PART
I: FINANCIAL INFORMATION
SCOLR
Pharma, Inc.
|
|
March 31,
2009
(Unaudited)
|
|
|
December 31,
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
4,713,909 |
|
|
$ |
6,363,243 |
|
Accounts
receivable
|
|
|
163,364 |
|
|
|
177,253 |
|
Interest
and other receivables
|
|
|
1,225 |
|
|
|
1,157 |
|
Prepaid
expenses
|
|
|
219,953 |
|
|
|
286,539 |
|
Total
current assets
|
|
|
5,098,451 |
|
|
|
6,828,192 |
|
|
|
|
|
|
|
|
|
|
Property
and Equipment — net of accumulated depreciation of $1,251,100 and
$1,289,844, respectively
|
|
|
801,703 |
|
|
|
790,947 |
|
Intangible
assets — net of accumulated amortization of $452,935 and $465,724,
respectively
|
|
|
495,052 |
|
|
|
557,639 |
|
Restricted
cash
|
|
|
473,711 |
|
|
|
473,711 |
|
|
|
$ |
6,868,917 |
|
|
$ |
8,650,489 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
247,332 |
|
|
$ |
238,701 |
|
Accrued
liabilities
|
|
|
473,209 |
|
|
|
668,694 |
|
Current
portion of term loan
|
|
|
89,917 |
|
|
|
87,850 |
|
Total
current liabilities
|
|
|
810,458 |
|
|
|
995,245 |
|
|
|
|
|
|
|
|
|
|
Long-term
portion of term loan
|
|
|
— |
|
|
|
23,269 |
|
Deferred
rent
|
|
|
301,517 |
|
|
|
310,010 |
|
Total
liabilities
|
|
|
1,111,975 |
|
|
|
1,328,524 |
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Preferred
stock, authorized 5,000,000 shares, $.01 par value, none issued or
outstanding
|
|
|
— |
|
|
|
— |
|
Common
stock, authorized 100,000,000 shares, $.001 par value 41,098,270 and
41,130,270 issued and outstanding as of March 31, 2009 and
December 31, 2008, respectively
|
|
|
41,098 |
|
|
|
41,130 |
|
Additional
paid-in capital
|
|
|
71,594,664 |
|
|
|
71,255,901 |
|
Accumulated
deficit
|
|
|
(65,878,820 |
) |
|
|
(63,975,066 |
) |
Total
stockholders’ equity
|
|
|
5,756,942 |
|
|
|
7,321,965 |
|
|
|
$ |
6,868,917 |
|
|
$ |
8,650,489 |
|
The
accompanying notes are an integral part of these financial
statements.
SCOLR
Pharma, Inc.
(Unaudited)
|
|
Three
months ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Revenues
|
|
|
|
|
|
|
Royalty
|
|
$ |
171,772 |
|
|
$ |
265,555 |
|
Total
revenues
|
|
|
171,772 |
|
|
|
265,555 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Marketing
and selling
|
|
|
106,583 |
|
|
|
237,693 |
|
Research
and development
|
|
|
821,934 |
|
|
|
883,212 |
|
General
and administrative
|
|
|
1,153,651 |
|
|
|
1,232,284 |
|
Total
operating expenses
|
|
|
2,082,168 |
|
|
|
2,353,189 |
|
Loss
from operations
|
|
|
(1,910,396 |
) |
|
|
(2,087,634 |
) |
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
9,072 |
|
|
|
100,319 |
|
Interest
expense
|
|
|
(2,430 |
) |
|
|
(4,313 |
) |
|
|
|
6,642 |
|
|
|
96,006 |
|
Net
Loss
|
|
$ |
(1,903,754 |
) |
|
$ |
(1,991,628 |
) |
Net
loss per share, basic and diluted
|
|
$ |
(0.05 |
) |
|
$ |
(0.05 |
) |
Shares
used in computing basic and diluted net loss per share
|
|
|
41,098,270 |
|
|
|
41,072,978 |
|
The
accompanying notes are an integral part of these financial
statements.
SCOLR
Pharma, Inc.
(Unaudited)
|
|
Three
months ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,903,754 |
) |
|
$ |
(1,991,628 |
) |
Reconciliation
of net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
100,632 |
|
|
|
104,863 |
|
Write-off
of long-term assets
|
|
|
77,194 |
|
|
|
19,043 |
|
Share-based
compensation for employee services
|
|
|
354,834 |
|
|
|
342,222 |
|
Increase
(decrease) in cash resulting from changes in assets and
liabilities
|
|
|
|
|
|
|
|
|
Accounts
and other receivables
|
|
|
13,821 |
|
|
|
(38,307 |
) |
Prepaid
expenses and current assets
|
|
|
66,586 |
|
|
|
41,205 |
|
Accounts
payable and accrued expenses
|
|
|
(296,685 |
) |
|
|
(781,532 |
) |
Net
cash used in operating activities
|
|
|
(1,587,372 |
) |
|
|
(2,304,134 |
) |
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of equipment and furniture
|
|
|
(89,062 |
) |
|
|
— |
|
Proceeds
from insurance settlement
|
|
|
85,267 |
|
|
|
— |
|
Patent
and technology rights payments
|
|
|
(36,933 |
) |
|
|
(82,729 |
) |
Net
cash used in investing activities
|
|
|
(40,728 |
) |
|
|
(82,729 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments
on term loan
|
|
|
(21,202 |
) |
|
|
(19,319 |
) |
Company
purchase of restricted stock
|
|
|
(32 |
) |
|
|
— |
|
Proceeds
from exercise of common stock options and warrants
|
|
|
— |
|
|
|
40,087 |
|
Net
(cash used) provided by financing activities
|
|
|
(21,234 |
) |
|
|
20,768 |
|
Net
(decrease) in cash
|
|
|
(1,649,334 |
) |
|
|
(2,366,095 |
) |
Cash
at beginning of period
|
|
|
6,363,243 |
|
|
|
11,825,371 |
|
Cash
at end of period
|
|
$ |
4,713,909 |
|
|
$ |
9,459,276 |
|
Cash
paid during the period for interest
|
|
$ |
2,165 |
|
|
$ |
3,897 |
|
Non-cash
investing and financing activities:
|
|
$ |
— |
|
|
$ |
— |
|
The
accompanying notes are an integral part of these financial
statements.
SCOLR
Pharma, Inc.
Note
1 — Financial Statements
The
unaudited financial statements of SCOLR Pharma, Inc. (the “Company”) have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial reporting and pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, the financial information includes all normal and recurring
adjustments that the Company considers necessary for a fair presentation of the
financial position at such dates and the results of operations and cash flows
for the periods then ended. The balance sheet at December 31, 2008 has been
derived from the audited financials statements at that date. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to SEC rules and regulations on
quarterly reporting. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the entire fiscal year
ending December 31, 2009. The accompanying unaudited financial statements
and related notes should be read in conjunction with the audited financial
statements and the Form 10-K for the Company’s fiscal year ended
December 31, 2008.
Use
of Estimates
The
preparation of financial statements in accordance 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. Estimates are used for, but not limited to those
used in revenue recognition, the determination of the allowance for doubtful
accounts, depreciable lives of assets, estimates and assumptions used in the
determination of fair value of stock options and warrants, including share-based
compensation expense, and deferred tax valuation allowances. Future events and
their effects cannot be determined with certainty. Accordingly, the accounting
estimates require the exercise of judgment. The accounting estimates used in the
preparation of the financial statements may change as new events occur, as more
experience is acquired, as additional information is obtained and as the
Company’s operating environment changes. Actual results could differ from those
estimates.
Note
2 — New Accounting Pronouncements
In
January 2008, the Financial Accounting Standards Board (FASB) ratified a
consensus opinion reached by the Emerging Issues Task Force (EITF) on EITF Issue
07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entity’s Own Stock,” to provide guidance for determining whether an
equity-linked financial instrument or embedded feature is considered indexed to
an entity’s own stock. The consensus establishes a two-step approach as a
framework for determining whether an instrument or embedded feature is indexed
to an entity’s own stock. The approach includes evaluating (1) the instrument’s
contingent exercise provisions, if any, and (2) the instrument’s settlement
provisions.
Entities
that issue financial instruments such as warrants or options on their own
shares, convertible debt, convertible preferred stock, forward contracts on
their own shares, or market-based employee stock option valuation instruments
will be affected by EITF Issue 07-5.
The EITF
Issue 07-5 was adopted January 1, 2009, and there was no material
impact to the Company’s financial statements upon adoption.
In June
2008, the FASB issued FASB Staff Position EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities.” This position states that unvested share-based payment awards that
contain nonforfeitable rights to dividends (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings
per share (EPS) under the two-class method described in paragraphs 60 and 61 of
FASB Statement No. 128, “Earnings per Share.” FSP EITF 03-6-1 is effective for
financial statements issued for fiscal years beginning after December 15, 2008.
The adoption of EITF 03-6-1 in the current quarter did not have an effect on the
Company’s calculation of EPS for the three months ended March 31, 2009 and
2008.
In
December 2007, the Financial Accounting Standards Board ratified a consensus
opinion reached by the Emerging Issues Task Force (EITF) on EITF Issue 07-1,
“Accounting for Collaborative Arrangements.” The guidance in EITF Issue 07-1
defines collaborative arrangements and establishes presentation and disclosure
requirements for transactions within a collaborative arrangement (both with
third parties and between participants in the arrangement).
The
consensus in EITF Issue 07-1 is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2008. The consensus
requires retrospective application to all collaborative arrangements existing as
of the effective date, unless retrospective application is impracticable. The
Company was not a participant in any collaborative arrangements during the three
months ended March 31, 2009 and thus the adoption of EITF Issue 07-1 did
not have a significant effect on the Company’s financial
statements.
Note
3 – Accounts Receivable
At
March 31, 2009, accounts receivable consisted of royalty receivables from
CDT-based product sales.
Note
4 — Liquidity
The
Company incurred a net loss of approximately $1.9 million for the three months
ended March 31, 2009, and used cash from operations of approximately $1.6
million. Cash flows of $40,728 used by investing activities during the three
months ended March 31, 2009 represents $89,062 for equipment purchases, plus
$36,933 in patent and trademark related expenditures, offset by $85,267 of
proceeds from an insurance settlement. Cash flow used by financing activities of
$21,234 for the period ended March 31, 2009, reflects primarily payments on our
term loan.
The
Company had approximately $4.7 million in cash and cash equivalents, and
$473,711 in restricted cash as of March 31, 2009. The Company is investing its
cash and cash equivalents in government-backed securities. These securities are
considered level 1 securities in accordance with FASB 157 “Fair Value
Measurements” as the securities have quoted prices in active
markets.
The
Company has a history of recurring losses and expects such net losses to
continue as the Company continues with preclinical development for select
product candidates and advances its lead product candidates toward regulatory
approvals and commercialization. The Company will require substantial
additional investment that it has not yet secured to complete development of its
current product candidates. In April 2009, the Company engaged HealthPro
BioVentures LLC as its financial advisor in connection with the evaluation of
various prospective transactions, and identifying and evaluating potential
strategic partners.
The
Company’s current operating plan reflects reductions in operating expenses
already implemented. The Company is actively managing liquidity by limiting
clinical and development expenses to its lead products and supporting existing
alliances and collaborations. The Company has deferred all significant
expenditures on product development projects pending additional financing or
partnership support.
The
Company seeks to raise additional capital to fund operations, continue research
and development projects and advance commercialization of its product
candidates. The Company may raise additional capital through public or private
equity financing, partnerships, debt financing, or other sources. The Company is
endeavoring to enter into income-generating license agreements which could
partially offset our expenses. If the Company is unable to obtain necessary
additional financing, our business will be adversely affected and we will be
required to reduce the scope of our business or discontinue operations. If we
are forced to reduce or cease our operations we may trigger additional
obligations, including contractual severance obligations aggregating as much as
$2.0 million for all employees contractually entitled to benefits, which would
further negatively impact our liquidity and capital resources. In addition, the
Company may be forced to liquidate assets at amounts that are less than their
current assessed values due to our immediate liquidity
requirements.
The
Company has limited capital resources and operations to date have been funded
primarily with the proceeds of public and private equity financings and
collaborative research agreements. The Company anticipates that its existing
capital resources, without raising additional capital or obtaining substantial
cash from potential partners or products, will enable it to continue operations
until late 2009, assuming the Company does not trigger additional obligations,
including contractual severance obligations described above, and unless
unforeseen events arise that negatively impact our liquidity. The Company may
consider substantially reducing or suspending operations to preserve capital.
These conditions raise substantial doubt about the Company’s ability to continue
as a going concern. Consequently, the audit report prepared by the Company’s
independent registered public accounting firm relating to the Company’s
financial statements for the year ended December 31, 2008 included a going
concern explanatory paragraph. Should the Company be unable to continue as a
going concern, assets and liabilities would require restatement on a liquidation
basis that would differ materially from the going concern basis.
In
November 2005, the Securities and Exchange Commission declared effective the
Company’s registration statement filed using a “shelf” registration process
which expired on December 1, 2008. Under this registration statement,
the Company offered from time-to-time, one or more offerings of common stock
and/or warrants to purchase common stock under this shelf registration up to an
aggregate public offering price of $40 million. On November 14, 2008, we filed a
new shelf registration statement in the amount of $40 million. At the time the
new shelf registration was
filed,
$21.0 million remained available for issuance under the November 2005 filing. On
November 25, 2008, the Securities and Exchange Commission declared our
registration statement effective. Under this registration statement, we may
offer from time-to-time, one or more offerings of common stock and/or warrants
to purchase common stock under this shelf registration up to an aggregate public
offering price of $40 million. If additional capital is raised through the sale
of equity or convertible debt securities, the issuance of such securities will
result in dilution to our existing stockholders.
Note
5 — Income Taxes
The
Company continues to maintain a valuation allowance for the full amount of the
net deferred tax asset balance associated with its net operating losses as
sufficient uncertainty exists regarding its ability to realize such tax assets
in the future. The Company expects the amount of the net deferred tax asset
balance and full valuation allowance to increase in future periods as it incurs
future net operating losses. There were no unrecognized tax benefits as of
December 31, 2008, or March 31, 2009. The Company does not anticipate any
significant changes to its unrecognized tax benefits within the next twelve
months.
Note
6 — Share-Based Compensation
On
January 30, 2009, the date of his appointment as the Company’s Chief Executive
Officer and President, Dr. Bruce Morra was awarded stock options exercisable for
500,000 shares of the Company’s common stock with a fair value of $217,635. One
half of the option award vested immediately, 25% of the option award will vest
on June 18, 2009, and the remaining 25% of the option award will vest on June
18, 2010, provided Dr. Morra continues to serve as Chief Executive Officer of
the Company on each such vesting date. Additionally, the Company has
agreed to issue to Dr. Morra 214,285 shares of common stock on January 2, 2010,
subject to the availability of such shares under the Company’s 2004 Equity
Incentive Plan (the “Plan”). If there are not sufficient shares
available for issuance under the Plan to grant the full amount of such award,
Dr. Morra will be issued such lesser number of shares as is then available under
the Plan, and the remainder shall be issued when sufficient shares are available
under the Plan. The Company intends to increase the number of shares
issuable under the Plan by 3,000,000 and a proposal concerning the same will be
submitted to the Company’s shareholders at its annual meeting to be held on June
11, 2009. A liability of $16,071 has been established for the fair value of
these shares as of the balance sheet date and the related share based
compensation expense has been recorded to general and administrative
expense.
No
restricted stock was issued during the three month period ended March 31,
2009.
The
following tables set forth the aggregate share-based compensation expense
resulting from equity incentive awards issued to the Company’s employees and to
non-employees for services rendered that is recorded in the Company’s results of
operations for the period ended March 31:
|
|
2009
|
|
|
2008
|
|
Share-based
compensation:
|
|
|
|
|
|
|
Marketing
and selling
|
|
$
|
7,544
|
|
|
$
|
25,390
|
|
Research
and development
|
|
|
81,875
|
|
|
|
86,893
|
|
General
and administrative
|
|
|
265,415
|
|
|
|
121,706
|
|
Share-based
compensation for employees
|
|
|
354,834
|
|
|
|
233,989
|
|
General
and administrative, non-employee services
|
|
|
—
|
|
|
|
108,233
|
|
Total
share-based compensation expense
|
|
$
|
354,834
|
|
|
$
|
342,222
|
|
The
share-based compensation expense for non-employee services reflects option
grants to outside consultants. There is no future performance conditions
associated with these grants and no consideration was received for the
options.
Note
7 — Net Loss Per Share Applicable to Common Stockholders
Basic net
loss per share represents loss available to common stockholders divided by the
weighted-average number of shares of common stock outstanding during the period.
Diluted earnings (loss) per share include the effect of potential issuances of
common stock, except when the effect is anti-dilutive. The weighted average
shares for computing basic earnings (loss) per share were 41,098,270 and
41,072,978 for the three months ended March 31, 2009, and 2008
respectively.
At
March 31, 2009, and 2008, the weighted average number of diluted shares
does not include potential issuances of common stock which are anti-dilutive.
The following potential common shares were not included in the calculation of
diluted net loss per share as the effect would have been
anti-dilutive.
Common
shares from:
|
|
2009
|
|
|
2008
|
|
Assumed
exercise of stock options
|
|
|
4,915,525 |
|
|
|
3,554,321 |
|
Assumed
conversion of warrants
|
|
|
2,226,550 |
|
|
|
3,624,342 |
|
Total
|
|
|
7,142,075 |
|
|
|
7,178,663 |
|
Note
8 — Future Commitments
The
Company has certain material agreements with its manufacturing and testing
vendors related to its ongoing clinical trial work associated with its drug
delivery technology. Contract amounts are paid based on materials used and on a
work performed basis. Generally, the Company has the right to terminate these
agreements upon 30 days notice and would be responsible for services and
materials and related costs incurred prior to termination.
Note
9 — Warrants
During
the three months ended March 31, 2009, there were no new warrants issued or
exercised. The Company had the following warrants to purchase common stock
outstanding at March 31, 2009:
Issue
Date
|
|
Issued
Warrants
|
|
|
Exercise
Price
|
|
Term
|
|
Outstanding
Warrants
|
|
Expiration
Date
|
September 30, 2002
|
|
|
750,000 |
|
|
$ |
0.50 |
|
10 years
|
|
|
750,000 |
|
September 30, 2012
|
February 8, 2005
|
|
|
75,000 |
|
|
|
5.00 |
|
5
years
|
|
|
75,000 |
|
February
7, 2010
|
April
21, 2006
|
|
|
11,000 |
|
|
|
7.50 |
|
5
years
|
|
|
11,000 |
|
April
20, 2011
|
December
4, 2007
|
|
|
1,390,550 |
|
|
|
2.10 |
|
5
years
|
|
|
1,390,550 |
|
December
3, 2012
|
Grand
Total
|
|
|
2,226,550 |
|
|
|
|
|
|
|
|
2,226,550 |
|
|
Each
warrant entitles the holder to purchase one share of common stock at the
exercise price.
Note
10 – Related Party Transaction
In
connection with his appointment as President and Chief Executive Officer, Dr.
Morra and the Company entered into an Employment Agreement dated January 30,
2009. The agreement with Dr. Morra has an initial term of 12 months
and may be extended by agreement of the parties. Under the agreement,
Dr. Morra receives a base salary for the 12 month term of
$367,500. In addition, Dr. Morra will be eligible for bonus
compensation of up to 50% of his base salary upon achievement of certain
performance targets to be determined by the Compensation Committee of the
Company’s Board of Directors, and up to 100% of his base salary if such targets
are exceeded and Dr. Morra remains employed by the Company on the last day of
the performance period.
On the
date of his appointment Dr. Morra was awarded stock options exercisable for
500,000 shares of the Company’s common stock. One-half of the options
subject to the award immediately vested, 25% of the options subject to the award
will vest on June 18, 2009, and the remaining 25% of the options subject to the
award will vest on June 18, 2010, provided Dr. Morra continues to serve as Chief
Executive Officer of the Company on each such vesting
date. Additionally, the Company has agreed to issue to Dr. Morra
214,285 shares of Common Stock on January 2, 2010, subject to the availability
of such shares under the Company’s 2004 Equity Incentive Plan (the
“Plan”). If there are not sufficient shares available for issuance
under the Plan to grant the full amount of such award, Dr. Morra will be issued
such lesser number of shares as is then available under the Plan, and the
remainder shall be issued when sufficient shares are available for issuance
under the Plan. The Company intends to increase the number of shares issuable
under the Plan by 3,000,000 and a proposal concerning the same will be submitted
to the Company’s shareholders at its annual meeting to be held on June 11,
2009.
If Dr.
Morra is terminated by the Company without cause or he voluntarily resigns with
good reason (as such terms are defined in his agreement) he will receive: (i)
prorated bonus compensation based on the portion of the year Dr. Morra is
actually employed by the Company, provided that such bonus will be a minimum of
25% and a maximum of 75% of his base salary; (ii) a lump sum cash payment equal
to 100% of Dr. Morra’s then effective base salary and (iii) continuation of
health and welfare benefits for a period of 12 months. Notwithstanding the
foregoing, in the event the term of his agreement is extended beyond the initial
12 month term, Dr. Morra will be entitled in such circumstances to a lump sum
payment equal to 16 months of his then effective base salary along with health
and welfare benefits continuation for a period of 16 months. If Dr.
Morra resigns or is terminated under certain circumstances in connection with a
change of control of the Company his unvested options to purchase the Company’s
common stock will become fully vested and he will be entitled to receive a lump
sum payment equal to 16 months of his then effective base salary, along with
continuation of health and welfare benefits for a period of 16
months.
In March
2009, a consulting agreement with a former board member, Dr. Reza Fassihi, was
amended to reduce the minimum consulting fees payable from $4,000 to $2,250 per
month.
On
January 30, 2009, we approved a consulting arrangement with Wayne L. Pines, an
international consultant on FDA-related regulatory and media issues and one of
our directors, pursuant to which Mr. Pines will advise us on regulatory matters.
We will pay Mr. Pines $15,000 per year (on a quarterly basis) and the
arrangement may be terminated by either party on 30 days notice.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The
following discussion and analysis should be read in conjunction with the
financial statements, including the notes thereto, appearing in Item 1 of
Part I of this quarterly report and in our 2008 annual report on Form
10-K.
This
report includes forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. When used in this report, the words
“anticipate,” “believe,” “estimate,” “may,” “intend,” “expect,” and similar
expressions identify certain of such forward-looking statements. Although we
believe that our plans, intentions and expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
plans, intentions or expectations will be achieved. Actual result, performance
or achievements could differ materially from historical results or those
contemplated, expressed or implied by the forward-looking statements contained
in this report. Important factors that could cause actual results to differ
materially from our forward-looking statements are set forth in this report in
Item 1A of Part II, and are detailed from time to time in our periodic
reports filed with the SEC. We undertake no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Overview
We are a
specialty pharmaceutical company. Our corporate objective is to combine our
formulation experience and knowledge with our proprietary and patented
Controlled Delivery Technology (CDT®) platforms to develop novel pharmaceutical,
OTC, and nutritional products. Our CDT platforms are based on multiple issued
and pending patents and other intellectual property for the programmed release
or enhanced performance of active pharmaceutical ingredients and nutritional
products. Our innovative drug delivery technologies enable us to customize the
formulations of tablets or capsules in order to release their active ingredients
predictably over a specified timeframe of up to 24 hours. Our platforms are
designed to offer a cost effective means to reduce the frequency of drug
administration, improve the effectiveness of the drug treatment, ensure greater
patient compliance with a treatment program, reduce side effects, and/or
increase drug safety. In addition, our technology can be incorporated into oral
formulations to increase the solubility characteristics of previously
non-soluble and sparingly-soluble drugs without employing costly or complex
nano-crystalization, micro-milling or coated particle technologies.
We need
to raise additional capital to fund operations, continue research and
development projects, and commercialize our products. In April 2009, we engaged
HealthPro BioVentures LLC, a life science investment bank and strategic advisory
firm, as our financial advisor in connection with the evaluation of various
prospective financing strategies, and identifying and evaluating potential
strategic partners. We are actively managing liquidity by limiting clinical and
development expenses to our lead products and supporting existing alliances and
collaborations. We have deferred significant external expenditures on all
projects pending additional financing or partnership support. Without
additional funding we do not expect to be able to complete development of our
current projects. We may not be able to secure additional financing on favorable
terms, or at all. If we are unable to obtain necessary additional financing, our
business will be adversely affected and we will be required to reduce the scope
of our development activities or discontinue operations.
Critical
Accounting Policies and Estimates
Since
December 31, 2008, none of our critical accounting policies, or our
application thereof, as described in our annual report on Form 10-K for the year
ended December 31, 2008, have significantly changed. However, as the nature
and scope of our business operations mature, certain of our accounting policies
and estimates may become more critical. You should understand that generally
accepted accounting principles require management to make estimates and
assumptions that affect the amounts of assets and liabilities or contingent
assets and liabilities at the date of our financial statements, as well as the
amounts of revenues and expenses during the periods covered by our financial
statements. The actual amounts of these items could differ materially from these
estimates.
New
Accounting Pronouncements
There
were no new accounting pronouncements issued during the three months ended March
31, 2009 that had an impact on us.
Results
of Operations
Comparison
of the Three Months Ended March 31, 2009 and 2008
Revenues
Total
revenues, which consist of royalty income, decreased 35%, or $93,783, to
$171,772 for the three months ended March 31, 2009, compared to $265,555 for the
same period in 2008. This decrease is a result of reduced participation in the
net profits on sales in an effort to increase sales of our nutrional products by
Perrigo through our alliance with Perrigo. Royalty payments from Perrigo are
based on Perrigo’s net profits from the sale of CDT-based products which involve
uncertainties and are difficult to predict.
Operating
Expenses
Marketing
and Selling Expenses
Marketing
and selling expenses decreased 55%, or $131,110 to $106,583 for the three months
ended March 31, 2009, compared to $237,693 for the same period in 2008,
primarily due to a decrease of $68,683 in personnel expense due to a reduction
in personnel and a $29,590 decrease in advertising, and tradeshow expenses due
to lower participation. In addition, commission expense decreased $7,777 due to
lower royalty income.
Research
and Development Expenses
Research
and development expenses decreased 7%, or $61,278, to $821,934 for the three
months ended March 31, 2009, compared to $883,212 for the same period in
2008. The decrease is primarily due to receipt of $85,267 as an insurance
settlement, a decrease in personnel related expenses of $81,096 due
to personnel reduction, and $15,440 related to lower business travel.
These decreases were offset by an increase of $73,406 related to our clinical
trial and outside consulting expenses associated with product development. In
addition, rent and utilities increased $56,857 and legal expenses increased
$58,024 related to patent projects written off during the quarter.
General
and Administrative Expenses
General
and administrative expenses decreased 6%, or $78,633, to $1.2 million for the
three months ended March 31, 2009, compared to $1.2 million for the same
period in 2008, primarily due to lower accounting expenses related to the timing
of the audit. There was also a decrease in personnel expense of $19,699 due to a
reduction in personnel, a decrease of $18,880 due to reduced travel, and a
decrease in insurance expense of $23,004 as a result of the reduction in
clinical trial activities.
Other
Income (Expense), Net
Other
income decreased 93%, or $89,364, to $6,642 for the three months ended
March 31, 2009, compared to $96,006 for the same period in 2008. The
decrease was primarily due to lower interest income related to lower cash
balances and interest rates.
Net
Loss
Net loss
decreased 4%, or $87,874, to $1.9 million for the three months ended
March 31, 2009, compared to $2.0 million for the same period in 2008. The
decrease was primarily due to reduced operating expenses.
Liquidity
and Capital Resources
We had
approximately $4.7 million in cash and cash equivalents, and $473,711 in
restricted cash as of March 31, 2009. We are investing our cash and cash
equivalents in government-backed securities. We have limited capital resources
and operations to date have been funded primarily with the proceeds from public
and private equity and debt financings, and collaborative research agreements.
Based on our current operating plan, we anticipate that our existing cash and
cash equivalents, together with expected royalties from third parties, will be
sufficient to fund our operations until late 2009, assuming the Company does not
trigger additional obligations, including contractual severance obligations
described below, and unless unforeseen events arise that negatively impact our
liquidity. The Company may consider substantially reducing or suspending
operations to preserve capital. These conditions raise substantial doubt
about
the Company’s ability to continue as a going concern. We are pursuing
new partnerships as well as collaborations, and exploring other financing
options that would enable us to provide additional funding for our operations.
However, we cannot be assured that financing will be available.
Our
business requires substantial additional investment that we have not yet
secured. In April 2009, we engaged HealthPro BioVentures LLC, a life science
investment bank and strategic advisory firm, as our financial advisor in
connection with the evaluation of various prospective transactions, and
identifying and evaluating potential strategic partners. Our current operating
plan reflects reductions in operating expenses implemented during 2008.
We are actively managing liquidity by limiting clinical and development
expenses to our lead products and supporting existing alliances and
collaborations. We have deferred all significant external
expenditures on projects pending additional financing or partnership
support. Without additional funding we do not expect to be able to complete
development of our current projects.
We plan
to continue efforts to enter into collaboration and licensing agreements for our
product candidates and seek other sources of capital to provide additional
funding for our operations. We cannot be assured that financing will be
available on favorable terms, or at all. Our failure to raise capital, including
financial support from partnerships or other collaborations, would materially
adversely affect our business in 2009, and would force us to substantially
reduce or cease operations. If we are forced to reduce or cease our operations
we may trigger additional obligations, including contractual severance
obligations aggregating as much as $2.0 million for all employees contractually
entitled to benefits, which would further negatively impact our liquidity and
capital resources. In addition, we may be forced to liquidate assets at
discounted amounts due to our immediate liquidity requirements. These conditions
raise substantial doubt about our ability to continue as a going concern.
Consequently, the audit report prepared by our independent registered public
accounting firm relating to our financial statements for the year ended December
31, 2008 included a going concern explanatory paragraph.
On
November 14, 2008, we filed a new shelf registration statement in the amount of
$40 million. At the time the new shelf registration was filed, $21.0 million
remained available for issuance under the November 2005 filing. On November 25,
2008, the Securities and Exchange Commission declared our registration statement
effective. Under this registration statement, we may offer from time-to-time,
one or more offerings of common stock and/or warrants to purchase common stock
under this shelf registration up to an aggregate public offering price of $40
million. If additional capital is raised through the sale of equity or
convertible debt securities, the issuance of such securities will result in
dilution to our existing stockholders.
Cash flows from operating
activities—Net cash used in operating activities for the three months
ended March 31, 2009, was approximately $1.6 million, compared to $2.3
million for the three months ended March 31, 2008. Expenditures for the
three months ended March 31, 2009 decreased and operating revenues
decreased due to lower royalty income and the lack of research and development
revenue.
Cash flows from investing
activities—Cash flows of $40,728 used in investing activities during the
three months ended March 31, 2009 primarily represent the purchase of lab
equipment and payments made for patent rights, offset by proceeds of $85,267
from an insurance settlement. Cash flows of $82,729 used in investing activities
during the three months ended March 31, 2008 primarily represented the
payments made for patent rights.
Cash flows from financing
activities— Cash flows of $21,234 used by financing activities during the
three months ended March 31, 2009 primarily represent the payments made on our
term loan. In the three months ended March 31, 2008, cash flows provided by
financing activities of $20,768 primarily represented the proceeds from the
exercise of options and warrants offset by payments made on our term
loan.
As
of March 31, 2009, we had $4.3 million of working capital, compared to $5.9
million as of December 31, 2008. We have accumulated net losses of
approximately $65.9 million from our inception through March 31, 2009. We have
funded our operations primarily through the issuance of equity securities,
including $3.6 million and $10.9 million in net proceeds from our registered
direct offerings in December 2007 and April 2006, respectively, and $14.1
million from our private placement in February 2005.
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended. Based on this evaluation, our principal executive officer and our
principal financial officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this quarterly
report.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in our internal control over financial reporting during the
first quarter of fiscal 2009 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
We are
not a party to any material litigation.
Other
than the modification to the risk factors set forth below, there has not been a
material change to the risk factors as set forth in our Annual Report on Form
10-K for the year ended December 31, 2008.
We
do not have sufficient cash to fund the development of our drug delivery
operations. If we are unable to obtain additional financing during 2009, we will
be required to substantially curtail or cease operations.
We
anticipate that, based on our current operating plan, our existing cash and cash
equivalents, together with expected royalties from third parties, will be
sufficient to fund our operations until late 2009. Our current operating plan
reflects reductions in personnel, marketing and other expenses implemented
during 2008. We are actively managing our liquidity by limiting our clinical and
development expenses to our lead products and supporting our existing alliances
and collaborations. We have deferred all significant expenditures on new
projects as well as major expenditures for our lead products pending additional
financing or partnership support. We plan to continue efforts to enter into
collaboration and licensing agreements for our product candidates, including
controlled release ibuprofen, that may provide additional funding for our
operations. If we are unsuccessful with these efforts, we will be required to
substantially curtail operations or cease operations.
We will
need to raise additional capital to fund operations, conduct clinical trials,
continue research and development projects, and commercialize our product
candidates. The timing and amount of our need for additional financing will
depend on a number of factors, including:
• the
structure and timing of collaborations with strategic partners and
licensees;
• our
timetable and costs for the development of marketing operations and other
activities related to the commercialization of our product
candidates;
• the
progress of our research and development programs and expansion of such
programs;
• the
emergence of competing technologies and other adverse market developments;
and,
• the
prosecution, defense and enforcement of potential patent claims and other
intellectual property rights.
Additional
equity or debt financing may not be available to us on acceptable terms, or at
all. If we raise additional capital by issuing equity securities, substantial
dilution to our existing stockholders may result which could decrease the market
price of our common stock due to the sale of a large number of shares of our
common stock in the market, or the perception that these sales could occur.
These sales, or the perception of possible sales, could also impair our ability
to raise capital in the future. In addition, the terms of any equity financing
may adversely affect the rights of our existing stockholders. If we raise
additional funds through strategic alliance or licensing arrangements, we may be
required to relinquish rights to certain of our technologies or product
candidates, or to grant licenses on terms that are unfavorable to us, which
could substantially reduce the value of our business.
If we are
unable to obtain sufficient additional financing, we would be unable to meet our
obligations and we would be required to delay, reduce or eliminate some or all
of our business operations, including the pursuit of licensing, strategic
alliances and development of drug delivery programs. If we are forced to reduce
or cease our operations we may trigger additional obligations, including
severance obligations, which would further negatively impact our liquidity and
capital resources.
The
NYSE Amex Exchange may consider delisting our common stock.
Section
1003 of the NYSE Amex Company Guide (Application of Policies) provides that the
NYSE Amex may cause our common stock to be delisted under certain circumstances,
including in connection with our failure to maintain stockholders' equity of at
least $6,000,000 ($5,756,942 as of March 31, 2009), or where our financial
condition has become so impaired that it appears questionable, in the opinion of
the NYSE Amex, as to whether we will be able to continue operations and/or meet
our obligations as they mature. In the event we are unable to increase our
revenue, obtain additional financing or otherwise obtain funding for our ongoing
operations, we may be unable to bring our stockholders' equity back above the
$6,000,000 threshold, and the NYSE Amex may determine to delist our common stock
based on this failure or our general financial
condition. If we are delisted from the NYSE Amex then our common
stock will trade, if at all, only on the over-the-counter markets, such as the
OTC Bulletin Board securities market, and then only if one or more registered
broker-dealer market makers comply with quotation requirements. In addition,
delisting of our common stock could further depress our stock price,
substantially limit the liquidity of our common stock and materially adversely
affect our ability to raise capital on terms acceptable to us, or at all.
Delisting from NYSE Amex could also have other negative results, including the
potential loss of confidence by suppliers and employees, the loss of
institutional investor interest and fewer business development
opportunities.
The
following exhibits are filed herewith:
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Filed
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Incorporated
by Reference
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Exhibit No.
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Description
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Herewith
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Form
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Exhibit No.
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File No.
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Filing Date
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31.1 |
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Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of. 2002
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X |
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31.2 |
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Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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X |
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32.1 |
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Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
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X |
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32.2 |
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Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
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X |
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10.1 |
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Executive
Employment Agreement dated January 30, 2009, between Bruce S. Morra and
the Company
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10-K
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10.34
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001-31982
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3/11/2009
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In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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SCOLR
Pharma, Inc.
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Date:
May 1, 2009
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By:
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/s/
Bruce S. Morra
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Bruce
S. Morra
Chief
Executive Officer and President
(Principal
Executive Officer)
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Date:
May 1, 2009
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By:
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/s/
Richard M. Levy
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Richard
M. Levy
Chief Financial Officer and Vice President - Finance
(Principal
Financial Officer)
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EXHIBIT
INDEX
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Filed
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Incorporated
by Reference
|
Exhibit No.
|
|
Description
|
|
Herewith
|
|
Form
|
Exhibit No.
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File No.
|
Filing Date
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31.1 |
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Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of. 2002
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X |
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31.2 |
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Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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X |
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32.1 |
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Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
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X |
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32.2 |
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Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
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X |
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10.1 |
|
Executive
Employment Agreement dated January 30, 2009, between Bruce S. Morra and
the Company
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|
|
|
|
10-K
|
10.34
|
001-31982
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3/11/2009
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