UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-28931
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(Name of small business issuer as specified in its charter)
Delaware 35-2089858
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
University of Medicine and Dentistry
New Jersey Medical School
Administrative Bldg 4
185 South Orange Avenue
Newark, NJ 07103
(Address of Principal Executive Offices) (Zip Code)
(973) 972-0015
(Registrant's telephone number)
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes |X| No | |
The Issuer had 7,000,863 shares of common stock issued and outstanding as
of August 8, 2002.
BioDelivery Sciences International, Inc.
Form 10-QSB
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2002 (unaudited)
and December 31, 2001.......................................................................2
Condensed Consolidated Statements of Operations for the three
months and six months ended June 30, 2002 and 2001 and the period
January 6, 1997 (date of incorporation) to June 30, 2002 (unaudited)........................3
Condensed Consolidated Statement of Stockholders' Equity (Deficit) for the
six months ended June 30, 2002 and the period January 6, 1997 (date of
incorporation)
to June 30, 2002 (unaudited)................................................................4
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2002 and 2001, and the period January 6, 1997 (date of incorporation)
to June 30, 2002 (unaudited)................................................................5
Notes to Condensed Consolidated Financial Statements (unaudited)..............................6
Item 2. Management's Discussion and Analysis or Plan of Operation...............................10
Part II. Other Information
Item 1. Legal Proceedings.......................................................................13
Item 2. Changes in Securities...................................................................13
Item 6. Exhibits and Reports on Form 8-K........................................................13
Signatures.......................................................................................14
PART I. FINANCIAL INFORMATION
Item 1. - Financial Statements
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A Development Stage Company)
Condensed Consolidated Balance Sheets - (Unaudited)
June 30, December 31,
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,718,491 $ 75,513
Grant receivable, prepaid expenses and other assets 501,727 111,684
------------ ------------
Total current assets 8,220,218 187,197
EQUIPMENT, net 175,433 233,562
INTANGIBLES, net 561,543 547,470
DEFERRED OFFERING COSTS -- 365,340
------------ ------------
Total Assets $ 8,957,194 $ 1,333,569
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,363,081 $ 814,279
Due to related parties 123,885 74,331
Line of credit -- 282,527
Deferred revenue -- 37,000
Current portion of capital lease payable 11,776 14,804
Current portion of notes payable 99,733 149,524
------------ ------------
Total current liabilities 1,598,475 1,372,465
CAPITAL LEASE PAYABLE, less current portion 17,196 18,369
NOTES PAYABLE, less current portion 101,114 151,733
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock -- --
Common stock 7,001 5,001
Additional paid-in capital 13,183,961 4,903,368
Deficit accumulated during development stage (5,950,553) (5,117,367)
------------ ------------
Total stockholders' equity (deficit) 7,240,409 (208,998)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 8,957,194 $ 1,333,569
============ ============
The accompanying notes are an integral part of these
financial statements.
2
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A Development Stage Company)
Condensed Consolidated Statements of Operations - (Unaudited)
Period From
January 6, 1997
Three Months Ended Six Months Ended (Date of
June 30, June 30, Incorporation)
-------------------------- -------------------------- to June 30,
2002 2001 2002 2001 2002
----------- ----------- ----------- ----------- --------------
Sponsored research revenues $ 182,972 $ 27,785 $ 457,972 $ 27,785 $ 992,357
Expenses:
Research and development 459,078 422,690 909,553 754,173 2,886,221
General and administrative 195,038 621,018 400,806 695,412 4,196,712
----------- ----------- ----------- ----------- --------------
Total expenses 654,116 1,043,708 1,310,359 1,449,585 7,082,933
Interest income (expense), net (25,949) 2,154 (35,763) 15,560 (35,948)
----------- ----------- ----------- ----------- --------------
Loss before income taxes and
minority interest (497,093) (1,013,769) (888,150) (1,406,240) (6,126,524)
Income tax benefit (expense) (40,879) -- 54,964 -- 73,499
----------- ----------- ----------- ----------- --------------
Loss before minority interest (537,972) (1,013,769) (833,186) (1,406,240) (6,053,025)
Minority interest in net loss of
subsidiary -- -- -- -- 102,472
----------- ----------- ----------- ----------- --------------
Net loss $ (537,972) $(1,013,769) $ (833,186) $(1,406,240) $ (5,950,553)
=========== =========== =========== =========== ==============
Net loss per common share:
Basic and diluted $ (0.11) $ (0.27) $ (0.17) $ (0.39)
=========== =========== =========== ===========
Weighted average common stock
shares outstanding - basic
and diluted 5,066,796 3,749,214 5,034,011 3,634,335
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
3
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
Deficit
Accumulated Total
Preferred Stock Common Stock Additional During Stockholders'
---------------------- ------------------------ Paid-In Development Equity
Shares Amount Shares Amount Capital Stage (Deficit)
-------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2001 -- $ -- 5,000,863 $ 5,001 $ 4,903,368 $(5,117,367) $ (208,998)
Shares issued for cash (unaudited) -- -- 2,000,000 2,000 8,280,593 -- 8,282,593
Net loss (unaudited) -- -- -- -- -- (833,186) (833,186)
-------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 2002 (unaudited) -- $ -- 7,000,863 $ 7,001 $13,183,961 $(5,950,553) $ 7,240,409
======== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of this financial statement.
4
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows (Unaudited)
Period From
January 6, 1997
(Date of
Six Months Ended Incorporation)
June 30, to June 30,
-------------------------- to June 30,
2002 2001 2002
----------- ----------- -----------
OPERATING ACTIVITIES:
Net loss $ (833,186) $(1,406,240) $(5,950,553)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 60,137 46,941 188,435
Loss applicable to minority interest -- -- (102,472)
Deferred revenue (37,000) -- (56,000)
Litigation settlement -- 300,000 425,000
Compensation expense -- -- 2,190,395
Changes in assets and liabilities:
Grants receivable, prepaid expenses and other assets (405,516) (24,319) (424,181)
Accounts payable and accrued liabilities 548,802 (99,041) 1,276,125
Due to/from related parties 49,554 18,796 280,389
----------- ----------- -----------
Net cash used by operating activities (617,209) (1,163,863) (2,172,862)
INVESTING ACTIVITIES:
Net cash received with business combination -- -- 380,465
Purchase of equipment (608) -- (85,470)
Purchase of minority interest -- (116,375) (116,375)
----------- ----------- -----------
Net cash provided (used) by investing activities (608) (116,375) 178,620
FINANCING ACTIVITIES:
Issuance of Preferred Stock -- -- 1,010,000
Issuance of Common Stock, net of issuance costs 8,647,933 500,000 9,087,593
Net change in line of credit (282,527) -- --
Payment on capital lease payable (4,201) (6,506) (10,707)
Payment on notes payable (100,410) (34,698) (374,153)
----------- ----------- -----------
Net cash provided by financing activities 8,260,795 458,796 9,712,733
NET CHANGE IN CASH 7,642,978 (821,442) 7,718,491
CASH AT BEGINNING OF PERIOD 75,513 950,939 --
----------- ----------- -----------
CASH AT END OF PERIOD $ 7,718,491 $ 129,497 $ 7,718,491
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2002 and the Period From January 6, 1997
(date of incorporation) to June 30, 2002
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated balance sheets of BioDelivery Sciences International,
Inc. and its subsidiary (collectively "the Company") as of June 30, 2002, and
the condensed consolidated statements of operations for the three and six months
ended June 30, 2002 and 2001 have been prepared by the Company without audit. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at June 30, 2002 and for all periods presented, have
been made. The condensed consolidated balance sheet at December 31, 2001, has
been derived from the Company's audited consolidated financial statements at
that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended December 31, 2001, included in
the Company's 2001 Annual Report on Form 10-KSB filed with the SEC on April 1,
2002 ("2001 Annual Report").
The results of operations for the three and six months ended June 30, 2002, are
not necessarily indicative of results that may be expected for any other interim
period or for the full fiscal year.
In March 2002, the Company approved a one for 4.37 reverse stock split. The
financial statements have been restated to reflect the reverse stock split.
NOTE 2 - PLAN OF OPERATIONS
Since inception, the Company has financed its operations principally from the
sale of equity securities, grant funding, and a line of credit. Historically,
the Company's subsidiary financed its operations principally from funded
research arrangements. The Company has not generated revenue from the sale of
any product or from any licensing arrangement since inception. The Company
intends on financing its research and development efforts and its working
capital needs from existing and new sources of financing. For instance, the
Company was granted approximately $2.7 million from the National Institutes of
Health to fund specific research efforts to be conducted by the Company through
June 2004 of which $883,972 has been received to date. In June 2002, the Company
completed its public offering, which consisted of 2,000,000 Units ($5.25 per
unit), each comprised of one share of common stock and one redeemable Class A
Common Stock purchase warrant. While there can be no assurance that such sources
will provide adequate funding for the Company's operations, management believes
such sources will be available to the Company.
6
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2002 and the Period From January 6, 1997
(date of incorporation) to June 30, 2002
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS
142, Goodwill and Intangible Assets. SFAS 141 is effective for all business
combinations completed after June 30, 2001. SFAS 142 is effective for the year
beginning January 1, 2002; however certain provisions of that Statement apply to
goodwill and other intangible assets acquired between July 1, 2001, and the
effective date of SFAS 142. The Company determined that the adoption of SFAS 142
did not have any impact on the Company's financial statements.
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and/or the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company is evaluating the impact of the
adoption of this standard and has not yet determined the effect of adoption on
its financial position and results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be disposed Of. The provisions of the statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The Company adopted this standard effective January 1, 2002,
which did not have a material impact on the Company's financial statements.
NOTE 4 - NET LOSS PER COMMON SHARE
The following table reconciles the numerators and denominators of the basic and
diluted loss per share computations.
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ---------------------------
2002 2001 2002 2001
-------------- ----------- ----------- -----------
Net loss - (numerator) $ (537,972) $(1,013,769) $ (833,186) $(1,406,240)
============== =========== =========== ===========
Basic:
Weighted average shares
outstanding (denominator) 5,066,796 3,749,214 5,034,011 3,634,335
============== =========== =========== ===========
Net loss per common share -
basic $ (.11) $ (.27) $ (.17) $ (.39)
============== =========== =========== ===========
7
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2002 and the Period From January 6, 1997
(date of incorporation) to June 30, 2002
NOTE 4 - NET LOSS PER COMMON SHARE - Continued
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Diluted:
Weighted average shares
outstanding $ 5,066,796 $ 3,749,214 $ 5,034,011 $ 3,634,335
Effect of dilutive securities -- -- -- --
----------- ----------- ----------- -----------
Adjusted weighted average
shares (denominator) 5,066,796 3,749,214 5,034,011 3,634,335
=========== =========== =========== ===========
Net loss per common share -
diluted $ (.11) $ (.27) $ (.17) $ (.39)
=========== =========== =========== ===========
The effects of all dilutive securities outstanding have been excluded from
Common Stock equivalents because their effect would be anti-dilutive.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company has received notification of a potential claim for a finder's fee
and a lawsuit has been filed by Michael Pennessi d/b/a SSP Consultants, who is
not affiliated with the Company, arising out of an introduction to a predecessor
entity in 2000. Settlement discussions have been conducted. The Company intends
to vigorously defend this litigation. It is the Company's belief that the
potential claim is neither material nor meritorious.
NOTE 6 - LINE OF CREDIT
At December 31, 2001, the Company had secured a revolving line of credit from a
financial institution, which had an interest rate of prime plus 2.0%. During the
six months ended June 30, 2002, the Company continued to draw on the line of
credit to fund operations. As of June 30, 2002, the line of credit terminated
and was satisfied in full with proceeds from the sale of Common Stock.
8
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2002 and the Period From January 6, 1997
(date of incorporation) to June 30, 2002
NOTE 7 - NATIONAL INSTITUTES OF HEALTH GRANT
In 2001, the National Institutes of Health (NIH) awarded the Company a Small
Business Innovation Research Grant (SBIR), which will be utilized in research
and development efforts. NIH has formally awarded the Company a 2001 grant of
$883,972. Additionally, this award refers to funding levels of $814,398 and
$989,352 that the Company expects to be awarded in 2002 and 2003, respectively,
subject to availability and satisfactory progress of the project. Therefore, the
Company expects to receive a total of approximately $2.7 million related to its
initial application for the grant through June 2004. The Company incurred
approximately $458,000 and $-0- of costs related to this agreement for the six
months ended June 30, 2002 and 2001, respectively.
During the six-month period ended June 30, 2002, the Company has received
approximately $189,000 and recognized revenue of approximately $442,000 from
this grant. As awarded on September 19, 2001, the grant provided for
reimbursement of or advances for future research and development efforts. Upon
receiving funding under the grant and utilizing the funds as specified, no
amounts are refundable.
As of June 30, 2002, the Company has recognized the full funding level of
$883,972 related to the 2001 award, inclusive of a $215,940 receivable from NIH.
NOTE 8 - INCOME TAXES
In March 2002, a new tax law changed the carryback period from two to five
years. This allowed the Company to carryback its net operating losses to 1997,
which resulted in an additional benefit of $55,744. The Company initially
recognized a tax benefit of $95,843 during the three month period ended March
31, 2002 based on a preliminary evaluation of the new tax law. The Company
subsequently revised its estimate of recoverable income taxes, which resulted in
the reduction of income tax receivable by $40,879.
9
Management's Discussion and Analysis of Financial Condition and Plan of
Operations
The following discussion and analysis should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto included elsewhere
in this Form 10-QSB. This discussion contains certain forward-looking statements
that involve risks and uncertainties. The Company's actual results and the
timing of certain events could differ materially from those discussed in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth herein and elsewhere in this Form 10-QSB.
The Company is a development-stage company and we expect to continue to perform
research and development activities in furtherance of our business strategy and
product development.
For the Six Months Ended June 30, 2002 Compared to the Six Months Ended June 30,
2001
Sponsored Research Revenue. During the six-month periods ended June 30, 2001 and
2002, we reported approximately $28,000 and $458,000, respectively, of sponsored
research revenues. With the exception of grants by the National Institutes of
Health and funding provided to us through various collaborative agreements, we
have not derived any revenues from our operations, technologies or products.
Research and Development. Research and development expenses of approximately
$754,000 and $910,000 were incurred during the six-month periods ended June 30,
2001 and 2002, respectively. Research and development expenses generally
include: salaries for key scientific personnel, research supplies, facility
rent, lab equipment depreciation, a portion of overhead operating expenses and
other costs directly related to the development and application of the Bioral
cochleate drug delivery technology.
General and Administrative Expense. General and administrative expenses of
approximately $695,000 and $401,000 were incurred in the six-month periods ended
June 30, 2001 and 2002, respectively. These expenses are principally comprised
of legal and professional fees and other costs including office supplies,
conferences, travel costs, salaries, website update and development, and other
business development costs. The amount recognized in the period ended June 2001
includes $384,000 for litigation settlement costs.
Interest Income (Expense). Interest income (expense) for the periods ended June
30, 2001 and 2002 was principally comprised of earnings from invested cash
offset by interest expense on the line of credit, notes payable and capital
leases payable.
Income Taxes. While net operating losses were generated during the six month
period ended June 30, 2002, we did not recognize any benefit associated with
these losses, as all related deferred tax assets have been fully reserved for.
However, in March 2002, a new tax law changed the carryback period from two to
five years, which allowed us to carryback prior losses to 1997, resulting in a
tax benefit of $55,744. Financial Accounting Standards Board Statement No. 109
provides for the recognition of deferred tax assets if realization of such
assets is more likely than not. Based upon available data, which includes our
historical operating performance and our reported cumulative net losses in prior
years, we have provided a full valuation allowance against our net deferred tax
assets as the future realization of the tax benefit is not sufficiently assured.
10
Liquidity and Capital Resources
From inception through June 30, 2002, we raised approximately $10.1 million, net
of issuance costs, through equity financings. At December 31, 2001, we had cash
and cash equivalents totaling approximately $76,000. At June 30, 2002, we had
approximately $7.7 million cash and cash equivalents. The operations of our
predecessor, BioDelivery Sciences, Inc., prior to our acquisition of a
controlling interest on October 10, 2000 and subsequent merger, were financed
primarily through funded research agreements. In 2001, the National Institutes
of Health awarded to us a Small Business Innovation Research Grant (SBIR), which
will continue to be utilized in our research and development efforts.
NIH has formally awarded us a 2001 grant of $883,972, of which we recognized
approximately 50% in 2001 and the remainder was recognized through June 2002. As
of June 30, 2002, we have received all but $215,940, which was recorded as a
receivable from NIH. Additionally, this award refers to funding levels of
$814,398 and $989,352 that we expect to be awarded in 2002 and 2003,
respectively, subject to availability and satisfactory progress of the project.
Therefore, we expect to receive a total of approximately $2.7 million related to
our initial application for the grant through June 2004. The grant is subject to
provisions for monitoring set forth in NIH Guide for Grants and Contracts dated
February 24, 2000, specifically, the NIAID Policy on Monitoring Grants
Supporting Clinical Trials and Studies. If NIH believes that satisfactory
progress is not achieved, the 2002 and 2003 amounts noted above may be reduced
or eliminated.
Working capital/deficit at December 31, 2001 was $1,185,268, which reflects our
legal claim settlement liability, our line of credit and our liability incurred
under our research agreement with the University of Medicine and Dentistry of
New Jersey, for which payments were deferred. Working capital at June 30, 2002
was $6,621,743, which reflects the net proceeds from our June 2002 common stock
offering.
We used $617,209 of cash for operations in the six months ended June 30, 2002,
which reflects increased research and development and administrative costs. On a
pro forma basis (BioDelivery Sciences, Inc. combined with us) we have used
approximately $2.2 million of cash for operations since inception through June
30, 2002, net of sponsored research proceeds received since inception of
approximately $8.1 million.
Since our inception through June 30, 2002, we have incurred approximately $2.9
million of research and development expenses. Additionally, during the period
March 28, 1995 (date of BioDelivery Sciences, Inc.'s incorporation) through the
acquisition of a controlling interest in BioDelivery Sciences, Inc., we incurred
approximately $6.8 million of research and development expenses.
We have incurred significant net losses and negative cash flows from operations
since our inception. As of June 30, 2002, we had an accumulated deficit of
approximately $6.0 million.
We anticipate that cash used in operations and our investment in facilities will
increase significantly in the future as we research and further develop our
technology. While we believe further application of our Bioral cochleate
technology to other drugs and nutraceuticals will result in license agreements
with manufacturers of generic and over-the-counter drugs, as well as the more
common nutraceutical applications, our plan of operations in the next 18 months
is focused on our further development of the Bioral cochleate technology itself
and its use in a limited number of applications. Such plans do not include the
marketing, production or sale of FDA approved products.
11
We believe that our existing cash and cash equivalents will be sufficient to
finance our planned operations and capital expenditures through at least the
next 12 to 18 months. We may consume available resources more rapidly than
currently anticipated, resulting in the need for additional funding.
Accordingly, we may be required to raise additional capital through a variety of
sources, including:
o the public equity market;
o private equity financing;
o collaborative arrangements;
o grants;
o public or private debt; and
o redemption and exercise of warrants
There can be no assurance that additional capital will be available on favorable
terms, if at all. If adequate funds are not available, we may be required to
significantly reduce or refocus our operations or to obtain funds through
arrangements that may require us to relinquish rights to certain of our drugs,
technologies or potential markets, either of which could have a material adverse
effect on our business, financial condition and results of operations. To the
extent that additional capital is raised through the sale of equity or
convertible debt securities, the issuance of such securities would result in
ownership dilution to our existing stockholders.
During June 2002, our existing line of credit terminated and the balance was
repaid from the proceeds of our common stock offering.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS
142, Goodwill and Intangible Assets. SFAS 141 is effective for all business
combinations completed after June 30, 2001. SFAS 142 is effective for the year
beginning January 1, 2002; however certain provisions of that Statement apply to
goodwill and other intangible assets acquired between July 1, 2001, and the
effective date of SFAS 142. The Company determined that the adoption of SFAS 142
did not have any impact on the Company's financial statements.
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and/or the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company is evaluating the impact of the
adoption of this standard and has not yet determined the effect of adoption on
its financial position and results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. The provisions of the statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The Company adopted this standard effective January 1, 2002,
which did not have a material impact on the Company's financial statements.
12
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A Development Stage Company)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We have received notification of a potential claim for a finder's fee and a
lawsuit has been filed by Michael Pennessi d/b/a SSP Consultants, who is not
affiliated with us, arising out of an introduction to BioDelivery Sciences, Inc.
in 2000. Settlement discussions have been conducted. We intend to vigorously
defend this litigation. It is our belief that the potential claim is neither
material nor meritorious.
Item 2. Changes In Securities
On June 24, 2002, the Securities and Exchange Commission declared the Company's
first Registration Statement on Form SB-2, Registration No. 333-72877,
effective. The offering commenced on June 25, 2002.
The offering consisted of 2,000,000 units (the "Units") each Unit consisting of
(i) one share of Common Stock, par value $.001 (the "Common Stock") and (ii) one
Class A common stock purchase Warrant (the "Warrants"). Each Warrant entitles
the owner to purchase one share of Common Stock at a price of $6.30 for a period
of four years commencing on June 24, 2003.
The offering price for each Unit was $5.25 and the aggregate offering price was
$10,500,000. The managing underwriter of the offering was Kashner Davidson
Securities Corporation. The aggregate underwriting discount was $897,750 and the
non-accountable expense allowance paid to the underwriter was $315,000.
Additional offering expenses paid between the offering date and June 30, 2002
was $295,000 for printing, $364,000 for legal fees, $74,948 for accounting fees
and $103,125 for other expenses of the offering. The total of the offering
expenses is estimated at $2,050,691 None of these expenses were paid to
directors, officers or persons owning 10 percent of the securities of the
Company.
The net offering proceeds to the Company after deducting the offering expenses
described above was $8,449,309. From June 25, 2002 until June 30, 2002,
$1,050,000 of such proceeds were used to repay the Company's line of credit
which terminated June 30, 2002. The remaining proceeds were invested in short
term certificates of deposit. There were no payments made to officers,
directors, and persons owning more than 10% of the Company's securities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification by James A. McNulty
99.2 Certification by Francis E. O'Donnell, Jr.
(b) Reports on Form 8-K
NONE
13
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(A Development Stage Company)
Form 10-QSB
(for the quarterly period ended June 30, 2002)
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIODELIVERY SCIENCES INTERNATIONAL, INC.
Date: August 13, 2002 /s/ James A. McNulty
--------------------------------------------
James A. McNulty, Chief Financial Officer
(Principal Financial Officer)
14
EXHIBIT 99.1
------------
CERTIFICATIONS
--------------
I, James A. McNulty, certify that:
1. I have read this quarterly report on Form 10-QSB of BioDelivery Sciences
International, Inc.;
2. To my knowledge, the information in this report is true in all important
respects as of June 30, 2002; and
3. This report contains all information about the company of which I am aware
that I believe is important to a reasonable investor, in light of the subjects
required to be addressed in this report, as of June 30, 2002.
For purposes of this certification, information is "important to a reasonable
investor" if:
(a) There is a substantial likelihood that a reasonable investor would view the
information as significantly altering the total mix of information in the
report; and
(b) The report would be misleading to a reasonable investor if the information
is omitted from the report.
Date: August 13, 2002
/s/James A. McNulty
-----------------------
James A. McNulty
Chief Financial Officer
15
EXHIBIT 99.2
------------
CERTIFICATIONS
--------------
I, Francis E. O'Donnell, Jr., certify that:
1. I have read this quarterly report on Form 10-QSB of BioDelivery Sciences
International, Inc.;
2. To my knowledge, the information in this report is true in all important
respects as of June 30, 2002; and
3. This report contains all information about the company of which I am aware
that I believe is important to a reasonable investor, in light of the subjects
required to be addressed in this report, as of June 30, 2002.
For purposes of this certification, information is "important to a reasonable
investor" if:
(a) There is a substantial likelihood that a reasonable investor would view the
information as significantly altering the total mix of information in the
report; and
(b) The report would be misleading to a reasonable investor if the information
is omitted from the report.
Date: August 13, 2002
/s/ Francis E. O'Donnell, Jr.
-----------------------------
Francis E. O'Donnell, Jr.
Chief Executive Officer
16