the specific time and schedule of the treatment plan. Therefore, side effects
not only cause discomfort, but may also limit a patient’s ability to achieve the
best outcome from treatment by preventing the delivery of therapy at its optimal
dose and time.
In
addition to anemia, fatigue, hair-loss, reduction in blood platelets and white
and red blood cells, and bone pain, one of the most common side effects of
chemotherapy is nausea and vomiting. Several drugs have been developed to help
prevent and control chemotherapy-induced nausea and vomiting, which have led
to
improvements in the management of symptoms associated with this cancer
treatment, allowing for greater accuracy and consistency concerning the
administration of cancer treatment. Nausea and vomiting induced by chemotherapy
are treated by drugs such as 5HT3 receptor antagonists, like ondansetron, which
is a selective blocking agent of the hormone serotonin.
Product
Candidates
ZIO-101
General.
ZIO-101
is an organic arsenic compound covered by issued U.S. patents and applications
internationally. A form of commercially available inorganic arsenic (arsenic
trioxide (Trisenox®)
or ATO)
has been approved for the treatment of acute promyelocytic leukemia (APL) and
is
on the compendia listing for the therapy of multiple myeloma as well as having
been studied for the treatment of various other cancers. Nevertheless, ATO
has
been shown to be toxic to the heart, nerves and liver, limiting its use as
an
anti-cancer agent. Inorganic arsenic has also been shown to cause cancer of
the
skin and lung in humans. The toxicity of arsenic generally is correlated to
its
accumulation in organs and tissues. Our preclinical studies demonstrated that
ZIO-101 (and organic arsenic in general) is considerably less toxic than
inorganic arsenic, particularly with regard to heart toxicity. In phase I
testing, significantly higher doses of ZIO-101 have been safely administered
than the labeled dose of inorganic arsenic.
In
vitro
testing
of ZIO-101 using the National Cancer Institute’s human cancer cell panel
detected activity against lung, colon, brain, melanoma, ovarian and kidney
cancer. Moderate activity was detected against breast and prostate
cancer.
In
addition to solid tumors, in
vitro
testing
in both the National Cancer Institute’s cancer cell panel and in
vivo
testing
in a leukemia animal model demonstrated substantial activity against
hematological cancers (cancers of the blood and blood-forming tissues) such
as
leukemia, lymphoma, myelodysplastic syndromes and multiple myeloma. Leukemia
is
a cancer that begins in blood-forming tissue such as the bone marrow and causes
large numbers of blood cells to be produced and enter the bloodstream. Lymphomas
are cancers that begin in cells of the immune system. Myelodysplastic syndromes,
also called preleukemia or smoldering leukemia, are diseases in which the bone
marrow does not function normally.
Clinical
Lead Indication: Multiple
Myeloma. We
expect
that advanced myeloma, a hematologic cancer, will be the lead indication in
which to seek regulatory approval for ZIO-101. Myeloma is a group of plasma
cell
cancers associated with the overproduction of monoclonal immunoglobulin
(M-protein). Each
year
approximately 17,000 patients are diagnosed with multiple myeloma in the United
States, while 65,000 patients are living with the disease. Primary treatment
for
myeloma is chemotherapy. Approximately
15-20% of patients with myeloma are resistant to aggressive primary treatment.
Usually following two to three years of treatment, resistance to therapy occurs.
The average survival of patients with progressive or resistant disease is three
to four years.
The
standard of care for progressive or resistant multiple myeloma may be in
transition. Velcade®
is
approved to treat patients with myeloma that have had at least one prior
therapy. Revlimid®
and
Thalomid®
are
currently in advanced trials for the treatment of myeloma. Recent clinical
trials offer evidence supporting the use of these therapies either alone or
in
combination with other agents. However, neither treatment is universally
effective. The
ongoing need for new and non-cross resistant therapies for the treatment of
myeloma suggests that as new therapeutic options come to market, the market
will
continue to grow. Penetration into the market for new agents is to a large
extent independent of the number of therapies available, as every patient will
fail all available agents at some point. A more rapid market penetration can
be
expected in the case where the therapeutic window is wide and efficacy is equal
to or greater than currently available agents.
Clinical
Development Plan for ZIO-101.
We have
commenced two phase I clinical trials (hematological and solid tumor) at The
University of Texas M.D. Anderson Cancer Center using ZIO-101 in refractory
disease. Phase I testing is primarily focused on assessing drug safety; however,
some patients in the trials have evidenced either a response or other
indications of drug activity without toxicity (as reported by the investigator).
The starting dose in both phase I trials was approximately 14 times the labeled
dose of inorganic arsenic.
The
goal
of these phase I trials is to determine dose-limiting toxicity and maximum
tolerated dose. In addition, assessments of pharmacokinetic data will be
obtained along with any indication of efficacy. In January 2006, the Company
initiated a follow-on study to these phase I trials with a phase I/II trial
in
advanced myeloma. Other trials are under consideration for initiation in 2006.
It is expected that a pivotal trial in multiple myeloma would begin in 2007.
The
solid
tumor trial is seeking to confirm data collected during preclinical studies
that
indicated activity in a variety of solid tumors. While the current focus for
product registration is myeloma, the study results will be instructive for
further development plans in solid tumors.
ZIO-201
General.
ZIO-201, or isophosphoramide mustard (IPM), is a proprietary stabilized
metabolite of ifosfamide that is also related to cyclophosphamide. A patent
application for pharmaceutical composition has been filed. Cyclophosphamide
and
ifosfamide are alkylating agents. Cyclophosphamide is the most widely used
alkylating agent in cancer therapy and is used to treat breast cancer and
non-Hodgkin’s lymphoma. Ifosfamide has been shown to be effective in high dose
by itself, or in combination with other agents, in treating sarcoma and
lymphoma. Although ifosfamide-based treatment generally represents the standard
of care for sarcoma, it is not licensed for this indication by the US Food
and
Drug Administration (the “FDA”).
Our
preclinical studies have shown that, in animal and laboratory models, IPM
evidences activity against leukemia and solid tumors. These studies also
indicate that ZIO-201 has a better pharmacokinetic and safety profile than
ifosfamide or cyclophosphamide, offering the possibility of safer and more
efficacious therapy with ZIO-201.
Ifosfamide
is metabolized to IPM. In addition to IPM, another metabolite of ifosfamide
is
acrolein, which is toxic to the kidneys and bladder. The presence of acrolein
mandates the administration of a protective agent called mesna, which is
inconvenient and expensive. Chloroacetaldehyde is another metabolite of
ifosfamide and is toxic to the central nervous system, causing “fuzzy brain”
syndrome for which there is currently no protective measure. Similar toxicity
concerns pertain to high-dose cyclophosphamide, which is widely used in bone
marrow and blood cell transplantation. Because ZIO-201 is independently
active—without acrolein or chloroacetaldehyde metabolites—the Company believes
that the administration of ZIO-201 (without the administration of mesna) may
avoid many of the toxicities of ifosfamide without compromising
efficacy.
In
addition to anticipated lower toxicity, ZIO-201 may have other advantages over
ifosfamide and cyclophosphamide. ZIO-201 likely cross-links DNA differently
than
ifosfamide or cyclophosphamide metabolites, resulting in a different activity
profile. Moreover, in some instances in preclinical studies, ZIO-201 appears
to
show activity in ifosfamide- and/or cyclophosphamide-resistant cancer
cells.
Potential
Lead Indications for ZIO-201: Sarcomas.
Sarcomas are cancers of the bone, cartilage, fat, muscle, blood vessels, or
other connective or supportive tissue. Soft tissue sarcomas, the expected lead
indication for ZIO-201, are relatively rare; there are 8,000 to 10,000 new
cases
each year in adults in the United States. However, in children, soft tissue
sarcomas account for approximately 10% of all childhood cancers. There are
more
than 50 histological or tissue types of soft tissue sarcomas. The prognosis
for
patients with adult soft tissue sarcomas depends on several factors, including
the patient’s age, size of the primary tumor, histological grade, and stage of
the tumor. Factors associated with a poorer prognosis include age greater than
60 years, tumors larger than five centimeters, and high-grade histology. While
small, low-grade tumors are usually curable by surgery alone; higher-grade
or
larger sarcomas are associated with higher local treatment failure rates and
increased metastatic potential. Ifosfamide-based chemotherapy is a frequent
standard of care for the treatment of metastatic tumors. It may also used in
the
adjuvant setting for high-risk primary tumors.
ZIO-201
may be a useful agent that, either alone or in combination with other agents,
can deliver therapeutic activity with fewer side effects of the type that have
been associated with ifosfamide. In the United States, ifosfamide is regularly
included in combination regimens for the treatment of sarcomas, testicular
cancers, head and neck cancer and some types of non-Hodgkin’s lymphomas. The
Company believes that ZIO-201 may be able to replace ifosfamide in any or all
of
these combination protocols.
Clinical
Development Plan for ZIO-201.
A phase
I clinical trial is being conducted at two centers with the objective of
establishing maximum tolerated dose. The current dose level in this phase I
trial is believed to be comparable to a relatively high dose of ifosfamide.
The
drug is being administered without mesna. Furthermore, one patient has evidence
of stable disease. The Company initiated a phase I/II trial in advanced sarcoma
in February 2006; additional phase II studies are in the planning stages. These
trials would support the design and implementation of a registration study
in
2007.
Competition
The
development and commercialization for new products to treat cancer is highly
competitive, and there will be considerable competition from major
pharmaceutical, biotechnology, and specialty cancer companies. Many of our
competitors have substantially more resources than the Company, including both
financial and technical. In addition, many of these companies have more
experience than the Company in preclinical and clinical development,
manufacturing, regulatory, and global commercialization. The Company is also
competing with academic institutions, governmental agencies and private
organizations that are conducting research in the field of cancer. Competition
for highly qualified employees is intense.
There
are
a number of companies developing chemotherapies for cancer and in particular
for
multiple myeloma and sarcoma. Millennium Pharmaceuticals, Inc. and Celgene
Corporation have marketed products to treat multiple myeloma, and many other
product candidates are in clinical trials and preclinical research. There are
a
more limited number of competitors developing new approaches to treat sarcoma,
Ariad Pharmaceuticals principal among them.
In
addition to competitive companies, treatments for cancer that compete with
our
product candidates are summarized under the caption “Cancer
Treatments.”
License
Agreements and Intellectual Property
Our
goal
is to obtain, maintain and enforce patent protection for our products,
formulations, processes, methods and other proprietary technologies, to preserve
our trade secrets, and to operate without infringing the proprietary rights
of
other parties, both in the United States and in other countries. Our policy
is
to actively seek the broadest possible intellectual property protection for
our
product candidates through a combination of contractual arrangements and
patents, both in the United States and abroad.
Patent
and Technology License Agreement — University of Texas M. D. Anderson Cancer
Center and the Texas A&M University System.
On
August 24, 2004, the Company entered into a Patent and Technology License
Agreement with The Board of Regents of the University of Texas System, acting
on
behalf of The University of Texas M. D. Anderson Cancer Center and the Texas
A&M University System (collectively, the “Licensors”). Under this agreement,
the Company was granted an exclusive, worldwide license to rights (including
rights to U.S. and foreign patent and patent applications and related
improvements and know-how) for the manufacture and commercialization of two
classes of organic arsenicals (water- and lipid-based) for human and animal
use.
The class of water-based organic arsenicals includes ZIO-101.
In
October 2004, we received a notice of allowance for U.S. Patent Application
No.
10/337969, entitled “S-dimethylarsino-thiosuccinic acid
S-dimethylarsino-2-thiobenzoic acid S-(simethylarsino) glutathione as treatments
for cancer.” The patent was granted on June 28, 2005. The patent application
claims both therapeutic uses and pharmaceutical compositions containing a novel
class of organic arsenicals, including ZIO-101, for the treatment of cancer.
In
February 2006, we announced that a second organic arsenic case has been issued
under U.S. Patent No. 6995188. This patent provides further coverage of cancer
treatment using organic arsenic, including ZIO-101, in combination with other
agents or therapies.
As
partial consideration for the license rights obtained by us, we paid the
Licensors an upfront,nonrefundable $125,000 fee and issued 250,487 shares of
our
common stock to The University of Texas M. D. Anderson Cancer Center and granted
it an option to purchase an additional 50,222 shares of our common stock for
approximately $0.002 per share (such share amounts and option exercise price
have been adjusted to reflect to the Merger). The option vested and became
exercisable with respect to 25% of its shares upon the Company’s filing of an
Investigational New Drug (“IND”) in the fiscal year ended December 31, 2005. The
option will vest and become exercisable with respect to another 50% of its
shares upon completion of the dosing of the last patient for both the blood
and
solid tumor phase I trials for ZIO-101 and will vest and become exercisable
with
respect to 25% of the shares upon enrollment of the first patient in a
multi-center pivotal clinical trial (i.e., a human clinical trial intended
to
provide the substantial evidence of efficacy necessary to support the filing
of
an approvable New Drug Application (“NDA”) for ZIO-101. As additional
consideration for the license, the Licensors are entitled to receive up to
an
aggregate of $4.85 million in cash payments, payable in varying amounts, upon
the achievement of certain milestones, including $100,000 that we paid upon
the
commencement of the phase I clinical trial for ZIO-101 in May 2005. The
Licensors are entitled to receive royalty payments from sales of a licensed
product (should such a product be approved for commercial sale), as well and
a
portion of any fees that we may receive from a sublicensee. Finally, the license
agreement provides that we will enter into two separate sponsored research
agreements with the Licensors, each of which will require that we make annual
payments of $100,000 for no less than two years. We will have the exclusive
right to all intellectual property rights resulting from such research pursuant
to the terms of the agreements.
The
agreement also contains other provisions customary and common in similar
agreements within the industry, such as our right to sublicense our rights
under
the agreement. Nevertheless, if we sublicense our rights prior to the
commencement of a pivotal clinical trial (i.e., a human clinical trial intended
to provide the substantial evidence of efficacy necessary to support the
filing
of an approvable NDA), the Licensors will generally be entitled to receive
a
share of the payments we receive in exchange for the sublicense (subject
to
certain exceptions).
License
Agreement with DEKK-Tec, Inc.
On
October 15, 2004, we entered into a license agreement with DEKK-Tec, Inc.,
pursuant to which we were granted an exclusive, worldwide license to the
second
of our lead product candidates, ZIO-201.
As
partial consideration for the license rights obtained by us, we paid DEKK-Tec
an
upfront, non-refundable $50,000 fee. In addition, DEKK-Tec is entitled to
receive cash payments in the aggregate amount of up to $3.9 million, which
are
payable in varying amounts upon the occurrence of certain milestone events.
The
majority of these milestone payments will be creditable against future royalty
payments, as referenced below. We also issued DEKK-Tec an option to purchase
up
to 27,616 shares of our common stock for approximately $0.02 per share (such
share amount and option exercise price have been adjusted to reflect to the
Merger), which option vested with respect to 6,904 post-Merger shares upon
the
execution of the license agreement. DEKK-Tec has since exercised the vested
portion of the option in its entirety. The option will vest with respect to
the
remaining shares upon certain milestone events culminating with final FDA
approval of the first NDA submitted by us (or by our sublicensee) for ZIO-201.
Finally, DEKK-Tec also is entitled to receive royalty payments on the sales
of
ZIO-201 should it be approved for commercial sale. The license agreement also
contains other provisions customary and common in similar agreements within
the
industry.
Option
and Research Agreements with Southern Research Institute
(“SRI”).
On
December 22, 2004, we entered into an Option Agreement with SRI, pursuant to
which we were granted an exclusive option to obtain an exclusive license to
SRI’s interest in certain intellectual property, including exclusive rights
related to certain isophosphoramide mustard analogs. Also on December 22, 2004,
we entered into a Research Agreement with SRI pursuant to which we agreed to
spend a sum not to exceed $200,000 between the execution of the agreement and
December 21, 2006, including a $25,000 payment that we made simultaneously
with
the execution of the agreement, to fund research and development work by SRI
in
the field of isophosphoramide mustard analogs. Under the terms of the option
agreement, our exclusive right to exercise the option will expire 60 days after
the termination or expiration of the SRI’s research and development work in the
field of isophosphoramide mustard analogs, and the delivery of the certain
required reports.
Other
Intellectual Property Rights and Protection.
We
depend upon the skills, knowledge and experience of our scientific and technical
personnel, as well as those of our advisors, consultants and other contractors,
none of which is patentable. To help protect proprietary know-how, which is
not
patentable, and for inventions for which patents may be difficult to enforce,
we
currently rely, and in the future will continue to rely, on trade secret
protection and confidentiality agreements to protect our interests. To this
end,
we generally require employees, consultants, advisors and other contractors
to
enter into confidentiality agreements that prohibit the disclosure of
confidential information and, where applicable, require disclosure and
assignment to us of the ideas, developments, discoveries and inventions
important to our business.
Governmental
Regulation
The
research, development, testing, manufacture, labeling, promotion, advertising,
distribution, and marketing, among other things, of our products are extensively
regulated by governmental authorities in the United States and other countries.
In the United States, the FDA regulates drugs under the Federal Food, Drug,
and
Cosmetic Act, or the “FDCA,” and its implementing regulations. Failure to comply
with the applicable U.S. requirements may subject us to administrative or
judicial sanctions, such as FDA refusal to approve pending New Drug Applications
(NDAs), warning letters, product recalls, product seizures, total or partial
suspension of production or distribution, injunctions, and/or criminal
prosecution.
Drug
Approval Process.
None of
our drugs may be marketed in the U.S. until the drug has received FDA approval.
The steps required before a drug may be marketed in the U.S.
include:
·
|
Preclinical
laboratory tests, animal studies, and formulation studies;
|
·
|
Submission
to the FDA of an IND for human clinical testing, which must become
effective before human clinical trials may begin;
|
·
|
Adequate
and well-controlled human clinical trials to establish the safety
and
efficacy of the drug for each indication;
|
·
|
Submission
to the FDA of an NDA;
|
·
|
Satisfactory
completion of an FDA inspection of the manufacturing facility or
facilities at which the drug is produced to assess compliance with
current
good manufacturing practices, or “cGMPs”; and
|
·
|
FDA
review and approval of the NDA.
|
Preclinical
tests include laboratory evaluation of product chemistry, toxicity, and
formulation, as well as animal studies. The conduct of the preclinical tests
and
formulation of the compounds for testing must comply with federal regulations
and requirements. The results of the preclinical tests, together with
manufacturing information and analytical data, are submitted to the FDA as
part
of an IND Application, which must become effective before human clinical trials
may begin. An IND will automatically become effective 30 days after receipt
by
the FDA, unless before that time the FDA raises concerns or questions about
issues such as the conduct of the trials as outlined in the IND. In such a
case,
the IND sponsor and the FDA must resolve any outstanding FDA concerns or
questions before clinical trials can proceed. The Company cannot be sure that
submission of an IND will result in the FDA allowing clinical trials to
begin.
Clinical
trials involve the administration of the investigational drug to human subjects
under the supervision of qualified investigators. Clinical trials are conducted
under protocols detailing the objectives of the study, the parameters to be
used
in monitoring safety, and the effectiveness criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND.
Clinical
trials typically are conducted in three sequential phases, but the phases may
overlap. The study protocol and informed consent information for study subjects
in clinical trials must also be approved by an Institutional Review Board for
each institution where the trials will be conducted. Study subjects must sign
an
informed consent form before participating in a clinical trial. Phase I usually
involves the initial introduction of the investigational drug into people to
evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics
and pharmacologic actions, and, if possible, to gain an early indication of
its
effectiveness. Phase II usually involves trials in a limited patient population
to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible
adverse effects and safety risks; and (iii) evaluate preliminarily the efficacy
of the drug for specific indications. Phase III trials usually further evaluate
clinical efficacy and test further for safety by using the drug in its final
form in an expanded patient population. There can be no assurance that phase
I,
phase II, or phase III testing will be completed successfully within any
specified period of time, if at all. Furthermore, a company or the FDA may
suspend clinical trials at any time on various grounds, including a finding
that
the subjects or patients are being exposed to an unacceptable health
risk.
The
FDCA
permits the FDA and the IND sponsor to agree in writing on the design and size
of clinical studies intended to form the primary basis of an effectiveness
claim
in an NDA application. This process is known as Special Protocol Assessment.
These agreements may not be changed after the clinical studies begin, except
in
limited circumstances.
Assuming
successful completion of the required clinical testing, the results of the
preclinical studies and of the clinical studies, together with other detailed
information, including information on the manufacture and composition of the
drug, are submitted to the FDA in the form of an NDA requesting approval to
market the product for one or more indications. The testing and approval process
requires substantial time, effort, and financial resources. The agencies review
the application and may deem it to be inadequate to support the registration,
and companies cannot be sure that any approval will be granted on a timely
basis, if at all. The FDA may also refer the application to the appropriate
advisory committee, typically a panel of clinicians, for review, evaluation
and
a recommendation as to whether the application should be approved. The FDA
is
not bound by the recommendations of the advisory committee.
The
FDA
has various programs, including phase 0, orphan drug, fast track, priority
review, and accelerated approval, that are intended to expedite or simplify
the
process for reviewing drugs, and/or provide for approval on the basis surrogate
endpoints or provide financial incentives and market exclusivity. Generally,
drugs that may be eligible for one or more of these programs are those for
serious or life-threatening conditions, those with the potential to address
unmet medical needs, and those that provide meaningful benefit over existing
treatments. A company cannot be sure that any of its drugs will qualify for
any
of these programs, or that, if a drug does qualify, that the review time will
be
reduced.
Section
505(b)(2) of the FDCA allows the FDA to approve a follow-on drug on the basis
of
data in the scientific literature or a prior FDA approval of an NDA for a
related drug. This procedure potentially makes it easier for generic drug
manufacturers to obtain rapid approval of new forms of drugs based on
proprietary data of the original drug manufacturer.
Before
approving an NDA, the FDA usually will inspect the facility or the facilities
at
which the drug is manufactured and will not approve the product unless Good
Manufacturing Practice (cGMP) compliance is satisfactory. If the FDA evaluates
the NDA and the manufacturing facilities as acceptable, the FDA may issue an
approval letter, or in many cases, an approvable letter followed by an approval
letter. Both letters usually contain a number of conditions that must be met
in
order to secure final approval of the NDA. When and if those conditions have
been met to the FDA’s satisfaction, the FDA will issue an approval letter. The
approval letter authorizes commercial marketing of the drug for specific
indications. As a condition of NDA approval, the FDA may require post-marketing
testing and surveillance to monitor the drug’s safety or efficacy, or impose
other conditions.
After
approval, certain changes to the approved product, such as adding new
indications, making certain manufacturing changes, or making certain additional
labeling claims, are subject to further FDA review and approval. Before a
company can market products for additional indications, it must obtain
additional approvals from FDA. Obtaining approval for a new indication generally
requires that additional clinical studies be conducted. A company cannot be
sure
that any additional approval for new indications for any product candidate
will
be approved on a timely basis, or at all.
Post-Approval
Requirements.
Often
times, even after a drug has been approved by the FDA for sale, the FDA may
require that certain post-approval requirements be satisfied, including the
conduct of additional clinical studies. If such post-approval conditions are
not
satisfied, the FDA may withdraw its approval of the drug. In addition, holders
of an approved NDA are required to: (i) report certain adverse reactions to
the
FDA, (ii) comply with certain requirements concerning advertising and
promotional labeling for their products, and (iii) continue to have quality
control and manufacturing procedures conform to cGMP after approval. The FDA
periodically inspects the sponsor’s records related to safety reporting and/or
manufacturing facilities; this latter effort includes assessment of compliance
with cGMP. Accordingly, manufacturers must continue to expend time, money,
and
effort in the area of production and quality control to maintain cGMP
compliance. We intend to use third party manufacturers to produce our products
in clinical and commercial quantities, and future FDA inspections may identify
compliance issues at the facilities of our contract manufacturers that may
disrupt production or distribution, or require substantial resources to correct.
In addition, discovery of problems with a product after approval may result
in
restrictions on a product, manufacturer, or holder of an approved NDA, including
withdrawal of the product from the market.
Reverse
Stock Split
On
August
24, 2005, we (EasyWeb, Inc.) effected a 1-for-40 share combination (i.e.,
reverse stock split) of our capital stock. The share combination was approved
by
our stockholders at a special stockholder meeting held on February 28, 2005.
As
a result of the share combination, we had 189,922 shares of common stock
outstanding immediately prior to the merger transaction with ZIOPHARM, Inc.,
which is discussed immediately below.
Acquisition
of ZIOPHARM, Inc.
Pursuant
to an Agreement and Plan of Merger dated August 3, 2005 (the “Merger Agreement”)
by and among us, ZIO Acquisition Corp., a Delaware corporation and our wholly
owned subsidiary, and ZIOPHARM, Inc., a Delaware corporation, ZIO Acquisition
Corp. merged with and into ZIOPHARM, Inc., with ZIOPHARM, Inc. remaining as
the
surviving corporation and our wholly-owned subsidiary. This transaction is
referred to throughout this report as the “Merger.” The Merger was effective as
of September 13, 2005, upon the filing of a certificate of merger with the
Delaware Secretary of State. In consideration for their shares of ZIOPHARM,
Inc.
capital stock and in accordance with the Merger Agreement, the stockholders
of
ZIOPHARM, Inc. received an aggregate of 6,967,941 shares or approximately 97.3%
of our common stock. In addition, all securities convertible into and
exercisable for shares of ZIOPHARM, Inc. capital stock outstanding immediately
prior to the Merger were cancelled, and the holders thereof received similar
securities convertible into an aggregate of 1,366,846 shares of our common
stock.
All
share
and per share data in this report have been adjusted to give effect to the
conversions effected as part of the Merger.
The
Merger Agreement was filed as Exhibit 10.1 to our current report on Form 8-K
filed with the Securities and Exchange Commission on August 9, 2005, and is
incorporated herein by reference. The foregoing description of the Merger
Agreement and the Merger do not purport to be complete and is qualified in
its
entirety by reference to the Merger Agreement.
On
September 13, 2005, our board of directors approved a transaction pursuant
to
which ZIOPHARM, Inc. merged with and into us, leaving us as the surviving
corporation. In connection with this parent-subsidiary merger, we relinquished
our prior corporate name, EasyWeb, Inc., and assumed in its place the name
“ZIOPHARM Oncology, Inc.” The parent-subsidiary merger and name change became
effective on September 14, 2005.
Changes
in Board of Directors
At
the
effective time of the Merger, the board of directors was reconstituted by the
appointment of Dr. Jonathan Lewis, Richard Bagley, Dr. Murray Brennan, James
Cannon, Senator Wyche Fowler, Jr., Gary S. Fragin, Timothy McInerney and Dr.
Michael Weiser as directors (all of whom were directors of ZIOPHARM, Inc.
immediately prior to the Merger), and the resignations of David C. Olson and
David Floor from their previous positions as our directors.
Employees
As
of the
date of this prospectus, the Company has 17 employees, all of which are
full-time employees. Several additional employees are expected to be hired
prior to the end of 2006.
Legal
Proceedings
We
are
not currently involved in any material legal proceedings.
MANAGEMENT
Directors
and Executive Officers
At
the
effective time of the Merger, our board of directors was reconstituted by the
appointment of Jonathan Lewis, Richard Bagley, Murray Brennan, James Cannon,
Senator Wyche Fowler, Jr., Gary S. Fragin, Timothy McInerney and Michael Weiser
as directors (all of whom were directors of ZIOPHARM immediately prior to the
Merger), and the resignations of David C. Olson and David Floor from their
roles
as our directors. Our executive management team was also reconstituted and
David
C. Olson resigned from his positions as our President, Treasurer and Secretary.
The following table sets forth the name, age and position of each of our
directors and executive officers as of the date of this prospectus.
Name
|
|
Age
|
|
Positions
|
Jonathan
Lewis, M.D., Ph.D.
|
|
47
|
|
Director
& Chief Executive Officer
|
Richard
Bagley
|
|
62
|
|
Director,
President, Chief Operating Officer & Treasurer
|
Robert
Peter Gale, M.D., Ph.D, DSc.
|
|
60
|
|
Senior
Vice President Research
|
Murray
Brennan, M.D.
|
|
66
|
|
Director
|
James
Cannon
|
|
67
|
|
Director
|
Senator
Wyche Fowler, Jr., JD
|
|
65
|
|
Director
|
Gary
S. Fragin
|
|
59
|
|
Director
|
Timothy
McInerney
|
|
45
|
|
Director
|
Michael
Weiser, M.D., Ph.D.
|
|
43
|
|
Director
|
The
biographies of the directors and executive officers listed above are set forth
below, all of whom began serving us in their respective positions at the
effective time of the Merger.
Jonathan
Lewis
has
served as Chief Executive Officer and a director since the Company’s September
2005 merger with ZIOPHARM, Inc. Prior to the merger, Dr. Lewis served as
Chief
Executive Officer of ZIOPHARM, Inc. since January 2004. From July 1994 until
June 2001, Dr. Lewis served as Professor of Surgery and Medicine at Memorial
Sloan-Kettering Cancer Center and he served as Chief Medical Officer and
Chairman of the Medical Board at Antigenics, Inc. from June 2000 until November
2003. He serves as a director on the Board of POPPA (the Police Organization
Providing Peer Assistance) of the New York Police Department (NYPD) and as
a
member of the Medical Advisory Board of the Sarcoma Foundation of
America.
Richard
E. Bagley
has
served as President, Chief Operating Officer and Treasurer and a director
since
the Company’s September 2005 merger with ZIOPHARM, Inc. Prior to the merger, Mr.
Bagley served as President and Chief Operating Officer of ZIOPHARM, Inc.
since
July 2004 and as Treasurer of ZIOPHARM, Inc. since March 2005. Mr. Bagley
served
as a consultant to ZIOPHARM, Inc. prior to joining that company while also
serving as a senior advisor to The University of Texas M.D. Anderson Cancer
Center and Spaulding & Slye Colliers International in the period from May
2003 to July 2004. Mr. Bagley initiated a career in pharmaceuticals in 1968
with
Smith Kline and French Laboratories, leaving in 1985 after serving as President
of the consumer products division. From 1985-1990, Mr. Bagley served in several
capacities at Squibb Corporation, including as President E. R. Squibb &
Sons, U.S. in 1988 and 1989. He served as Director, Chief Executive Officer
and
President of ImmuLogic Pharmaceutical Corporation from 1990 to 1994, as
Director, Chief Executive Officer and Chairman of ProScript, Inc. from 1994
to
1998, as Director, President and Chief Executive Officer of AltaRex Corp.
from
1998 to May 2003.
Robert
Peter Gale has
served as Senior Vice President Research since the Company’s September 2005
merger with ZIOPHARM, Inc. Prior to the merger, Dr. Gale served as Senior
Vice
President Research of ZIOPHARM, Inc. since January 2004. Dr. Gale is also
on the
medical staff of UCLA School of Medicine in the Department of Medicine, Division
of Hematology and Oncology and is Visiting Professor of Hematology at Imperial
College of Science, Technology and Medicine, Hammersmith Hospital, London.
Dr.
Gale served as Senior Vice President for Medical Affairs at Antigenics, Inc.
from April 2001 until May 2002 and as a consultant to that company from May
2002
through May 2004.
Murray
Brennan
has
served as a director since the Company’s September 2005 merger with ZIOPHARM,
Inc. Prior to the merger, Dr. Brennan served as a director of ZIOPHARM, Inc.
since December 2004. Dr. Brennan has been Chairman of Memorial Sloan-Kettering
Cancer Center’s Department of Surgery since 1985, and is a former Vice President
of the American College of Surgeons, a position he held from 2004 to 2005.
Dr.
Brennan is also a member of the National Academy of Sciences. He served as
director of the American Board of Surgery from 1984 to 1990, Chairman of
the
American College of Surgeons’ Commission on Cancer from 1992 to 1994, President
of the Society of Surgical Oncology from 1995 to 1996, and President of the
American Surgical Association from 2002 to 2003.
James
Cannon
has
served as a director since the Company’s September 2005 merger with ZIOPHARM,
Inc. Prior to the merger, Mr. Cannon served as a director of ZIOPHARM, Inc.
since December 2004. Mr. Cannon is Vice Chairman, Chief Financial Officer
and a
member of the board of directors of BBDO Worldwide. Mr. Cannon joined BBDO
in
1967, was appointed Chief Financial Officer of the agency in 1984, and was
elected to its board of directors in 1985. In 1986, Mr. Cannon was appointed
Comptroller and a member of the board of directors of Omnicom, a company
affiliated with BBDO Worldwide, and served in those capacities through May
2002.
In 1987, Mr. Cannon also served as Director of Financial Operations of the
Omnicom Group from 1987 to 1989, when he rejoined BBDO Worldwide as Executive
Vice President and Chief Financial Officer. Mr. Cannon was appointed Vice
Chairman of BBDO Worldwide in 1990.
Wyche
Fowler, Jr.,
has
served as a director since the Company’s September 2005 merger with ZIOPHARM,
Inc. Prior to the merger, Senator Fowler served as a director of ZIOPHARM,
Inc.
since December 2004. Senator Fowler has been engaged in an international
business and law practice since May 2001, and has served as chairman of the
board of the Middle East Institute, a non-profit foundation in Washington,
DC,
since September 2001. Senator Fowler served as U.S. Senator from Georgia
from
January 1987 to January 1993, and had previously served in the U.S. House
of
Representatives from 1977 until his senatorial election. During his time
in the
U.S. Senate, Senator Fowler served as a member of the Senate Appropriations,
Budget, Energy and Agriculture Committees. While in the U.S. House of
Representatives, he was a member of the House Ways and Means and Foreign
Affairs
Committees, as well as the Select Committee on Intelligence. President Clinton
appointed Senator Fowler as Ambassador to the Kingdom of Saudi Arabia in
1996,
where he served through 2001. Senator Fowler is a member of the board of
directors of Brandywine Realty Trust, a real estate investment trust traded
on
the New York Stock Exchange.
Gary
S. Fragin
has
served as a director since the Company’s September 2005 merger with ZIOPHARM,
Inc. Prior to the merger, Mr. Fragin served as a director of ZIOPHARM, Inc.
since December 2004. Mr. Fragin is currently managing partner of Osborn
Partners, LP and managing partner of Fragin Asset Management, LP. Mr. Fragin
was
the General Partner and Chief Administrative/Operating Officer of Steinhardt
Organization, prior to which he was a partner, Director of Trading and member
of
the Management Committee and Executive Committee at Oppenheimer and
Co.
Timothy
McInerney
has
served as a director since the Company’s September 2005 merger with ZIOPHARM,
Inc. Prior to the merger, Mr. McInerney served as a director of ZIOPHARM,
Inc.
since July 2005. Since 1992, Mr. McInerney has been a Managing Director of
Paramount BioCapital, Inc. where he oversees the overall distribution of
Paramount’s private equity product. Prior to 1992, Mr. McInerney was a research
analyst focusing on the biotechnology industry at Ladenburg, Thalman & Co.
Prior to that, Mr. McInerney held equity sales positions at Bear, Stearns
&
Co. and Shearson Lehman Brothers, Inc. Mr. McInerney also has worked in sales
and marketing for Bristol-Myers Squibb.
Michael
Weiser
has
served as a director since the Company’s September 2005 merger with ZIOPHARM,
Inc. Prior to the merger, Dr. Weiser served as a director of ZIOPHARM, Inc.
since that company’s inception in September 2003. Dr. Weiser is the Director of
Research at Paramount BioCapital, Inc. In addition to serving on the boards
of
directors of several privately-held companies, Dr. Weiser currently serves
on
the board of directors of Manhattan Pharmaceuticals, Inc., VioQuest
Pharmaceuticals, Inc., Hana BioSciences, Inc., Emisphere Technologies, Inc.,
and
Chelsea Therapeutics, Inc., all publicly-traded biotechnology
companies.
There
are
no family relationships among our executive officers or directors.
Audit
Committee
Effective
upon the Company’s September 2005 merger with ZIOPHARM, Inc., the Company formed
an audit committee of the board of directors. The current members of the audit
committee are Mr. James Cannon, who serves as the committee’s Chairman, and Mr.
Gary S. Fragin. On February 22, 2006, Mr. Bagley a former member, resigned
from
his position on the audit committee. The audit committee operates under a
written charter adopted by the Board of Directors. As set forth in the charter,
the primary responsibility of the audit committee is to oversee the Company’s
financial reporting processes and internal control system on behalf of the
Board
of Directors. In that regard, the audit committee is, among other things,
responsible for the appointment, compensation, retention and oversight of the
work performed by the registered public accounting firm employed by the Company.
Both
members of the audit committee are independent, as independence is defined
in
Section 121(A) of the AMEX listing standards and Rule 10A-3 under the Securities
Exchange Act of 1934. In addition, the Board of Directors has determined that
each of the audit committee members is able to read and understand fundamental
financial statements, and that at least one member of the audit committee,
Mr.
James Cannon, is an “audit committee financial expert” as that term is defined
in Item 401(e)(2) of Regulation S-B promulgated under the Securities and
Exchange Act of 1934. Mr. Cannon’s relevant experience includes his current
service as the Chief Financial Officer of BBDO Worldwide, a position he has
held
for the past 20 years, and his past service as director of financial operations
of the Omnicom Group.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth the cash and non-cash compensation awarded to or
earned by (i) each individual serving as the Company’s chief executive
officer during the fiscal year ended December 31, 2005; and (ii) each other
individual that served as an executive officer of the Company as of December
31,
2005 and who received in excess of $100,000 in the form of salary and bonus
during such fiscal year (collectively, the “named executives”).
|
|
|
|
|
|
|
|
|
Annual
Compensation
|
|
|
Long-Term
Compensation
Awards
|
|
Name
and Principal Position
|
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Other
Annual
Compensation
($)
|
|
|
Securities
Underlying
Options
(#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Jonathan Lewis,
|
|
|
2005
|
|
|
350,000
|
|
|
250,000
|
(2)
|
|
5,657
|
|
|
141,950
|
|
Chief
Executive Officer (1)
|
|
|
2004
|
|
|
344,167
|
|
|
500,000
|
(3)
|
|
9,099
|
|
|
268,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
E. Bagley,
|
|
|
2005
|
|
|
250,000
|
|
|
50,000
|
(5)
|
|
660
|
|
|
90,614
|
|
President,
Chief Operating
Officer
and Treasurer
(4)
|
|
|
2004
|
|
|
43,750
|
|
|
75,000
|
(6)
|
|
4,057
|
|
|
150,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Robert Peter Gale,
|
|
|
2005
|
|
|
250,000
|
|
|
150,000
|
(8)
|
|
660
|
|
|
25,048
|
|
Senior
Vice President Research (7)
|
|
|
2004
|
|
|
239,583
|
|
|
150,000
|
(9)
|
|
2,543
|
|
|
25,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
C. Olson
Former
Chief Executive
Officer
(10)
|
|
|
2005
2004
2003
|
|
|
57,500
0
0
|
|
|
—
—
—
|
|
|
—
—
—
|
|
|
—
—
—
|
|
___________
(1)
|
Dr.
Lewis became Chief Executive Officer effective upon the Company’s
September 13, 2005 merger with ZIOPHARM, Inc. Prior to the merger,
Dr.
Lewis served as Chief Executive Officer of ZIOPHARM, Inc. since January
8,
2004. All compensation reported for fiscal year 2004 represents amounts
received from ZIOPHARM, Inc. Compensation reported for fiscal year
2005
represents amounts received from ZIOPHARM, Inc. prior to the September
13,
2005 merger and amounts received from the Company from and after
the
merger.
|
(2)
|
Includes
a guaranteed bonus of $250,000 for work performed in fiscal 2005
that was
paid on January 15, 2006.
|
(3)
|
Includes
a signing bonus of $250,000 paid on February 23, 2004 and a guaranteed
bonus of $250,000 for work performed in fiscal 2004 that was paid
on April
22, 2005.
|
(4)
|
Mr.
Bagley became President, Chief Operating Officer and Treasurer effective
upon the Company’s September 13, 2005 merger with ZIOPHARM, Inc. Prior to
the merger, Mr. Bagley served President and Chief Operating Officer
of
ZIOPHARM, Inc. since July 2004 and as Treasurer of ZIOPHARM, Inc.
since
March 2005. All compensation reported for fiscal year 2004 represents
amounts received from ZIOPHARM, Inc. Compensation reported for fiscal
year
2005 represents amounts received from ZIOPHARM, Inc. prior to the
September 13, 2005 merger and amounts received from the Company from
and
after the merger.
|
(5)
|
Includes
a year-end bonus of $25,000 received by Mr. Bagley on December 30,
2005;
also includes $25,000, a portion of his 2005 guaranteed bonus, that
Mr.
Bagley was accrued as of December 31, 2005 but which is not payable
until
July 31, 2006.
|
(6)
|
Includes
a signing bonus of $50,000 received by Mr. Bagley on July 30, 2004,
and
$25,000, a portion of his 2004 guaranteed bonus, that was accrued
as of
December 31, 2004 but was paid in July 15,
2005.
|
(7)
|
Dr.
Gale became Senior Vice President Research effective upon the Company’s
September 13, 2005 merger with ZIOPHARM, Inc. Prior to the merger,
Dr.
Gale served as Sr. Vice President Research of ZIOPHARM, Inc. since
January
15, 2004. All compensation reported for fiscal year 2004 represents
amounts received from ZIOPHARM, Inc. Compensation reported for fiscal
year
2005 represents amounts received from ZIOPHARM, Inc. prior to the
September 13, 2005 merger and amounts received from the Company from
and
after the merger.
|
(8)
|
Includes
a guaranteed bonus of $150,000 for work performed in fiscal 2005
that was
paid on January 31, 2006.
|
(9)
|
Includes
a guaranteed bonus of $150,000 for work performed in fiscal 2004
that was
paid on April 16, 2005.
|
(10)
|
Mr.
Olson resigned as an executive officer effective upon the Company’s
September 13, 2005 merger with ZIOPHARM, Inc. Upon closing of the
merger,
the Company paid Mr. Olson a one-time fee of $57,500 pursuant to
his
December 9, 2004 employment agreement. Mr. Olson received no other
cash
compensation from the Company for services rendered in his capacity
as an
executive officer during fiscal years 2003, 2004 and 2005.
|
Option
Grants in Last Fiscal Year
Upon
the
closing of the September 13, 2005 with ZIOPHARM, Inc., the Company assumed
ZIOPHARM, Inc.’s 2003 Stock Option Plan as its Stock Option Plan. Prior to the
merger, the Company had its own Incentive Stock Option Plan that was terminated
effective as of the closing of the merger.
The
following table sets forth the information concerning individual grants of
stock
options made by the Company or ZIOPHARM, Inc. to the named executives during
the
fiscal year ended December 31, 2005. All share numbers and dollar amounts
relating to stock options granted by ZIOPHARM, Inc. prior to the September
13,
2005 merger with that company are set forth on post-merger basis that gives
effect to the conversion of ZIOPHARM, Inc. stock options into stock options
of
the Company.
Name
|
|
|
Number
of
Securities
Underlying
Options
Granted
(#)
|
|
|
Percent
of
Total
Options
Granted
to
Employees
In
Fiscal
Year
|
|
|
Exercise
or
Base
Price
($/share)
|
|
|
Expiration
Date(s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Jonathan Lewis (1)
|
|
|
87,789
|
|
|
19.8
|
%
|
$
|
4.31
|
|
|
6/8/15
|
Dr.
Jonathan Lewis (1)
|
|
|
54,161
|
|
|
12.2
|
%
|
$
|
4.31
|
|
|
9/13/15
|
Richard
E. Bagley (2)
|
|
|
63,197
|
|
|
14.23
|
%
|
$
|
4.31
|
|
|
6/8/15
|
Richard
E. Bagley (2)
|
|
|
27,417
|
|
|
6.17
|
%
|
$
|
4.31
|
|
|
9/13/15
|
Dr.
Robert Peter Gale
|
|
|
25,048
|
|
|
5.6
|
%
|
$
|
4.31
|
|
|
6/8/15
|
David
C. Olson
|
|
|
0
|
|
|
0
|
%
|
|
—
|
|
|
—
|
_______________
(1) |
Options
were granted pursuant to an anti-dilution provision pursuant to which
Dr.
Lewis was entitled to purchase no less than 5% of the Company’s common
stock until such time as the Company has raised $25 million in financing.
Dr.
Lewis has waived his rights to receive further option grants pursuant
to
such anti-dilution
provision.
|
(2) |
Options
were granted pursuant to an anti-dilution provision pursuant to which
Mr.
Bagley was entitled to purchase no less than 3% of the Company’s common
stock until such time as the Company has raised $25 million in financing.
Mr.
Bagley has waived his rights to receive further option grants pursuant
to
such anti-dilution
provision.
|
Aggregated
Option Exercises and Fiscal Year-End Option Values
The
following table sets forth the total amount of shares acquired by the named
executives upon exercises of stock options during fiscal year 2005, the
aggregate dollar value realized upon such exercise, the total number of
securities underlying unexercised options held at December 31, 2005 (separately
identifying then-exercisable and unexercisable options), and the aggregate
dollar value of in-the-money, unexercised options held at December 31, 2005
(separately identifying then-exercisable and unexercisable options). All share
numbers and dollar amounts relating to stock options granted by ZIOPHARM, Inc.
prior to the September 13, 2005 merger with that company are set forth on
post-merger basis that gives effect to the conversion of ZIOPHARM, Inc. stock
options into stock options of the Company.
|
|
|
|
|
|
|
|
|
Number
of Unexercised
Securities
Underlying
Options
at FY-End (#)
|
|
|
Value
of Unexercised
In-the-Money
Options at FY-End ($)(1)
|
|
Name
|
|
|
Shares
Acquired
on Exercise (#)
|
|
|
Value
Realized
($)
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Jonathan Lewis
|
|
|
0
|
|
|
0
|
|
|
136,868
|
|
|
273,735
|
|
$
|
283,892
|
|
$
|
567,783
|
|
Richard
Bagley
|
|
|
0
|
|
|
0
|
|
|
80,427
|
|
|
160,855
|
|
$
|
78,011
|
|
$
|
156,022
|
|
Dr.
Robert Peter Gale
|
|
|
0
|
|
|
0
|
|
|
8,370
|
|
|
41,879
|
|
$
|
23,528
|
|
$
|
47,056
|
|
David
C. Olson
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
—
|
|
|
—
|
|
_____________
(1) |
Based
on the difference between the option exercise price and the closing
sale
price of the Company’s common stock on December 30, 2005 (the last trading
day prior to the end of the Company’s 2005 fiscal year), which was
$3.25.
|
Employment
and Change-in-Control Agreements
Employment
Agreement with Jonathan Lewis, M.D., Ph.D.
On
January 8, 2004, ZIOPHARM, Inc. entered into a three-year employment agreement
with Dr. Jonathan Lewis, under which we succeeded to ZIOPHARM, Inc.’s rights and
obligations upon our merger with that company. Under the agreement, Dr. Lewis
receives an annual base salary of $350,000 and a guaranteed annual bonus of
$250,000. In addition, Dr. Lewis is eligible to receive an annual discretionary
bonus of up to 100% of his base salary, as determined by our board of directors.
ZIOPHARM, Inc. also paid Dr. Lewis a one-time bonus of $250,000 upon execution
of his employment agreement. Depending upon the events surrounding a possible
termination of Dr. Lewis’ employment, he may continue to receive his base salary
and, in certain circumstances, his guaranteed bonus for one year following
such
termination. In addition, the vesting of Dr. Lewis’ stock options may accelerate
in whole or in part upon such termination. Dr. Lewis has agreed not to compete
with us during the term of the employment agreement and for a one-year period
thereafter, provided that we continue to pay his base salary and guaranteed
bonus for that one-year period.
Pursuant
to the terms of his employment agreement, we have granted Dr. Lewis options
to
purchase up to 410,603 shares of common stock, of which options to purchase
268,653 shares are exercisable at $0.08 per share and options to purchase
141,950 shares are exercisable at $4.31 per share (each as adjusted to give
effect to our merger with ZIOPHARM, Inc.). The options vest in three equal
annual installments, the first of which vested on January 8, 2005, with the
remaining installments vesting on January 8, 2006 and January 8, 2007. The
options were subject to anti-dilution protection from the issuance of equity
securities in financing transactions to the extent that Dr. Lewis will maintain
potential equity ownership of at least 5% of our stock until such time as we
have received $25 million in gross proceeds from such transactions. Dr.
Lewis
has waived his rights to receive further option grants pursuant to such
anti-dilution provision.The options are governed by our 2003 Stock Option
Plan.
Employment
Agreement with Richard E. Bagley
On
July
21, 2004, ZIOPHARM, Inc. entered into a three-year employment agreement with
Mr.
Richard E. Bagley, under which we succeeded to ZIOPHARM, Inc.’s rights and
obligations upon our merger with that company. Under the agreement, Mr. Bagley
receives an annual base salary of $250,000 and a guaranteed annual bonus of
$50,000. In addition, Mr. Bagley is eligible to receive an annual discretionary
bonus, as determined by our board of directors. ZIOPHARM, Inc. also paid Mr.
Bagley a one-time bonus of $50,000 upon execution of his employment agreement.
Depending upon the events surrounding a possible termination of Mr. Bagley’s
employment, he may continue to receive his base salary and, in certain
circumstances, his guaranteed bonus for one year following such termination.
In
addition, the vesting of Mr. Bagley’s stock options may accelerate in whole or
in part upon such termination. Mr. Bagley has agreed not to compete with us
during the term of the employment agreement and for a one-year period
thereafter, provided that we continue to pay his base salary for that one-year
period.
Pursuant
to the terms of his employment agreement, we granted Mr. Bagley options to
purchase up to 241,282 shares common stock, of which options to purchase 150,668
shares are exercisable at $1.70 per share and options to purchase 90,614 shares
are exercisable at $4.31 per share (each as adjusted to give effect to our
merger with ZIOPHARM, Inc.). The options vest in three equal annual
installments, the first of which vested on July 1, 2005, with the remaining
installments vesting on July 1, 2006 and July 1, 2007. The options were
subject to certain anti-dilution protections from the issuance of equity
securities in financing transactions so that Mr. Bagley will maintain potential
equity ownership of at least 3% of our stock until such time as we have received
$25 million in gross proceeds from such transactions. Mr.
Bagley
has waived his rights to receive further option grants pursuant to such
anti-dilution provision. The
options are governed by our 2003 Stock Option Plan.
Employment
Agreement with Robert Peter Gale, M.D, Ph.D., D.Sc.
On
January 14, 2004, ZIOPHARM, Inc. entered into a three-year employment agreement
with Dr. Robert Peter Gale, under which we succeeded to ZIOPHARM’s rights and
obligations upon our merger with that company. Under the agreement, Dr. Gale
receives an annual base salary of $250,000 and a guaranteed annual bonus of
$150,000. In addition, Dr. Gale is eligible to receive an annual discretionary
bonus, as determined by our board of directors. Depending upon the events
surrounding a termination of Dr. Gale’s employment, he may continue to receive
his base salary and, in certain circumstances, his guaranteed bonus for one
year
following such termination. In addition, the vesting of Dr. Gale’s stock options
may accelerate in whole or in part upon such termination. Dr. Gale has agreed
not to compete with us during the term of the employment agreement and for
one-year following the expiration of his employment agreement.
Pursuant
to the terms of his employment agreement, we granted Dr. Gale options to
purchase up to 25,110 shares of common stock at $0.44 per share (adjusted to
give effect to our merger with ZIOPHARM, Inc.). The options vest in three equal
annual installments, the first of which vested on January 15, 2005, with the
remaining installments vesting on January 15, 2006 and January 15, 2007. The
options are governed by our 2003 Stock Option Plan.
Employment
Agreement with David C. Olson
On
December 9, 2004, we entered into an employment agreement with David C. Olson.
Under the terms of the agreement, we agreed to pay Mr. Olson a one-time fee
of
$100,000 if and when we completed a merger, acquisition, or related transaction.
In connection with the September 13, 2005 merger with ZIOPHARM, Inc., Mr. Olson
agreed to reduce this amount to the extent that our unconsolidated liabilities
immediately following the merger exceeded $425,000. In connection with the
merger, we paid Mr. Olson $57,500 and his employment agreement was terminated
in
its entirety.
Compensation
of Directors
From
our
September 2005 merger with ZIOPHARM, Inc. through the end of fiscal year 2005,
as compensation for service as a member of the Board of Directors, each
non-employee director of the Company received a $3,000 quarterly cash retainer
paid in arrears. For the fiscal year ended 2006, as compensation for service
as
a member of the Board of Directors, each non-employee director of the Company
receives a $5,000 quarterly cash retainer paid in arrears and in addition,
each
non-employee director serving on the Company’s audit committee, compensation
committee and nominating committee receives a $1,000 cash payment for each
committee meeting attended by such director. Non-employee directors also receive
stock options as granted from time to time and as recommended by the
compensation committee.
CHANGES
IN OUR CERTIFYING ACCOUNTANT
On
November 9, 2005, the Company, upon the recommendation and approval of its
audit
committee, dismissed Cordovano and Honeck, P.C., independent registered public
accounting firm, as its principal independent accountant. On the same date,
the
Company engaged Vitale, Caturano & Company, Ltd., independent registered
public accounting firm, to serve as the Company’s principal independent
accountant.
Cordovano
and Honeck’s reports on the Company’s financial statements for the past two
years did not contain an adverse opinion or disclaimer of opinion, nor were
they
qualified or modified as to uncertainty, audit scope or accounting principles.
During
the years ended December 31, 2004 and 2003, and subsequently through the
date of
Cordovano and Honeck’s dismissal, there were no disagreements with Cordovano and
Honeck on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to Cordovano
and Honeck’s satisfaction, would have caused it to make reference to the subject
matter in connection with its report on the Company’s financial statements for
such fiscal years.
The
Company provided Cordovano and Honeck with a copy of the foregoing disclosures
and requested that Cordovano and Honeck furnish it with a letter addressed
to
the Securities and Exchange Commission stating whether it agrees with the
above
statements and, if not, stating the respects in which it does not agree.
A copy
of such letter was filed on November 11, 2005 as Exhibit 16.1 to the Form
10-QSB
for the quarter ended September 30, 2005.
Vitale,
Caturano & Company, Ltd. has served as the accountant for ZIOPHARM, Inc., a
Delaware corporation that became the Company’s wholly-owned subsidiary on
September 13, 2005 and merged with and into the Company on September 14,
2005,
since the date of ZIOPHARM, Inc.’s inception in September 2003. During the years
ended December 31, 2004 and 2003, and subsequently through November 9, 2005,
neither the Company nor anyone acting on its behalf consulted with Vitale,
Caturano & Company, Ltd. regarding any of the matters or events set forth in
Items 304(a)(2)(i) and (ii) of Regulation S-B.
The
Company provided Vitale, Caturano & Company, Ltd. with a copy of the
foregoing disclosures and provided Vitale, Caturano & Company, Ltd. the
opportunity to furnish a letter containing any new information, clarification
of
the above disclosures, or disagreements with the statements made
herein.
SECURITY
OWNERSHIP OF
CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table summarizes certain information regarding the beneficial
ownership (as such term is defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of our outstanding common stock as of March 31, 2006 by (i) each
person known by us to be the beneficial owner of more than 5% of our outstanding
common stock, (ii) each of our directors, (iii) each of the named executives,
and (iv) all current executive officers and directors as a group. Except as
indicated in the footnotes below, the persons listed below possess sole voting
and investment power with respect to their shares. Except as otherwise
indicated, the address of the persons listed below is 1180 Avenue of the
Americas, 19th
Floor,
New York, NY 10036.
Name
and Address of Beneficial Owner
|
|
Shares
of
Common
Stock
Beneficially
Owned
(#)(1)
|
|
Percentage
of
Common
Stock
Beneficially
Owned
(%)
|
|
|
|
|
|
|
|
|
|
Dr.
Jonathan Lewis
|
|
|
273,736
|
(2)
|
|
3.63
|
%
|
Richard
E. Bagley
|
|
|
80,428
|
(3)
|
|
1.09
|
%
|
Robert
Peter Gale
|
|
|
16,741
|
(4)
|
|
*
|
|
Murray
Brennan
|
|
|
7,515
|
(5)
|
|
*
|
|
James
Cannon
|
|
|
7,515
|
(5)
|
|
*
|
|
Hon.
Wyche Fowler
|
|
|
7,515
|
(5)
|
|
*
|
|
Gary
S. Fragin
|
|
|
7,515
|
(5)
|
|
*
|
|
Timothy
McInerney
|
|
|
79,972
|
(6)
|
|
1.10
|
%
|
Michael
Weiser
|
|
|
126,526
|
(7)
|
|
1.73
|
%
|
All
current executive officers and directors
|
|
|
607,463
|
(8)
|
|
7.85
|
%
|
as
a group
|
|
|
|
|
|
|
|
Mibars,
LLC (9)
365
West End Avenue
New
York, NY 10024
|
|
|
1,214,456
|
|
|
16.70
|
%
|
Lindsay
A. Rosenwald
|
|
|
|
|
|
|
|
787
Seventh Avenue, 48th Floor
|
|
|
|
|
|
|
|
New
York, NY 10019
|
|
|
1,323,606
|
(10)
|
|
17.52
|
%
|
Atlas
Equity I, Ltd.
181
W. Madison, Suite 3600
Chicago,
IL 60602
|
|
|
695,797
|
|
|
9.57
|
%
|
Lester
E. Lipschutz
|
|
|
|
|
|
|
|
1650
Arch Street, 22nd Floor
|
|
|
|
|
|
|
|
Philadelphia,
PA 19103
|
|
|
463,864
|
(11)
|
|
6.38
|
%
|
David
C. Olson (10)
|
|
|
|
|
|
|
|
6025
South Quebec Street, Suite 135
|
|
|
|
|
|
|
|
Englewood,
CO 80111
|
|
|
26,480
|
(12)
|
|
*
|
|
_______________
*
Less
than 1%
(1) |
Beneficial
ownership is determined in accordance with SEC rules, beneficial
ownership
includes any shares as to which the security or stockholder has sole
or
shared voting power or investment power, and also any shares which
the
security or stockholder has the right to acquire within 60 days of
the
date hereof, whether through the exercise or conversion of any stock
option, convertible security, warrant or other right. The indication
herein that shares are beneficially owned is not an admission on
the part
of the security or stockholder that he, she or it is a direct or
indirect
beneficial owner of those shares.
|
(2) |
Includes
273,736 shares issuable upon the exercise of stock options that are
currently exercisable or will become exercisable within the next
60
days.
|
(3) |
Includes
80,428 shares issuable upon the exercise of stock options that are
currently exercisable or will become exercisable within the next
60
days.
|
(4) |
Includes
16,741 shares issuable upon the exercise of stock options that are
currently exercisable or will become exercisable within the next
60
days.
|
(5) |
Includes
7,515 shares issuable upon the exercise of stock options that are
currently exercisable or will become exercisable within the next
60
days.
|
(6) |
Includes
20,767 shares issuable upon the exercise of warrants that are currently
exercisable or will become exercisable within the next 60
days.
|
(7) |
Includes
35,566 shares issuable upon the exercise of warrants and 7,515
shares
issuable upon the exercise of stock options that are currently
exercisable
or will become exercisable within the next 60
days.
|
(8) |
Includes
464,813 shares issuable upon the exercise of convertible securities
that
are currently exercisable or will become exercisable within the next
60
days.
|
(9) |
Based
on the most recent Form 3 filed with the Securities and Exchange
Commission on September 23, 2005. Mibars, Inc. is a wholly-owned
subsidiary of Paloma International L.P.; S. Donald Sussman, the
controlling person of Paloma International L.P., may be deemed
to
beneficially own the shares of common stock beneficially owned
by Paloma
International L.P.
|
(10) |
Excludes
463,864 shares held by certain trusts for the benefit of Dr. Rosenwald
and
his family for which Dr. Rosenwald disclaims beneficial ownership.
Includes 221,011 shares issuable upon the exercise of warrants granted
to
Dr. Rosenwald and 62,621 shares issuable upon the exercise of warrants
granted to Paramount BioCapital Investments, LLC, of which Dr. Rosenwald
is the managing member, both such warrants are currently exercisable
or
will become exercisable within the next 60 days. Also includes 563,296
shares that Dr. Rosenwald has the right to acquire from existing
stockholders under certain circumstances pursuant to the terms of
pledge
agreements between Dr. Rosenwald and such
stockholders.
|
(11) |
Includes
463,864 shares held by separate trusts for the benefit of Dr. Rosenwald
or
his family with respect to which Mr. Lipschutz is either trustee
or
investment manager and has investment and voting power. Dr. Rosenwald
disclaims beneficial ownership of these
shares.
|
(12) |
Mr.
Olson served as the Company’s Chief Executive Officer for the full fiscal
years indicated until the consummation of the Merger. Share amounts
include 50 shares held by Associate Capital Consulting, Inc. and
17,314
shares held by Summit Financial Relations, Inc., each of which is
wholly-owned by Mr. Olson.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Pre-Merger
Company Transactions and Relationships
In
August
and December 2004, the Company’s former Chief Executive Officer, David C. Olson,
loaned the Company a total of $1,300 for working capital. During May 2005,
Mr.
Olson advanced the Company an additional $788. The loans carried no interest
rate and were due on demand. On June 28, 2005, we issued Mr. Olson 69,600
shares
of common stock as full repayment of the amounts stated above. The shares
were
valued at $.03 per share, or $2,088, based on contemporaneous common stock
sales
to unrelated third parties.
At
December 31, 2003, the Company owed Summit Financial Relations, Inc. (“Summit”)
$18,111 for professional fees and other administrative expenses it paid on
our
behalf. During the year ended December 31, 2004, Summit paid expenses totaling
$4,187 on the Company’s behalf. On May 13, 2004, the Company issued 400,000
shares of common stock to Summit Financial Relations, Inc. (“Summit”), valued at
$10,000 ($.025 per share), as repayment for expenses paid by Summit on behalf
of
the Company. David Olson, who was then our President, Treasurer and one of
our
directors, is also Summit’s President, director and sole stockholder. As of
December 31, 2004, we owed Summit $12,298. During the six months ended June
30,
2005, Summit paid an additional $1,007 in expenses on our behalf. On February
4,
2005, the Company repaid Summit $7,000 and on June 28, 2005 the Company issued
Summit 209,180 shares of common stock as full repayment of all amounts stated
above. The shares issued to Summit were valued at $.03 per share, or $6,275,
based on contemporaneous common stock sales to unrelated third parties. Summit
has contributed the use of office space and administrative support (including
reception, secretarial and bookkeeping services) to us for the fiscal year
2004
and the potion of fiscal year 2005 preceding the merger with ZIOPHARM, Inc.
The
office space and administrative support contributed by Summit has a fair
market
value of approximately $500 and $1,000 per month, respectively. The Company
recognized expenses for rent and administrative support based on fair market
value. Any period in which the amount paid to Summit for office space and
administrative support was below the fair market value, the remaining balance
was considered contributed by Summit and recorded as a credit to additional
paid-in capital in our financial statements. On December 10, 2004, we entered
into a consulting services fee agreement under which Summit provided certain
services to us including, but not limited to, consultation related to mergers
and acquisitions, reorganizations and divestitures. Pursuant to the agreement,
Summit lent us funds and helped us raise funds at no extra cost. Under the
terms
of the agreement, we paid Summit a one-time fee of $106,697.90 in connection
with the closing of the Merger.
ZIOPHARM,
Inc. Transactions and Relationships
In
connection with a private placement of its Series A Convertible Preferred
Stock
that terminated in May 2005, ZIOPHARM, Inc. and Paramount BioCapital, Inc.
entered into an introduction agreement in January 2005. Upon the Company’s
September 2005 merger with ZIOPHARM, Inc., the Company succeeded to ZIOPHARM,
Inc.’s rights and obligations under such agreement. Pursuant to the introduction
agreement, ZIOPHARM, Inc. agreed to compensate Paramount BioCapital or its
designees for their services through the payment of (a) cash commissions
equal
to 7% of the gross proceeds from the offering, and (b) warrants to acquire
an
aggregate of 837,956 share of ZIOPHARM, Inc.’s Series A Convertible Preferred
Stock at a per share exercise price of $2.38. Upon the merger, this warrant
was
exchanged for a warrant to purchase an aggregate of 419,772 shares of the
Company’s common stock at a per share exercise price of $4.75. Cash commissions
will also be payable by the Company if it sells additional securities, prior
to
May 31, 2006, to investors introduced to ZIOPHARM, Inc. by Paramount BioCapital.
Pursuant to the introduction agreement, Paramount BioCapital has a right
of
first refusal to act as the placement agent for the private sale of the
Company’s securities until May 31, 2008.
In
connection with an option agreement dated December 22, 2004 between ZIOPHARM,
Inc. and Southern Research Institute, ZIOPHARM, Inc. entered into an Finders
Agreement dated December 23, 2004 with Paramount BioCapital, pursuant to
which
ZIOPHARM, Inc. agreed to compensate Paramount BioCapital for services in
connection with the ZIOPHARM, Inc.’s introduction to Southern Research Institute
by paying a $60,000 cash fee and issuing a warrant to purchase 125,000 shares
of
ZIOPHARM, Inc.’s common stock at a price of $2.38 per share. Upon the Company’s
September 2005 merger with ZIOPHARM, Inc., this warrant was exchanged for
a
warrant to purchase an aggregate of 62,619 shares of the Company’s common stock
at a per share exercise price of $4.75.
Lindsay
A. Rosenwald, M.D., who may beneficially own approximately 17.52% of our
common
stock, is Chairman and Chief Executive Officer of Paramount BioCapital and
its
affiliates. Dr. Michael Weiser and Timothy McInerney, each of whom is a director
of the Company (and served as a director of ZIOPHARM, Inc. prior to The
Company’s September 2005 merger), are also full-time employees of Paramount
BioCapital.
In
the
opinion of the Company’s Board of Directors, the Company’s relationships and
arrangements with Paramount BioCapital do not interfere with the exercise
of the
independent judgment of Dr. Weiser and Mr. McInerney in carrying out their
respective responsibilities as a director.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior
to
the consummation of the Merger, our common stock traded on the OTCBB under
the
symbol “ESWB.” As a result of the Company’s name change to ZIOPHARM Oncology,
Inc., our common stock now trades under the symbol “ZIOP.” The following table
sets forth the high and low bid prices for our common stock as reported by
the
OTCBB since our common stock began trading over the counter in 2004. These
quotations reflect inter-dealer prices, without retail markup, markdown or
commission, and may not represent actual transactions. Prices set forth below
for periods prior to August 24, 2005 do not reflect the 1-for-40 share
combination effected on that date.
|
|
Price
Range
|
|
Fiscal
Year 2005 (Quarter Ended)
|
|
High
|
|
Low
|
|
December
31, 2005
|
|
$
|
6.00
|
|
$
|
3.25
|
|
September
30, 2005
|
|
$
|
0.40
|
|
$
|
0.00
|
|
June
30, 2005
|
|
$
|
0.05
|
|
$
|
0.00
|
|
March
31, 2005
|
|
$
|
0.05
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2004 (Quarter Ended)
|
|
High
|
|
Low
|
|
December
31, 2004
|
|
$
|
0.00
|
|
$
|
0.00
|
|
September
30, 2004
|
|
$
|
0.00
|
|
$
|
0.00
|
|
June
30, 2004
|
|
$
|
0.00
|
|
$
|
0.00
|
|
March
31, 2004
|
|
$
|
0.00
|
|
$
|
0.00
|
|
The
approximate number of stockholders of record of our common stock as December
31,
2005 was 314. We have never declared or paid a cash dividend on our common
stock
and do not anticipate paying any cash dividends in the foreseeable
future.
Securities
Authorized for Issuance under Equity Compensation Plans
The
2003
Plan, which is currently the Company’s only equity compensation plan, was
approved by the ZIOPHARM, Inc. stockholders. The following table sets forth
certain information as of December 31, 2005 with respect to the 2003
Plan:
Plan
category
|
|
Number
of Securities
to
be Issued
Upon
Exercise of
Outstanding
Options
(A)
|
|
Weighted-
Average
Exercise
Price of
Outstanding
Options
(B)
|
|
Number
of
Securities
Remaining
Available
for
Future
Issuance
Under
Equity
Compensation
Plans
(Excluding
Securities
Reflected
in Column (A)
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders:
|
|
|
|
|
|
|
|
2003
Stock Option Plan
|
|
|
973,639
|
|
$
|
2.56
|
|
|
278,796
|
|
Total:
|
|
|
973,639
|
|
$
|
2.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by stockholders:
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
—
|
|
|
—
|
|
|
—
|
|
USE
OF PROCEEDS
We
will
not receive any proceeds from the resale of any of the shares offered by this
prospectus by the selling stockholders.
SELLING
STOCKHOLDERS
The
following table sets forth the number of shares of the common stock owned by
the
selling stockholders as of March 27, 2006, and after giving effect to this
offering. This amendments covers the resale by the selling stockholders
identified below of 7,462,057 shares of our common stock, including 6,778,670
shares of our common stock issued to the former stockholders of ZIOPHARM, Inc.
in connection with our September 2005 merger with that company,
482,407 shares issuable upon the exercise of warrants held by such former
ZIOPHARM, Inc. stockholders, 83,348 shares of our common stock issued to a
previous EasyWeb Inc. stockholder upon the exercise of a stock option and
117,670 shares of which were outstanding prior to the member.
Selling
Stockholder
|
Shares
Beneficially
Owned
Before
Offering
(1)
|
Number
of
Outstanding
Shares
Offered
by Selling
Stockholder
|
Number
of Shares
Offered
by Selling
Stockholder
upon
Exercise
of
Certain
Warrants
|
Percentage
Beneficial
Ownership
After
Offering
(2)
|
|
|
|
|
|
Robert
Guercio
|
7,515
|
7,515
|
0
|
—
|
Ennio
DePianto
|
6,012
|
6,012
|
0
|
—
|
Millennium
Partners, L.P.
|
231,932
|
231,932
|
0
|
—
|
Michael
A. Mullen
|
5,010
|
5,010
|
0
|
—
|
Philip
J. Abdalla and Joyce V. Abdalla JTWROS
|
6,012
|
6,012
|
0
|
—
|
Frank
Calcutta
|
12,524
|
12,524
|
0
|
—
|
The
Henry H. Bahr QTIP Trust Dated 2/22/88
|
11,597
|
11,597
|
0
|
—
|
The
Bahr Family Limited Partnership
|
11,597
|
11,597
|
0
|
—
|
Robert
L. Bahr Revocable Trust 1985 U/A dated 3-14-85
|
3,826
|
3,826
|
0
|
—
|
Stephen
C. Rabbitt
|
10,019
|
10,019
|
0
|
—
|
Delaware
Charter Guarantee Trust FBO
Richard
S. Simms II Keogh Plan
|
3,479
|
3,479
|
0
|
—
|
Lind
Family Investments LP
|
8,117
|
8,117
|
0
|
—
|
John
and Debbra Landsberger Family Trust
|
12,524
|
12,524
|
0
|
—
|
Balanced
Investment, LLC
|
46,386
|
46,386
|
0
|
—
|
Riverside
Contracting LLC
|
12,524
|
12,524
|
0
|
—
|
Walter
B. Martin and Paloma Munoz JTWROS
|
5,798
|
5,798
|
0
|
—
|
MSB
Family Trust DTD 6/25/93
Michael
Blechman, TTEE
|
23,194
|
23,194
|
0
|
—
|
Richard
S. Simms II and Cynthia Simms JTWROS
|
3,479
|
3,479
|
0
|
—
|
Selling
Stockholder
|
Shares
Beneficially
Owned
Before
Offering
(1)
|
Number
of
Outstanding
Shares
Offered
by Selling
Stockholder
|
Number
of Shares
Offered
by Selling
Stockholder
upon
Exercise
of
Certain
Warrants
|
Percentage
Beneficial
Ownership
After
Offering
(2)
|
|
|
|
|
|
Lawrence
M. Silver
|
17,000
|
17,000
|
0
|
—
|
Rick
J. Goad
|
10,019
|
10,019
|
0
|
—
|
Barry
Lind Revocable Trust
|
46,386
|
46,386
|
0
|
—
|
Stephen
N. Kitchens and Martha M. Kitchens JTWROS
|
23,194
|
23,194
|
0
|
—
|
Wayne
K. Adams
|
8,000
|
8,000
|
0
|
—
|
Jerrold
Abrahams
|
6,958
|
6,958
|
0
|
—
|
Shoup
Revocable Trust DTD April 29, 2003
|
11,598
|
11,598
|
0
|
—
|
Shea
Ventures, LLC
|
23,193
|
23,193
|
0
|
—
|
National
Investors Services Corp.
FBO
Stephen J. Nelson
|
23,194
|
23,194
|
0
|
—
|
James
C. Shepler and Diana B. Shepler JTWROS
|
6,958
|
6,958
|
0
|
—
|
Steven
Lisi
|
14,027
|
14,027
|
0
|
—
|
Phil
Lifshitz
|
23,195
|
23,195
|
0
|
—
|
Louis
Sanzo, Jr.
|
5,010
|
5,010
|
0
|
—
|
Barry
P. McIntosh
|
5,798
|
5,798
|
0
|
—
|
Hill
Blalock, Jr.
|
23,195
|
23,195
|
0
|
—
|
Joel
Braun
|
5,798
|
5,798
|
0
|
—
|
Far
Ventures
|
10,019
|
10,019
|
0
|
—
|
Brino
Investment Ltd.
|
5,798
|
5,798
|
0
|
—
|
OZF
Investments LLC
|
115,966
|
115,966
|
0
|
—
|
Tisu
Investment Ltd.
|
17,395
|
17,395
|
0
|
—
|
Edmund
A. Debler
|
17,033
|
17,033
|
0
|
—
|
Daniel
Krieger
|
|
5,798
|
0
|
—
|
Andrew
W. Albstein and Carolyn Albstein JTWROS
|
23,194
|
23,194
|
0
|
—
|
Elizabeth
R. Moore
|
5,798
|
5,798
|
0
|
—
|
Ursuline
Co.
|
12,524
|
12,524
|
0
|
—
|
Carl
S. Sorenson
|
11,597
|
11,597
|
0
|
—
|
Carucci
Family Partners
|
34,790
|
34,790
|
0
|
—
|
Anthony
J. Ottavio
|
12,524
|
12,524
|
0
|
—
|
Daniel
J. Kevles and Betty Ann Kevles JTWROS
|
8,117
|
8,117
|
0
|
—
|
Gavin
Kent
|
5,798
|
5,798
|
0
|
—
|
Selling
Stockholder
|
Shares
Beneficially
Owned
Before
Offering
(1)
|
Number
of
Outstanding
Shares
Offered
by Selling
Stockholder
|
Number
of Shares
Offered
by Selling
Stockholder
upon
Exercise
of
Certain
Warrants
|
Percentage
Beneficial
Ownership
After
Offering
(2)
|
Michael
Luftman
|
5,798
|
5,798
|
0
|
—
|
Anthony
J. Gerace
|
11,598
|
11,598
|
0
|
—
|
Isaac
R. Dweck
|
23,193
|
23,193
|
0
|
—
|
Fae
Moore
|
5,798
|
5,798
|
0
|
—
|
Ben
Heller
|
61,000
|
61,000
|
0
|
—
|
Elizabeth
Maas
|
5,798
|
5,798
|
0
|
—
|
Robert
Masters
|
11,597
|
11,597
|
0
|
—
|
Klaus
Kretschmer
|
46,591
|
46,591
|
0
|
—
|
Dean
Glasser
|
3,757
|
3,757
|
0
|
—
|
Murry
J. McCabe
|
34,790
|
34,790
|
0
|
—
|
Cooper
A. McIntosh, MD
|
11,597
|
11,597
|
0
|
—
|
Harry
Newton and Susan Newton JTWROS
|
17,534
|
17,534
|
0
|
—
|
Nicholas
Ponzio
|
24,048
|
|
0
|
—
|
Gary
J. Strauss
|
23,194
|
23,194
|
0
|
—
|
Scott
D. Whitaker
|
11,597
|
11,597
|
0
|
—
|
Wolcot
Capital, Inc.
|
|
|
0
|
—
|
Joseph
J. Vale
|
115,966
|
115,966
|
0
|
—
|
Carolyn
N. Taylor
|
3,507
|
3,507
|
0
|
—
|
David
P. Luci
|
2,319
|
2,319
|
0
|
—
|
Atlas
Equity I, Ltd.
|
695,797
|
695,797
|
0
|
—
|
Alan
H. Auerbach
|
5,798
|
5,798
|
0
|
—
|
Gregory
J. Dovolis
|
10,019
|
10,019
|
0
|
—
|
Michele
Markowitz
|
5,798
|
5,798
|
0
|
—
|
Praful
Desai
|
5,010
|
5,010
|
0
|
—
|
Eric
Reed
|
5,010
|
5,010
|
0
|
—
|
Delaware
Charter Guarantee Trust FBO Mark Berg IRA
|
57,612
|
57,612
|
0
|
—
|
Nicole
Berg
|
57,612
|
57,612
|
0
|
—
|
Ivy
Scheinholz Revocable Trust U/A Dated 1/26/05
|
5,010
|
5,010
|
0
|
—
|
S.
Alan Lisenby
|
25,049
|
25,049
|
0
|
—
|
Judah
Schorr
|
34,790
|
34,790
|
0
|
—
|
Mark
Mazzer
|
6,262
|
6,262
|
0
|
—
|
Domaco
Venture Capital Fund
|
5,799
|
5,799
|
0
|
—
|
Selling
Stockholder
|
Shares
Beneficially
Owned
Before
Offering
(1)
|
Number
of
Outstanding
Shares
Offered
by Selling
Stockholder
|
Number
of Shares
Offered
by Selling
Stockholder
upon
Exercise
of
Certain
Warrants
|
Percentage
Beneficial
Ownership
After
Offering
(2)
|
Fiserv
Securities, Inc. A/C/F Jack Polar IRA
|
5,799
|
5,799
|
0
|
—
|
Paul
D. Newman and Judith E. Newman JTWROS
|
6,012
|
6,012
|
0
|
—
|
Neil
J. Laird
|
6,012
|
6,012
|
0
|
—
|
Rachel
Family Partnership
|
34,790
|
34,790
|
0
|
—
|
Baruch
Z. Halberstam
|
5,798
|
5,798
|
0
|
—
|
Paul
J. Solit
|
5,798
|
5,798
|
0
|
—
|
Lucile
Slocum
|
10,019
|
10,019
|
0
|
—
|
Harvey
Lustig and Ronnie Lustig JTWROS
|
5,010
|
5,010
|
0
|
—
|
Stephen
H. Lebovitz
|
1,002
|
1,002
|
0
|
—
|
Joe
L. Key and Mary Lynn Key JTWROS
|
1,002
|
1,002
|
0
|
—
|
Delaware
Charter Guarantee & Trust Co.
FBO
Howard M. Tanning MD IRA
|
25,049
|
25,049
|
0
|
—
|
Gitel
Family Partnership, LP
|
23,193
|
23,193
|
0
|
—
|
Joseph
Strassman and Barbara Strassman
|
6,958
|
6,958
|
0
|
—
|
David
G. Pudelsky and Nancy H. Pudelsky JTWROS
|
10,019
|
10,019
|
0
|
—
|
Louis
R. Reif
|
22,544
|
22,544
|
0
|
—
|
John
O. Dunkin
|
6,012
|
6,012
|
0
|
—
|
Michael
Pinney
|
2,505
|
2,505
|
0
|
—
|
Neel
B. Ackerman and Martha N. Ackerman JTWROS
|
25,049
|
25,049
|
0
|
—
|
Fiserv
Securities, Inc. A/C/F Ronald M. Lazar, STD IRA
|
5,799
|
5,799
|
0
|
—
|
RL
Capital Partners, LP
|
11,598
|
11,598
|
0
|
—
|
Neil
Herskowitz
|
6,262
|
6,262
|
0
|
—
|
Anthony
G. Polak “S”
|
5,799
|
5,799
|
0
|
—
|
Fiserv
Securities, Inc. A/C/F Anthony G. Polak Std. IRA
|
5,799
|
5,799
|
0
|
—
|
Tim
P. Cooper
|
4,634
|
4,634
|
0
|
—
|
Benito
Bucay
|
11,597
|
11,597
|
0
|
—
|
Selling
Stockholder
|
Shares
Beneficially
Owned
Before
Offering
(1)
|
Number
of
Outstanding
Shares
Offered
by Selling
Stockholder
|
Number
of Shares
Offered
by Selling
Stockholder
upon
Exercise
of
Certain
Warrants
|
Percentage
Beneficial
Ownership
After
Offering
(2)
|
Edwin
A. Buckham and Wendy F. Buckham, JTWROS
|
11,597
|
11,597
|
0
|
—
|
Laya
Perlysky 2003 Grantor Retained Annuity Trust
|
23,193
|
23,193
|
0
|
—
|
Kinder
Investments L.P.
|
34,790
|
34,790
|
0
|
—
|
Reuben
Taub
|
12,524
|
12,524
|
0
|
—
|
Waterspout
Investments Pte Ltd
|
4,639
|
4,639
|
0
|
—
|
Matador
Investments Pte Ltd.
|
16,235
|
16,235
|
0
|
—
|
Ramsay
Investments Pte. Ltd.
|
2,319
|
2,319
|
0
|
—
|
Mega
International Corporation
|
8,581
|
8,581
|
0
|
—
|
Alfred
Abraham
|
4,639
|
4,639
|
0
|
—
|
Paul
Sallwasser and Teri Sallwasser JTWROS
|
17,395
|
17,395
|
0
|
—
|
William
S. Tyrell
|
4,000
|
4,000
|
0
|
—
|
Alan
J. Young
|
26,000
|
26,000
|
0
|
—
|
William
McCahey and Lisa Krivacka JTWROS
|
5,799
|
5,799
|
0
|
—
|
Dennis
F. Steadman
|
5,799
|
5,799
|
0
|
—
|
John
H. Miller, CGM IRA Custodian Smith Barney #670-80424-18
|
6,262
|
6,262
|
0
|
—
|
Paul
Bermanski and Barbara Bermanski JTWROS
|
11,597
|
11,597
|
0
|
—
|
Tokenhouse
Trading Pte. Ltd.
|
46,386
|
46,386
|
0
|
—
|
James
E. Daly, CGM IRA Custodian #670-80477
|
6,262
|
6,262
|
0
|
—
|
Howard
Sorkin
|
23,193
|
23,193
|
0
|
—
|
Janis
H. Camp
|
5,798
|
5,798
|
0
|
—
|
Robert
McEntire
|
46,387
|
46,387
|
0
|
—
|
Andrew
H. Sabreen and Carol Sabreen JTWROS
|
11,597
|
11,597
|
0
|
—
|
Michael
Blechman and Barry J. Lind, Tenants in Common
|
11,597
|
11,597
|
0
|
—
|
Paul
F. Berlin
|
5,798
|
5,798
|
0
|
—
|
Eli
Jaconson
|
23,194
|
23,194
|
0
|
—
|
Andrew
W. Schonzeit
|
12,524
|
12,524
|
0
|
—
|
Nora
O’Donoghue
|
5,798
|
5,798
|
0
|
—
|
Mario
Pasquel and Begona Miranda JTWROS
|
16,235
|
16,235
|
0
|
—
|
Selling
Stockholder
|
Shares
Beneficially
Owned
Before
Offering
(1)
|
Number
of
Outstanding
Shares
Offered
by Selling
Stockholder
|
Number
of Shares
Offered
by Selling
Stockholder
upon
Exercise
of
Certain
Warrants
|
Percentage
Beneficial
Ownership
After
Offering
(2)
|
Suzanne
Schiller
|
5,010
|
5,010
|
0
|
—
|
William
S. Silver and Elinor Silver JTWROS
|
6,012
|
6,012
|
0
|
—
|
Suzette
T. Seigel
|
5,798
|
5,798
|
0
|
—
|
Robert
J. Sechan II
|
5,798
|
5,798
|
0
|
—
|
Coqui
Capital Partners
|
57,984
|
57,984
|
0
|
—
|
Carolyn
P. Dietrich
|
6,007
|
6,007
|
0
|
—
|
Smithfield
Fiduciary LLC
|
231,932
|
231,932
|
0
|
—
|
Michael
S. Walsh
|
5,798
|
5,798
|
0
|
—
|
Keith
Rubenstein
|
5,798
|
5,798
|
0
|
—
|
Dr.
Jeffrey R. Shapiro
|
5,798
|
5,798
|
0
|
—
|
Bernard
Wachsman
|
5,798
|
5,798
|
0
|
—
|
Concordia
Partners L.P.
|
175,341
|
175,341
|
0
|
—
|
The
Lindsay A. Rosenwald 2000
Irrevocable
Trust U/A dated 5/24/2000
|
231,932
|
231,932
|
0
|
—
|
The
Lindsay Rosenwald 2000 Family Trust U/A dated 12/15/00
|
231,932
|
231,932
|
0
|
—
|
Mark
J. Ahn
|
5,798
|
5,798
|
0
|
—
|
Jeffrey
Kraws & Patricia Kraws
|
5,798
|
5,798
|
0
|
—
|
Jack
B. Petersen
|
5,798
|
5,798
|
0
|
—
|
Charles
Earl Cartmill
|
11,597
|
11,597
|
0
|
—
|
Robert
J. Whetten
|
11,597
|
11,597
|
0
|
—
|
Paramount
BioCapital, Inc.
|
62,621
|
0
|
62,621
|
—
|
Steven
Markowitz
|
6,480
|
0
|
6,480
|
—
|
Fabio
Migliaccio
|
2,504
|
0
|
2,504
|
—
|
Denise
Mormile-Liglino
|
1,252
|
0
|
1,252
|
—
|
Michael
Mullen
|
13,534
|
0
|
13,534
|
—
|
Robert
Petrozzo
|
11,083
|
0
|
11,083
|
—
|
Joseph
Sorbara
|
6,480
|
0
|
6,480
|
—
|
Robert
D. Millstone
|
3,479
|
0
|
3,479
|
—
|
Steven
A. Sherman
|
1,739
|
0
|
1,739
|
—
|
Sandgrain
Securities, Inc.
|
579
|
0
|
579
|
—
|
Lindsay
A. Rosenwald
|
1,323,606(3)
|
476,678
|
221,011
|
8.35%
|
Selling
Stockholder
|
Shares
Beneficially
Owned
Before
Offering
(1)
|
Number
of
Outstanding
Shares
Offered
by Selling
Stockholder
|
Number
of Shares
Offered
by Selling
Stockholder
upon
Exercise
of
Certain
Warrants
|
Percentage
Beneficial
Ownership
After
Offering
(2)
|
Michael
Weiser
|
126,526
|
83,445
|
35,566
|
*
|
Harris
Lydon
|
22,349
|
0
|
22,349
|
—
|
Timothy
McInerney
|
79,972
|
59,205
|
20,767
|
*
|
Michael
Rosenman
|
31,854
|
0
|
19,709
|
*
|
Scott
Katzman
|
28,817
|
0
|
19,709
|
*
|
Jill
Meleski
|
19,674
|
0
|
16,638
|
*
|
Bernard
Gross
|
10,285
|
0
|
8,767
|
*
|
Karl
Ruggeberg
|
9,368
|
0
|
7,850
|
*
|
Jeana
Somers
|
1,808
|
0
|
290
|
*
|
Everest
Capital (f/k/a Four Brothers
Investment
Holding)
|
12,524
|
12,524
|
0
|
—
|
Future
Global Holding, Inc.
|
626
|
626
|
0
|
—
|
Valeo
Partners, LLC
|
6,262
|
6,262
|
0
|
—
|
The
Holding Company
|
4,384
|
4,384
|
0
|
—
|
Melvyn
I. Weiss
|
12,524
|
12,524
|
0
|
—
|
Issac
M. Dabah
|
10,019
|
10,019
|
0
|
—
|
Lillian
Hahn
|
3,131
|
3,131
|
0
|
—
|
Donna
Kash & Peter Kash JT TEN
|
5,010
|
5,010
|
0
|
—
|
Pearl
Capital LP (f/k/a Weisenberg Real Estate LP)
|
1,252
|
1,252
|
0
|
—
|
David
J. Bershad
|
3,131
|
3,131
|
0
|
—
|
NTP
Partners
|
3,131
|
3,131
|
0
|
—
|
Aaron
Speisman
|
1,566
|
1,566
|
0
|
—
|
Joseph
Friedman Trust
|
1,252
|
1,252
|
0
|
—
|
Robert
Falk
|
1,252
|
1,252
|
0
|
—
|
335
MAD LLC (f/k/a/ Beck Technologies LLC)
|
3,757
|
3,757
|
0
|
—
|
Yitzhak
Nissan
|
1,252
|
1,252
|
0
|
—
|
Alan
Clingman
|
1,252
|
1,252
|
0
|
—
|
Benjamin
Feinswog Trust
|
3,757
|
3,757
|
0
|
—
|
Henry
and Monica Millin
|
1,252
|
1,252
|
0
|
—
|
Robert
Klein
|
1,252
|
1,252
|
0
|
—
|
Kanter
Family Foundation
|
1,879
|
1,879
|
0
|
—
|
The
University of Texas M.D. Anderson
|
250,487
|
250,487
|
0
|
—
|
Lawrence
Alpert
|
500
|
500
|
0
|
*
|
Selling
Stockholder
|
Shares
Beneficially
Owned
Before
Offering
(1)
|
Number
of
Outstanding
Shares
Offered
by Selling
Stockholder
|
Number
of Shares
Offered
by Selling
Stockholder
upon
Exercise
of
Certain
Warrants
|
Percentage
Beneficial
Ownership
After
Offering
(2)
|
Associate
Capital Consulting Inc.
|
50
|
50
|
0
|
*
|
Vicki
D E Barone
|
25
|
25
|
0
|
*
|
Edward
W Bellarose
|
100
|
100
|
0
|
*
|
Black
Marlen Inc
|
100
|
100
|
0
|
*
|
Craig
M Blake
|
50
|
50
|
0
|
*
|
Darrell
J Brunken
|
25
|
25
|
0
|
*
|
Scot
Bryant
|
100
|
100
|
0
|
*
|
Charles
Schwab & Co. Inc.
|
100
|
100
|
0
|
*
|
John
Cleaver & Karen Cleaver JTTEN
|
100
|
100
|
0
|
*
|
William
D. Cronin
|
100
|
100
|
0
|
*
|
Michael
M Edmonds
|
100
|
100
|
0
|
*
|
Doyle
S Elliott
|
25
|
25
|
0
|
*
|
Tyler
Floor
|
3,750
|
3,750
|
0
|
*
|
William
R Going
|
25
|
25
|
0
|
*
|
B
Kathleen Goldstone
|
25
|
25
|
0
|
*
|
Allen
R Goldstone
|
25
|
25
|
0
|
*
|
Timothy
S Greufe
|
150
|
150
|
0
|
*
|
C.
Eugene Gronning
|
1,250
|
1,250
|
0
|
*
|
Michael
Gundzik
|
100
|
100
|
0
|
*
|
Johanna
Guttman & Robert Herskowitz JTEN
|
10,750
|
10,750
|
0
|
*
|
Mark
Hatsis
|
1,500
|
1,500
|
0
|
*
|
Anderson
J Henshaw
|
100
|
100
|
0
|
*
|
Brad
Henshaw
|
100
|
100
|
0
|
*
|
Brent
Henshaw
|
13,709
|
13,709
|
0
|
*
|
Brent
Henshaw
|
250
|
250
|
0
|
*
|
Robert
Herskowitz
|
4,000
|
4,000
|
0
|
*
|
Al
Hoff
|
100
|
100
|
0
|
*
|
James
E Hosch
|
100
|
100
|
0
|
*
|
Joseph
W. Hovorka
|
1,667
|
1,667
|
0
|
*
|
Reed
Jensen
|
1,250
|
1,250
|
0
|
*
|
Key
Investments
|
2,500
|
2,500
|
0
|
*
|
Selling
Stockholder
|
Shares
Beneficially
Owned
Before
Offering
(1)
|
Number
of
Outstanding
Shares
Offered
by Selling
Stockholder
|
Number
of Shares
Offered
by Selling
Stockholder
upon
Exercise
of
Certain
Warrants
|
Percentage
Beneficial
Ownership
After
Offering
(2)
|
Bryant
Kligerman
|
100
|
100
|
0
|
*
|
Harvey
Levin
|
25
|
25
|
0
|
*
|
VLA
LLP
|
50
|
50
|
0
|
*
|
Curtis
M McQueen
|
50
|
50
|
0
|
*
|
Mathew
Meister c/o Beeman Holdings
|
25
|
25
|
0
|
*
|
Gary
Mendenhall
|
25
|
25
|
0
|
*
|
Jeffrey
Myers
|
25
|
25
|
0
|
*
|
Jeffrey
Myers
|
1,667
|
1,667
|
0
|
*
|
Morri
L Namaste
|
100
|
100
|
0
|
*
|
National
Financial Services LLC
|
25
|
25
|
0
|
*
|
NF
Clearing Inc.
|
75
|
75
|
0
|
*
|
Robert
E Ohman
|
25
|
25
|
0
|
*
|
David
C. Olson
|
9,116
|
|
0
|
*
|
Thomas
B. Olson
|
5,000
|
5,000
|
0
|
*
|
Butternut
Partners
|
5,000
|
5,000
|
0
|
*
|
Jeff
Peterson
|
1,250
|
1,250
|
0
|
*
|
Barbara
Petrinsky
|
442
|
442
|
0
|
*
|
Merrill
Lynch Pierce Fenner & Smith Inc.
|
25
|
25
|
0
|
*
|
Brad
Rhodes
|
200
|
200
|
0
|
*
|
Jeff
Rodriguez
|
25
|
25
|
0
|
*
|
Lamar
F Schild
|
500
|
500
|
0
|
*
|
Sanford
Schwartz
|
25
|
25
|
0
|
*
|
Susan
Schwartz
|
25
|
25
|
0
|
*
|
Scott
Shovea
|
50
|
50
|
0
|
*
|
Don
F. Sims
|
50
|
50
|
0
|
*
|
Carlene
Smith
|
25
|
25
|
0
|
*
|
Michael
J Stallone
|
200
|
200
|
0
|
*
|
Summit
Financial Relations Inc.
|
17,314
|
17,314
|
0
|
*
|
James
H Swalwell & Judith A Swalwell JTTEN
|
50
|
50
|
0
|
*
|
Thomas
M. Vickers
|
5,000
|
5,000
|
0
|
*
|
James
J Trainor
|
125
|
125
|
0
|
*
|
Selling
Stockholder
|
Shares
Beneficially
Owned
Before
Offering
(1)
|
Number
of
Outstanding
Shares
Offered
by Selling
Stockholder
|
Number
of Shares
Offered
by Selling
Stockholder
upon
Exercise
of
Certain
Warrants
|
Percentage
Beneficial
Ownership
After
Offering
(2)
|
Thomas
M. Vickers Revocable Trust
|
5,000
|
5,000
|
0
|
*
|
Thomas
M. Vickers
|
250
|
250
|
0
|
*
|
Douglas
A Wilkerson & Leola A Wilkerson JTTEN
|
25
|
25
|
0
|
*
|
Lyn
C Wilkerson
|
30
|
30
|
0
|
*
|
Derek
J. Zappa
|
100
|
100
|
0
|
*
|
Robert
J. Zappa
|
24,000
|
24,000
|
0
|
*
|
Albert
J. Zirkelbach
|
50
|
50
|
0
|
*
|
Jason
Stein
|
83,445
|
83,445
|
0
|
—
|
Jeffrey
Serbin
|
91,036
|
91,036
|
0
|
—
|
Stephen
Rocamboli
|
40,677
|
40,677
|
0
|
—
|
Jay
Lobell
|
59,156
|
59,156
|
0
|
—
|
Jillian
Hoffman
|
7,590
|
7,590
|
0
|
—
|
William
Corcoran
|
12,145
|
12,145
|
0
|
—
|
Kyle
Kuhn
|
6,072
|
6,072
|
0
|
—
|
David
Butera
|
60,723
|
60,723
|
0
|
—
|
Peter
Barber
|
3,036
|
3,036
|
0
|
—
|
Anil
Chenthitta
|
3,036
|
3,036
|
0
|
—
|
Matthew
Wyckoff
|
3,036
|
3,036
|
0
|
—
|
David
Nussbaum
|
3,036
|
3,036
|
0
|
—
|
Michael
Rosenman
|
31,854
|
12,145
|
0
|
*
|
John
Knox
|
9,108
|
9,108
|
0
|
—
|
Jennifer
McNealy
|
5,465
|
5,465
|
0
|
—
|
John
Cipriano
|
5,465
|
5,465
|
0
|
—
|
Elena
Ridloff
|
5,465
|
5,465
|
0
|
—
|
Louis
Smookler
|
12,145
|
12,145
|
0
|
—
|
Donna
Lozito
|
6,072
|
6,072
|
0
|
—
|
Scott
Katzmann
|
28,817
|
9,108
|
0
|
*
|
John
Papadimitropoulos
|
3,036
|
3,036
|
0
|
—
|
Basil
Christakos
|
6,072
|
6,072
|
0
|
—
|
Eric
Lee
|
3,036
|
3,036
|
0
|
—
|
Timothy
Shands
|
3,036
|
3,036
|
0
|
—
|
Claudia
Donat
|
3,036
|
3,036
|
0
|
—
|
John
Best
|
1,822
|
1,822
|
0
|
—
|
Elbert
Chu
|
1,822
|
1,822
|
0
|
—
|
Selling
Stockholder
|
Shares
Beneficially
Owned
Before
Offering
(1)
|
Number
of
Outstanding
Shares
Offered
by Selling
Stockholder
|
Number
of Shares
Offered
by Selling
Stockholder
upon
Exercise
of
Certain
Warrants
|
Percentage
Beneficial
Ownership
After
Offering
(2)
|
Allison
Robbins
|
1,518
|
1,518
|
0
|
—
|
Jamie
Cabibihan
|
1,768
|
1,768
|
0
|
—
|
Bernard
Gross
|
10,285
|
1,518
|
0
|
*
|
Peter
Kash
|
83,445
|
83,445
|
0
|
—
|
David
Tanen
|
12,145
|
12,145
|
0
|
—
|
Jill
Meleski
|
19,674
|
3,036
|
0
|
*
|
Aaron
Rollins
|
3,036
|
3,036
|
0
|
—
|
Delores
Ferraro
|
1,518
|
1,518
|
0
|
—
|
Kristen
Plonisch
|
1,518
|
1,518
|
0
|
—
|
Marion
Birch
|
1,518
|
1,518
|
0
|
—
|
Nicole
Netolicky
|
1,518
|
1,518
|
0
|
—
|
Elizabeth
Marrero
|
1,518
|
1,518
|
0
|
—
|
Gabriel
Pilaloa
|
1,518
|
1,518
|
0
|
—
|
Demitrios
Marras
|
1,518
|
1,518
|
0
|
—
|
Kathleen
Fogerty
|
1,518
|
1,518
|
0
|
—
|
Danielle
Flatly
|
1,518
|
1,518
|
0
|
—
|
Jeana
Sommers
|
1,808
|
1,518
|
0
|
—
|
Karl
Ruggeberg
|
9,368
|
1,518
|
0
|
*
|
Mibars,
LLC
|
1,214,456
|
1,214,456
|
0
|
—
|
Joshua
Kazam and Joia Kazam JTWROS
|
12,145
|
12,145
|
0
|
—
|
Mark
O. Thornton
|
8,370
|
8,370
|
0
|
—
|
Chase
Financing, Inc.
|
83,348
|
83,348
|
0
|
—
|
Total
|
|
6,979,688
|
482,407
|
|
_______________
*
Less
than 1%
(1) |
Beneficial
ownership is determined in accordance with SEC rules, beneficial
ownership
includes any shares as to which the security or stockholder
has sole or
shared voting power or investment power, and also any shares
which the
security or stockholder has the right to acquire within 60
days of the
date hereof, whether through the exercise or conversion of
any stock
option, convertible security, warrant or other right. The indication
herein that shares are beneficially owned is not an admission
on the part
of the security or stockholder that he, she or it is a direct
or indirect
beneficial owner of those
shares.
|
(2) |
Assumes
sales of all shares by the selling
stockholder.
|
(3) |
In
addition to 476,678 shares of common stock and 221,011 shares issuable
upon the exercise of warrants being
offered hereunder, this amount includes 62,621
shares issuable upon the exercise of warrants granted to Paramount
BioCapital
Investments, LLC, of which Dr. Rosenwald is the managing member,
and
563,296 shares that Dr.
Rosenwald has the right to acquire from existing stockholders under
certain circumstances pursuant to the
terms of pledge agreements between Dr. Rosenwald and such stockholders.
Excludes 463,864 shares held
by certain trusts for the benefit of Dr. Rosenwald and his family
for
which Dr. Rosenwald disclaims beneficial
ownership.
|
PLAN
OF DISTRIBUTION
We
are
registering the resale of certain shares of common stock offered by this
prospectus on behalf of the selling stockholders. As used in this prospectus,
the term “selling stockholders” include donees, pledges, transferees and other
successors in interest selling shares received from the selling stockholders
after the date of this prospectus, whether as a gift, pledge, partnership
distribution or other form of transfer. All costs, expenses and fees in
connection with the registration of the shares of common stock offered hereby
will be borne by the Company. Brokerage commissions and similar selling
expenses, if any, attributable to the sale of shares of common stock will be
borne by the selling stockholders.
Sales
of
shares of common stock offered hereby may be effected by the selling
stockholders from time to time in one or more types of transactions (which
may
include block transactions):
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as
agent, but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
·
|
broker-dealers
may agree with the selling stockholder to sell a specified number
of such
shares at a stipulated price per
share;
|
·
|
a
combination of any such methods of sale;
and
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may effect sales of shares of common stock offered hereby
at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the
time
of sale, or at privately negotiated prices. Any of these transactions may or
may
not involve brokers or dealers. Any such broker-dealers may receive compensation
in the form of discounts, concessions or commissions from the selling
stockholders and/or the purchaser(s) of shares of common stock for whom those
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The selling stockholders have advised us that they
have
not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities, nor
is
there any underwriter or coordinating broker acting in connection with the
proposed sale of shares of common stock by the selling
stockholders.
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and registered hereby
and, if any such selling stockholder defaults in the performance of its secured
obligations, the pledgees or secured parties may offer and sell the shares
of
common stock, from time to time, under this prospectus, or under an amendment
to
this prospectus or other applicable provision of the Securities Act amending
the
list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus. The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this
prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities, which require the delivery to such broker-dealer or
other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common
stock
offered by them will be the purchase price of the common stock less discounts
or
commissions, if any. The selling stockholders reserve the right to accept and,
together with their agents from time to time, to reject, in whole or in part,
any proposed purchase of common stock to be made directly or through agents.
We
will not receive any of the proceeds from this offering.
The
selling stockholders may also resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders and any broker-dealers that act in connection with the
sale
of securities might be deemed to be “underwriters” within the meaning of Section
2(11) of the Securities Act, and any commissions received by such broker-dealers
and any profit on the resale of the securities sold by them while acting as
principals might be deemed to be underwriting discounts or commissions under
the
Securities Act. In addition, each broker-dealer selling under this prospectus
for its own account or the account of an affiliate is an “underwriter” under
Section 2(11) of the Securities Act.
To
the
extent required, the shares of our common stock to be sold, the name of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions
or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In
order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be
sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We
have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to
the
activities of the selling stockholders and their affiliates. In addition, we
will make copies of this prospectus (as it may be supplemented or amended from
time to time) available to the selling stockholders for the purpose of
satisfying the prospectus-delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We
are
unable to predict with certainty the effect which sales of the shares of common
stock offered by this prospectus might have upon our ability to raise additional
capital. Nevertheless, it is possible that the resale of shares offered hereby
could adversely affect the trading price of our common stock.
Shares
Eligible For Future Sale
Upon
completion of this offering, there will be 7,755,399 shares of our common stock
issued and outstanding. The shares purchased in this offering will be freely
tradable without registration or other restriction under the Securities Act,
except for any shares purchased by an “affiliate” of our Company (as defined
under the Securities Act).
Our
currently outstanding shares issued in connection with the Merger are deemed
“restricted securities” within the meaning of Rule 144 under the Securities Act.
Restricted securities may not be sold unless they are registered under the
Securities Act or are sold pursuant to an applicable exemption from
registration, including an exemption under Rule 144. Assuming that all of the
other requirements of Rule 144 are then satisfied, then the 6,967,941 restricted
shares of our common stock that were issued in connection with the Merger will
first be eligible for resale without registration in September
2006.
In
general, under Rule 144, any person (or persons whose shares are aggregated)
including persons deemed to be affiliates, whose restricted securities have
been
fully paid for and held for at least one year from the later of the date of
issuance by us or acquisition from an affiliate, may sell such securities in
broker’s transactions or directly to market makers, provided that the number of
shares sold in any three-month period may not exceed the greater of one percent
of the then-outstanding shares of our common stock or the average weekly trading
volume of our shares of common stock in the over-the-counter market during
the
four calendar weeks preceding the sale. Sales under Rule 144 are also subject
to
certain notice requirements and the availability of current public information
about our Company. After two years have elapsed from the later of the issuance
of restricted securities by us or their acquisition from an affiliate, persons
who are not affiliates under the rule may sell such securities without any
limitation.
DESCRIPTION
OF CAPITAL STOCK
Our
authorized capital stock consists of 280,000,000 shares of common
stock, $.001 value per share. All shares of common stock have equal voting
rights and are entitled to one vote per share on all matters to be voted upon
by
our stockholders. The shares of common stock have no preemptive, subscription,
conversion or redemption rights and may be issued only as fully-paid and
non-assessable shares. Cumulative voting in the election of directors is not
permitted. In the event of our liquidation, each holder of our common stock
is
entitled to receive a proportionate share of our assets available for
distribution to stockholders after the payment of liabilities. All shares of
our
common stock issued and outstanding are fully-paid and
non-assessable.
Holders
of our common stock are entitled to share pro rata in dividends and
distributions with respect to the common stock when, as and if declared by
our
board of directors out of funds legally available therefor. We have not paid
any
dividends on our common stock and intend to retain earnings, if any, to finance
the development and expansion of our business. Future dividend policy is subject
to the discretion of our board of directors and will depend upon a number of
factors, including future earnings, capital requirements and our financial
condition.
The
transfer agent and registrar for our common stock is American Stock Transfer
and
Trust, 6201 15th Avenue, Brooklyn, New York, 11219. As of March 10, 2006, we
had
7,272,992 shares of common stock outstanding held by approximately 303 holders
of record. Our common stock is eligible for trading on the over-the-counter
bulletin board under the symbol “ZIOP.OB.”
DISCLOSURE
OF COMMISSION POSITION ON
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Pursuant
to our certificate of incorporation and bylaws, we may indemnify an officer
or
director who is made a party to any proceeding, because of his position as
such,
to the fullest extent authorized by Delaware General Corporation Law, as the
same exists or may hereafter be amended. In certain cases, we may advance
expenses incurred in defending any such proceeding.
To
the
extent that indemnification for liabilities arising under the Securities Act
may
be permitted to directors, officers or persons controlling our company pursuant
to the foregoing provisions, we have been informed that, in the opinion of
the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. If
a
claim for indemnification against such liabilities (other than the payment
by us
of expenses incurred or paid by a director, officer or controlling person of
our
company in the successful defense of any action, suit or proceeding) is asserted
by any of our directors, officers or controlling persons in connection with
the
securities being registered, we will, unless in the opinion of our counsel
the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed
by
the final adjudication of that issue.
ABOUT
THIS PROSPECTUS
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 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.
WHERE
YOU CAN FIND MORE INFORMATION
Federal
securities law requires us to file information with the SEC concerning our
business and operations. Accordingly, we file annual, quarterly, and special
reports, proxy statements and other information with the SEC. You can inspect
and copy this information at the Public Reference Facility maintained by the
SEC
at Judiciary Plaza, 450 5th Street, N.W., Room 1024, Washington, D.C. 20549.
You
can receive additional information about the operation of the SEC’s Public
Reference Facilities by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding companies that, like
us,
file information electronically with the SEC.
VALIDITY
OF COMMON STOCK
Legal
matters in connection with the validity of the shares offered by this prospectus
will be passed upon by Maslon Edelman Borman & Brand, LLP, Minneapolis,
Minnesota.
EXPERTS
The
financial statements of ZIOPHARM Oncology, Inc. as of and for the year ended
December 31, 2005 and 2004 and for the period from September 9, 2003 (date
of
inception) to December 31, 2003, included in this prospectus, have been included
herein in reliance on the report, dated March 9, 2006, of Vitale Caturano &
Company, Ltd., independent registered public accounting firm, given on the
authority of that firm as experts in auditing and accounting.
INDEX
TO FINANCIAL STATEMENTS
|
|
Page
|
Audited
Financial Statements of ZIOPHARM Oncology, Inc.:
|
|
|
Report
of Independent Registered Accounting Firm
|
|
F-1
|
Balance
Sheets as at December 31, 2005 and December 31, 2004
|
|
F-2
|
Statements
of Operations for the Years Ended December 31, 2005 and 2004, For
the
Period from Inception (September 9, 2003) through December 31, 2003,
and
For the Period from Inception (September 9, 2003) through December
31,
2005
|
|
F-3
|
Statements
of Cash Flows for the Years Ended December 31, 2005 and 2004, For
the
Period from Inception (September 9, 2003) through December 31, 2003,
and
For the Period from Inception (September 9, 2003) through December
31,
2005
|
|
F-4
|
Statement
of Changes in Convertible Preferred Stock and Stockholders’
Equity/(Deficit) for the Years Ended December 31, 2005 and 2004,
For the
Period from Inception (September 9, 2003) through December 31, 2003,
and
For the Period from Inception (September 9, 2003) through December
31,
2005
|
|
F-6
|
Notes
to Consolidated Financial Statements
|
|
F-7
|
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders of
ZIOPHARM
Oncology, Inc.
Charlestown,
Massachusetts
We
have
audited the balance sheets of ZIOPHARM Oncology, Inc. (a development stage
company) as of December 31, 2005 and 2004 and the related statements of
operations, changes in convertible preferred stock and stockholders’ equity
(deficit) and cash flows for the years ended December 31, 2005 and 2004,
for the
period from inception (September 9, 2003) through December 31, 2003 and
for the
period from inception (September 9, 2003) to December 31, 2005. 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 audits.
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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is
not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, 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, in
all
material respects, the financial position of ZIOPHARM Oncology, Inc. as
of
December 31, 2005 and 2004 and the results of their operations and their
cash
flows for the years ended December 31, 2005 and 2004, for the period from
inception (September 9, 2003) through December 31, 2005, and for the period
from
inception (September 9, 2003) through December 31, 2003 in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the
Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations and
has an
accumulated deficit that raises 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.
Vitale,
Caturano & Company, Ltd.
Boston,
Massachusetts
March
9,
2006
ZIOPHARM
Oncology, Inc.
|
(A
Development Stage Enterprise)
|
Balance
Sheets
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
December
31, 2004
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
8,880,717
|
|
$
|
1,026,656
|
|
Prepaid
expenses and other current assets
|
|
|
211,837
|
|
|
117,571
|
|
Total
current assets
|
|
|
9,092,554
|
|
|
1,144,227
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
269,702
|
|
|
240,733
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
5,700
|
|
|
60,046
|
|
Other
non current assets
|
|
|
124,343
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
9,492,299
|
|
$
|
1,445,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
835,997
|
|
$
|
709,947
|
|
Accrued
expenses
|
|
|
1,418,819
|
|
|
879,376
|
|
Total
current liabilities
|
|
|
2,254,816
|
|
|
1,589,323
|
|
Deferred
rent
|
|
|
35,557
|
|
|
–
|
|
Commitments
and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity (deficit):
|
|
|
|
|
|
|
|
Common
stock, $.001 par value; 280,000,000 shares
authorized;
|
|
|
|
|
|
|
|
7,248,115
and 2,761,625 shares issued and outstanding
|
|
|
|
|
|
|
|
at December
31, 2005 and 2004, respectively
|
|
|
7,248
|
|
|
2,761
|
|
Additional
paid-in capital
|
|
|
22,559,034
|
|
|
5,700,355
|
|
Deficit
accumulated during the development stage
|
|
|
(15,364,356
|
)
|
|
(5,847,433
|
)
|
Total
stockholders' equity (deficit)
|
|
|
7,201,926
|
|
|
(144,317
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity (deficit)
|
|
$
|
9,492,299
|
|
$
|
1,445,006
|
|
ZIOPHARM
Oncology, Inc.
|
(A
Development Stage Enterprise)
|
Statements
of Operations
|
For
the years ended December 31, 2005 and 2004,
for
the period from inception (September 9, 2003) through
December
31, 2003, and for the period from inception
(September
9, 2003) through December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Period
|
|
For
the Period
|
|
|
|
|
|
|
|
from
Inception
|
|
from
Inception
|
|
|
|
For
the
|
|
For
the
|
|
(September
9,
|
|
(September
9,
|
|
|
|
Year
|
|
Year
|
|
2003)
|
|
2003)
|
|
|
|
Ended
|
|
Ended
|
|
through
|
|
through
|
|
|
|
December
31,
2005
|
|
December
31,
2004
|
|
December
31,
2003
|
|
December
31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses and other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
of research contracts
|
|
|
5,593,850
|
|
|
2,126,607
|
|
|
-
|
|
|
7,720,457
|
|
General
and administrative
|
|
|
4,193,553
|
|
|
3,581,959
|
|
|
160,634
|
|
|
7,936,146
|
|
Total
operating expenses
|
|
|
9,787,403
|
|
|
5,708,566
|
|
|
160,634
|
|
|
15,656,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(9,787,403
|
)
|
|
(5,708,566
|
)
|
|
(160,634
|
)
|
|
(15,656,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
270,479
|
|
|
21,269
|
|
|
498
|
|
|
292,247
|
|
Net
loss
|
|
$
|
(9,516,923
|
)
|
$
|
(5,687,297
|
)
|
$
|
(160,136
|
)
|
$
|
(15,364,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(2.32
|
)
|
$
|
(2.37
|
)
|
$
|
(2.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding used to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compute
basic and diluted net loss per share
|
|
|
4,101,514
|
|
|
2,402,017
|
|
|
78,320
|
|
|
|
|
ZIOPHARM
Oncology, Inc.
|
(A
Development Stage Enterprise)
|
Statements
of Cash Flows
|
For
the Years Ended December 31, 2005 and 2004,
for
the period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the
|
|
|
|
For
the Period
|
|
|
|
Twelve
|
|
Twelve
|
|
from
Inception
|
|
from
Inception
|
|
|
|
Months
|
|
Months
|
|
(September
9, 2003)
|
|
(September
9, 2003)
|
|
|
|
ended
|
|
ended
|
|
through
|
|
through
|
|
|
|
December
31, 2005
|
|
December
31, 2004
|
|
December
31, 2003
|
|
December
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(9,516,923
|
)
|
$
|
(5,687,297
|
)
|
$
|
(160,136
|
)
|
$
|
(15,364,356
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
101,232
|
|
|
33,953
|
|
|
-
|
|
|
135,185
|
|
Stock-based
compensation
|
|
|
98,755
|
|
|
703,116
|
|
|
-
|
|
|
801,871
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
(94,266
|
)
|
|
(117,571
|
)
|
|
-
|
|
|
(211,837
|
)
|
Other
noncurrent assets
|
|
|
(124,343
|
)
|
|
-
|
|
|
-
|
|
|
(124,343
|
)
|
Deposits
|
|
|
54,346
|
|
|
(60,046
|
)
|
|
-
|
|
|
(5,700
|
)
|
Increase
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
126,050
|
|
|
647,448
|
|
|
62,499
|
|
|
835,997
|
|
Accrued
expenses
|
|
|
539,443
|
|
|
879,376
|
|
|
-
|
|
|
1,418,819
|
|
Deferred
rent
|
|
|
35,557
|
|
|
-
|
|
|
-
|
|
|
35,557
|
|
Net
cash used in operating activities
|
|
|
(8,780,149
|
)
|
|
(3,601,021
|
)
|
|
(97,637
|
)
|
|
(12,478,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(130,201
|
)
|
|
(274,686
|
)
|
|
-
|
|
|
(404,887
|
)
|
Net
cash used in investing activities
|
|
|
(130,201
|
)
|
|
(274,686
|
)
|
|
-
|
|
|
(404,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
capital contribution
|
|
|
-
|
|
|
-
|
|
|
500,000
|
|
|
500,000
|
|
Proceeds
from issuance of common stock, net
|
|
|
4,815
|
|
|
4,500,000
|
|
|
-
|
|
|
4,504,815
|
|
Proceeds
from issuance of preferred stock, net
|
|
|
16,759,596
|
|
|
-
|
|
|
-
|
|
|
16,759,596
|
|
Net
cash provided by financing activities
|
|
|
16,764,411
|
|
|
4,500,000
|
|
|
500,000
|
|
|
21,764,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
7,854,061
|
|
|
624,293
|
|
|
402,363
|
|
|
8,880,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
1,026,656
|
|
|
402,363
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
8,880,717
|
|
$
|
1,026,656
|
|
$
|
402,363
|
|
$
|
8,880,717
|
|
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Statements
of Cash Flows (continued)
For
the Years Ended December 31, 2005 and 2004,
for
the period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
|
|
|
|
For
the
|
|
For
the
|
|
For
the Period
|
|
For
the Period
|
|
|
|
Twelve
|
|
Twelve
|
|
from
Inception
|
|
from
Inception
|
|
|
|
Months
|
|
|
|
(September
9, 2003)
|
|
(September
9, 2003)
|
|
|
|
ended
|
|
ended
|
|
through
|
|
through
|
|
|
|
December
31, 2005
|
|
December
31, 2004
|
|
December
31, 2003
|
|
December
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary
disclosure of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued to placement agent, in connection with preferred stock
issuance
|
|
$
|
1,682,863
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,682,863
|
|
ZIOPHARM
Oncology, Inc.
|
(A
Development Stage Enterprise)
|
Statement
of Changes in Convertible Preferred Stock and Stockholders' Equity
(Deficit)
|
For
the Years Ended December 31, 2005 and 2004,
for
the period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
|
|
|
|
Convertible
Preferred Stock and Warrants
|
|
Stockholder's
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
to Purchase Series A
Convertible
Preferred
Stock
|
|
Common
Stock
|
|
Additional
|
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
Warrants
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Stage
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
contribution, September 9, 2003
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
250,487
|
|
$
|
250
|
|
$
|
499,750
|
|
$
|
-
|
|
$
|
500,000
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(160,136
|
)
|
|
(160,136
|
)
|
Balance
at December 31, 2003
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
250,487
|
|
|
250
|
|
|
499,750
|
|
|
(160,136
|
)
|
|
339,864
|
|
Issuance
of common stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,254,389
|
|
|
2,254
|
|
|
4,497,746
|
|
|
-
|
|
|
4,500,000
|
|
Issuance
of common stock for services
|
|
|
|
|
|
|
|
|
|
|
|
256,749
|
|
|
257
|
|
|
438,582
|
|
|
-
|
|
|
438,839
|
|
Fair
value of options/warrants issued for nonemployee services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
264,277
|
|
|
-
|
|
|
264,277
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,687,297
|
)
|
|
(5,687,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,761,625
|
|
|
2,761
|
|
|
5,700,355
|
|
|
(5,847,433
|
)
|
|
(144,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series A convertible preferred stock (net of expenses of $1,340,263
and
warrant costs of $1,682,863)
|
|
|
4,197,946
|
|
|
15,076,733
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Fair
value of warrants to purchase Series A convertible preferred stock
|
|
|
-
|
|
|
-
|
|
|
1,682,863
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Issuance
of Common stock to EasyWeb Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
189,922
|
|
|
190
|
|
|
(190
|
)
|
|
-
|
|
|
-
|
|
Conversion
of Series A convertible preferred stock @ $0.001 into $0.001 common
stock
on September 13, 2005 at an exchange ratio of .500974
|
|
|
(4,197,946
|
)
|
|
(15,076,733
|
)
|
|
(1,682,863
|
)
|
|
4,197,946
|
|
|
4,198
|
|
|
16,755,398
|
|
|
-
|
|
|
16,759,596
|
|
Issuance
of common stock due to exercise of stock options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
98,622
|
|
|
99
|
|
|
4,716
|
|
|
-
|
|
|
4,815
|
|
Fair
value of options/warrants issued for nonemployee services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
98,755
|
|
|
-
|
|
|
98,755
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(9,516,923
|
)
|
|
(9,516,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
7,248,115
|
|
$
|
7,248
|
|
$
|
22,559,034
|
|
$
|
(15,364,356
|
)
|
$
|
7,201,926
|
|
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
ZIOPHARM
Oncology, Inc. (“ZIOPHARM” or the “Company”) is a development stage
biopharmaceutical company that seeks to acquire, develop and commercialize,
on
its own or with other commercial partners, products for the treatment of
important unmet medical needs in cancer.
The
Company has operated at a loss since its inception in 2003 and has no revenues.
The Company anticipates that losses will continue for the foreseeable future.
At
December 31, 2005, the Company’s accumulated deficit was approximately $15.4
million. The Company has incurred significant losses from operations and
has an
accumulated deficit that raises substantital doubt about the Company’s ability
to continue as a going concern. The Company’s ability to continue operations
after its current cash resources are exhausted depends on its ability to
obtain
additional financing and achieve profitable operations, as to which no
assurances can be given. Cash requirements may vary materially from those
now
planned because of changes in the focus and direction of our research and
development programs, competitive and technical advances, patent developments
or
other developments. Additional financing will be required to continue operations
after we exhaust our current cash resources and to continue our long-term
plans
for clinical trials and new product development. There can be no assurance
that
any such financing can be realized by the Company, or if realized, what the
terms thereof may be, or that any amount that Company is able to raise will
be
adequate to support the Company’s working capital requirements until it achieves
profitable operations. However, the accompanying financial statements have
been
prepared assuming that the Company will continue as a going concern and,
as
such, do not include any adjustments that may result from the outcome of
these
uncertainties.
On
August, 3, 2005, the Company entered into an Agreement and Plan of Merger
dated
as of August 3, 2005 (the “Merger Agreement”) with EasyWeb, Inc., a Delaware
corporation (“EasyWeb”), and ZIO Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of EasyWeb (“ZIO Acquisition”). EasyWeb was a company
that was incorporated in September 1998 and had been in the business of
designing, marketing, selling and maintaining customized and template turnkey
sites on the Internet that are hosted by third parties. At the time of the
Merger (as defined below), however, EasyWeb had no operating business and
had
limited assets and liabilities. Pursuant to the Merger Agreement, ZIO
Acquisition merged with and into ZIOPHARM, with ZIOPHARM remaining as the
surviving company and a wholly-owned subsidiary of EasyWeb (the “Merger”). In
connection with the Merger, which was effective as of September 13, 2005,
ZIO
Acquisition ceased to exist and the surviving company changed its corporate
name
to ZIOPHARM, Inc. Based upon an Exchange Ratio, as defined in the Merger
Agreement, in exchange for all of their shares of capital stock in ZIOPHARM,
the
ZIOPHARM stockholders received a number of shares of Common Stock of EasyWeb
such that, upon completion of the Merger, the then-current ZIOPHARM stockholders
held approximately 96.8% of the outstanding shares of Common Stock of EasyWeb
on
a fully-diluted basis. Upon completion of the Merger, EasyWeb ceased all
of its
remaining operations and adopted and continued implementing the business
plan of
ZIOPHARM. Further, effective upon the Merger, the then current officers and
directors of EasyWeb resigned, and the then current officers and directors
of
ZIOPHARM were appointed officers and directors of EasyWeb. In conjunction
with
the Merger, ZIOPHARM made payments of approximately $425,000 to
certain affiliates of EasyWeb in the third quarter of 2005. Subsequently,
on
September 14, 2005, ZIOPHARM merged with and into EasyWeb and EasyWeb changed
its name to ZIOPHARM Oncology, Inc.
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
1. |
ORGANIZATION
(continued) |
Although
EasyWeb is the legal acquirer in the transaction, ZIOPHARM became the registrant
with the Securities and Exchange Commission. Under generally accepted accounting
principles, the transaction was accounted for as a reverse acquisition, whereby
ZIOPHARM was considered the acquirer of EasyWeb for financial reporting purposes
because ZIOPHARM’s stockholders controlled more than 50% of the post-transaction
combined entity, the management and the board were that of ZIOPHARM
after the transaction, EasyWeb had no operating activity and
limited assets and liabilities as of the transaction date and the
continuing operations of the entity are those of ZIOPHARM.
Accordingly,
the equity of EasyWeb has been adjusted to reflect a recapitalization of
the
stock and the equity of ZIOPHARM has been adjusted to reflect a financing
transaction with the proceeds equal to the net asset value of EasyWeb
immediately prior to the Merger. The historical financial statements of ZIOPHARM
have become the historical financial statements of the Company. The historical
stockholders’ equity has been retroactively restated to adjust for the exchange
of shares pursuant to the Merger Agreement. All share and per share information
included in the accompanying financial statements and notes give effect to
the
exchange, except as otherwise stated.
On
June
6, 2005, the Company completed an offering (the “Offering”) of Series A
Convertible Preferred Stock (“Series A Preferred Stock”). The Company issued
4,197,946 (8,379,564 - pre-Merger) shares at $4.31 ($2.16 per share, pre-Merger)
for gross proceeds of approximately $18.1 million. In connection with the
Offering, the Company compensated Paramount BioCapital, Inc., placement agent
for the Offering (“Paramount”), or its affiliates for its services through the
payment of (a) cash commissions equal to 7% of the gross proceeds from the
sale
of the shares of Series A Preferred Stock, and (b) placement warrants to
acquire 419,794 (837,956 - pre-Merger) shares of Series A Preferred Stock
(the
“Series A Stock Warrants”), exercisable for a period of 7 years from the Closing
Date at a per share exercise price equal to 110% of the price per share sold
in
the Offering. These commissions are also payable on additional sales by the
Company of securities (other than in a public offering) to investors introduced
to the Company by Paramount during the twelve (12) month period subsequent
to
the final closing of the Offering. The Company also paid Paramount an expense
allowance of $50,000 to reimburse Paramount for its out-of-pocket expenses.
Also, for a period of 36 months from the final Closing, Paramount has the
right
of first refusal to act as the placement agent for any private sale of the
Company’s securities. Lastly, the Company has agreed to indemnify Paramount
against certain liabilities, including liabilities under the Securities Act.
The
Company has valued the Series A Stock Warrants using the Black-Scholes
model and recorded a charge of $1,682,863 against additional paid-in
capital. The Company has estimated the fair value of such warrants using
the
Black-Scholes model, using an assumed risk-free rate of 3.93% and expected
life
of 7 years, volatility of 134% and dividend yield of 0%. The net proceeds
from the Offering will be used for research and development, licensing fees
and
expenses, and for working capital and general corporate purposes.
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Use
of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to
make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
Cash
equivalents consist of short-term, highly liquid investments with a maturity
of
ninety days or less when purchased.
Concentrations
of Credit Risk
Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents. The Company maintains
cash accounts in commercial banks, which may, at times, exceed federally
insured
limits. The Company has not experienced any losses in such accounts. The
Company
believes it is not exposed to any significant credit risk on cash and cash
equivalents.
Fair
Value of Financial Instruments
The
carrying amounts of cash equivalents, accounts payable and accrued expenses
approximate their fair value because of their short-term nature. Short-term
investments are carried at aggregate fair value. At December 31, 2005 and
2004,
there were no short-term investments.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the Company’s financial
statements or tax returns. Deferred tax assets and liabilities are determined
based upon the difference between the financial reporting basis and the tax
basis of existing assets and liabilities using enacted tax rates expected
to be
in effect in the year(s) in which the differences are expected to reverse.
A
valuation allowance is provided against deferred tax assets if it is more
likely
than not that such assets will not be realized.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation and amortization are provided
on
the straight-line method over the estimated useful lives of the related assets,
which is three to five years.
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES…continued
|
Research
and Development Costs
Costs
related to research and development are charged to expense when incurred.
Such
costs include proprietary research and development activities and expenses
associated with research and development contracts, whether performed by
the
Company or contracted with independent third parties.
Accounting
for Stock-Based Compensation
The
Company accounts for stock-based awards to employees using the intrinsic
value
method as prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting
for Stock Issued to Employees,
and
related interpretations. The Company follows the provisions of SFAS
No. 123, Accounting
for Stock-Based Compensation,
for
disclosure purposes (Note 9). All stock-based awards to nonemployees are
accounted for at their fair value in accordance with SFAS No. 123 and
Emerging Issues Task Force (EITF) 96-18, Accounting
for Equity Instruments that are Issued to Other than Employees for Acquiring,
or
in Conjunction with Selling, Goods or Services.
The
Company has adopted the disclosure provisions of SFAS No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosure - an
amendment of SFAS No. 123,
for all
stock-based awards as of December 31, 2005.
The
following illustrates the effect on net loss had the Company applied the
fair
value recognition provisions of SFAS No. 123:
|
|
For
the year ended December 31,
|
|
For
the period
from
inception
(September
9, 2003)
to
December 31,
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Net
loss:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(9,516,923
|
)
|
$
|
(5,687,297
|
)
|
$
|
(160,136
|
)
|
Stock-based
compensation expense included in reported net loss
|
|
|
98,755
|
|
|
703,116
|
|
|
—
|
|
Stock-based
compensation expense under the fair value-based method
|
|
|
(942,888
|
)
|
|
(813,095
|
)
|
|
—
|
|
Pro
forma net loss
|
|
$
|
(10,361,056
|
)
|
$
|
(5,797,276
|
)
|
$
|
(160,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(2.32
|
)
|
$
|
(2.37
|
)
|
$
|
(2.04
|
)
|
Pro
forma
|
|
$
|
(2.53
|
)
|
$
|
(2.41
|
)
|
$
|
(2.04
|
)
|
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES…continued
|
Accounting
for Stock-Based Compensation...continued
The
fair
value of each stock option is estimated at the date of grant using the
Black-Scholes option pricing model. The estimated weighted average fair value
of
stock options granted to employees in 2005 and 2004 was approximately $3.43
and
$1.32 per share, respectively. The following table summarizes the assumptions
used in the Black-Scholes option pricing model:
|
|
2005
|
|
2004
|
|
2003
|
|
Expected
life
|
|
|
5
years
|
|
|
5
years
|
|
|
—
|
|
Expected
volatility
|
|
|
109%
- 114
|
%
|
|
134
|
%
|
|
—
|
|
Dividend
yield
|
|
|
0
|
%
|
|
0
|
%
|
|
—
|
|
Weighted
average risk-free interest rate
|
|
|
3.77
- 4.39
|
%
|
|
3.6
|
%
|
|
—
|
|
Recently
Issued Pronouncements
In
December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123R, Share-Based Payment
("SFAS
No. 123R"). This Statement is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation, and supersedes Accounting Principles Board Opinion
No.
25, Accounting for Stock Issued to Employees, and its related implementation
guidance. SFAS No. 123R focuses primarily on accounting for transactions
in
which an entity obtains employee services in share-based payment transactions.
The Statement requires entities to recognize stock compensation expense for
awards of equity instruments to employees based on the grant-date fair value
of
those awards (with limited exceptions). SFAS No. 123R is effective for the
first
fiscal year beginning after December 15, 2005. Based on current options
outstanding, the Company anticipates the adoption (fiscal 2006) of this
statement to result in approximately $765,000 of additional compensation
costs
to be recognized in the year of adoption.
Net
Loss Per Share
Consistent
with Statement of Financial Accounting Standards No. 128, Earnings
Per Share, basic
loss per share amounts are based on the weighted average number of shares
of
common stock outstanding during the period. Diluted loss per share amounts
are
based on the weighted average number of shares of common stock and potentially
dilutive common stock outstanding during the period. The impact of options
and
warrants to purchase 1,576,988 and 728,262 shares of common stock have been
excluded from the calculation of diluted weighted average share amounts as
their
inclusion would have been anti-dilutive for 2005 and 2004,
respectively.
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
3.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment at December 31, 2005 and 2004 consisted of the
following:
|
|
Estimated
|
|
|
|
|
|
|
|
Useful
Life
|
|
|
|
|
|
|
|
(Years)
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Software,
Office & Computer equipment
|
|
|
3
|
|
$
|
349,527
|
|
$
|
274,686
|
|
Leasehold
Improvements
|
|
|
3
|
|
|
43,004
|
|
|
—
|
|
Manufacturing
Equipment
|
|
|
5
|
|
|
12,357
|
|
|
—
|
|
|
|
|
|
|
|
404,888
|
|
|
274,686
|
|
Less
- accumulated depreciation and amortization
|
|
|
|
|
|
135,186
|
|
|
33,953
|
|
|
|
|
|
|
$
|
269,702
|
|
$
|
240,733
|
|
Depreciation
and amortization expense was $101,232, $33,953 and $0 for the year ended
December 31, 2005 and 2004 and for the period from Inception (September 9,
2003)
to December 31, 2003, respectively.
Accrued
expenses at December 31, 2005 and December 31, 2004, consisted of the
following:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Employee
compensation
|
|
$
|
441,668
|
|
$
|
506,391
|
|
Professional
services
|
|
|
76,649
|
|
|
42,767
|
|
Research
and development consulting services
|
|
|
69,466
|
|
|
8,340
|
|
Clinical
consulting services
|
|
|
369,439
|
|
|
37,667
|
|
Manufacturing
services and manufacturing consulting services
|
|
|
388,563
|
|
|
212,211
|
|
Founders
fee
|
|
|
—
|
|
|
60,000
|
|
Accrued
vacation
|
|
|
6,765
|
|
|
—
|
|
Other
|
|
|
66,269
|
|
|
12,000
|
|
|
|
$
|
1,418,819
|
|
$
|
879,376
|
|
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
5.
|
RELATED
PARTY TRANSACTIONS
|
The
Company had engaged Paramount BioCapital, Inc. (“Paramount”) to assist in
placing shares of Series A Preferred Stock on a “best efforts” basis. Lindsay A.
Rosenwald, M.D. is Chairman and Chief Executive Officer of Paramount. Dr.
Rosenwald is also managing member of Horizon BioMedical Ventures, LLC
(“Horizon”). On December 30, 2004, Horizon authorized the distribution of
2,428,911(4,848,376 pre-Merger) shares of Common Stock (such shares, the
“Horizon Distributed Shares”), in equal installments of 1,214,456 (2,424,188
pre-Merger) shares of Common Stock to Mibars, LLC (“Mibars”) and to Dr.
Rosenwald and his designees (the “Designated Shares”). The disposition of the
Designated Shares will be subject to certain restrictions as agreed to among
Dr.
Rosenwald and Dr. Rosenwald’s designees. Among other things, under certain
circumstances set forth in pledge agreements between Dr. Rosenwald and his
designees, Dr. Rosenwald has the right to re-acquire the Designated Shares
from
his designees. As a result of those rights, Dr. Rosenwald may be deemed to
be an
affiliate of the Company.
In
connection with the December 22, 2004 Option Agreement with Southern Research
Institute (“SRI”), the Company entered into a Finders Agreement, dated December
23, 2004, with Paramount pursuant to which the Company has agreed to compensate
Paramount, for services in connection with the Company’s introduction to SRI
through the payment of (a) a cash fee of $60,000 and (b) warrants to purchase
62,621 (125,000 pre-Merger) shares of the Company’s Common Stock at a price
equal to $4.75 ($2.38 pre-Merger) per share. The Company has estimated the
fair
value of such warrants using the Black-Scholes model, using an assumed risk-free
rate of 3.93%, and expected life of 7 years, volatility of 134% and dividend
yield of 0%. In December 2004, the Company expensed the $60,000 that was
payable
to Paramount and recognized compensation expense in the amount of $251,037
for
the issuance of the warrants.
In
connection with the Series A Preferred Stock Offering, the Company and Paramount
entered into an Introduction Agreement in January 2005, pursuant to which
the
Company had agreed to compensate Paramount for its services in connection
with
the Offering through the payment of (a) cash commissions equal to 7% of the
gross proceeds from the sale of the shares of Series A Preferred Stock, and
(b) placement warrants to acquire a number of shares of Series A Preferred
Stock
equal to 10% of the number of shares of Series A Preferred Stock issued in
the
Offering, exercisable for a period of 7 years from the Closing Date at a
per
Share exercise price equal to 110% of the price per Share sold in the Offering.
These commissions are also payable on additional sales by the Company of
securities (other than in a public offering) to investors introduced to the
Company by Paramount during the twelve (12) month period subsequent to the
final
closing of the Offering. The Company also agreed to pay to Paramount a
non-accountable expense allowance of $50,000 to reimburse the Paramount for
its out-of-pocket expenses. Also, for a period of 36 months from the final
Closing, Paramount has the right of first refusal to act as the placement
agent for the private sale of the Company’s securities. Lastly, the Company has
agreed to indemnify Paramount against certain liabilities, including
liabilities under the Securities Act.
Dr.
Michael Weiser and Mr. Timothy McInerney, who are both members of the Board
of
Directors of the Company, are also full-time employees of Paramount. In
addition, David M. Tanen, who was a member of the Board of Directors of the
Company, was a full-time employee of Paramount from July 1996 through
August 2004. Mr. John Knox, our former Treasurer, is also a full-time Paramount
employee.
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
6.
|
COMMITMENTS
AND CONTINGENCIES
|
Lease
Commitment
The
Company leases office space in two locations under agreements expiring in
2009
and 2010. The leases include payment increases over the term of the agreements.
The total amount of the lease payments is being charged to expense using
the
straight-line method over the term of the agreement.
Future
minimum lease payments under noncancelable operating leases as of December
31, 2005, were as follows:
|
|
Operating
|
|
|
|
Leases
|
|
2006
|
|
$
|
189,776
|
|
2007
|
|
|
192,499
|
|
2008
|
|
|
205,539
|
|
2009
|
|
|
195,105
|
|
2010
|
|
|
63,232
|
|
|
|
|
|
|
|
|
$
|
846,151
|
|
License
Agreement
Patent
and Technology License Agreement- The University of Texas M. D. Anderson
Cancer
Center and the Texas A&M University System.
On
August
24, 2004, the Company entered into a patent and technology license agreement
with The Board of Regents of the University of Texas System, acting on behalf
of
The University of Texas M. D. Anderson Cancer Center and the Texas A&M
University System (collectively, the “Licensors”). Under this agreement, the
Company was granted an exclusive, worldwide license to rights (including
rights
to US and foreign patent and patent applications and related improvements
and
know-how) for the manufacture and commercialization of two classes of organic
arsenicals (water - and lipid-based) for human and animal use. The class
of
water-based organic arsenicals includes ZIO-101.
In
October 2004, the Company received a notice of allowance for US Patent
Application No. 10/337969, entitled “S-dimethylarsino-thiosuccinic acid
S-dimethylarsino-2-thiobenzoic acid S-(simethylarsino) glutathione as treatments
for cancer.” The patent application claims both therapeutic uses and
pharmaceutical compositions containing a novel class of organic arsenicals,
including ZIO-101, for the treatment of cancer. In February 2006, we announced
that a second organic arsenic case has been issued under U.S. Patent No.
6995188.
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
6.
|
COMMITMENTS
AND CONTINGENCIES...continued
|
License
Agreement...continued
As
partial consideration for the license rights obtained, the Company made an
upfront payment of $125,000 and granted the Licensors 250,487 (500,000
pre-Merger) shares of our Common Stock, as well as options to purchase up
to an
additional 50,222 (100,250 pre-Merger) shares of our Common Stock for $0.002
per
share, following the successful completion of certain clinical milestones
(the
“Anderson Options”). The Company expensed the $125,000 upfront payment and
recognized research and development compensation expense of $426,339 in
connection with the issuance of the Common Stock in the year ended December
31,
2004. The Anderson Options became immediately exercisable with respect to
12,555
(25,063 pre-Merger) shares of our Common Stock upon the filing of an
Investigation New Drug Application (“ IND”) for ZIO-101 in the fiscal year ended
December 31, 2005 and the company recognized compensation expense.. The Anderson
Options will vest and become exercisable with respect to an additional 25,111
(50,125 pre-Merger) shares upon the completion of dosing of the last patient
for
both phase I clinical trials, and will vest and become exercisable with respect
to an additional 12,556 (25,062 pre-Merger) shares upon the commencement
of a
pivotal clinical trial. During 2005, the Company recognized research and
development compensation expense of $54,115 in connection with the vesting
of
the Anderson Options in respect to the filing of an IND for ZIO-101. The
options
are subject to variable plan accounting and are re-measured at each reporting
period. In addition, the Licensors are entitled to receive certain milestone
payments (the “Anderson Milestones”), including $100,000 to be paid upon the
commencement of phase I clinical trial for which the Company recognized the
expense in the year ended December 31, 2005. The Company may be required
to make
additional payments upon achievement of certain other milestones, in varying
amounts which on a cumulative basis could total up to $4,750,000. In
addition, the Licensors are entitled to receive royalty payments on sales
from a
licensed product should such a product be approved for commercial sale and
sales
of a licensed product be effected in the United States, Canada, the European
Union or Japan. The Licensors also will be entitled to receive a portion
of any
fees that the Company may receive from a possible sublicensee. Finally, the
Company agreed to remit to the Licensors $200,000 for at least each of the
next
two years to be used by the Licensors to conduct scientific research funding.
The Company will have the exclusive right to all intellectual property rights
resulting from such research pursuant to the terms of the license agreement.
The
license agreement also contains other provisions customary and common in
similar
agreements within the industry, such as the right to sublicense our rights
under
the agreement. However, if we sublicense our rights prior to the commencement
of
a pivotal study (i.e.,
a human
clinical trial intended to provide the substantial evidence of efficacy
necessary to support the filing of an approvable NDA), the Licensors will
be
entitled to receive a share of the payments we receive in exchange for the
sublicense (subject to certain exceptions).
License
Agreement with DEKK-Tec, Inc.
On
October 15, 2004, the Company entered into a license agreement with DEKK-Tec,
Inc., pursuant to which it was granted an exclusive, worldwide license to
the
second lead product candidate, ZIO-201. As part of the signing of license
agreement with DEKK-Tec, the Company expensed a $50,000 up-front payment
in the
year ended December 31, 2004.
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
6.
|
COMMITMENTS
AND CONTINGENCIES...continued
|
In
consideration for our license rights, DEKK-Tec is entitled to receive milestone
payments upon the occurrence of certain events. In consideration for our
license
rights, DEKK-Tec is entitled to receive milestone payments upon the occurrence
of certain events. The Company may be required to make payments upon
achievements of certain milestones, in varying amounts which on a cumulative
basis may total $3,900,000. Of the aggregate milestone payments, most of
the
total amount will be creditable against future royalty payments, as referenced
below. The options are subject to variable plan accounting and are re-measured
at each reporting period. In 2004, the Company also issued DEKK-Tec an option
to
purchase 27,616 (55,125 pre-Merger) shares of our Common Stock for $0.02
per
share, which option vested with respect to 6,904 (13,781 pre-Merger) shares
upon
the execution of the license agreement and was exercised in the fiscal year
ended December 31, 2005. The options are subject to variable plan accounting
and
are re-measured at each reporting period. In 2004, the Company has estimated
the
fair value of such options using the Black-Scholes model, using an assumed
risk-free rate of 3.35%, and expected life of 5 years, volatility of 134%
and
dividend yield of 0%. In 2004, the Company recorded a charge of $12,190 to
research and development expense for the vested options. The option will
vest
with respect to the remaining shares upon certain milestone events, culminating
with final FDA approval of the first NDA submitted by us (or by our sublicensee)
for ZIO-201. Finally, DEKK-Tec also is entitled to receive royalty payments
on
the sales of ZIO-201 should it be approved for commercial sale.
The
license agreement also contains other provisions customary and common in
similar
agreements within the industry.
Option
Agreement with Southern Research Institute (“SRI”)
On
December 22, 2004, the Company entered into an Option Agreement with SRI
(the
“Option Agreement”), pursuant to which the Company was granted an exclusive
option to obtain an exclusive license to SRI’s interest in certain intellectual
property, including exclusive rights related to certain isophosphoramide
mustard
analogs (the “SRI Option”).
Also
on
December 22, 2004, the Company entered into a Research Agreement with SRI
pursuant to which the Company agreed to spend a sum not to exceed $200,000
between the execution of the agreement and December 21, 2006, including a
$25,000 payment that we made simultaneously with the execution of the agreement,
to fund research and development work by SRI in the field of isophosphoramide
mustard analogs (the “SRI Research Program”). Under the terms of the Option
Agreement, the Company’s exclusive right to exercise the SRI Option will expire
sixty days after the termination or expiration of the SRI Research Program
and
the delivery of the reports required thereunder. (See Note 5- Related Party
Transactions)
Guarantees
and indemnification Obligations
Certain
officers and employees have agreements with the company that call for a
guarantee bonus that is payable within 30 days after the employee’s anniversary
date. Certain officer and employees also have specific severance agreements.
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
The
components of the net deferred tax asset (liability) are as
follows:
|
|
December
31,
|
|
December
31,
|
|
|
|
2005
|
|
2004
|
|
Net
operating loss carryforwards
|
|
$
|
2,550,081
|
|
$
|
494,881
|
|
Start-up
and organizational costs
|
|
|
3,392,774
|
|
|
1,502,217
|
|
Research
and development credit carryforwards
|
|
|
293,606
|
|
|
81,670
|
|
Accrued
bonus
|
|
|
16,779
|
|
|
200,343
|
|
Depreciation
|
|
|
14,419
|
|
|
(4,102
|
)
|
Other
|
|
|
56,042
|
|
|
8,816
|
|
Net
deferred tax assets
|
|
|
6,323,701
|
|
|
2,283,825
|
|
Deferred
tax asset valuation allowance
|
|
|
(6,323,701
|
)
|
|
(2,283,825
|
)
|
|
|
$ |
—
|
|
$
|
—
|
|
Deferred
income taxes reflect the net tax effects of temporary differences between
the
carrying amount of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes. As of December 31, 2005 and 2004,
the
Company has net operating loss carryforwards of approximately $6,332,000
and
$1,229,000, respectively, available to offset future federal and state
taxable
income to the extent permitted under the Internal Revenue Code (IRC), expiring
in varying amounts through 2023. Under the IRC, certain substantial changed
in
the Company’s ownership may limit the amount of net operating loss carryforwards
that can be utilized in any one year to offset future taxable
income.
The
Company has provided a valuation allowance for the full amount of these
net
deferred tax assets, since it is more likely than not that these future
benefits
will not be realized. However, these deferred tax assets may be available
to
offset future income tax liabilities and expenses. The valuation allowance
increased by $4,039,876 due primarily to net operating loss carryforward,
stock
based compensation, and the increase in research and development
credits.
Income
taxes using the federal statutory income tax rate differ from the Company’s
effective tax rate primarily due to the change in the valuation allowance
on
deferred tax assets.
8.
|
CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’
EQUITY
|
As
a
result of the merger, the Company has authorized capital of 280,000,000 shares,
of which all shares have been designated as common stock, par value $.001
per
share (the “Common Stock”).
Common
Stock of ZIOPHARM, Inc.
As
of
December 31, 2005, the Company has issued and outstanding 7,248,115 shares
of
Common Stock and no shares of preferred stock.
In
September 2003, the Company issued 2,000,000 (before the split discussed
below
and the Merger) shares of Common Stock at $0.25 per share for gross proceeds
of
$500,000.
In
February 2004, the Company issued 18,000,000 (before the split discussed
below
and the Merger) shares of Common Stock at $0.25 per share for gross proceeds
of
$4,500,000.
In
February 2004, the Company amended its articles of incorporation to provide
for
the combination of the Company’s common stock, par value $0.001 per share on a
1-for-4 basis (all other share amounts presented reflect the reverse
split).
Convertible
Preferred Stock of ZIOPHARM, Inc.
All
shares of Series A Preferred Stock have been converted into shares of Common
Stock of the Company.
Voting
Rights
The
holders of Series A Preferred Stock were entitled to vote together with all
other holders of the Company’s voting stock on an “as-converted” basis on all
matters submitted to a vote of holders generally. The holders of Series A
Preferred Stock, voting as a separate class, had the right to approve by
a 66%
supermajority certain actions proposed to be taken by the Company.
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
8.
|
CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY...continued
|
Convertible
Preferred Stock...continued
Dividend
Rights
The
holders of Series A Preferred Stock were entitled to receive dividends on
an
equal basis with the holders of Common Stock when, as and if declared by
the
Board of Directors.
Liquidation
Preferences
The
Series A Preferred Stock shall rank senior to the Common Stock and any future
class of junior securities, and were entitled to a liquidation
preference equal to the Stated Value, subject to adjustment (as defined in
the Certificate of Designations), upon any liquidation, dissolution or winding
up of the Company or upon a voluntary or involuntary bankruptcy of the
Company.
Conversion
Rights
Each
share of Series A Preferred Stock was convertible into Common Stock at any
time
at the option of the holder thereof (the Series A Preferred Stock and the
Common
Stock issuable upon conversion of the Series A Preferred Stock are sometimes
herein collectively referred to as the “Securities”). All of the outstanding
shares of Series A Preferred Stock automatically converted into Common Stock
upon the first date (the “Trading Date”) on which the Common Stock (or
securities received in exchange for Common Stock) trades on a national
securities exchange or on NASDAQ, including the Over the Counter Bulletin
Board
(a “Trading Event”). The rate at which shares of Series A Preferred Stock
converted into Common Stock was initially to be one-for-one, subject to
adjustment in connection with certain anti-dilution protections and other
adjustments.
In
the
event of a reclassification, capital reorganization or other similar change
in
the outstanding shares of Common Stock, a consolidation or merger of the
Company
with or into another entity (other than a consolidation or merger in which
the
Corporation is the continuing entity and which does not result in a
reclassification, capital reorganization or other change of outstanding shares
of Common Stock other than the number thereof), or a sale of the property
of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Series A Preferred Stock
became convertible into the kind and number of shares of stock or other
securities or property (including cash) that the holders of Series A Preferred
Stock would have received if the Series A Preferred Stock had been converted
into Common Stock immediately prior to such reclassification, capital
reorganization or other change, consolidation, merger or sale.
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
The
Company has adopted the 2003 Stock Option Plan (the “Plan”), under which the
Company has reserved for the issuance of 1,252,435 (2,500,000 pre-Merger)
shares
of our Common Stock. The Plan was approved by our stockholders on December
21,
2004. The Company has issued under its 2003 Stock Option Plan 973,639 shares
that are issuable upon exercise of outstanding options to purchase Common
Stock.
To date, the Company has outstanding options to our employees to purchase
up to
881,964 shares of the Company’s Common Stock. In addition, the Company has
outstanding to our directors options to purchase up to 90,175 (180,000
pre-Merger) shares of the Company’s Common Stock, as well as options to a
consultant in connection with services rendered to purchase up to 250 (500
pre-Merger) shares of the Company’s Common Stock. The Company has estimated the
fair value of such options using the Black-Scholes model, using an assumed
risk-free rate of 4.23%, and expected life of 10 years, volatility of 134%
and
dividend yield of 0%. The options issued to the consultant were valued at
$1,050, and recorded as a charge to general and administration compensation
expense. As a part of the merger, the Company assumed 1,250 outstanding options
from EasyWeb.
The
Company has also reserved an aggregate of 77,838 (155,375 pre-Merger) additional
shares for issuance under options to purchase shares of the Company’s Common
stock that were granted outside of the 2003 Stock Option Plan. The options
were
granted to The University of Texas M.D. Anderson Cancer Center and DEKK-Tec,
Inc. (See Note 6- Commitments and Contingencies).
Transactions
under the Plan for the year December 31, 2005 were as follows:
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
Number
of
|
|
Exercise
|
|
|
|
Shares
|
|
Price
|
|
|
|
|
|
|
|
Outstanding,
January 1, 2004
|
|
|
1,250
|
|
$
|
20.00
|
|
Granted
|
|
|
586,553
|
|
|
1.25
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Canceled
|
|
|
—
|
|
|
—
|
|
Outstanding,
December 31, 2004
|
|
|
587,803
|
|
$
|
1.29
|
|
Granted
|
|
|
542,389
|
|
|
3.60
|
|
Exercised
|
|
|
(91,719
|
)
|
|
0.05
|
|
Canceled
|
|
|
(64,834
|
)
|
|
3.29
|
|
Outstanding,
December 31, 2005
|
|
|
973,639
|
|
$
|
2.56
|
|
|
|
|
|
|
|
|
|
Options
available for future grants
|
|
|
271,676
|
|
|
|
|
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
9.
|
STOCK
OPTION PLAN (continued)
|
The
following table summarizes information about stock options outstanding that
are
in the plan at December 31, 2005:
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
Exercise
Price
|
|
Number
Outstanding
|
|
Weighted-
Average
Remaining
Contractual
Life
(Years)
|
|
Weighted-
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.08
|
|
|
268,654
|
|
|
8.07
|
|
$
|
0.08
|
|
|
89,551
|
|
$
|
.08
|
|
$0.44
|
|
|
25,111
|
|
|
8.07
|
|
$
|
0.44
|
|
|
8,370
|
|
$
|
.44
|
|
$1.70
|
|
|
176,750
|
|
|
8.52
|
|
$
|
1.70
|
|
|
58,917
|
|
$
|
1.70
|
|
$4.05
|
|
|
109,250
|
|
|
9.96
|
|
$
|
4.05
|
|
|
—
|
|
$
|
—
|
|
$4.31
|
|
|
392,624
|
|
|
9.41
|
|
$
|
4.31
|
|
|
115,345
|
|
$
|
4.31
|
|
$20.00
|
|
|
1,250
|
|
|
4.97
|
|
$
|
20.00
|
|
|
1,250
|
|
$
|
20.00
|
|
|
|
|
973,639
|
|
|
8.90
|
|
$
|
2.56
|
|
|
273,434
|
|
$
|
2.31
|
|
The
Company also issued warrants to purchase 62,621 (125,000 pre-Merger) shares
of
the Company’s Common Stock to Paramount as compensation for services rendered in
connection with our entering into an option agreement with Southern Research
Institute. In connection with the warrants issued, the Company recorded a
charge
of $251,037 to general and administrative expense. The Company has estimated
the
fair value of such options using the Black-Scholes model, using an assumed
risk-free rate of 3.93%, and expected life of 7 years, volatility of 134%
and
dividend yield of 0%.
In
2005,
the Company also issued performance warrants to purchase 50,000 shares of
the
Company’s Common Stock for services to be rendered to its investor relations
consultant as compensation. In connection with the warrant issuance 12,500
shares are exercisable immediately and the Company recorded a charge of $44,640
to general and administrative expense in the year ended December 31, 2005.
The
Company has estimated the fair value of such options using the Black-Scholes
model, using an assumed risk-free rate of 4.39%, and expected life of 5 years,
volatility of 109% and dividend yield of 0%. The remaining warrants vest
in
increments of 12,500, 12,500 and 12,500 based on certain performance
objectives.
In
connection with the Offering completed in June 2005, the Company compensated
Paramount, placement agent for the Offering, or its affiliates for its services
through the payment of placement warrants to acquire 419,794 (837,956 -
pre-Merger) shares of Series A Preferred Stock (the Series A Stock Warrants),
exercisable for a period of 7 years from the Closing Date at a per share
exercise price equal to 110% of the price per share sold in the Offering.
The
Company valued the Series A Stock Warrants using the Black-Scholes
model and recorded a charge of $1,682,863 against additional paid-in
capital. The Company has estimated the fair value of the Series A Stock Warrants
using the Black-Scholes model, using an assumed risk-free rate of 3.93% and
expected life of 7 years, volatility of 134% and dividend yield of
0%.
ZIOPHARM
Oncology, Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
For
the
Years Ended December 31, 2005 and 2004,
for
the
period from inception (September 9, 2003)
through
December 31, 2003, and for the period from
inception
(September 9, 2003) through December 31, 2005
The
following is a summary of warrants outstanding as of December 31,
2005.
Number
|
|
Issued
in connection with
|
|
Exercise
Price
|
|
Expiration
Date
|
|
|
|
|
|
|
|
|
|
62,621
|
|
|
Services
performed
|
|
$
|
4.75
|
|
|
December
23, 2011
|
|
419,794
|
|
|
Placement
warrants for services performed
|
|
$
|
4.75
|
|
|
May
31, 2012
|
|
50,000
|
|
|
Services
performed
|
|
$
|
4.75
|
|
|
November
22, 2012
|
|
532,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
Employee
Benefit Plan
|
The
Company sponsors a qualified 401(k) Retirement Plan ( the “Plan”) under which
employees are allowed to contribute certain percentages of their pay, up
to the
maximum allowed under Section 401(k) of the Internal Revenue Code. The Company
does not presently make contributions to the Plan.
7,462,095
Shares
Common
Stock
______________________
PROSPECTUS
______________________
April
14,
2006