UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 1 TO FORM SB-2 ON FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Samaritan Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in Its Charter)
________________
Nevada 88-0431538
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Eugene Boyle
Chief Financial Officer
Samaritan Pharmaceuticals, Inc.
101 Convention Center Drive, Suite 310 101 Convention Center Drive, Suite 310
Las Vegas, Nevada 89109 Las Vegas, Nevada 89109
Telephone: (702) 735-7001 Telephone: (702) 735-7001
Telecopier: (702) 737-7016 8731 Telecopier: (702) 737-7016
-------------------------- ---- --------------------------
(Address and telephone number of (Primary Standard Industrial (Name, address and telephone number
principal Executive offices and Classification Number) of agent for service)
principal place of business)
With Copies To:
Clayton E. Parker, Esq. Matthew L. Ogurick, Esq.
Kirkpatrick & Lockhart Preston Gates Ellis LLP Kirkpatrick & Lockhart Preston Gates Ellis LLP
201 South Biscayne Boulevard, Suite 2000 201 South Biscayne Boulevard, Suite 2000
Miami, Florida 33131 Miami, Florida 33131
Telephone: (305) 539-3300 Telephone: (305) 539-3300
Facsimile: (305) 358-7095 Facsimile: (305) 358-7095
Approximate date of commencement of proposed sale to the public: from time to
time after the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: |_|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |X|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
CALCULATION OF REGISTRATION FEE
=============================================================================
Proposed
Maximum
Proposed Maximum Aggregate Amount Of
Title Of Each Class Of Amount To Be Offering Price Offering Registration
Securities To Be Registered Registered Per Share (1) Price(1) Fee (3)
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Common Stock, par value $0.001 per share 16,700,000 shares (2) $0.40 $6,680,000 $786.24
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TOTAL 16,700,000 shares (2) $0.40 $6,680,000 $786.24
======================================================================================================================
1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933. For the
purposes of this table, we have used the last reported market sale
price of our Common Stock on November 29, 2005.
2) 16,700,000 of these shares were registered pursuant to that certain
Purchase Agreement II with Fusion Capital, as amended, including
1,700,000 shares which have already been issued to Fusion Capital as a
commitment fee.
3) The registration fee was previously paid on December 15, 2005.
----------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
SUBJECT TO COMPLETION DATED JANUARY 9, 2007
The information in this Prospectus (this "Prospectus") is not complete and may
be changed. These securities may not be sold until this Registration Statement
filed with the U.S. Securities and Exchange Commission (the "SEC") is effective.
This Prospectus is not an offer to sell securities and we are not soliciting
offers to buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS
SAMARITAN PHARMACEUTICALS, INC.
16,700,000 Shares of Common Stock
This Prospectus relates to the registration of 16,700,000 shares of the Common
Stock ("Common Stock") of Samaritan Pharmaceuticals, Inc. ("Samaritan"), and
such 16,700,000 shares shall be offered for sale from time to time by Fusion
Capital Fund II, LLC ("Fusion Capital") pursuant to the terms of a Common Stock
Purchase Agreement, as amended (the "Purchase Agreement II"), including
1,700,000 shares previously issued to Fusion Capital as a commitment fee. As of
the date hereof, we have 3,329,372 shares of Common Stock remaining available
under the accompanying Registration Statement to be issued to Fusion Capital
pursuant to terms of the Purchase Agreement II. Please refer to Section entitled
"Selling Security Holders" for information on Fusion Capital beginning on page
21 herein. All costs associated with this registration will be borne by
Samaritan. The prices at which Fusion Capital may sell the shares pursuant to
the Purchase Agreement II will be determined by the prevailing market price for
the shares or in negotiated transactions.
2
Our Common Stock is quoted on the American Stock Exchange under the symbol
"LIV". On January 4, 2007, the last reported market sale price for our Common
Stock as reported on the American Stock Exchange was $0.21 per share.
----------------
Fusion Capital is an "underwriter" within the meaning of the Securities Act of
1933, as amended.
----------------
Investing in our Common Stock involves a high degree of risk. You should
consider the "Risk Factors" beginning on page 7 before purchasing our Common
Stock.
Neither the SEC nor any state securities commission has approved or disapproved
of these securities or passed upon the adequacy or accuracy of this Prospectus.
Any representation to the contrary is a criminal offense.
The date of this Prospectus is _______________________, 2007.
TABLE OF CONTENTS
PROSPECTUS SUMMARY.........................................................4
FORWARD-LOOKING STATEMENTS.................................................6
RISK FACTORS...............................................................7
USE OF PROCEEDS...........................................................15
DETERMINATION OF OFFERING PRICE...........................................16
DILUTION..................................................................19
SELLING SECURITY HOLDERS..................................................20
PLAN OF DISTRIBUTION......................................................21
DESCRIPTION OF SECURITIES TO BE REGISTERED................................22
INTERESTS OF NAMED EXPERTS AND COUNSEL....................................25
DESCRIPTION OF BUSINESS...................................................26
DESCRIPTION OF PROPERTY...................................................34
LEGAL PROCEEDINGS.........................................................34
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS..................34
SELECTED FINANCIAL DATA...................................................35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................36
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................................43
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK................43
DIRECTORS AND EXECUTIVE OFFICERS..........................................44
EXECUTIVE COMPENSATION....................................................48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............54
CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS..............................55
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES..........................................................56
FINANCIAL STATEMENTS......................................................57
WHERE YOU CAN FIND MORE INFORMATION.......................................85
PART II...................................................................85
OTHER EXPENSES OF INSURANCE AND DISTRIBUTION..............................85
INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................85
RECENT SALES OF UNREGISTERED SECURITIES...................................86
EXHIBITS..................................................................88
UNDERTAKINGS..............................................................90
SIGNATURES................................................................92
3
PROSPECTUS SUMMARY
General
This summary highlights certain information found in greater detail elsewhere in
this Prospectus. This summary may not contain all of the information that may be
important to you. We urge you to read this entire Prospectus carefully,
including the risks of investing in our Common Stock discussed under the Section
entitled "Risk Factors" and the financial statements and other information that
is incorporated by reference into this Prospectus, before making an investment
decision. In addition, this Prospectus summarizes other documents which we urge
you to read. All references in this Prospectus to "Samaritan", the "Company",
"we", "us" and "our" refer to Samaritan Pharmaceuticals, Inc.
Our Company
We are a small cap biopharmaceutical company focused on the development of novel
therapeutic and diagnostic products. We have devoted substantially all of our
resources to undertaking our drug discovery and development programs.
The majority of our resources have been expended in the pursuit of FDA required
preclinical studies and Phase II/III clinical trials for Samaritan's HIV drug
SP-01A (Sphirewall), an oral entry inhibitor. In a previous Phase I/II study,
SP-01A was observed to significantly lower the amount of HIV in blood, improve
quality of life (how well subjects have felt), have a favorable safety profile
(minimal side effects) and be well-tolerated. Moreover, in vitro testing of
SP-01A: (a) demonstrated comparable or greater efficacy than currently approved
anti-HIV drugs in preventing HIV virus replication; (b) was observed to have
minimal toxic effect on human cells; and (c) demonstrated significant efficacy
in preventing virus replication of HIV virus strains that resist currently
approved anti-HIV treatments. The goal of our SP-01A monotherapy study, which is
currently recruiting patients, is to further look at the dose response, efficacy
and safety of SP-01A as monotherapy, given as a capsule to be swallowed, in the
treatment of HIV-infected patients.
In addition, and at the same time, Samaritan has devoted major resources to our
Alzheimer's technology, which features: (a) three (3) therapeutics: SP-04,
SP-08, and SP-233; (b) two (2) stem cell/neuron differentiation therapies:
SP-sc4 and SP-sc7; (c) a predictive Alzheimer's diagnostic; and (d) an
Alzheimer's animal model. Samaritan has also devoted resources to our cancer
drug SP-C007, a breast cancer diagnostic and our cholesterol recognition
peptide, which plays a role in transforming and binding LDL cholesterol while
subsequently raising HDL.
Samaritan has established its European headquarters in Athens, Greece, which we
believe will provide access to the markets of Eastern Europe, Asia and Africa,
regions with a high proportion of HIV patients and a target population for our
most advanced drug, SP-01A. "Samaritan Pharmaceuticals Europe" is currently
seeking to build a sales and marketing infrastructure through distribution
agreements for niche high valued products from other companies in the fields of
HIV and infectious diseases, CNS, Cancer/Oncology and Cardiovascular diseases
for the undeveloped regions of Greece, Bulgaria, Romania, Croatia, Serbia,
Bosnia and Slovenia. Our subsidiary, Samaritan Pharmaceuticals Europe: (a) has
established a manufacturing arm in Ireland with Pharmaplaz, LTD, (b) plans to
develop its pipeline of drugs through clinical trials in preparation for
European approval, (c) plans to increase its university research collaborations
and (d) plans to apply for applicable European grants.
4
Samaritan is a Nevada corporation. We were formed in September 1994 and became a
public company in October 1997. Our principal executive offices are located at
101 Convention Center Drive, Suite 310, Las Vegas, Nevada 89109. Our telephone
number is (702) 735-7001. The address of our website is www.samaritanpharma.com.
Information on our website is not part of this Prospectus.
The Offering
On May 12, 2005, we entered into the Purchase Agreement II, as amended with
Fusion Capital pursuant to which Fusion Capital has agreed, under certain
conditions, to purchase on each trading day $40,000 of our Common Stock up to an
aggregate of $40,000,000 over a fifty (50) month period subject to earlier
termination at our discretion. We may also elect, at our discretion, to sell
more of our Common Stock to Fusion Capital than the $40,000 daily amount. The
purchase price of the shares of Common Stock will be equal to a price based upon
the future market price of the Common Stock without any fixed discount to the
market price. Fusion Capital shall not have the right nor the obligation to
purchase any shares of our Common Stock on any trading days that the market
price of our Common Stock is less than $0.25. On January 4, 2007, the last
reported market sale for our Common Stock was $0.21 per share. As a result, the
Company cannot presently access funds under the Purchase Agreement II.
Fusion Capital, the selling shareholder under this Prospectus, is offering for
sale up to 16,700,000 shares of our Common Stock, including the 1,700,000 shares
which have previously been issued to Fusion Capital as a commitment fee. In
connection with entering into the Purchase Agreement II, we authorized the sale
to Fusion Capital of up to 15,000,000 shares of our Common Stock for maximum
proceeds of $40,000,000. We only have the right to receive $40,000 per trading
day under the Purchase Agreement II which will be 15,000,000 shares with Fusion
Capital unless our stock price equals or exceeds $1.50, in which case the daily
amount may be increased under certain conditions as the price of our Common
Stock increases. On January 4, 2007, the last reported market sale for our
Common Stock was $0.21 per share. As a result, the Company cannot presently
access funds under the Purchase Agreement II. From December 15, 2005 through
January 4, 2007, we received net proceeds of $4,020,001 under the Purchase
Agreement II and issued 11,670,628 shares of our Common Stock to Fusion Capital
in connection with these sales. These shares of common stock were previously
registered with the SEC on the accompanying Registration Statement on Form SB-2
(Registration No. 333-105818) registering an aggregate of 16,700,000 shares of
our common stock to be issued pursuant to the terms of the Purchase Agreement
II, which was declared effective on December 15, 2005. We have 3,329,372 shares
of Common Stock remaining available under the accompanying Registration
Statement to issue to Fusion Capital under the Purchase Agreement II. Since we
registered 16,700,000 shares to be offered for sale from time to time by Fusion
Capital pursuant to the accompanying Registration Statement, with 3,329,372
shares remaining under the Registration Statement, the selling price of our
Common Stock to Fusion Capital will have to average at least $10.80 per share
for us to receive the maximum proceeds of $40,000,000 without registering
additional shares of Common Stock. Shares issued to date under the Common Stock
Purchase Agreement are 11,670,628, with proceeds of $4,020,001. Assuming a
minimum purchase price of $0.25 per share and the purchase by Fusion Capital of
the full 3,329,372 remaining shares under the Purchase Agreement II, proceeds to
us would only be $832,343 unless we choose to register more than 3,329,372
shares, which we have the right, but not the obligation, to do. In the event we
elect to sell more than the 3,329,372 shares, we will be required to file a new
Registration Statement and have it declared effective by the U.S. Securities &
Exchange Commission. The number of shares ultimately offered for sale by Fusion
Capital is dependent upon the number of shares purchased by Fusion Capital under
the Purchase Agreement II.
If all of the shares offered by this Prospectus were issued and outstanding as
of November 14, 2005, the number of shares offered by this Prospectus would
represent 13.74% of the total Common Stock outstanding. As of January 4, 2007,
there were 156,652,708 shares of our Common Stock issued and outstanding,
excluding the 3,329,372 shares to be offered by Fusion Capital pursuant to this
Prospectus which Fusion Capital has not yet purchased from us. If all of the
remaining shares registered in the accompanying Registration Statement were
issued and outstanding as of the date hereof, the number of remaining shares
offered by this Prospectus would represent 2.13% of the total Common Stock
outstanding.
5
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements. All statements other than
statements of historical facts contained in this Prospectus, including
statements regarding our future results of operations and financial position,
business strategy and plans, and our objectives for future operations, are
forward-looking statements. The words "believe," "may," "will," "estimate,"
"continue," "anticipate," "intend," "expect" and similar expressions are
intended to identify forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends that we believe may affect our
financial condition, results of operations, business strategy, short-term and
long-term business operations and objectives, and financial needs. These
forward-looking statements are subject to a number of risks, uncertainties and
assumptions, including those described in "Risk Factors." In light of these
risks, uncertainties and assumptions, the forward-looking events and
circumstances discussed in this Prospectus may not occur, and actual results
could differ materially and adversely from those anticipated or implied in the
forward-looking statements. Forward-looking statements include, but are not
limited to, statements about:
o anticipated trends and challenges in our business and competition in the
markets in which we operate;
o our ability to hire and retain key personnel or qualified sales and
marketing and technical staff;
o expected future financial performance;
o our ability to expand our distribution channel;
o expected adoption of our products;
o our ability to manage operating expenses as we grow;
o our ability to manage expansion into international markets;
o our expectations about revenue mix between direct and indirect sales
channels and between sales of products and support services;
o our ability to compete in our industry and innovation by our competitors;
o our ability to expand our customer base;
o our ability to realize increased operating efficiencies;
o our ability to anticipate market needs or develop new or enhanced products
to meet those needs;
o our ability to develop new products and enhance our existing products;
o our ability to protect our confidential information and intellectual
property rights;
o our expectations regarding the use of proceeds from this offering; and
o our need to obtain additional funding and our ability to obtain funding in
the future on acceptable terms.
6
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, level of
activity, performance or achievements. In addition, neither we nor any other
person assumes responsibility for the accuracy and completeness of any of these
forward-looking statements. We are under no duty to update any of these
forward-looking statements after the date of this Prospectus to confirm these
statements to actual results or revised expectations.
You may rely only on the information contained in this Prospectus. We have not
authorized anyone to provide information different from that contained in this
Prospectus. Neither the delivery of this Prospectus, nor sale of Common Stock,
means that information contained in this Prospectus is correct after the date of
this Prospectus. This Prospectus is not an offer to sell or solicitation of an
offer to buy shares of Common Stock in any circumstances under which the offer
or solicitation is unlawful.
RISK FACTORS
You should carefully consider the risks described below before
purchasing our Common Stock. Our most significant risks and uncertainties are
described below; however, they are not the only risks we face. If any of the
following risks actually occur, our business, financial condition, or results of
operations could be materially adversely affected, the trading of our Common
Stock could decline, and you may lose all or part of your investment therein.
You should acquire shares of our Common Stock only if you can afford to lose
your entire investment.
Risks Associated With our Business
We Have A Limited Operating History With Significant Losses And Expect Losses To
Continue For The Foreseeable Future
We have yet to establish any history of profitable operations. We had a
net loss of $5,225,702 for the nine months ended September 30, 2006, as compared
to $4,076,467 for the nine months ended September 30, 2005. The net loss since
our inception on September 5, 1994 through September 30, 2006 was $38,962,098.
We have incurred annual operating losses from continuing operations of
$5,814,406, $4,864,361 and $5,770,531, respectively, during the fiscal years
ended December 31, 2005, 2004 and 2003. As a result, at December 31, 2005 we had
an accumulated deficit of $33,736,396. We have incurred net losses from
continuing operations of $5,557,559, $4,864,361 and $5,520,531, respectively,
during the fiscal years ended December 31, 2005, 2004 and 2003. Our revenues
have not been sufficient to sustain our operations. We expect that our revenues
will not be sufficient to sustain our operations for the foreseeable future. Our
profitability will require the successful commercialization of our pipeline
products. We can give no assurances when this will occur or that we will ever be
profitable.
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We Will Require Additional Financing To Sustain Our Operations And Without It
We May Not Be Able To Continue Operations. We Cannot Currently Access Funds
Under The Purchase Agreement II.
7
We had an operating cash flow deficit of $4.74 million for the nine
months ended September 30, 2006 and $4.64 million for the year ended December
31, 2005.
The availability of funds under the Purchase Agreement II with Fusion
Capital is subject to many conditions, some of which are predicated on events
that are not within our control. Accordingly, we cannot guarantee that these
capital resources will be sufficient to fund our business operations.
Fusion Capital shall not have the right nor the obligation to purchase any
shares of our Common Stock on any trading days that the market price of our
Common Stock is less than $0.25. On January 4, 2007, the last reported sale
for our Common Stock was $0.21. Accordingly, the Company cannot currently access
funds under the Purchase Agreement II. If we are unable to access funds under
the Purchase Agreement II, we may need to sell additional equity securities in
private placements. Since we registered 16,700,000 shares to be offered for sale
from time to time by Fusion Capital pursuant to this Prospectus, with 3,329,372
remaining available under the Registration Statement, the selling price of our
Common Stock to Fusion Capital will have to average at least $10.80 per share
for us to receive the remaining proceeds of $35,980,000 without registering
additional shares of Common Stock. Shares issued to date under the Common Stock
Purchase Agreement are 11,670,628, with proceeds of $4,020,001. Assuming a
minimum purchase price of $0.25 per share and the purchase by Fusion Capital of
the full 3,329,372 remaining shares under the Purchase Agreement II, the
remaining proceeds to us would be $832,343 unless we choose to register more
than 3,329,372 shares, which we have the right, but not the obligation, to do.
In the event we elect to sell more than the 3,329,372 shares, we will be
required to file a new Registration Statement and have it declared effective by
the U.S. Securities & Exchange Commission. The number of shares ultimately
offered for sale by Fusion Capital is dependent upon the number of shares
purchased by Fusion Capital under the Purchase Agreement II. We have the right
to receive $40,000 per trading day under the Purchase Agreement II, unless our
stock price equals or exceeds $1.50, in which case the daily amount may be
increased under certain conditions as the price of our Common Stock increases.
The extent to which we rely on Fusion Capital as a source of funding
will depend on a number of factors including the prevailing market price of our
Common Stock, which as of January 4, 2007, was $0.21, and the extent to which
we are able to secure working capital from other sources, such as through the
sale of our products. If obtaining sufficient financing from Fusion Capital were
to prove unavailable or prohibitively dilutive and if we are unable to sell
enough of our products, we may need to secure another source of funding in order
to satisfy our working capital needs. Even if we are able to access the
remaining $35,980,000 under the Purchase Agreement II with Fusion Capital, we
may still need additional capital to fully implement our business, operating and
development plans. Should the financing we require to sustain our working
capital needs be unavailable or prohibitively expensive when we require it, we
could be forced to curtail or cease our business operations.
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The Sale Of Our Common Stock To Fusion Capital May Cause Dilution And The Sale
Of The Shares Of Common Stock Acquired By Fusion Capital And Other Shares
Registered for Selling Stockholders Could Cause The Price Of Our Common Stock To
Decline
8
In connection with entering into the Purchase Agreement II with Fusion
Capital, we authorized the sale to Fusion Capital of up to 26,643,100 shares of
our Common Stock and registered 16,700,000. The number of shares ultimately
offered for sale by Fusion Capital is dependent upon the number of shares
purchased by Fusion Capital under the agreement. The purchase price for the
Common Stock to be sold to Fusion Capital pursuant to the Purchase Agreement II
will fluctuate based on the price of our Common Stock. Depending upon market
liquidity at the time, a sale of shares by Fusion Capital at any given time
could cause the trading price of our Common Stock to decline. Fusion Capital may
ultimately purchase all, some or none of the 16,700,000 shares of Common Stock
being registered under the Common Stock Purchase Agreement. Further, the lower
the stock price, the more shares we would have to sell to Fusion to receive the
same proceeds. After it has acquired such shares, it may sell all, some or none
of such shares registered under the accompanying Registration Statement.
Therefore, sales to Fusion Capital by us under the Purchase Agreement II may
result in substantial dilution to the interests of other holders of our Common
Stock. The sale of a substantial number of shares of our Common Stock by Fusion
Capital, or anticipation of such sales, could make it more difficult for us to
sell equity or equity-related securities in the future at a time and at a price
that we might otherwise wish to effect sales. However, we have the right to
control the timing and amount of any sales of our shares of Common Stock to
Fusion Capital and the Purchase Agreement II may be terminated by us at any time
at our discretion without any cost to us.
Further, the sale by Fusion Capital and other selling stockholders of our Common
Stock will increase the number of our publicly traded shares, which could
depress the market price of our Common Stock. Moreover, the mere prospect of
resales by Fusion Capital and other selling stockholders as contemplated in this
prospectus could depress the market price for our Common Stock. The issuance of
shares to Fusion Capital under the Purchase Agreement II, will dilute the equity
interest of existing stockholders and could have an adverse effect on the market
price of our common stock.
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The Company's License Agreements May Be Terminated In The Event Of A Breach
The license agreements pursuant to which the Company has licensed its
core technologies for its potential drug products permit the licensors,
including Georgetown University, to terminate such agreements under certain
circumstances, such as the failure by the licensee to use its reasonable best
efforts to commercialize the subject drug or the occurrence of any uncured
material breach by the licensee. The license agreements also provide that the
licensor is primarily responsible for obtaining patent protection for the
licensed technology, and the licensee is required to reimburse the licensor for
costs it incurs in performing these activities. The license agreements also
require the payment of specified royalties. Any inability or failure to observe
these terms or pay these costs or royalties may result in the termination of the
applicable license agreement in certain cases. The termination of any license
agreement could force us to curtail our business operations.
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Protecting Our Proprietary Rights Is Difficult and Costly
The patent positions of pharmaceutical companies can be highly
uncertain and involve complex legal and factual questions. The license
agreements also provide that the licensor is primarily responsible for obtaining
patent protection for the licensed technology, and the licensee is required to
reimburse the licensor for costs it incurs in performing these activities.
Accordingly, we cannot predict the breadth of claims allowed in these companies'
patents or whether the Company may infringe or be infringing on these claims.
Patent disputes are common and could preclude the commercialization of our
products. Patent litigation is costly in its own right and could subject us to
significant liabilities to third parties. In addition, an adverse decision could
force us to either obtain third-party licenses at a material cost or cease using
the technology or product in dispute.
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9
Our Success Will Depend On Our Ability To Attract And Retain Key Personnel
In order to execute our business plan, we need to attract, retain and
motivate a significant number of highly qualified managerial, technical,
financial and sales personnel. If we fail to attract and retain skilled
scientific and marketing personnel, our research and development and sales and
marketing efforts will be hindered. Our future success depends to a significant
degree upon the continued services of key management personnel, including Dr.
Janet Greeson, our Chief Executive Officer, President and Chairman of the Board
of Directors, and Dr. Vassilios Papadopoulos, Chief Scientist of the Science of
Technology Advisory Committee and our key consultant. We do not maintain key man
insurance on either of these individuals. We are currently negotiating a written
employment agreement with Dr. Greeson and have a consulting arrangement with Dr.
Papadopoulos. The loss of their services could delay our product development
programs and our research and development efforts at Georgetown University. In
addition, the loss of Dr. Greeson is grounds for our Research Collaboration with
Georgetown University to terminate. In addition, competition for qualified
employees among companies in the biotechnology and biopharmaceutical industry is
intense and we cannot be assured that we would be able to recruit qualified
personnel on commercially acceptable terms, or at all, to replace them.
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We Are Forming A New Collaboration with McGill University and Our Success Is
Dependent Upon A Smooth Transition from Our Long Term Collaboration with
Georgetown University.
Dr. Vassilios Papadopoulos, the lead scientist in the Georgetown
University/Samaritan research collaboration, has been appointed as the new
Director of the Research Institute of the McGill University Health Centre (MUHC)
in Montreal, Canada. Dr. Papadopoulos has an international reputation as a
scientist and a proven track record of leadership in biomedical research and
administration. Dr. Papadopoulos will assume his new role officially on July 1,
2007. Between now and then he expects to be at the Research Institute of the
MUHC on a regular basis, working on development and operational issues.
Each license granted or to be granted from Georgetown to Samaritan shall not be
terminated or any way affected if the research collaboration between Georgetown
and Samaritan is terminated. Each such license has its own termination
provisions as set forth in the respective license.
Samaritan has the right to terminate the Georgetown research collaboration
under this Agreement upon a 60-day notice in the event that Dr. Papadopoulos'
ceases to be the Principal Investigator or have responsibility for directing our
collaborated research. Samaritan intends to transfer our research collaboration
with Georgetown to MUHC and expects to initiate a research collaboration with
McGill officially on July 1, 2007.
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We Are Faced With Intense Competition And Industry Changes, Which May Make It
More Difficult For Us To Achieve Significant Market Penetration.
The pharmaceutical and biotech industry generally is characterized by
rapid technological change, changing customer needs, and frequent new product
introductions. If our competitors' existing products or new products are more
effective than or considered superior to our products, the commercial
opportunity for our products will be reduced or eliminated. We face intense
competition from companies in our marketplace as well as companies offering
other treatment options. Many of our potential competitors are significantly
larger than we are and have greater financial, technical, research, marketing,
sales, distribution and other resources than we do. We believe there will be
intense price competition for products developed in our markets. Our competitors
may develop or market technologies and products that are more effective or
commercially attractive than any that we are developing or marketing. Our
competitors may obtain regulatory approval, and introduce and commercialize
products before we do. These developments could force us to curtail or cease or
business operations. Even if we are able to compete successfully, we may not be
able to do so in a profitable manner.
--------------------------------------------------------------------------------
If We Are Unable To Continue Product Development, Our Business Will Suffer
Our growth depends in part on continued ability to successfully develop
our products. We may experience difficulties that could delay or prevent the
successful development and commercialization of these products. Our products in
development may not prove safe and effective in clinical trials. Clinical trials
may identify significant technical or other obstacles that must be overcome
before obtaining necessary regulatory or reimbursement approvals. In addition,
our competitors may succeed in developing commercially viable products that
render our products obsolete or less attractive. Failure to successfully develop
and commercialize new products and enhancements would likely have a significant
negative effect on our financial prospects.
--------------------------------------------------------------------------------
10
There Is No Assurance That Our Products Will Have Market Acceptance
The success of the Company will depend in substantial part on the
extent to which a drug product, once approved, achieves market acceptance. The
degree of market acceptance will depend upon a number of factors, including (a)
the receipt and scope of regulatory approvals, (b) the establishment and
demonstration in the medical community of the safety and efficacy of a drug
product, (c) the product's potential advantages over existing treatment methods
and (d) reimbursement policies of government and third party payers. We cannot
predict or guarantee physicians, patients, healthcare insurers, maintenance
organizations, or the medical community in general, will accept or utilize any
drug product of the Company. If our products do not develop market acceptance,
we will be forced to curtail or cease our business operations.
--------------------------------------------------------------------------------
There Is Uncertainty Relating To Third-Party Reimbursement, Which Is Critical To
Market Acceptance Of Our Products.
International market acceptance of our products may depend, in part,
upon the availability of reimbursement within prevailing health care payment
systems. Reimbursement and health care payment systems in international markets
vary significantly by country, and include both government sponsored health care
and private insurance. We may not obtain international reimbursement approvals
in a timely manner, if at all. Our failure to receive international
reimbursement approvals may negatively impact market acceptance of our products
in the international markets in which those approvals are sought and could force
us to curtail or cease our business operations.
From time to time significant attention has been focused on reforming
the health care system in the United States and other countries. Any changes in
Medicare, Medicaid or third-party medical expense reimbursement, which may arise
from health care reform, may have a material adverse effect on reimbursement for
our products or procedures in which our products are used and may reduce the
price we are able to charge for our products. In addition, changes to the health
care system may also affect the commercial acceptance of products we are
currently developing and products we may develop in the future.
--------------------------------------------------------------------------------
If We Fail To Protect Our Licensed Intellectual Property Rights, Our Competitors
May Take Advantage Of Our Ideas And Compete Directly Against Us.
Our success will depend to a significant degree on our ability to
secure and protect intellectual property rights and to enforce patent and
trademark protections relating to our technology which we license. From time to
time, litigation may be advisable to protect our intellectual property position.
However, these legal means afford only limited protection and may not adequately
protect our rights or permit us to gain or keep any competitive advantage. Any
litigation in this regard could be costly, and it is possible that we will not
have sufficient resources to fully pursue litigation or to protect our other
intellectual property rights. It could result in the rejection or invalidation
of our existing and future patents. Any adverse outcome in litigation relating
to the validity of our patents, or any failure to pursue litigation or otherwise
to protect our patent position, could force us to curtail or cease our business
operations. Also, even if we prevail in litigation, the litigation would be
costly in terms of management distraction as well as in terms of money. In
addition, confidentiality agreements with our employees, consultants, customers,
and key vendors may not prevent the unauthorized disclosure or use of our
technology. It is possible that these agreements could be breached or that they
might not be enforceable in every instance, and that we might not have adequate
remedies for any such breach. Enforcement of these agreements may be costly and
time consuming. Furthermore, the laws of foreign countries may not protect our
intellectual property rights to the same extent as the laws of the United
States.
--------------------------------------------------------------------------------
11
We May Be Sued For Allegedly Violating The Intellectual Property Rights Of
Others.
The pharmaceutical industry has in the past been characterized by a
substantial amount of litigation and related administrative proceedings
regarding patents and intellectual property rights. In addition, major
pharmaceutical companies have used litigation against emerging growth companies
as a means of gaining or preserving a competitive advantage.
Should third parties file patent applications or be issued patents
claiming technology also claimed by us in pending applications, we may be
required to participate in interference proceedings in the United States Patent
and Trademark Office to determine the relative priorities of our inventions and
the third parties' inventions. We could also be required to participate in
interference proceedings involving our issued patents and pending applications
of another entity. An adverse outcome in an interference proceeding could
require us to cease using the technology or to license rights from prevailing
third parties and force us to curtail or cease our business operations.
Third parties may claim we are using their patented inventions and may
go to court to stop us from engaging in our normal operations and activities.
These lawsuits are expensive to defend and conduct and would also consume and
divert the time and attention of our management. A court may decide that we are
infringing a third party's patents and may order us to cease the infringing
activity. A court could also order us to pay damages for the infringement. These
damages could be substantial and could have a material adverse effect on our
business, financial condition, results of operations and cash flows. An adverse
outcome on an infringement claim could force us to curtail or cease our business
operations.
If we are unable to obtain any necessary license following an adverse
determination in litigation or in interference or other administrative
proceedings, we would have to redesign our products to avoid infringing a third
party's patent and could temporarily or permanently have to discontinue
manufacturing and selling some of our products. If this were to occur, it would
negatively impact future sales and, in turn, our business, financial condition,
results of operations and cash flows, which could force us to curtail or cease
our business operations.
--------------------------------------------------------------------------------
If We Fail To Obtain Or Maintain Necessary Regulatory Clearances Or Approvals
For Products, Or If Approvals Are Delayed Or Withdrawn, We Will Be Unable To
Commercially Distribute And Market Our Products Or Any Product Modifications.
Government regulation has a significant impact on our business.
Government regulation in the United States and other countries is a significant
factor affecting the research and development, manufacture and marketing of our
products. In the United States, the Food and Drug Administration (FDA) has broad
authority under the federal Food, Drug and Cosmetic Act to regulate the
distribution, manufacture and sale of pharmaceutical products. The process of
obtaining FDA and other required regulatory clearances and approvals is lengthy
and expensive. We may not be able to obtain or maintain necessary approvals for
clinical testing or for the manufacturing or marketing of our products. Failure
to comply with applicable regulatory approvals can, among other things, result
in fines, suspension or withdrawal of regulatory approvals, product recalls,
operating restrictions, and criminal prosecution. In addition, governmental
regulations may be established which could prevent, delay, modify or rescind
regulatory approval of our products. Any of these actions by the FDA, or change
in FDA regulations, could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
12
Regulatory approvals, if granted, may include significant limitations
on the indicated uses for which our products may be marketed. In addition, to
obtain such approvals, the FDA and foreign regulatory authorities may impose
numerous other requirements on us. FDA enforcement policy prohibits the
marketing of approved medical devices for unapproved uses. In addition, product
approvals can be withdrawn for failure to comply with regulatory standards or
unforeseen problems following initial marketing. We may not be able to obtain or
maintain regulatory approvals for our products on a timely basis, or at all, and
delays in receipt of or failure to receive such approvals, the loss of
previously obtained approvals, or failure to comply with existing or future
regulatory requirements could have a material adverse effect on our business,
financial condition, results of operations and cash flows, which could force us
to curtail or cease our business operations.
--------------------------------------------------------------------------------
Positive Results In Preclinical And Early Clinical Trials Do Not Ensure Future
Clinical Trials Will Be Successful Or Drug Candidates Will Receive Any Necessary
Regulatory Approvals For The Marketing, Distribution Or Sale Of Such Drug
Candidates.
Success in preclinical and early clinical trials does not ensure that
large-scale clinical trials will be successful. Clinical results are frequently
susceptible to varying interpretations, delaying, limiting or preventing
regulatory approvals. The length of time necessary to complete clinical trials
and submit an application for marketing approval for a final decision by a
regulatory authority varies significantly and may be difficult to predict.
--------------------------------------------------------------------------------
If We Become Subject To Product Liability Claims, We May Be Required To Pay
Damages That Exceed Our Insurance Coverage.
Our business exposes us to potential product liability claims that are
inherent in the testing, production, marketing and sale of pharmaceuticals
products. While we maintain a commercial general liability policy for $2
million, we may not be able to maintain insurance in amounts or scope sufficient
to provide us with adequate coverage. A claim in excess of our insurance
coverage would have to be paid out of cash reserves, which could have a material
adverse effect on our business, financial condition, results of operations and
cash flows and force us to curtail or cease our business operations. In
addition, any product liability claim likely would harm our reputation in the
industry and our ability to develop and market products in the future.
--------------------------------------------------------------------------------
Insurance Coverage Is Increasingly More Difficult To Obtain or Maintain
Obtaining insurance for our business, property and products is
increasingly more costly and narrower in scope, and we may be required to assume
more risk in the future. If we are subject to third party claims or suffer a
loss or damage in excess of our insurance coverage, we may be required to share
that risk in excess of our insurance limits. Furthermore, any
first-or-third-party claims made on any of our insurance policies may impact our
ability to obtain or maintain insurance coverage at reasonable costs or at all
in the future.
--------------------------------------------------------------------------------
13
Risks Associated With An Investment In Our Common Stock
The Market Price Of Our Common Stock Is Highly Volatile.
The market price of our Common Stock has been and is expected to
continue to be highly volatile. Various factors, including announcements of
technological innovations by us or other companies, regulatory matters, new or
existing products or procedures, concerns about our financial position,
operating results, litigation, government regulation, developments or disputes
relating to agreements, patents or proprietary rights, may have a significant
impact on the market price of our stock. If our operating results are below the
expectations of securities analysts or investors, the market price of our Common
Stock may fall abruptly and significantly.
Future sales of our Common Stock, including shares issued upon the
exercise of outstanding options and warrants or hedging or other derivative
transactions with respect to our stock, could have a significant negative effect
on the market price of our Common Stock. These sales also might make it more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that we would deem appropriate.
We entered into registration rights agreements in connection with
certain financings pursuant to which we agreed to register for resale by the
investors the shares of Common Stock issued. Sales of these shares could have a
material adverse effect on the market price of our shares of Common Stock.
--------------------------------------------------------------------------------
Our Common Stock May Be Delisted From The American Stock Exchange, And As A
Result, Trading Of Our Common Stock Has Become More Difficult.
On November 6, 2006, The American Stock Exchange ("AMEX") sent a letter
to Samaritan Pharmaceuticals, Inc. (the "Company") notifying it that, based upon
review of the Company's Quarterly Report on Form 10-Q filed for the quarter
ended June 30, 2006, AMEX has determined that the Company does not meet certain
of the AMEX continued listing standards as set forth in the AMEX Company Guide.
Specifically, AMEX notified the Company that it is not in compliance with
Section 1003(a)(ii) of the AMEX Company Guide because the Company's
shareholders' equity is less than $4,000,000 and the Company has sustained
losses in three out of four of its most recent fiscal years; and Section 1003
(a)(iii) of the Company Guide with Shareholders' equity of less than $6,000,000
and losses from continuing operations and/or net losses in its five most recent
fiscal years.
In order to maintain listing of our Common Stock on AMEX, we submitted
a plan on December 6, 2006, advising AMEX of the Company's plan to achieve
compliance with the continued listing standards referenced in the AMEX letter of
November 6, 2006. The plan must provide for the Company to be back in compliance
within an 18-month period.
The Listings Qualifications Department of AMEX will evaluate our plan
and determine whether we have made a reasonable demonstration in the plan of an
ability to regain compliance with the continued listing standards within 18
months. If AMEX accepts our plan, we may be able to continue our listing during
the plan period, during which time we will be subject to periodic review to
determine if we are making progress consistent with the consistent with the
plan. If AMEX does not accept our plan, we fail to make progress consistent with
our plan, or if we are not in compliance by the end of the 18 month period, AMEX
may initiate delisting proceedings with respect to our Common Stock. We may
appeal any AMEX staff determination to initiate delisting proceedings with
respect to our Common Stock.
14
Our Common Stock continues to trade on AMEX; however, our trading
symbol will remain the same but will have an indicator .BC added as an extension
to signify our noncompliance with the continued listing standards. The Company
will be included in a list on the AMEX website of issuers that do not comply
with the listing standards. The .BC indicator will remain as an extension on our
trading symbol until the Company has regained compliance with all applicable
continued listing standards. Further, should the Company be delisted from the
AMEX, this may cause a default under the Fusion deal and prohibit us from
drawing under the Common Stock Purchase Agreement.
--------------------------------------------------------------------------------
Under Provisions Of The Company's Articles Of Incorporation, Bylaws And Nevada
Law, The Company's Management May Be Able To Block Or Impede A Change In Control
The issuance of blank check preferred stock, where the Board can
designate rights or preferences, may make it more difficult for a third party to
acquire, or may discourage a third party from acquiring, a majority of our
voting stock. These and other provisions in our Articles of Incorporation
(restated as last amended June 10, 2005) and in our Bylaws (restated as last
amended April 18, 2005), as well as certain provisions of Nevada law, could
delay or impede the removal of incumbent Directors and could make it more
difficult to effect a merger, tender offer or proxy contest involving a change
of control of the Company, even if such events could be beneficial to the
interest of the shareholders as a whole. Such provisions could limit the price
that certain investors might be willing to pay in the future for our Common
Stock.
--------------------------------------------------------------------------------
Officers and Directors Liabilities Are Limited Under Nevada Law
Pursuant to the Company's Articles of Incorporation (restated as last
amended June 10, 2005) and Bylaws (restated as last amended April 18, 2005), and
as authorized under applicable Nevada law, Directors are not liable for monetary
damages for breach of fiduciary duty, except in connection with a breach of the
duty of loyalty for (a) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (b) for dividend payments
or stock repurchases illegal under applicable Nevada law or (c) any transaction
in which a Director has derived an improper personal benefit. The Company's
Articles of Incorporation (restated as last amended June 10, 2005) and Bylaws
(restated as last amended April 18, 2005) provide that the Company must
indemnify its officers and Directors to the fullest extent permitted by
applicable Nevada law for all expenses incurred in the settlement of any actions
against such persons in connection with their having served as officers or
Directors.
USE OF PROCEEDS
This Prospectus relates to the registration of 16,700,000 shares of our Common
Stock. We will receive no proceeds from any sale of shares of Common Stock in
this offering. However, as of January 4, 2007, we have 3,329,372 shares
remaining under this Registration Statement under the Purchase Agreement II. As
of January 4, 2007, the last reported market price for our Common Stock was
$0.21 per share. Accordingly, the Company cannot currently access funds under
the Purchase Agreement II and will not be able to access such funds unless our
Common Stock exceeds the market price of $0.25 per share. Any proceeds we
receive from Fusion Capital under the Purchase Agreement II will be used for
working capital and general corporate purposes.
15
DETERMINATION OF OFFERING PRICE
General
On May 12, 2005, we entered into a Purchase Agreement with Fusion Capital
pursuant to which Fusion Capital has agreed, under certain conditions, to
purchase on each trading day $40,000 of our Common Stock up to an aggregate of
$40,000,000 over a fifty (50) month period subject to earlier termination at our
discretion. We may also elect, at our discretion, to sell more of our Common
Stock to Fusion Capital than the $40,000 daily amount. The purchase price of the
shares of Common Stock will be equal to a price based upon the future market
price of the Common Stock without any fixed discount to the market price. Fusion
Capital does not have the right or the obligation to purchase shares of our
Common Stock in the event that the price of our Common Stock is less than $0.25.
On January 4, 2007, the last reported market sale price of our Common Stock
was $0.21 per share. Accordingly, the Company cannot currently access funds
under the Purchase Agreement II. On December 29, 2005, the accompanying
Registration Statement on Form SB-2 (Registration No. 333-130356) was declared
effective by the SEC. The number of registered, yet not issued shares remaining
under the accompanying Registration Statement as of January 4, 2007, is
3,329,372. In connection with entering into the Purchase Agreement II, we
authorized the sale to Fusion Capital of up to 26,643,192 shares of our Common
Stock.
We only have the right to receive $40,000 per trading day under the
Purchase Agreement II, unless our stock price equals or exceeds $1.50, in which
case the daily amount may be increased under certain conditions as the price of
our Common Stock increases. Fusion Capital shall not have the right nor the
obligation to purchase any shares of our Common Stock on any trading days that
the market price of our Common Stock is less than $0.25. Shares issued to date
under the Common Stock Purchase Agreement is 11,670,628, with proceeds of
$4,020,001. On January 4, 2007, the last reported market sale price of our
Common Stock was $0.21. We have 3,329,372 shares remaining under the Form SB-2
Registration Statement to be offered for sale from time to time by Fusion
Capital pursuant to this Prospectus. The selling price of our Common Stock to
Fusion Capital will have to average at least $10.80 per share for us to receive
the maximum remaining proceeds of $35,980,000 without registering additional
shares of Common Stock. Assuming a minimum purchase price of $0.25 per share and
the purchase by Fusion Capital of the 3,329,372 remaining registered shares
under the Purchase Agreement II, proceeds to us would be $832,343 unless we
choose to register more than 3,329,372 shares, which we have the right, but not
the obligation, to do. Subject to approval by our Board of Directors, we have
the right but not the obligation to sell more than 3,329,372 shares to Fusion
Capital. In the event we elect to sell more than the 3,329,372 shares, we will
be required to file a new Registration Statement and have it declared effective
by the U.S. Securities & Exchange Commission. The number of shares ultimately
offered for sale by Fusion Capital is dependent upon the number of shares
purchased by Fusion Capital under the Purchase Agreement II.
Purchase Of Shares Under The Common Stock Purchase Agreement
Under the Purchase Agreement II, on any business day selected by us, we
may direct Fusion Capital to purchase up to $40,000 of our Common Stock. The
purchase price per share is equal to the lesser of:
o the lowest sale price of our Common Stock on the purchase date; or
o the average of the three (3) lowest closing sale prices of our Common Stock
during the twelve (12) consecutive business days prior to the date of a
purchase by Fusion Capital.
16
Our Right To Increase And Decrease The Amount To Be Purchased
Under the Purchase Agreement II, Fusion Capital has agreed to purchase
on each trading day during the fifty (50) month term of the Purchase Agreement
II, $40,000 of our Common Stock or an aggregate of $40,000,000. We have the
unconditional right to decrease the daily amount to be purchased by Fusion
Capital at any time for any reason effective upon one (1) trading day's notice.
In our discretion, we may elect to sell more of our Common Stock to
Fusion Capital than the $40,000 daily amount. First, in respect of the daily
purchase amount, we have the right to increase the daily purchase amount as the
market price of our Common Stock increases. Specifically, for every $0.25
increase in the Threshold Price (as defined herein below) above $1.25, the
Company shall have the right to increase the daily purchase amount by up to an
additional $5,000. For example, if the Threshold Price is $1.75 we would have
the right to increase the daily purchase amount to up to an aggregate of
$50,000. The "Threshold Price" is the lowest sale price of our Common Stock
during the five (5) trading days immediately preceding our notice to Fusion
Capital to increase the daily purchase amount. If at any time during any trading
day the sale price of our Common Stock is below the Threshold Price, the
applicable increase in the daily purchase amount will be void.
In addition to the daily purchase amount, we may elect to require
Fusion Capital to purchase on any single trading day our shares in an amount up
to $250,000, provided that our share price is above $0.80 during the five (5)
trading days prior thereto. The price at which such shares would be purchased
will be the lowest purchase price during the previous fifteen (15) trading days
prior to the date that such purchase notice was received by Fusion Capital. We
may increase this amount to $500,000 if our share price is above $1.25 during
the five (5) trading days prior to our delivery of the purchase notice to Fusion
Capital. This amount may also be increased to up to $1,000,000 if our share
price is above $2.50 during the five (5) trading days prior to our delivery of
the purchase notice to Fusion Capital. We may deliver multiple purchase notices;
however at least ten (10) trading days must have passed since the most recent
non-daily purchase was completed.
Minimum Purchase Price
Under the Purchase Agreement II agreement, we have set a minimum
purchase price ("floor price") of $0.25. Fusion Capital shall not have the right
or the obligation to purchase shares of our Common Stock on any business day
that the market price of our Common Stock is below $0.25. On January 4, 2007,
the last reported market sale price of our Common Stock was $0.21. Accordingly,
the Company cannot currently access funds under the Purchase Agreement II and
will not be able to access such funds in the future unless the market price our
Common Stock exceeds $0.25 per share.
Events of Default
Generally, Fusion Capital may terminate the Purchase Agreement II,
without any liability or payment to the Company upon the occurrence of any of
the following events of default:
o the effectiveness of the accompanying Registration Statement of which
this Prospectus is a part of lapses for any reason (including, without
limitation, the issuance of a stop order) or is unavailable to Fusion
Capital for sale of our Common Stock offered hereby and such lapse or
unavailability continues for a period of five (5) consecutive trading
days or for more than an aggregate of twenty (20) trading days in any
three hundred sixty-five (365) day period;
o suspension by our principal market of our Common Stock from trading or
failure of the Common Stock to be listed for a period of three (3)
consecutive trading days;
17
o the de-listing of our Common Stock from our principal market provided
our Common Stock is not immediately thereafter trading on the Nasdaq
National Market, the Nasdaq SmallCap Market, or the New York Stock
Exchange;
o the transfer agent's failure for five (5) trading days to issue to
Fusion Capital shares of our Common Stock which Fusion Capital is
entitled to under the Purchase Agreement II;
o any material breach of the representations or warranties or covenants
contained in the Purchase Agreement II or any related agreements by the
Company which has or which could have a material adverse affect on us
subject to a cure period of five (5) trading days;
o any participation or threatened participation in insolvency or
bankruptcy proceedings by or against us;
o a material adverse change in our business; or
o the issuance of an aggregate of 26,643,192 shares of Common Stock
(19.9% of the outstanding shares of Common Stock as of the date of the
Purchase Agreement II) if we fail to obtain the requisite shareholder
approval.
--------------------------------------------------------------------------------
Our Termination Rights
We have the unconditional right at any time for any reason to give
notice to Fusion Capital terminating the Purchase Agreement II without any cost
to us.
No Short-Selling or Hedging by Fusion Capital
Fusion Capital has agreed that neither it nor any of its affiliates
will engage in any direct or indirect short-selling or hedging of our Common
Stock during any time prior to the termination of the Purchase Agreement II.
Commitment Shares Issued to Fusion Capital
Under the terms of the Purchase Agreement II, Fusion Capital has
received a commitment fee consisting of 1,700,000 shares of our Common Stock.
Generally, unless an event of default occurs, Fusion Capital must own at least
1,700,000 shares of our Common Stock until 50 months from the date of the
agreement or until the agreement is terminated.
Effect of Performance of the Common Stock Purchase Agreement on Our Stockholders
All 16,700,000 shares registered in connection with Fusion in this
offering are expected to be freely tradable, of which 3,329,372 shares remain
under this Prospectus. It is anticipated that shares registered in this offering
will be sold over a period of up to 38 months from the date the accompanying
Registration Statement was first declared effective by the SEC. The sale by
Fusion Capital of a significant amount of shares registered in this offering at
any given time could cause the market price of our Common Stock to decline and
to be highly volatile. Fusion Capital may ultimately purchase all, some or none
of the remaining 3,329,372 shares of Common Stock not yet issued but registered
in this offering. After it has acquired such shares, it may sell all, some or
none of such shares. Therefore, sales to Fusion Capital by us under the Purchase
Agreement II have resulted in substantial dilution to the interests of other
holders of our Common Stock. However, we have the right to control the timing
and amount of any sales of our shares to Fusion Capital and the agreement may be
terminated by us at any time at our discretion without any cost to us.
18
In connection with entering into the Purchase Agreement II, we
authorized the sale to Fusion Capital of up to 26,643,100 shares of our Common
Stock and registered 16,700,000 shares in the accompanying Registration
Statement. The number of shares ultimately offered for sale by Fusion Capital
under this Prospectus is dependent upon the number of shares purchased by Fusion
Capital under the agreement. The following table sets forth the amount of
proceeds we would receive from Fusion Capital from the sale of shares at varying
purchase prices:
------------------------- ------------------------------ ------------------------ ------------------------
Percentage of Proceeds from the
Outstanding Shares Sale of Shares to
After Giving Effect Fusion Capital
Number of Shares To the Remaining Under the Common
Assumed Average Remaining To Be Issued Issuance to Stock Purchase
Purchase Price If Full Purchase Fusion Capital(1) Agreement
------------------------- ------------------------------ ------------------------ ------------------------
$ 0.25 3,329,372 2.13% $832,343
------------------------- ------------------------------ ------------------------ ------------------------
$ 0.50 3,329,372 2.13% $1,664,686
------------------------- ------------------------------ ------------------------ ------------------------
$ 0.75 3,329,372 2.13% $2,497,029
------------------------- ------------------------------ ------------------------ ------------------------
$ 1.00 3,329,372 2.13% $3,329,372
------------------------- ------------------------------ ------------------------ ------------------------
$ 1.25 3,329,372 2.13% $4,161,715
------------------------- ------------------------------ ------------------------ ------------------------
$ 1.50 3,329,372 2.13% $4,994,058
------------------------- ------------------------------ ------------------------ ------------------------
$ 1.75 3,329,372 2.13% $5,826,401
------------------------- ------------------------------ ------------------------ ------------------------
$ 2.00 3,329,372 2.13% $6,658,744
------------------------- ------------------------------ ------------------------ ------------------------
$ 2.25 3,329,372 2.13% $7,491,087
------------------------- ------------------------------ ------------------------ ------------------------
(1) Based on 156,652,708 shares outstanding as of January 4, 2007.
--------------------------------------------------------------------------------
DILUTION
The net tangible book value of Samaritan as of September 30, 2006 was $2,780,957
or $0.0178 per share of Common Stock. Net tangible book value per share is
determined by dividing the tangible book value of Samaritan (total tangible
assets less total liabilities) by the number of outstanding shares of our Common
Stock. Since this offering is being made solely by the selling stockholder and
none of the proceeds will be paid to Samaritan, our net tangible book value will
be unaffected by this offering. Our net tangible book value, however, will be
impacted by the Common Stock to be issued under the Purchase Agreement II. The
amount of dilution will depend on the offering price and number of shares to be
issued under the Purchase Agreement II. The following example shows the dilution
to new investors at an offering price of $0.25 per share, the minimal purchase
price under the Purchase Agreement II.
If we assume that Samaritan issues 3,329,372 shares, the remaining amount of
shares under the accompanying Registration Statement to be issued at an assumed
offering price of $0.25 per share, less offering expenses of $18,000.00, our net
tangible book value as of September 30, 2006 would have been $3,605,300 or
$0.0225 per share. Such an offering would represent an immediate increase in net
tangible book value to existing shareholders of $0.0225 per share and an
immediate dilution to new shareholders of $.2275 per share. The following table
illustrates the per share dilution:
19
Assumed public offering price per share $0.2500
Net tangible book value per share before this offering $0.0178
Increase attributable to new investors $0.0047
-------
Net tangible book value per share after this offering $0.0225
-------
Dilution per share to new shareholders $0.2275
=======
The offering price of our Common Stock is based on the then-existing market
price. In order to give prospective investors an idea of the dilution per share
they may experience, we have prepared the following table showing the dilution
per share at various assumed offering prices:
ASSUMED NO. OF SHARES TO BE DILUTION PER SHARE TO
OFFERING PRICE ISSUED(1) NEW INVESTORS
------------------------- ------------------------- -----------------------
$0.40 3,329,372 $0.0257
$0.35 3,329,372 $0.0246
$0.30 3,329,372 $0.0236
$0.25 3,329,372 $0.0225
(1) Samaritan has 3,329,372 remaining registered shares of Common Stock
under the accompanying Registration Statement pursuant to the Purchase
Agreement II with Fusion Capital.
------------------------------------------------------------------------------
SELLING SECURITY HOLDERS
The following table presents information regarding the selling
stockholders. Neither the selling stockholders nor any of their affiliates has
held a position or office, or had any other material relationship, with us.
Percentage of Percentage of
Shares Beneficially Outstanding Shares Outstanding Shares
Owned Before Beneficially Owned Shares Beneficially Beneficially Owned
Selling Stockholder Offering Before Offering(1) Owned After Offering After Offering(3)
---------------------------- ------------------- -------------------- --------------------- ------------------
Fusion Capital Fund II, 5,879,945 3.75% 5,879,945 3.68%
LLC(1)(2)
222 Merchandise Mart Plaza,
Suite 9-112
Chicago, IL 60654
1) As of January 4, 2007, 5,879,945 shares of our Common Stock owned by
Fusion Capital under the Common Stock Purchase Agreement and 3,329,372
registered shares remain under the Purchase Agreement II. Percentage of
outstanding shares before offering is based on 156,652,708 shares of
Common Stock outstanding as of January 4, 2007. Percentage of
outstanding shares after offering is based on 159,982,080 common
shares.
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2) Steven G. Martin and Joshua B. Scheinfeld, the principals of Fusion
Capital, are deemed to be beneficial owners of all of the shares of
Common Stock owned by Fusion Capital. Messrs. Martin and Scheinfeld
have shared voting and disposition power over the shares being offered
under this Prospectus.
3) Assumes that all shares are sold pursuant to this offering and that no
other shares of Common Stock are acquired or disposed of by the selling
shareholders prior to the termination of this offering. Because the
selling shareholders may sell all, some or none of their shares or may
acquire or dispose of other shares of Common Stock, no reliable
estimate can be made of the aggregate number of shares that will be
sold pursuant to this offering or the number or percentage of shares of
Common Stock that each selling shareholder will own upon completion of
this offering.
PLAN OF DISTRIBUTION
We are registering 16,700,000 shares of our Common Stock pursuant to the
accompanying Registration Statement and such 16,700,000 shares shall be offered
to be sold by Fusion Capital under the Common Stock Purchase Agreement. As of
January 4, 2007, 3,329,372 shares remain under this Registration Statement to
be sold by Fusion under the Common Stock Purchase Agreement. Fusion Capital is
sometimes referred to herein as a selling shareholder.
The Common Stock offered by this Prospectus is being offered by Fusion
Capital. The Common Stock may be sold or distributed from time to time by the
selling stockholder directly to one or more purchasers or through brokers,
dealers, or underwriters who may act solely as agents at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed. The sale
of the Common Stock offered by this Prospectus may be affected in one or more of
the following methods:
o ordinary brokers' transactions;
o transactions involving cross or block trades;
o through brokers, dealers, or underwriters who may act solely as agents
o "at the market" into an existing market for the Common Stock;
o in other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents;
o in privately negotiated transactions; or
o any combination of the foregoing.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed brokers
or dealers. In addition, in certain states, the shares may not be sold unless
they have been registered or qualified for sale in the state or an exemption
from the registration or qualification requirement is available and complied
with.
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Brokers, dealers, underwriters, or agents participating in the
distribution of the shares as agents may receive compensation in the form of
commissions, discounts, or concessions from the selling stockholder and/or
purchasers of the Common Stock for whom the broker-dealers may act as agent. The
compensation paid to a particular broker-dealer may be less than or in excess of
customary commissions.
Fusion Capital is an "underwriter" within the meaning of the Securities Act.
Neither we nor Fusion Capital can presently estimate the amount of compensation
that any agent will receive. We know of no existing arrangements between Fusion
Capital, any other stockholder, broker, dealer, underwriter, or agent relating
to the sale or distribution of the shares offered by this Prospectus. At the
time a particular offer of shares is made, a Prospectus supplement, if required,
will be distributed that will set forth the names of any agents, underwriters,
or dealers and any compensation from the selling stockholder, and any other
required information.
We will pay all of the expenses incident to the registration, offering,
and sale of the shares to the public other than commissions or discounts of
underwriters, broker-dealers, or agents. We have also agreed to indemnify Fusion
Capital and related persons against specified liabilities, including liabilities
under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers, and controlling persons, we
have been advised that in the opinion of the SEC this indemnification is against
public policy as expressed in the Securities Act and is therefore,
unenforceable.
Fusion Capital and its affiliates have agreed not to engage in any
direct or indirect short selling or hedging of our Common Stock during the term
of the Purchase Agreement II.
We have advised the selling stockholder that while it is engaged in a
distribution of the shares included in this Prospectus, it is required to comply
with Regulation M promulgated under the Securities Exchange Act of 1934, as
amended. With certain exceptions, Regulation M precludes the selling
stockholder, any affiliated purchasers, and any broker-dealer or other person
who participates in the distribution from bidding for or purchasing, or
attempting to induce any person to bid for or purchase any security which is the
subject of the distribution until the entire distribution is complete.
Regulation M also prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security. All of
the foregoing may affect the marketability of the shares offered by this
Prospectus.
DESCRIPTION OF SECURITIES TO BE REGISTERED
Common Stock
Our authorized capital stock consists of 250,000,000 authorized shares of Common
Stock, par value $0.001 per share, of which 156,652,708 shares are issued and
outstanding as of January 4, 2007. The holders of our Common Stock are
entitled to one (1) vote for each share on all matters voted on by shareholders,
including the election of Directors and, except as otherwise required by law, or
provided in any resolution adopted by our Board of Directors with respect to any
series of preferred stock, exclusively possess all voting power. Under our
Articles of Incorporation (as amended and restated), voting rights are
non-cumulative so that shareholders holding more than fifty percent (50%) of our
outstanding shares of Common Stock are able to elect all members of our Board of
Directors. Holders of shares of our Common Stock are entitled to share ratably
in dividends, if any, as may be declared, from time to time by our Board of
Directors in its discretion, from funds legally available to be distributed. In
the event of a liquidation, dissolution or winding up of the Company, the
holders of shares of Common Stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. Holders of our Common Stock
have no preemptive rights to purchase our Common Stock. There are no conversion
rights or redemption or sinking fund provisions with respect to our Common
Stock.
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Shares Eligible for Future Sale
Sales of substantial amounts of our Common Stock in the public market following
this offering could negatively affect the market price of our Common Stock. Such
sales could also impair our future ability to raise capital through the sale of
our equity securities.
At the time of this Prospectus, we have outstanding 156,652,708 shares of our
Common Stock. Of these shares, approximately:
o 87,189,722 shares will be freely tradable by persons other than
"affiliates" without restriction under the Securities Act of 1933, as
amended; and
o 69,462,986 shares will be "restricted" securities within the meaning of
Rule 144 under the Securities Act of 1933, as amended, and may not be
sold in the absence of registration under the Securities Act of 1933,
as amended, unless an exemption from registration is available,
including the exemption provided by Rule 144. As of the date of this
Prospectus, 41,105,617 shares are held by affiliates of Samaritan, and
may only be sold pursuant to Rule 144.
In general, under Rule 144, a person or persons whose shares are aggregated,
including any affiliate of Samaritan who has beneficially owned restricted
securities for at least one (1) year, would be entitled to sell within any three
(3) month period, a number of shares that does not exceed one percent (1%) of
the number of shares of Common Stock then outstanding.
Sales under Rule 144 are also subject to manner of sale and notice requirements
and to the availability of current public information about Samaritan. Under
Rule 144(k), a person who is not considered to have been an affiliate of
Samaritan at any time during the ninety (90) days preceding a sale, and who has
beneficially owned restricted securities for at least two (2) years, including
the holding period of any prior owner except an affiliate of Samaritan, may sell
these shares without following the terms of Rule 144.
Preferred Stock
Our authorized capital stock also includes 5,000,000 shares of preferred stock,
par value $0.001 per share, of which zero (0) shares are issued and outstanding
as of the date of this Prospectus.
Provisions In Our Articles Of Incorporation And By-Laws That Would Delay, Defer
Or Prevent A Change In Control
Our Articles of Incorporation (restated as last amended June 10, 2005) authorize
a class of preferred stock commonly known as a "blank check" preferred stock.
Specifically, the preferred stock may be issued from time to time by the Board
of Directors as shares of one (1) or more classes or series. Our Board of
Directors, subject to the provisions of our Articles of Incorporation (restated
as last amended June 10, 2005) and limitations imposed by law, is authorized to
adopt resolutions; to issue the shares; to fix the number of shares; to change
the number of shares constituting any series; and to provide for or change the
following: the voting powers; designations; preferences; and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions, including the following: dividend rights, including whether
dividends are cumulative; dividend rates; terms of redemption, including sinking
fund provisions; redemption prices; conversion rights and liquidation
preferences of the shares constituting any class or series of the preferred
stock.
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In each such case, we will not need any further action or vote by our
shareholders. One of the effects of undesignated preferred stock may be to
enable the Board of Directors to render more difficult or to discourage an
attempt to obtain control of us by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of our management.
The issuance of shares of preferred stock pursuant to the board of director's
authority described above may adversely affect the rights of holders of Common
Stock. For example, preferred stock issued by us may rank prior to the Common
Stock as to dividend rights, liquidation preference or both, may have full or
limited voting rights and may be convertible into shares of Common Stock.
Accordingly, the issuance of shares of preferred stock may discourage bids for
the Common Stock at a premium or may otherwise adversely affect the market price
of the Common Stock.
Staggering Board Of Directors
Our Bylaws (restated as last amended April 18, 2005), which were approved by the
Directors on April 19, 2005, provide that our Board of Directors shall consist
of eight (8) Directors that shall be divided into three (3) classes. The
authorized number of Directors may from time to time be increased to not more
than fifteen (15) or decreased to not less than three (3) by resolution of the
Board of Directors. A single class of Directors shall be elected each year at
the annual meeting, and each Director shall be elected to serve for a term
ending on the date of the third annual meeting of shareholders after his
election and until his successor has been elected and duly qualified, subject to
any transition periods. This provision in our Bylaws (restated as last amended
April 18, 2005) would delay, defer or prevent a change in control of Samaritan.
Our Board of Directors or shareholders may remove a Director at any time, with
or without cause.
Amendment Of Our Bylaws
Our Bylaws (restated as last amended April 18, 2005) may be adopted, amended or
repealed by (a) the affirmative vote of more than eighty percent (80%) of our
outstanding shares or (b) our Board of Directors.
Nevada Laws
The Nevada Business Corporation Law contains a provision governing "Acquisition
of Controlling Interest". This law provides generally that any person or entity
that acquires twenty percent (20%) or more of the outstanding voting shares of a
publicly-held Nevada corporation in the secondary public or private market may
be denied voting rights with respect to the acquired shares, unless a majority
of the disinterested shareholders of the corporation elects to restore such
voting rights in whole or in part. The control share acquisition act provides
that a person or entity acquires "control shares" whenever it acquires shares
that, but for the operation of the control share acquisition act, would bring
its voting power within any of the following three ranges: (a) twenty percent
(20%) to thirty-three and one-third percent (33 1/3%), (b) thirty-three and
one-third percent (33 1/3%) to fifty percent (50%) or (c) more than fifty
percent (50%). A "control share acquisition" is generally defined as the direct
or indirect acquisition of either ownership or voting power associated with
issued and outstanding control shares. The shareholders or Board of Directors of
a corporation may elect to exempt the stock of the corporation from the
provisions of the control share acquisition act through adoption of a provision
to that effect in the Articles of Incorporation or Bylaws of the corporation.
Our Articles of Incorporation and Bylaws do not exempt our Common Stock from the
control share acquisition act. The control share acquisition act is applicable
only to shares of "Issuing Corporations" as defined by the act. An Issuing
Corporation is a Nevada corporation, which; (a) has two hundred (200) or more
shareholders, with at least one hundred (100) of such shareholders being both
shareholders of record and residents of Nevada; and (b) does business in Nevada
directly or through an affiliated corporation.
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At this time, we have one hundred (100) shareholders of record resident of
Nevada. Therefore, the provisions of the control share acquisition act do apply
to acquisitions of our shares. The provisions of the control share acquisition
act may discourage companies or persons interested in acquiring a significant
interest in or control of Samaritan, regardless of whether such acquisition may
be in the interest of our shareholders.
The Nevada "Combination with Interested Shareholders Statute" may also have an
effect of delaying or making it more difficult to effect a change in control of
Samaritan Pharmaceuticals. This statute prevents an "interested shareholder" and
a resident domestic Nevada corporation from entering into a "combination",
unless certain conditions are met. The statute defines "combination" to include
any merger or consolidation with an "interested shareholder", or any sale,
lease, exchange, mortgage, pledge, transfer or other disposition, in one
transaction or a series of transactions with an "interested shareholder" having;
(a) an aggregate market value equal to five percent (5%) or more of the
aggregate market value of the assets of the corporation; (b) an aggregate market
value equal to five percent (5%) or more of the aggregate market value of all
outstanding shares of the corporation; or (c) representing ten percent (10%) or
more of the earning power or net income of the corporation. An "interested
shareholder" means the beneficial owner of ten percent (10%) or more of the
voting shares of a resident domestic corporation, or an affiliate or associate
thereof. A corporation affected by the statute may not engage in a combination"
within three (3) years after the interested shareholder acquires its shares
unless the combination or purchase is approved by the Board of Directors before
the interested shareholder acquired such shares. If approval is not obtained,
then after the expiration of the three-year period, the business combination may
be consummated with the approval of the Board of Directors or a majority of the
voting power held by disinterested shareholders, or if the consideration to be
paid by the interested shareholder is at least equal to the highest of: (a) the
highest price per share paid by the interested shareholder within the three
years immediately preceding the date of the announcement of the combination or
in the transaction in which he became an interested shareholder, whichever is
higher; (b) the market value per common share on the date of announcement of the
combination or the date the interested shareholder acquired the shares,
whichever is higher; or (c) if higher for the holders of preferred stock, the
highest liquidation value of the preferred stock.
Transfer Agent
The transfer agent for the Common Stock is Securities Transfer Corporation, 2591
Dallas Parkway, Suite 102, Frisco, Texas 75034.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Sherb & Co., LLP, an independent registered public accounting firm, has audited
our consolidated balance sheet as of December 31, 2005, and the consolidated
statements of operations, shareholders' equity, and cash flows for the two (2)
years in the period ended December 31, 2005 as set forth in this Prospectus. The
financial statements are included in reliance on such reports given upon the
authority of Sherb & Co., LLP as experts in accounting and auditing. Sherb &
Co., LLP does not have any ownership interest in Samaritan.
Burton, Bartlett & Glogovac has passed upon the validity of the shares of our
Common Stock offered hereby.
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DESCRIPTION OF BUSINESS
General
Samaritan is working to ensure a longer and better life for patients
suffering with AIDS, Alzheimer's, cancer, and cardiovascular disease. Samaritan
is a pipeline-driven biopharmaceutical company, with a clear focus on advancing
early stage innovative drugs through clinical development, to become
commercially valuable compounds. We have devoted substantially all of our
resources to undertaking our drug discovery and development programs.
The majority of our resources have been expended in the pursuit of FDA
required preclinical studies and Phase II/III clinical trials for Samaritan's
HIV drug SP-01A, an oral entry inhibitor.
In a previous FDA Phase I/II human study, SP-01A was observed to
significantly lower the amount of HIV in blood, improve quality of life (how
well subjects have felt), have a favorable safety profile (minimal side effects)
and be well tolerated. Moreover, preclinical in-vitro testing of SP-01A:
demonstrated comparable or greater efficacy than currently approved anti-HIV
drugs in preventing HIV virus replication; was observed to have minimal toxic
effect on human cells; and demonstrated significant efficacy in preventing virus
replication of HIV virus strains that resist currently approved anti-HIV
treatments.
We are currently conducting a Phase IIb/IIIa Monotherapy trial with HIV
patients studying SP-01A. The goal of our SP-01A Monotherapy study is to look
further at the dose response, efficacy and safety of SP-01A as monotherapy,
given as a capsule to be swallowed, in the treatment of HIV-infected patients.
In addition, and at the same time, Samaritan has devoted major
resources to its Alzheimer's technology, which features three therapeutics:
SP-04, SP-08, and SP-233; two stem cell, neuron differentiation therapies:
SP-sc4 and SP-sc7; a predictive Alzheimer's diagnostic; and an Alzheimer's
animal model.
Also, Samaritan has devoted resources to its cancer drug SP-C007, a
breast cancer diagnostic and our cholesterol recognition peptide, which plays a
role in transforming and binding LDL(the bad cholesterol) while subsequently
raising HDL(the good cholesterol).
Samaritan has established its European headquarters in Athens, Greece
to allow access to the markets of Eastern Europe, Asia and African regions with
a high proportion of HIV patients, a target population for our most advanced
drug SP-01A. Our subsidiary, "Samaritan Pharmaceuticals Europe", is currently
building, a sales and marketing infrastructure to create revenue for the
normally undeveloped regions of Greece, Bulgaria, Romania, Croatia, Serbia,
Bosnia and Slovenia.
On December 14, 2005, Samaritan In-Licensed from Three Rivers
Pharmaceuticals the Greece & Cyprus Marketing Rights for Amphocil (an
amphotericin B cholesteryl sulfate complex for injection indicated for the
treatment of invasive aspergillosis, a fungal infection that occurs in
immuno-compromised patients). On, April 3, 2006, Samaritan Pharmaceuticals
Europe, S.A. received notification by the National Pharmaceuticals Organization,
(EOF) for a new marketing authorization for Amphocil in Greece. The National
Pharmaceutical Organization, (EOF), is the competent authority for granting
approval to market pharmaceutical and medical products in Greece, similar to the
FDA in the United States. Samaritan Europe is currently assembling all the
necessary documents to make a pricing application with the Minister of
Development who issues official prices with the consent of the Minister of
Health. Once price approval is obtained, Samaritan will launch the product in
the Greek market. Currently, Samaritan Pharmaceuticals Europe is trying to
contract with other pharmaceutical companies to sell and distribute niche, high
valued products in the above undeveloped European regions.
26
Samaritan has also established its manufacturing arm in Ireland with
our collaborative partner Pharmaplaz, LTD. Through this collaboration, Samaritan
will manufacture our clinical trial drug, SP-01A, and plans to develop its
pipeline of drugs through clinical trials in preparation for European approval,
plans to increase its university research collaborations and plans to apply for
applicable European grants.
Samaritan was formed in September 1994 and became a public company in
October 1997. Our principle executive offices are located at 101 Convention
Center Drive, Suite 310, Las Vegas, NV 89109, and our telephone number is (702)
735-7001. The address of our website is www.samaritanpharmaceuticals.com.
Information on our website is not part of this Prospectus.
Business Model
We believe Samaritan fills a niche in bringing commercial drug
development expertise and the financial resources to further University
innovation.
Samaritan brings a business acumen to University discoveries, which
includes an expertise, primarily in accomplishing investigational new drug (IND)
applications with the Food and Drug Administration (FDA), conducting FDA
regulatory clinical trials, patent applications (IP), and National Institute of
Health grants. Samaritan's expertise also includes clinical study drug
production, chemistry, manufacturing and controls, stability studies, and human
clinical trials and proof of concept studies with all of the related preclinical
studies required to get FDA drug approval.
In addition, Samaritan strives to maintain relationship based business
development programs to potentially market and license its innovation with
partners in the pharmaceutical industry.
Samaritan endeavors to develop drugs with the potential for an annual
commercial value of at least $300,000,000 a year to ultimately interest major
pharmaceutical partnerships.
Overview of Samaritan's Research Pipeline
Samaritan's proprietary HIV drug SP-01A headlines its pipeline. SP-01A
is an HIV oral entry inhibitor that works by blocking the ability for the HIV
virus to infect CD4+ cells. In Phase I/II clinical trials, SP-01A demonstrated
proof of concept with significance in two crucial areas, viral load and
improvement in quality of life. The drug was also observed to have a favorable
safety profile, be well-tolerated and data suggests SP-01A is a promising drug
for patients experiencing drug resistance. The innovative concept underlying the
mechanism of action of SP-01A was the basis used to develop two new HIV drug
candidates, SP-10 and SP-03, both with robust HIV entry inhibitor properties.
Samaritan's Alzheimer's technology features four (4) promising
therapeutics, SP-04, SP-04m, SP-08, and SP-233; two (2) stem cell neuron
differentiation therapies, SP-sc4 and SP-sc7; a predictive diagnostic; and an
animal model. The stem cell therapy drugs have been shown, in cell cultures and
in animals, to awaken dormant brain stem cells and to transform (differentiate)
them into new neurons. The Alzheimer's diagnostic is a simple blood test that
may be superior to the invasive spinal taps and MRIs currently used. Finally,
the Alzheimer's animal model offers a model to rapidly screen and develop
innovative drugs for Alzheimer's disease.
27
Samaritan's cancer program features a promising cancer drug, SP-C007,
and a breast cancer diagnostic. The diagnostic provides a predictive prognosis
of cancerous tumor aggressiveness with more than twice the accuracy rate than
that of current technologies.
Samaritan's SP-1000, a cholesterol recognition peptide, plays a role in
binding and taking out cholesterol from LDL, thus offering an immediate response
to hypercholesterolemia.
Samaritan's Drug Development Programs
Samaritan is currently advancing two (2) distinct drug development programs:
AIDS/HIV Program
-- SP-01A for HIV Resistance (oral entry inhibitor); PII/III Clinical trials
2006-2008.
-- SP-10 for HIV Resistance (oral entry inhibitor); Conducting preclinicals to
apply for Investigational New Drug (IND) application with the Food and Drug
Administration (FDA).
Alzheimer's Program
-- SP-233 for Alzheimer's; Conducting preclinicals to apply for IND application
with the FDA.
-- SP-004 and SP-04m for Alzheimer's; Conducting preclinicals to apply for IND
application with the FDA.
AIDS/HIV Drug Development Program
Background: Currently approved antiretroviral medications target either
the HIV viral reverse transcriptase (RT), Nucleoside Reverse Transcriptase
Inhibitors (NRTIs), Non-Nucleoside Reverse Transcriptase Inhibitors (NNRTIs),
and the viral Protease Inhibitors (PIs), or they inhibit viral fusion with host
cells (Fusion Inhibitors). A regimen using a combination of these agents is
considered the standard of care and, when effective, results in suppression of
the virus below the detection limits.
The long-term use of antiretroviral therapy is sometimes hampered by
poor compliance due to pill burden, by the route of administration when the oral
delivery is impossible, by food restrictions, and by major side effects
impacting quality of life. Furthermore, one of the major reasons for therapy
failure is the emergence of resistant virus against one or more of the anti-HIV
medications or, to some extent, an entire class of drug (cross-resistance).
Enfuvirtide (Fuzeon(TM)) was recently approved as an HIV-1 fusion/entry
inhibitor, a new class of treatment inhibiting the fusion of the HIV-1 virus to
the CD4+ cell membrane by preventing the conformational changes required for
this fusion. Since the mechanism of action of Enfuvirtide is different from
other classes of anti-HIV medication, it is effective in patients who have
failed other therapies due to emergence of resistant virus. However, a recent
study demonstrated the emergence of resistance to Enfuvirtide due to different
mutations of the viral glycoprotein gp41. The rapid rate of mutation of HIV-1
and conferred resistance of the virus to current therapies continue to
necessitate a need for additional new therapeutic agents.
To that end, Samaritan has advanced a hypothesis regarding the
immuno-modulating and anti-viral effects of SP-01A in the treatment of HIV
infection.
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SP-01A Hypothesis: Samaritan hypothesized that the HIV-associated
dysregulation of cortisol levels may play a role in the pathophysiology of AIDS
including modulation of cell-mediated immunity. Experimental evidence suggests
cortisol and its receptors were critically involved at some level in the
regulation of immune function in HIV infection. Therefore, it was reasonable to
hypothesize treatment with a cortisol-modulating agent may improve the immune
function in HIV-infected patients.
In pursuing this hypothesis, we discovered the modulatory effect of
SP-01A on the stress-induced corticosteroid increase may be related to a
reduction of the expression of the cholesterol synthesis key enzyme HMG-CoA
reductase mRNA leading to a reduction in cholesterol synthesis. Several
observations have also established that inhibitors of cholesterol synthesis
inhibit cell fusion formation induced by HIV-l and drugs extracting cholesterol
from the cellular membrane exert an anti-HIV-1 effect, in-vitro.
Taken together, Samaritan's preclinical data appears to suggest that
the effect of SP-01A on cholesterol synthesis leads to a modification of the
cholesterol content of the host cell membrane, which, in turn, reduces the HIV-1
virus replication by rendering it much more difficult for the virus to enter and
infect the cell.
SP-10 Second HIV Drug Development in Conjunction with SP-01A: SP-10 was
discovered in the Samaritan Laboratories at Georgetown University, the result of
the Samaritan/Georgetown University collaboration. After its discovery,
continuous HIV preclinical studies demonstrated SP-10 exhibited antiviral
properties by blocking the entry of HIV and multi drug-resistant HIV viruses
into the cells. Moreover, SP-10 has shown very low toxicity, suggesting it lacks
serious side effects. Toxicity is a major problem with most current antivirals,
along with the development of drug resistance. So far, all of the current
antivirals on the market are demonstrating drug resistance.
Since SP-01A is intended to be administered in combination with current
antiviral therapy for the indication of HIV drug resistance, Samaritan decided
to pursue SP-10 as an overall antiviral for HIV that could be administered alone
or in combination with the normally administered triple therapy for both HIV in
general and drug resistance.
In pursuing the preclinical development of SP-01A as an antiviral for
drug resistance, we decided, at the same time, to accomplish the same
preclinical data required by the FDA for SP-01A as for SP-10 at the same time,
although we intend to study SP-10 as a stand alone antiviral.
So far, preclinical data taken together for SP-01A and SP-10 suggests
these compounds reduce HIV virus replication by modifying the structure of the
host cell membrane, thus rendering it impossible for the HIV virus to enter and
infect the cell. Both drugs can be classified as oral entry inhibitors and could
prove more effective than today's antiretroviral therapy. Each would prevent HIV
from invading healthy cells, rather than going in after the virus, when healthy
cells may have already been infected.
SP-01A Development
Proof of Concept/Phase I/II Study: The safety and dose response of
orally administered SP-01A in HIV-infected patients was assessed in a Phase I/II
study. The study was an eight (8) week non-randomized, open-label study
conducted at a single investigational site (AIDS Research Alliance, West
Hollywood, CA) with twenty-nine (29) patients infected with HIV-1 who were being
treated with concomitant triple combination antiretroviral therapy for at least
eight (8) weeks prior to study initiation.
Upon submitting Phase I/II clinical study efficacy data, and upon
evaluation by the FDA, Samaritan's IND/protocol was transferred to the
Anti-Viral Division of the FDA. The FDA then requested further supporting
antiviral preclinical studies, such as a demonstration of anti-HIV-1 drug
resistance and numerous other studies where SP-01A confirmed its results as an
antiretroviral therapy. In addition, the inhibitory effect of SP-01A on the
entry of HIV and multi-drug resistant HIV viral strains reinforced our
conviction of a new mechanism of action which targets the host cell, rather than
the virus itself, rendering SP-01A less susceptible than any other drug on the
market to emerging resistances. Studies to investigate whether SP-01A induces
resistance are underway.
29
SP-01 A Phase II/III Development: Samaritan has commenced the
continuation of a Monotherapy Clinical Trial, "SP01A: The Study of an Oral Entry
Inhibitor in Treatment-Experienced HIV Patients" to demonstrate efficacy as an
antiviral and gather dosage data in preparation for later stage Phase III
clinical trials, assuming positive outcome data.
Why Samaritan Chooses Drug Resistance Indication
Resistance: Regarding the ability of the HIV Virus to Mutate and
Survive "We keep returning to the same issue: Whatever we throw at HIV, this
simple but highly mutable virus finds a way to dodge it". This was the comment
made by clinicians and researchers at The 11th Conference on Retroviruses and
Opportunistic Infections (Boston; February 10 - 14, 2003). The subject was
resistance; the ability of the human immunodeficiency virus (HIV) to mutate such
that antiretroviral agents, designed to inhibit its replication, are no longer
effective.
HIV Resistant Mutant Strains Are Evolving at a Record Pace: From 1995
to 2000, the frequency of resistance mutations increased from eight percent (8%)
to twenty-two and seven-tenths percent (22.7%). Simultaneously, the frequency of
multi-drug resistance increased from three and eight-tenths percent (3.8%) to
ten and two-tenths percent (10.2%).
Resistance Among Newly-Infected Patients: It is estimated that the
prevalence of transmitted resistance to antiretroviral drugs is between one
percent (1%) and eleven percent (11%) among persons in North America who are
newly infected with HIV. The frequency of high-level resistance to one or more
drugs increased from three and four-tenths percent (3.4%) during the period from
1995 to 1998, to twelve and four-tenths percent (12.4%) during the period from
1999 to 2000 and the frequency of multi-drug resistance increased from one and
one-tenth percent (1.1%) to six and two-tenths percent (6.2%). Moreover,
phenotypic resistance has increased at least three-fold in five (5) years:
resistance to nucleoside reverse transcriptase inhibitors (NRTI) a two hundred
sixty-nine percent (269%) increase; resistance to non-nucleoside reverse
transcriptase inhibitors (NNRTI) a three hundred seventy-four percent (374%)
increase; resistance to protease inhibitors (PI) a two thousand percent (2,000%)
increase.
Resistance Among Treatment-Experienced Patients: An estimated ten
percent (10%) to twenty percent (20%) of all people with HIV/AIDS that undergo
HAART therapy are treatment failures.
The Concerns of Resistance: There is a need for novel new therapies
with the ability to suppress and maintain inhibition of viral replication upon
initiation of therapy. This virus must not be able to develop resistance to this
therapy. In lieu of such a therapy, there is a need for treatment modalities
with the ability to maintain or even increase the efficacy of first and
subsequent HAART regimens.
Alzheimer's Drug Development Program
Background: Samaritan has a long-term commitment to developing
innovative and unique treatments for Alzheimer's disease. It is widely
recognized that new approaches are vitally needed to help suffering patients and
their families in the fight against Alzheimer's disease. Samaritan believes the
best strategy against Alzheimer's disease may be to prevent, reduce or slow its
onset to spare patients, families and the healthcare system much of the
tremendous burdens and tragedies that accompany this illness.
30
One of the major problems with the diagnosis and treatment of
neurological diseases, such as Alzheimer's disease, is the inability of
clinicians to determine the onset of disease. Recent evidence suggests that
inflammation and increase in free radicals may play a large role in the specific
cause of Alzheimer's disease.
Alzheimer's Diagnostic: In Samaritan's quest to find an accurate
diagnostic, inventors have surprisingly found central nervous system DHEA is
increased in patients having Alzheimer's, in contrast to decreased levels of
DHEA found in the periphery (blood). Although this finding agrees with previous
reports that DHEA levels in Alzheimer's patients are abnormally low and have
been recommending taking DHEA supplements as a means of prevention, it suggests
that brain DHEA formation is separate from peripheral DHEA levels, thus
questioning the use of DHEA as a means of Alzheimer's disease prevention.
Samaritan has identified a distinct mechanism for DHEA formation in the brain
from precursors they are able to follow in the blood, using a chemical reaction,
allowing the prediction of DHEA levels in the brain. This research has been the
basis of Samaritan's Alzheimer's diagnostic test and granting of research funds
from the National Institutes of Health (NIH).
SP-233 Alzheimer's Drug: Excessive accumulation in the brain of the
beta-amyloid peptide, due either to overproduction and/or decreased clearance
and the formation of senile plaques, is one of the hallmarks of Alzheimer's
disease. SP-233 was identified based on its ability to protect neurons against
beta-amyloid-induced toxicity. SP-233 was shown to bind to beta-amyloid peptide,
prevent its oligomerization and entry into neurons, protect neuronal
mitochondria from beta-amyloid-induced damage, and maintain neuronal cell energy
levels. Samaritan's preclinical data is suggesting SP-233 as a new unique
approach for Alzheimer's disease therapy.
SP-233 Development: Detailed studies on the mechanism of action of
SP-233, in rodent and human neurons, have been performed in-vitro and the
toxicity of the compound studies have been analyzed. Samaritan has performed the
preclinical tests required to apply to the FDA for an IND and is currently
performing toxicology examinations.
SP-004/SP-04m Alzheimer's Drug: Alzheimer's disease is characterized by
multifaceted pathology involving a number of dysregulated molecular mechanisms
that include, at least, changes in: (a) cholinergic transmission, (b) sigma-1
receptor-mediated pathways, and (c) increased free radical production. Even
though the improvement of the cholinergic transmission of the patients suffering
from Alzheimer's is necessary (the basis of most of today's therapies),
targeting acetyl cholinesterase solely is certainly not sufficient, in
relationship to the numerous pathways involved in Alzheimer's disease pathology.
Under the research collaboration with Georgetown University, a number of
compounds were developed with the goal to express multiple properties, allowing
them to act simultaneously at two (2) distinct targets, important in neuronal
function, i.e., enzyme acetyl cholinesterase, and the sigma-1 receptor, SP-004
and SP-04m efficacy has been validated in vitro, and in animal models, in vivo,
as a response to these goals.
SP-004/SP-04m Development: Detailed studies on the mechanism of action
of SP-004 and SP-04m have been performed and the toxicity of the compound
in-vitro has been studied. Preclinical toxicology studies will now be undertaken
as required by the FDA for an IND.
Alzheimer's Stem Cell Drugs: Samaritan is fast tracking the development
of its neuronal stem cell therapy drugs (SP-sc4 and SP-sc7) which can induce
dormant brain neuronal stem cells to differentiate rapidly into adult neuron
cells as a novel treatment for Alzheimer's disease and other neurodegenerative
disorders. Repairing brain damage by replacing the lost neurons and restoring
neuronal function is certainly one of the most ambitious and exciting challenges
physicians and scientists are currently facing with regard to Alzheimer's. We
believe that the concept of stem cell therapy is extremely promising. Hence,
access to the differentiation of stem cells into neurons may serve as a database
of specialized cells for regenerative medicine as a treatment for
neurodegenerative diseases and brain stroke.
31
SP-sc4 and SP-sc7 Development: Screening a database/collection of
naturally occurring compounds, the Georgetown University group under the
Samaritan/Georgetown University collaborative agreement, identified compounds
efficacious in inducing in-vitro and, in rats in vivo, neural stem cell
differentiation and neurogenesis. Further in vivo studies in animal models of
neurodegenerative disease are in progress in order to validate the use of these
compounds in regenerating the neuronal network from pre-existing adult stem
cells in humans.
Alzheimer's Rat Model: One of the limiting factors in screening for the
compounds displaying neuroprotective properties is the lack of an animal model
allowing for rapid evaluation of the efficacy of compounds under investigation.
In our race to find a way to stop the spread of Alzheimer's disease, we decided
to develop an animal model that mimics the human phenotype of Alzheimer's
disease pathology. Considering the critical role of beta-amyloid peptide in
Alzheimer's disease development, we undertook a non-transgenic approach to
induce an Alzheimer's-like neuropathology in rats. During the test, a
proprietary formulation is administered directly in the brain of the rat
producing a microenvironment resembling that which may occur in an Alzheimer's
diseased brain. After four (4) weeks, treatment of the rats with the solution
induced memory impairment accompanied by increased hyperphosphorylated Tau
protein levels in CSF, both part of the Alzheimer's disease phenotype seen in
human patients. Further histopathology of the rat brains indicated the presence
of neuritic plaques, tangles, neuronal loss and gliosis, typical features of
postmortem Alzheimer's disease human brain specimens. Thus, we believe this
Alzheimer's Rat Model will likely provide us with the means to rapidly screen
and develop therapeutic and diagnostic tools for controlling the disease and
might also prove to be a useful approach to unveiling the mechanisms underlying
the onset and progression of Alzheimer's disease.
Our Alzheimer's Rat Model is being validated by Samaritan for use to
test the efficacy of SP compounds and is due for publication. It is also
expected to be validated by other academic scientists specializing in this area
of research in the near future.
Planned Drug Development: SP-1000 Cardiovascular cholesterol drug
peptide that binds and removes cholesterol from LDL.
National Institutes of Health Grants
1R41 NS048688 STTR ($188,000) entitled "Plasma Diagnostic for Alzheimer's
Disease". 1R41 AG024684 STTR ($100,000) entitled "SP004, a sigma-1 ligand with
AchE inhibition properties".
Samaritan has in-licensed seventeen (17) potential breakthrough
discoveries from Georgetown University and has filed nineteen (19) related
patent applications to protect its growing pipeline of innovation. This pipeline
is supported by a number of peer-reviewed journals supporting its credentials.
Peer Reviewed Publications
Pharmacology 2006; 76:19-33; "Beta-Amyloid and Oxidative Stress Jointly Induce
Neuronal Death, Amyloid Deposits, Gliosis, and Memory Impairment in the Rat
Brain".
Neuropharmacology 2005; "Identification, design, synthesis, and pharmacological
activity of (4-ethyl-piperaz-1-yl)-phenylmethanone derivatives with
neuroprotective properties against a-amyloid-induced toxicity".
32
Pharmacology 2005;74:65-78. "Local Anesthetic Procaine Protects Rat
Pheochromocytoma PC12 Cells against beta-Amyloid-Induced Neurotoxicity".
Steroids 2004; 69:1-16. "Identification of naturally occurring spirostenols
preventing beta-amyloid-induced neurotoxicity".
Analytical Biochemistry 2004; 324: 123-130. "A capillary as chromatography/mass
spectrometric method for the quantification of hydroxysteroids in human plasma".
Neurobiology of Aging 2003; 24:57-65. February "Oxidative Stress-mediated DHEA
Formation in Alzheimer's Disease Pathology" Journal of Pharmacology Experimental
Therapeutics 2003; 307:1148-1157. "Inhibition of Adrenal Corticol Steroid
Formation by Procaine Is Mediated by Reduction of the cAMP-Induced
3-Hydroxy-3-methylglutaryl-coenzyme A Reductase Messenger Ribonucleic Acid
Levels".
Journal of Receptor & Signal Transduction Research 2003; 23:225-238 "Expression
of Peripheral Benzodiazepine Receptor (PBR) in Human Tumors Relationship to
Breast, Colorectal and Prostate Tumor Progression".
Journal of Neurochemistry 2002; 83: 1110-1119. "22R-Hydroxycholesterol Protects
Neuronal Cells from beta-Amyloid-Induced Cytoxicity by Binding to beta-Amyloid
Peptide".
Proceedings of the National Academy of Sciences USA 2001; 98: 1267-1272.
"Cholesterol binding at the cholesterol recognition/interaction amino acid
consensus (CRAC) of the peripheral type Benzodiazepine receptor and inhibition
of steroidogenesis by an HIV TAT-CRAC peptide".
Molecular Endocrinology 2001; 15:2211-2228. "Identification, Localization, and
Function in Steroidogenesis of PAP7: A Peripheral-Type Benzodiazepine
Receptor-and PKA (RIa) - Associated Protein".
Endocrinology 1998; 139:4991-4997. "Peripheral-Type Benzodiazepine Receptor
Function in Cholesterol Transport. Identification of a Putative Cholesterol
Recognition/Interaction Amino Acid Sequence and Consensus Pattern".
Collaborations
Georgetown University. On June 8, 2001, Samaritan executed a research
collaboration (the "Research Collaboration") with Georgetown University to
further develop Samaritan's pipeline. Commencing on April 1, 2004, the Research
Collaboration term was extended to 2014 and the budget has been increased to
$1,000,000 per year. The $1,000,000 paid by Samaritan over four (4) quarterly
payments of $250,000 is unallocated and covers the general research and
development effort.
Under the Research Collaboration, Samaritan receives worldwide
exclusive rights to any novel therapeutic agents or diagnostic technologies that
may result from the Research Collaboration. Dr. Vassilios Papadopoulos and Dr.
Janet Greeson lead our team of eight (8) research professionals (including five
(5) Ph.D. level research scientists) who have expertise in the fields of
endocrinology, pharmacology, cell biology, organic and steroid chemistry, and
computer modeling. We are not obligated to pay Georgetown University any
milestone payments. Georgetown University is entitled to receive royalties based
on our revenue from product sales and sublicenses, if any. Samaritan has assumed
responsibility, at its own expense, for the process of seeking any regulatory
approvals for and conducting clinical trials with respect to any licensed
product or application of the licensed technology. Samaritan controls and has
the financial responsibility for the prosecution and maintenance in respect to
any patent rights related to the licensed technology.
33
Pharmaplaz, LTD. Samaritan and Pharmaplaz, LTD, a pharmaceutical
company based outside of Dublin, Ireland, entered into a broad strategic
collaboration agreement for the production and supply of Samaritan's lead
compound SP-01A, and Samaritan's pipeline of drugs, which expand across a
variety of therapeutic areas to include AIDS, Alzheimer's, cancer and
cardiovascular disease. Under the terms of the alliance, Pharmaplaz, LTD will
collaborate with Samaritan's pipeline development, scale up, and manufacturing
requirements, while working on drug formulation and testing, production of pilot
batches, development of analytical methods, drug specifications, process
validations and drug optimization. The companies will also work together to
secure regulatory approval by the FDA for selected products in the U.S. markets.
Employees
As of the date of this Prospectus we have fifteen (15) employees who
work directly for Samaritan and thirteen (13) Ph.D. scientists who work under
the Research Collaboration with Georgetown University. In addition, we make
extensive use of consultants including Dr. Papadopoulos, our Key Consultant.
DESCRIPTION OF PROPERTY
The Company's executive offices are currently located at 101 Convention
Center Drive, Suite 310, Las Vegas, Nevada 89109. On October 3, 2005, the
Company expanded its premises to a 2,601 square foot office space which is
rented at a base rent of $4,551.75 per month. In addition, under the Research
Collaboration Georgetown University provides office and laboratory space at the
Samaritan Research Laboratories, Biochemistry and Molecular Biology Dept.,
Med/Dent Bldg, 3900 Reservoir Road NW, Washington, DC 20057.
LEGAL PROCEEDINGS
None.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the American Stock Exchange under the
symbol "LIV". As of January 4, 2007, there were approximately nine hundred
(900) holders of record of Common Stock. Certain of the shares of Common Stock
are held in "street" name and may, therefore, be held by numerous beneficial
owners. The Company has never paid a cash dividend on its Common Stock. The
payment of dividends may be made at the discretion of the Board of Directors of
the Company and will depend upon, among other things, the Company's operations,
its capital requirements, and its overall financial condition. The following
table sets forth the range of high and low closing prices for our Common Stock
for each quarter within the last three (3) fiscal years. Such quotes reflect
inter-dealer prices without retail mark-up, mark-down or commission and may not
represent actual transactions. The quotations may be rounded for presentation.
34
FISCAL YEAR ENDED
-----------------------------------------------------------------------------------
December 31, 2006 December 31, 2005 December 31, 2004 December 31, 2003
------------------- ------------------ ----------------- -----------------
High Low High Low High Low High Low
-------- ------- ------- ------- ------- ------- ------- -------
First Quarter $0.91 $0.30 $0.90 $0.45 $0.72 $0.33 $0.20 $0.13
Second Quarter $0.71 $0.36 $0.63 $0.35 $1.69 $0.51 $0.26 $0.15
Third Quarter $0.56 $0.29 $0.66 $0.33 $1.40 $0.77 $0.90 $0.18
Fourth Quarter $0.33 $0.20 $0.57 $0.38 $1.30 $0.80 $0.72 $0.30
SELECTED FINANCIAL DATA
The selected financial data presented under the caption "Consolidated
Balance Sheet Data" as of December 31, 2005, 2004, 2003, 2002, and 2001 and
under the caption "Consolidated Statement of Operations Data" for the years
ending December 31, 2005, 2004, 2003, 2002, and 2001 are derived from our
consolidated financial statements which have been audited. The data set forth
below should be read in conjunction with the sections entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
the "Consolidated Financial Statements" and the Notes thereto and other
financial information included elsewhere in the report.
Consolidated Statement of Operations Data
Consolidated Balance Sheet Data
At December 31,
-----------------------------------------------------------------------
2005 2004 2003 2002 2001
------------ ----------- ---------- ------------ ------------
Cash and equivalents and
short-term investments $ 952,531 $ 3,929,263 $ 370,583 $ 357,826 $ 304,367
Working capital $ 745,036 $ 3,835,445 $ (8,968) $ (986,117) $(1,357,554)
Total assets $ 2,237,459 $ 5,249,159 $ 674,821 $ 661,788 $ 639,002
Long-term obligations $ - $ - $ - $ - $ -
Stockholders' equity (deficit) $ 1,675,399 $ 5,078,992 $ 274,011 $ (935,155) $(1,290,919)
Consolidated Statement of Operations Data
For the Year Ended December 31,
-------------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------ ------------- ------------ ----------- ------------
REVENUES:
Consulting $ - $ - $ 250,000 $ - $ -
Governmental Research Grants 256,847 - - - -
------------ ------------- ------------ ----------- ------------
256,847 - 250,000 - -
EXPENSES:
Research and development 3,456,301 1,543,921 838,208 1,097,248 1,068,902
Interest, net (60,021) (36,730) 6,334 20,307 9,420
General and administrative 2,320,011 3,561,302 4,902,213 2,419,215 2,623,148
Depreciation and amortization 98,115 27,218 23,776 520,383 516,116
Other income - (231,350) - - (137,780)
------------ ------------- ------------ ----------- ------------
5,814,406 4,864,361 5,770,531 4,057,153 4,079,806
------------ ------------- ------------ ----------- ------------
NET LOSS (5,557,559) (4,864,361) (5,520,531) (4,057,153) (4,079,806)
Other Comprehensive Income
Unrealized loss on marketable securities 12,648 (16,580) - - -
Foreign translation adjustment (20,540) - - - -
------------ ------------- ------------ ----------- ------------
Total Comprehensive Income $(5,565,451) $ (4,880,941) $ (5,520,531) $(4,057,153) $(4,079,806)
============ ============= ============ =========== ============
Loss per share, basic $ (0.04) $ (0.04) $ (0.07) $ (0.08) $(0.17)
============ ============= ============ =========== ============
Weighted average number of shares
outstanding:
Basic & diluted 134,560,596 124,483,372 79,767,085 50,788,659 24,467,817
============ ============= ============ =========== ============
35
The selected financial data presented under the caption "Consolidated Balance
Sheet Data" as of September 30, 2006 and December 31, 2005 and under the caption
"Consolidated Statement of Operations Data" from inception 09/05/94 to September
30, 2006, nine months ended September 30, 2006 and September 30, 2005 and three
months ended September 30, 2006 and September 30, 2005 are derived from our
consolidated financial statements which have not been audited. The data set
forth below should be read in conjunction with the sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and the "Consolidated Financial Statements" and the Notes thereto
and other financial information included elsewhere in the report.
Consolidated Balance Sheet Data
September 30, December 31,
2006 2005
------------ -------------
Cash and equivalents and
short-term investments $ 2,125,558 $ 952,531
Working capital 1,788,816 745,036
Total assets 3,453,452 2,237,459
Long-term obligations - -
Stockholders' equity 2,780,957 1,675,399
Consolidated Statement of Operations Data
From
Inception
09/05/94 Nine months ended September 30, Three months ended September 30,
September 30, 2006 2006 2005 2006 2005
----------------------- ---------------------------------- ----------------------------------
Consulting $ 300,000 $ - $ - $ - $ -
Government research grants 289,226 32,379 135,429 10,586 120,179
----------------------- --------------- ---------------- ------------------ ---------------
589,226 32,379 135,429 10,586 120,179
----------------------- --------------- ---------------- ------------------ ---------------
EXPENSES:
Research and development 12,893,031 3,153,260 2,365,103 1,053,552 824,204
Interest, net (70,881) (24,136) (47,878) (7,622) (13,401)
General and administrative 25,741,273 2,017,875 1,844,385 701,144 628,357
Depreciation and amortization 1,353,871 107,922 50,286 38,100 25,534
Other (income)loss (365,970) 3,160 - - -
----------------------- --------------- ---------------- ------------------ ---------------
39,551,324 5,258,081 4,211,896 1,785,174 1,464,694
----------------------- --------------- ---------------- ------------------ ---------------
NET LOSS (38,962,098) (5,225,702) (4,076,467) (1,774,588) (1,344,515)
Other Comprehensive loss
Unrealized loss on
marketable securities - 3,933 9,342 - 3,647
Foreign currency
translation adjustment 32,609 53,149 (16,904) 43,620 (1,528)
----------------------- --------------- ---------------- ------------------ ---------------
Total Comprehensive loss $ (38,929,489) $ (5,168,620) $ (4,084,029) $ (1,730,968) $ (1,342,396)
======================= =============== ================ ================== ===============
Loss per share, basic and
diluted $ (0.04) $ (0.03) $ (0.01) $ (0.01)
=============== ================ ================== ===============
Weighted average number of
shares outstanding:
Basic and diluted 143,932,392 134,034,155 151,018,029 135,767,894
=============== ================ ================== ===============
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Samaritan is a small cap biopharmaceutical company focused on the
development of novel therapeutic and diagnostic products. We have devoted
substantially all of our resources to undertaking drug discovery and development
programs.
The majority of our resources have been expended in the pursuit of Food
and Drug Administration (FDA) required preclinical studies and Phase II/III
clinical trials for Samaritan's HIV drug, SP-01A (Sphirewall), an oral entry
inhibitor. In a previous Phase I/II study, SP-01A was observed to significantly
lower the amount of HIV in the blood, improve quality of life (how well subjects
have felt), have a favorable safety profile (minimal side effects) and be
well-tolerated. Moreover, in vitro testing of SP-01A: (a) demonstrated
comparable or greater efficacy than currently approved anti-HIV drugs in
preventing HIV virus replication; (b) was observed to have minimal toxic effect
on human cells; and (c) demonstrated significant efficacy in preventing virus
replication of HIV virus strains resisting currently approved anti-HIV
treatments. The goal of our SP-01A monotherapy study is to look further at the
dose response, efficacy and safety of SP-01A as monotherapy, given as a capsule
to be swallowed, in the treatment of HIV-infected subjects. We are no longer
recruiting patients for this study but are in the process of completing the
trial.
In addition, and at the same time, Samaritan has devoted major
resources to its Alzheimer's technology, which features: (a) three (3)
therapeutics: SP-04, SP-08 and SP-233; (b) two (2) stem cell, neuron
differentiation therapies: SP-sc4 and SP-sc7; (c) a predictive Alzheimer's
diagnostic; and (d) an Alzheimer's animal model. Samaritan has also devoted
resources to its cancer drug, SP-C007, a breast cancer diagnostic and its
cholesterol recognition peptide, which plays a role in transforming and binding
LDL cholesterol while subsequently raising HDL.
Samaritan has established its European headquarters in Athens,
Greece, which we believe will allow access to the markets of Eastern Europe,
Asia and Africa, regions with a high proportion of HIV patients and a target
population for our most advanced drug, SP-01A. Samaritan Pharmaceuticals Europe
("Samaritan Europe") is currently seeking to build a sales and marketing
infrastructure through distribution agreements for niche, high valued products
from other companies in the fields of HIV/infectious diseases, CNS,
cancer/oncology and cardiovascular diseases for the normally undeveloped regions
of Greece, Turkey, Bulgaria, Romania, Croatia, Serbia, Bosnia and Slovenia.
36
Samaritan Europe: (a) has established a manufacturing arm in Ireland
with Pharmaplaz, LTD; (b) plans to develop its pipeline of drugs through
clinical trials in preparation for European approval; (c) plans to increase its
university research collaborations and (d) plans to apply for applicable
European grants.
On November 14, 2006, Samaritan Pharmaceuticals announced that
Samaritan has reached a definitive agreement to acquire all of the stock of
Metastatin Pharmaceuticals Inc., a privately held company headquartered in
Bethesda, MD. This acquisition marks Samaritan's further expansion into cancer
research. The acquisition agreement was signed following its unanimous approval
by Samaritan's Board of Directors. The aggregate purchase price payable by
Samaritan for Metastatin Pharmaceuticals will be five hundred thousand (500,000)
restricted shares with registration rights of Samaritan Pharmaceuticals Common
Stock. The transaction is expected to close upon approval of Metastatin
shareholders. Metastatin Pharmaceuticals is a development stage
biopharmaceutical company engaged in the development of cytostatic and
anti-metastatic therapies for the management of cancer. The company is
positioned on the cusp of emerging cancer therapeutic strategies focused on
controlling tumor progression and metastasis using molecularly targeted
compounds.
On December 7, 2006, Samaritan Pharmaceuticals announced that the FDA
has completed its regulatory review of our IND (Investigational New Drug)
application for Caprospinol (SP-233), and has requested that additional
information be submitted in support of the safety Caprospinol, prior to
initiating Samaritan's proposed Phase I clinical study. Samaritan filed an IND
application for Caprospinol on October 30, 2006 and was subsequently granted an
IND number by the FDA.
Caprospinol is a novel Alzheimer's drug candidate that Samaritan
believes has the potential to clear beta-amyloid plaques from the brain; a
problem that most researchers today believe, is the cause of Alzheimer's. Since
Caprospinol could be a significant breakthrough in the treatment of Alzheimer's,
Samaritan plans to provide the information requested by the FDA as quickly as
possible, in order to continue moving our Caprospinol development program
forward.
Samaritan also announced that on November 6, 2006, it received a notice
from the AMEX informing the Company that it is not in compliance with certain
AMEX continued listing standards. Specifically, the Company is not in compliance
with Section 1003(a)(ii) of the Company Guide, that currently requires that we
have shareholders' equity of not less than $4,000,000, and losses from
continuing operations, and/or net losses in three out of four of its most recent
fiscal years; and Section 1003(a)(iii) of the Company Guide with shareholders'
equity of not less than $6,000,000, and losses from continuing operations,
and/or net losses in its five most recent fiscal years.
In order to maintain our AMEX listing, we submitted a plan on December
6, 2006 advising the AMEX of the action the Company is taking, or plans to take
in order to regain compliance with the AMEX continuing listing requirements,
within 18 months. This plan is subject to the review and approval by AMEX. If
AMEX does not accept the plan, or we fail to perform in accordance with the
plan, we will be subject to delisting procedures.
On November 3, 2006, Samaritan announced we have received notice of the
publication of its novel anti-amyloidal Alzheimer's drug Caprospinol (SP-233) by
the World Intellectual Property Organization (``WIPO''). The WIPO Patent
Application Number is WO2006107902 and is entitled: USE OF SPIROSTENOLS TO TREAT
MITOCHONDRIAL DISORDERS. The publication covers several unique features of
Caprospinol's (SP-233) anti-amyloid properties; i.e. protecting neuronal cells
against neurotoxicity by protecting mitochondria functions against the toxic
effects of beta-amyloid.
37
On August 29, 2006, Samaritan announced its Alzheimer's research
compound Caprospinol (SP-233) demonstrated no toxicity, when administered orally
in an Acute Toxicity Study. Preclinical studies suggest Caprospinol (SP-233)
exhibits neuroprotective properties against beta- amyloid-induced toxicity which
could be indicative of a promising treatment for Alzheimer's disease.
This new study, conducted in animals, supports the previous preclinical
assay safety studies where Caprospinol also showed no toxic effects. In this
study Caprospinol (SP-233), was given at doses of 1, 3, 10, or 30 mg/kg/day,
once daily, for three consecutive days, in male and female mice, and showed no
acute toxicity at the concentrations tested; and the no-observed-effect level
(NOEL) was found to be 30 mg/kg, for both male and female mice.
On June 26, 2006, Samaritan announced that it is continuing to expand
its broad worldwide patent portfolio in support of its proprietary product
development programs. The U.S. Patent office has notified Samaritan that it has
issued Patent No. 7,056,694 to Samaritan's research collaborator Georgetown
University, and Samaritan holds the worldwide exclusive license for this patent
through its collaboration. The issued patent identifies peripheral-type
benzodiazepine receptor associated proteins, such as PAP7, and its ability to
interact with and regulate the function of the peripheral-type benzodiazepine
receptor, a key mitochondrial protein involved in steroid biosynthesis, cell
proliferation, cancer progression, and Alzheimer's disease pathology.
On June 20, 2006, Samaritan received a notice of allowance of claims
for European patent application No. 99912635.2 which relates to Samaritan's drug
SP-1000 for the treatment of cardiovascular disease. Previously, on May 22,
2006, Samaritan announced that its collaborating scientists in two preclinical
animal studies found that SP-1000 reduces blood cholesterol, clears clogged
arteries of atheroma; raises HDL, the good cholesterol; and lastly, reduces CK
enzyme elevation, a marker for heart suffering. The patent will be awarded to
Georgetown University and is exclusively licensed to Samaritan.
On, April 3, 2006, Samaritan Pharmaceuticals Europe, S.A. received
notification by the National Pharmaceuticals Organization, (EOF) for a new
marketing authorization for Amphocil (an amphotericin B cholesteryl sulfate
complex for injection indicated for the treatment of invasive aspergillosis, a
fungal infection that occurs in immuno-compromised patients). Samaritan
In-Licensed from Three Rivers Pharmaceuticals the Greece & Cyprus Marketing
Rights for Amphocil. The National Pharmaceutical Organization, (EOF), is the
government authority for granting approval to market pharmaceutical and medical
products in Greece, similar to the FDA in the United States. Samaritan Europe
has submitted all the necessary documents to make a pricing application with the
Minister of Development who issues official prices with the consent of the
Minister of Health. Once price approval is obtained, Samaritan will launch the
product in the Greek market. Currently, Samaritan Pharmaceuticals Europe is
trying to contract with other pharmaceutical companies to sell and distribute
niche, high-valued products in the undeveloped regions of Greece, Turkey,
Bulgaria, Romania, Croatia, Serbia, Bosnia and Slovenia.
Plan and Results of Operations
We have used the proceeds from private placements of our capital stock,
primarily to expand our preclinical and clinical efforts, as well as for general
working capital. At this time, we are beginning to commit additional resources
to the development of SP-01A, as well as for the development of our other drugs.
38
Results of Operations For The Three (3) Months Ended September 30, 2006 As
Compared To The Three (3) Months Ended September 30, 2005
During the quarter ended September 30, 2006, we incurred research
expenditures pursuant to a grant received from the U.S. Department of Health and
Human Services. We recognized grant revenue of $10,586, the extent of such
qualifying expenditures.
We incurred research and development expenses of $1,053,552 for the
three months ended September 30, 2006, as compared to $824,204 for the three
months ended September 30, 2005. This increase of $229,348 or twenty-eight
percent (28%), was primarily attributable to fluctuations and timing of the
costs associated with our Phase IIb HIV clinical trial. We expect research and
development expenditures relating to drug discovery and development will
increase during the remainder of the 2006 and into subsequent years due to the
expanding requirements of FDA clinical trials for: (a) for our HIV drug program;
(b) our Alzheimer's drug program; (c) the initiation of trials for other
potential indications; and (d) additional study expenditures for potential
pharmaceutical candidates. Research and development expenses may fluctuate from
period to period, depending upon the stage of certain projects and the level of
preclinical testing and clinical trial-related activities.
General and administrative expenses increased to $701,144 for the three
months ended September 30, 2006, as compared to $628,357 for the three months
ended September 30, 2005. This increase of $72,787 or twelve percent (12%), was
primarily attributable to an increase in cost of payroll as offset by decreases
in consulting.
Depreciation and amortization amounted to $38,100 for the three months
ended September 30, 2006, as compared to $25,534 for the three months ended
September 30, 2005. This increase of $12,566, or forty-nine percent (49%), was
primarily attributable to amortization on approved patents that began later in
2005.
Net interest income amounted to $(7,622) and $(13,401) for the three
(3) months ended September 30, 2006 and 2005, respectively. The credit balance
in the interest expense account is attributable to offsetting interest earned
from holding our cash in marketable securities and certificates of deposits.
Interest income was $7,622 and $14,348, for the three (3) months ended September
30, 2006 and 2005, respectively. Interest expense was $-0- and $947, for the
three (3) months ended September 30, 2006 and 2005, respectively.
We had a net loss of $1,774,588 for the three months ended September
30, 2006, as compared to a net loss of $1,344,515 for the three months ended
September 30, 2005. The loss per share was $.01 and $.01 per share, for the
three months ended September 30, 2006 and 2005, respectively. The increased net
loss of $430,073 or thirty-two percent (32%) relates primarily to increased
research expenditures, payroll, and decreased grant revenues.
Results of Operations For The nine (9) Months Ended September 30, 2006 As
Compared To The nine (9) Months Ended September 30, 2005
During the nine months ended September 30, 2006, we incurred research
expenditures pursuant to a grant received from the U.S. Department of Health and
Human Services. We recognized grant revenue of $32,379, the extent of such
qualifying expenditures.
39
We incurred research and development expenses of $3,153,260 for the
nine months ended September 30, 2006, as compared to $2,365,103 for the nine
months ended September 30, 2005. This increase of $788,157, or thirty-three
percent (33%), was primarily attributable to fluctuations and timing of the
costs associated with our Phase IIb HIV clinical trial. We expect research and
development expenditures relating to drug discovery and development will
increase during the remainder of 2006 and into subsequent years due to the
expanding requirements of FDA clinical trials for: (a) our HIV drug program; (b)
our Alzheimer's drug program; (c) the initiation of trials for other potential
indications; and (d) additional study expenditures for potential pharmaceutical
candidates. Research and development expenses may fluctuate from period to
period, depending upon the stage of certain projects and the level of
preclinical testing and clinical trial-related activities.
General and administrative expenses increased to $2,017,875 for the
nine months ended September 30, 2006, as compared to $1,844,385 for the nine
months ended September 30, 2005. This increase of $173,490 or nine percent (9%),
was primarily attributable to an increase in cost of advertising and payroll as
offset by decreases in consulting fees.
Depreciation and amortization amounted to $107,922 for the nine months
ended September 30, 2006, as compared to $50,286 for the nine months ended
September 30, 2005. This increase of $57,636, or one hundred-fifteen percent
(115%), was primarily attributable to the inception of amortization on approved
patents later in 2005.
Net interest income amounted to $24,136 and $47,878 (reflected as a
contra-expense) for the nine (9) months ended September 30, 2006 and 2005,
respectively. The credit balance in the interest expense account is attributable
to offsetting interest earned from holding our cash in marketable securities and
certificates of deposits. Interest income was $24,143 and $49,294, for the nine
(9) months ended September 30, 2006 and 2005, respectively. Interest expense was
$7 and $1,416.00, for the nine (9) months ended September 30, 2006 and 2005,
respectively.
We had a net loss of $5,225,702 for the nine months ended September 30,
2006, as compared to $4,076,467 for the nine months ended September 30, 2005.
The loss per share was $.04 and $.03 per share, for the nine months ended
September 30, 2006 and 2005, respectively. The increased net loss of $1,1449,235
relates primarily to increased research expenditures and decreases in
governmental grant revenue.
The net loss since our inception on September 5, 1994 through September
30, 2006 was $38,962,098. We expect losses to continue for the near future, and
such losses will likely increase as human clinical trials are undertaken in the
United States. Future profitability will be dependent upon our ability to
complete the development of our pharmaceutical products, obtain necessary
regulatory approvals and effectively market such products. In addition, future
profitability will require the Company to establish agreements with other
parties for clinical testing, manufacturing, commercialization and sale of its
products.
Liquidity and Capital Resources
As of September 30, 2006, the Company's cash position was $2,125,558.
We are continuing efforts to raise additional capital and to execute our
research and development plans. Even if we are successful in raising sufficient
money to carry out these plans, additional clinical development is necessary to
bring our products to market, which will require a significant amount of
additional capital. As of January 4, 2007, the Company's cash position was
$842,309. On January 4, 2007, the last reported market sale price of our
Common Stock was $0.21. Accordingly, the Company cannot currently access funds
under the Purchase Agreement II and will not be able to access such funds in the
future unless the market price our Common Stock exceeds $0.25 per share.
40
Cash used in operating activities during the nine (9) month period
ended September 30, 2006 was $(4,736,059), as compared to $(3,390,771) for the
nine-month period ended September 30, 2005, an increase of $1,345,288 or forty
(40%). This increase is primarily attributable to fluctuations and timing of the
cost with our Phase IIb HIV clinical trial and decreases in governmental grant
revenue.
Cash provided by investing activities was $327,140 for the nine (9)
month period ended September 30, 2006, as compared to cash provided of $402,416
for the nine (9) month period ended September 30, 2005, a decrease of $75,276 or
nineteen (19%). Each period reflects proceeds from the liquidation of
certificates of deposit offset by investing activity such as the purchase of
equipment patent registration costs. There were fewer marketable securities to
liquidate during 2006.
Cash provided by financing activities was $6,078,014 for the nine (9)
month period ended September 30, 2006, as compared to $1,399,999 for the nine
(9) month period ended September 30, 2005, an increase of $4,678,015 or three
hundred thirty-four percent (334%). This year's results include proceeds of
$2,045,000 from private placements, and $64,500 from exercise of warrants.
Furthermore, proceeds from the equity financing agreement increased this year
through September 30 by $2,568,515.
Current assets as of September 30, 2006 were $2,461,311 as compared to
$1,307,096 as of December 31, 2005. This increase of $1,154,215 or eighty-eight
percent (88%), was primarily attributable to the receipt of proceeds from the
private placement. Augmenting the private placement funds are the increased
proceeds received through our equity financing arrangement with Fusion Capital
II, LLC ("Fusion Capital") as offset by the increased research expenditures.
Current liabilities as of September 30, 2006 were $672,495 as compared to
$562,060 as of December 31, 2005, an increase of $110,435, primarily in accrued
compensation.
On April 22, 2003, the Company entered into a Common Stock Purchase
Agreement ("Purchase Agreement I") with Fusion Capital, pursuant to which Fusion
Capital has agreed to purchase shares of our Common Stock from time to time at
the Company's option up to an aggregate amount of $10,000,000. The SEC declared
effective the Company's Registration Statement on Form SB-2, Commission
Registration No. 333-105818 on October 9, 2003.
On May 12, 2005, we entered into the Purchase Agreement II with Fusion
Capital, pursuant to which Fusion Capital has agreed to purchase our Common
Stock from time to time, at our option, up to an aggregate amount of $40,000,000
over fifty (50) months commencing on the date the SEC declared effective our
Registration Statement covering the December 29, 2005 (Commission Registration
No. 333-130356), the Registration Statement on Form SB-2 was declared effective
by the SEC. The number of registered, yet not issued shares remaining under that
Registration Statement as of January 4, 2007, was 3,329,370.
The Company's dependence on raising additional capital will continue,
at least, until it is able to commercially market one (1) of its products at
significant sales level. Depending on profit margins and other factors, the
Company may still need additional funding to continue research and development
efforts. The Company's future capital requirements and the adequacy of its
financing depend upon numerous factors including: the successful
commercialization of the Company's drug candidates, progress in its product
development efforts, progress with preclinical studies and clinical trials, the
cost and timing of production arrangements, the development of effective sales
and marketing activities, the cost of filing, prosecuting, defending and
enforcing intellectual property rights, competing technological and market
developments, and the development of strategic alliances for the marketing of
its products.
41
We do not believe debt financing from financial institutions will be
available until at least one (1) of our products is approved for commercial
production. To date, we have in licensed one drug (Amphocil) that has reached
commercial stage, and hence, we do anticipate revenue in the near future. We
have been unprofitable since our inception and have incurred significant losses.
We will continue to have significant general and administrative expenses,
including expenses related to clinical studies, our research collaboration with
Georgetown University and patent registration costs. On January 4, 2007, the
last reported market sale price of our Common Stock was $0.21. Accordingly, the
Company cannot currently access funds under the Purchase Agreement II and will
not be able to access such funds in the future unless the market price our
Common Stock exceeds $0.25 per share. Except for our Purchase Agreements with
Fusion Capital, no commitment exists for continued investments, or for any
underwriting.
Even if we can access funds under our financing arrangements with
Fusion Capital (as discussed above), we may require substantial additional funds
to sustain our operations and to grow our business. The amount will depend,
among other things, on (a) the rate of progress and cost of our research and
product development programs and clinical trial activities; (b) the cost of
preparing, filing, prosecuting, maintaining and enforcing patent claims and
other intellectual property rights; and (c) the cost of developing manufacturing
and marketing capabilities, if we decide to undertake those activities. The
clinical development of a therapeutic product is a very expensive and lengthy
process which may be expected to utilize $5 to $20 million over a three (3) to
six (6) year development cycle. Although we believe we could license the
manufacturing and marketing rights to our products in return for up-front
licensing and other fees and royalties on any sales, there can be no assurance
we will be able to do so in the event we seek to do so. We need to obtain
additional funds to develop our therapeutic products and our future access to
capital is uncertain. The allocation of limited resources is an ongoing issue
for us as we move from research activities into the more costly clinical
investigations required to bring therapeutic products to market.
The extent to which we rely on Fusion Capital as a source of funding
will depend on a number of factors, including the prevailing market price of our
Common Stock (which must exceed $0.25 per share) and the extent to which we are
able to secure working capital from other sources. Even if we are able to access
the full amounts under Purchase Agreement II with Fusion Capital, we may still
need additional capital to fully implement our business, operating and
development plans. If we are unable to obtain additional financing, we might be
required to delay, scale back or eliminate selected research and product
development programs or clinical trials, or be required to license third parties
to commercialize products or technologies that we would otherwise undertake
ourselves, or cease certain operations all together. However, any of these
options might have a material adverse effect upon the Company. If we raise
additional funds by issuing equity securities, dilution to stockholders may
result, and new investors could have rights superior to existing holders of
shares. Should the financing we require to sustain our working capital needs be
unavailable or prohibitively expensive when we require it, the consequences
would have a material adverse effect on our business, operating results,
financial condition and prospects.
We have been able to meet our cash needs during the past twelve (12)
months through a combination of funds received through private placements and
funds received under the Purchase Agreements. We intend to continue to explore
avenues to obtain the capital needed for our operations through private
placements and by the sale of our shares of Common Stock to Fusion Capital.
42
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
We do not engage in trading market-risk sensitive instruments and do
not purchase hedging instruments or "other than trading" instruments likely to
expose us to market risk, whether interest rates, foreign currency exchange,
commodity price or equity price risk. We have no outstanding debt instruments,
have not entered into any forward or future contracts, have purchased no
options, and entered into no swaps. We have no credit lines or other borrowing
facilities, and do not view ourselves as subject to interest rate fluctuation
risk at the present time.
Exchange Risk
We are a multinational business operating in a number of countries with
the U.S. dollar as the primary currency in which we conduct business. The U.S.
dollar is used for planning and budgetary purposes and as the presentation
currency for financial reporting. We do, however, have costs, assets and
liabilities denominated in currencies other than U.S. dollars. Consequently, we
may enter into derivative financial instruments to manage our non-U.S. dollar
foreign exchange risk. We may use derivative financial instruments primarily to
reduce exposures to market fluctuations in foreign exchange rates. We do not
enter into derivative financial instruments for trading or speculative purposes.
All derivative contracts entered into will be in liquid markets with
credit-approved parties. The treasury function operates within strict terms of
reference that have been approved by our board of directors (the "Board").
The U.S. dollar is the base currency against which all identified
transactional foreign exchange exposures are managed and hedged. The principal
risks to which we are exposed are movements in the exchange rates of the U.S.
dollar against the Euro. The main exposures are net costs in Euro arising from a
manufacturing and research presence in Ireland, the sourcing of raw materials in
European markets and marketing and sales in South Eastern Europe.
Recently Issued Accounting Standards
In February 2006, the FASB issued FASB Statement No. 155, which is an
amendment of FASB Statements No. 133 and 140. This Statement: a) permits fair
value remeasurement for any hybrid financial instrument containing an embedded
derivative that otherwise would require bifurcation; b) clarifies which
interest-only strip and principal-only strip are not subject to the requirements
of Statement 133; c) establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or hybrid financial instruments containing an embedded derivative
requiring bifurcation; d) clarifies concentrations of credit risk in the form of
subordination are not embedded derivatives; and e) amends Statement 140 to
eliminate the prohibition on a qualifying special-purpose entity from holding a
derivative financial instrument pertaining to a beneficial interest other than
another derivative financial instrument. This Statement is effective for
financial statements for fiscal years beginning after September 15, 2006.
Earlier adoption of this Statement is permitted as of the beginning of an
entity's fiscal year, provided the entity has not yet issued any financial
statements for that fiscal year. Management believes this Statement will have no
impact on the financial statements of the Company once adopted.
In March 2006, the FASB issued FASB Statement No. 156, which amends
FASB Statement No. 140. This Statement establishes, among other things, the
accounting for all separately recognized servicing assets and liabilities. This
Statement amends Statement 140 to require all separately recognized servicing
assets and liabilities be initially measured at fair value, if practicable. This
Statement permits, but does not require, the subsequent measurement of
separately recognized servicing assets and liabilities at fair value. An entity
using derivative instruments to mitigate the risks inherent in servicing assets
and liabilities is required to account for those derivative instruments at fair
value. Under this Statement, an entity can elect subsequent fair value
measurement to account for its separately recognized servicing assets and
liabilities. By electing that option, an entity may simplify its accounting
because this Statement permits income statement recognition of the potential
offsetting changes in fair value of those servicing assets and liabilities and
derivative instruments in the same accounting period. This Statement is
effective for financial statements for fiscal years beginning after September
15, 2006. Earlier adoption of this Statement is permitted as of the beginning of
an entity's fiscal year, provided the entity has not yet issued any financial
statements for that fiscal year. Management believes this Statement will have no
impact on the financial statements of the Company once adopted.
43
Opinion 20 previously required most voluntary changes in accounting
principles be recognized by including in the net income of the period of change
the cumulative effect of changing to the new accounting principle. This
Statement requires retrospective application to the prior periods' financial
statements of changes in the accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. When it is impracticable to determine the period-specific effects of an
accounting change on one or more individual prior period presented, this
Statement requires the new accounting principle be applied to the balances of
assets and liabilities as of the beginning of the earliest period for which
retrospective application is practicable and a corresponding adjustment be made
to the opening balance of retained earnings (or other appropriate components of
equity or net assets in the statement of financial position) for that period
rather than being reported in an income statement. When it is impracticable to
determine the cumulative effect of applying a change in accounting principle to
all prior periods, this Statement requires the new accounting principle be
applied as if it were adopted prospectively from the earliest date practicable.
This Statement shall be effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. The Company does
not believe that the adoption of SFAS 154 will have a significant effect on its
financial statements.
Other accounting standards issued or proposed by the FASB, or other
standards-setting bodies, that do not require adoption until a future date, are
not expected to have a material impact on the consolidated financial statements
upon adoption.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of our executive
officers, Directors, key employees and key consultants as of the date hereof:
Name Age Served Since Positions with Company
------------------------------------ --- ------------ ------------------------------------------------------------
Dr. Janet R. Greeson (1)(2)(3) 63 10/19/1997 CEO, President and Chairman of the Board
Mr. Eugene J. Boyle (4) 41 05/20/2000 CFO, COO and Director
Dr. Thomas Lang 55 06/20/2004 Chief Drug Development Officer
Ms. Kristi C. Eads 37 11/20/2000 Vice President of Investor Relations and Corporate Secretary
Mr. George Weaver 41 07/20/2003 Regulatory Affairs Officer
Dr. Laurent Lecanu (2)(5) 38 6/10/2005 Director
Mr. Douglas D. Bessert (5)(6) 49 03/20/2001 Director
Dr. Erasto R. C. Saldi (1)(2)(3) 48 05/20/2003 Director
Mr. Welter Holden (1)(3)(7) 75 10/19/1997 Director
Mr. H. Thomas Winn (5)(6) 66 03/19/1999 Director
Ms. Cynthia C. Thompson(1),(4),(6)(7) 46 03/19/1999 Director
Dr. Vassilios Papadopoulos (2) 45 03/20/2001 Chief Scientist and Key Consultant
Dr. Christos Dakas 45 06/29/2005 Managing Director, Samaritan Pharmaceuticals Europe
Ms. Dianne Thompson 44 10/01/2006 Comptroller
44
______________
(1) Member of the Nominating Committee.
(2) Member of the Science and Technology Advisory Committee.
(3) Class I Director, term expires 2007.
(4) Class II Director, new term expires 2009.
(5) Class III Director, term expires 2008.
(6) Member of the Audit and Finance Committee.
(7) Member of the Compensation and Governance Committee.
Dr. Janet R. Greeson. Dr. Greeson has served as the Company's CEO,
President and Chairman of the Board since October 30, 2000 and has led the bold
initiative that transformed Samaritan from a "one drug" Company to an innovative
"Drug Development Pipeline" Biopharmaceutical Company. She strategically created
a long-term value and growth model, with the Samaritan/Georgetown University
collaboration; and intends to duplicate this growth model with other top tier
Universities, as a solid strategy to continually build Samaritan's value and
sustain its future profitability. Dr. Greeson is a successful healthcare
professional with over two (2) decades of corporate experience focused on
emerging growth situations, leadership development, and mergers and
acquisitions. Although she has worked with Samaritan for nine (9) years, as CEO
for the past four (4) years she has demonstrated a relentless perseverance and
determination to succeed in the face of unrelenting change. She is extremely
motivated and equipped to attack problems and seize realistic opportunities,
with capability, courage and confidence. Dr. Greeson is a co-inventor of
eighteen (18) patent applications, and presently has nine "peer reviewed"
journal publications. She is a best selling author of "It's Not What You Are
Eating, It's What's Eating You"; and a renowned public speaker, whose guest
appearances on numerous radio and TV Talk shows, has opened the door to tell the
Samaritan story, in a concise and professional manner. Dr. Greeson has an
eclectic past, once working with Mother Theresa and was privileged to be the
U.S. Congressional Nominee for the State of Nevada in 1994, winning the primary
without spending a dollar to campaign. She currently fulfills her altruistic
energies with the Samaritan Innovative Science Foundation. Dr. Greeson holds a
BA, from Florida Technological University in 1978; an MA from Rollins College in
1979; and a PhD from Columbia Pacific University in 1987.
Mr. Eugene J. Boyle. Mr. Boyle is a co-founder of Samaritan and has
served as a Director since 2000 and has served as Chief Financial Officer and
Chief Operations Officer since June 16, 2000. Mr. Boyle attended the University
of Notre Dame and received a BSE from Tulane University. He is a veteran of the
U.S. Navy serving as a Lt. during the Gulf War. Upon discharge, he returned to
graduate school earning his MBA in Entrepreneurship from Babson College in
Boston, Massachusetts, and his Juris Doctor from Concord Law School in Los
Angeles, California. He devotes his time to the business development aspects of
Samaritan, SEC filings, patent prosecution and numerous other legal and business
affairs. Mr. Boyle is also a founder of the "Samaritan Innovative Science
Foundation", dedicated to provide free HIV drugs to children of the world; a
BioFuture Bus to further science with children; and to develop often overlooked
orphan drugs for the benefit of the world community. In the past, Mr. Boyle was
employed by Columbia/HCA (NYSE:HCA) and has served on the Advisory Board of
Nevada Gold and Casinos (AMEX:UWN). Mr. Boyle is a Charted Financial Analyst
candidate and has passed the Series 7 and 63 securities brokerage registered
representative exams, although he is not a practicing representative.
45
Ms. Cynthia C. Thompson. Ms. Thompson has served as a Director since
1999 and is the Chairman of the Compensation and Governance Committee. Ms.
Thompson is President/CEO and founder of Quest Entertainment, Inc. She leads
Quest's efforts in providing technology solutions to the gaming industry
focusing primarily on slot machines and table game innovations. She began her
extensive financial background in corporate finance and institutional sales at
leading Wall Street investment firms. Ms. Thompson also serves on the Board of
Restaurant Connections International, Inc. and is a founder and financial
advisor to Nevada Gold & Casinos, Inc. (AMEX:UWN).
Dr. Thomas Lang. Dr. Lang has served as the Chief Drug Development
Officer for Samaritan since 2004. Prior to joining the Company he was the CEO
and President of Strategic Development Consulting in 2003 and the former Vice
Chairman and President of Serono Inc. the U.S. Company of Serono, S.A., the
world's third largest biotech company from 1995 through 2003. Dr. Lang is a
highly regarded senior executive with over twenty-five (25) years of experience
in the pharmaceutical and biotech industry. Dr. Lang holds technical degrees in
Chemistry and Pharmacy, an MBA degree, a Ph.D. degree and is a registered
pharmacist in the State of New Jersey. Prior to founding Strategic Development
Consulting, Dr. Lang had a very successful career with such companies as
Ciba-Geigy, Janssen, Warner-Lambert, Organon, and, most recently, Serono. After
joining Serono in 1995, Dr. Lang held increasingly senior executive level
positions within Serono while successfully guiding the company's short and
long-term tactical and strategic planning for overall product development and
commercialization of its traditional and advanced biotech products in the
therapeutic areas of Fertility, Growth, Metabolism & Immunology, and Multiple
Sclerosis in the U.S. This has lead to the commercialization of seven (7)
products (five (5) of which were recombinant products), which currently account
for more than ninety-five percent (95%) of the Company's sales.
Ms. Kristi Eads, J.D., Vice President of Business Development. Ms. Eads
joined Samaritan Pharmaceuticals in 2000, and has functioned as a Vice President
of Samaritan since January of 2004. Ms. Eads works with Samaritan's business
development team to optimize Samaritan's licensing and partnering opportunities
by executing business development initiatives and assisting with strategic
planning. Ms. Eads obtained her juris doctorate from Concord University and has
a bachelor of arts from the University of Oregon.
Mr. George Weaver. Mr. Weaver has served as the Regulatory Affairs
Officer for Samaritan since 2003. Mr. Weaver majored in chemistry, minored in
business economics and was one of a select group of students to successfully
petition UCLA and participate in an accelerated Pre-Medicine/Medicine program.
After working as an environmental toxicology consultant for two (2) years, Mr.
Weaver earned a Bachelor's of Science in Environmental Engineering and assumed
an appointed position as Chair of Industry Waste Classification and Toxicology
Focus Group under the California Department of Toxic Substances Control
Regulatory Structure Update. Mr. Weaver also worked for and under contract with
the U.S. Navy Public Works Center. Mr. Weaver is responsible for several
environmental and toxicological advances within the Department of Defense
including a notable contribution to the DOD Uniform National Discharge Standards
(UNDS) guidelines created jointly with the United States Environmental
Protection Agency and the U.S. Coast Guard; development of the U.S. Navy's
toxicological profile guidelines for hazardous materials and wastes in San
Diego, California; and significant contribution to the development of Department
of Defense radiological, biohazardous, and infectious materials permitting
guidelines.
46
Dr. Laurent Lecanu, D.Pharm., Ph.D. Dr. Lecanu has served as a Director
since June 10, 2005. Dr. Lecanu received his D.Pharm. in pharmaceutical
chemistry and his Ph.D. in neuropharmacology from the School of Pharmaceutical
and Biological Sciences at University of Paris (V), Paris, France. Dr. Lecanu is
also a former Intern of Paris Hospitals, France, where he demonstrated
excellence in the management and performance of clinical trials for new
medications. Dr Lecanu's contribution to Samaritan Research Laboratories brings
more than seven (7) years experience in biomedical research. He is a highly
skilled specialist of "in vivo" experimental research (preclinical research),
mainly in the development of animal models for neurodegenerative diseases. He
also has several years of experience in biomedical research including the
development of novel therapeutic entities targeted to Alzheimer's disease. Dr.
Lecanu's experience includes being a Research Associate Professor at the
Departments of Pharmacodynamics and Pharmaceutical Physiology at the School of
Pharmacy and Medicine of the University of Burgundy, France. In 2001, the French
National Academy of Pharmacy awarded him the Prize of the French Association for
Experimental Therapeutics. Dr. Lecanu manages the day-to-day operations of
Samaritan Laboratories at Georgetown University and is co-inventor on numerous
patents that Samaritan has licensed from Georgetown University.
Mr. Douglas D. Bessert. Mr. Bessert has served as a Director since
2001 and has shown an enormous ability to raise private capital with an
extensive network of contacts. Mr. Bessert has over twenty (20) years of
financial and investor relationship experience, with an emphasis in small
entrepreneurial companies. In the past, he served as a Branch Manager at a stock
brokerage firm in charge of nine (9) other brokers, handling all compliance and
investor problems for the office. Mr. Bessert was the Founder and CFO of
Thorofare Resources Inc., a regional oil and gas company with production and
employees in eight (8) states. He was also a financial consultant that managed
portfolios for over two hundred and thirty (230) clients and managing in excess
of $43,000,000 in assets. During his tenure as a financial consultant, he was
heavily involved in leveraged buyouts, raising private capital and acquisitions
of many entities. Mr. Bessert received his BS in Marketing from the University
of Wyoming.
Dr. Erasto R. C. Saldi. Dr. Saldi has served as a Director of the
Company since 2003. Currently, Dr. Saldi is setting up a network of primary
clinics in Las Vegas with the intent of establishing these clinics as research
centers for clinical trials. From 1999 to 2004, Dr. Saldi was the Medical
Director of Fremont Medical Clinic, Desert Lane Care Center, and Cheyenne Care
Center, where he improved physician compliance and formulated patient care
protocols. From 1996 to 1997, he was Chief Resident, Internal Medicine and from
1997 to 1998 he served as Assistant Clinical Professor, Internal Medicine at the
University of Nevada School of Medicine, Las Vegas, Nevada Dr. Saldi has also
has extensive experience as an Internist, Principal Investigator and manager of
clinical research trials.
Mr. Welter "Budd" Holden. Mr. Holden is a co-founder, has served as a
Director since 1997 and is the Chairman of the Nomination Committee. Mr. Holden
has assisted the Company in recruiting and networking patients for clinical
trials. He is a well-known designer who has consulted with the rich and famous
throughout his whole life. He is a renowned networker and has presented
Samaritan to many of his past clients and venture capital groups, including
principals of pharmaceutical companies. Although for the past five (5) years Mr.
Holden has been an independent consultant providing architectural and interior
design advice, he devotes the majority of his time to Samaritan. Mr. Holden is
the Chairman of our Business Advisory Board and acts as liaison to the
"Samaritan Innovative Science Foundation". He received his B.A. in architectural
and interior design from the Pratt Institute in New York, New York.
Mr. H. Thomas Winn. Mr. Winn has served as a Director since 1999 and is
the Chairman of the Audit Committee. Mr. Winn has been Chairman, President and
CEO of Nevada Gold & Casinos, Incorporated (AMEX:UWN) ("UWN") since 1994. Under
Mr. Winn's leadership, UWN has successfully concentrated on acquisition and
development of premier gaming and entertainment venture, and is currently
involved in nine (9) gaming projects in Colorado, California, New York and
Arizona. Since 1983, Mr. Winn has served as President of Aaminex Capital
Corporation, a financial consulting and venture capital firm involved in food
and beverage, real estate, mining and environmental activities. Mr. Winn has
formed numerous investment limited partnership and capital formation ventures
ranging from motion pictures to commercial real estate and mining projects.
47
Dr. Vassilios Papadopoulos, D.Pharm., Ph.D. Dr. Papadopoulos had served
as a Director from 2001 through June 2005 and was promoted into a more
prestigious position at Georgetown University which has conflicted him out of
holding any position on Boards of public companies. His position as a "Key
Consultant" has resolved any conflict issues. He will continue to serve as Chief
Scientist of the Science and Technology Advisory Committee, which Committee
serves as an advisor to the Board. Dr. Papadopoulos is Professor and Chair at
the Department of Biochemistry & Molecular Biology at Georgetown University
Medical Center. Dr. Papadopoulos and his group of scientists originally assisted
Samaritan with work on using Procaine (HCL) to control stress-induced cortisol
production by the human adrenal cells. Dr. Papadopoulos has over twenty (20)
years of experience and over one hundred forty (140) peer review article
publications in the Biopharmaceutical field and numerous patents in the field of
steroid biosynthesis, Alzheimer's disease and cancer.
Dr. Christos Dakas, D.Pharm., Ph.D. Dr. Christos Dakas, joined
Samaritan in June 2005 to oversee European operations, including Samaritan
Ireland Pharmaceuticals, Limited. Prior to joining Samaritan, Dr. Dakas had a
successful career in various executive positions with Gerolymatos, Genesis
Pharma, and most recently Arriani Pharmaceuticals. A pharmaceutical chemist by
training with a number of published papers, he holds degrees from the University
of Toronto, Kings College of University of London, and the University of Wales
in Cardiff.
Ms. Dianne Thompson, MBA. Dianne Thompson is the comptroller of
Samaritan Pharmaceuticals, Inc. and the Senior V.P. of Public Affairs &
Development for the Samaritan Innovative Science Foundation (SISF). Her duties
as comptroller include: filing financial documents with various government
agencies, studying bids and reviewing vendor contracts for financial
feasibility. Originally from Georgia, Ms. Thompson received her BS in business
administration and economics from the College of Notre Dame, Belmont, Calif.,
MBA from Pepperdine University, Malibu, Calif., and a fundraising certificate
from the University of California, Los Angeles. Ms. Thompson was employed by the
John Wayne Cancer Institute (JWCI) as special events manager. In her capacity
with the Institute, she raised more than $1.4 million in charitable donations.
The Board of Directors and Committees
The Company has formed, by the determination of the Board, an Audit
Committee with Independent Director Mr. H. Thomas Winn as Chairman. Mr. Winn is
a qualified financial expert, such a term is used in Item 7(d)(3)(iv) of
Schedule 14A (240.14a-101 of this chapter) under the Exchange Act of 1934, as
amended, (the "Exchange Act"). The Company has also formed a Compensation and
Governance Committee, with Independent Director, Ms. Cynthia C. Thompson as
Chairman; a Nomination Committee with Independent Director Mr. Welter Holden as
Chairman; and a Science and Technology Advisory Committee with Dr. Vassilios
Papadopoulos as Chief Scientist and Key Consultant to the Board. It should also
be noted that no director or executive officer, key employee or key consultant
of the Company has any family relationships with any other director, executive
officer, key employee or key consultant of the Company, except Mr. Eugene Boyle,
our Chief Financial Officer and Chief Operating Officer, is the son of Dr. Janet
Greeson.
EXECUTIVE COMPENSATION
The Compensation and Governance Committee (the "Compensation
Committee") of the Board administers our executive compensation program. Each
member of the Committee is a non-employee and an independent director. The
Compensation Committee is responsible for establishing salaries and
administering the incentive programs for our Chief Executive Officer and other
executive officers.
48
Compensation Philosophy
The Compensation Committee has designed the Company's compensation
program based on the philosophy that all of our executives are important to our
success, with our executive officers setting the direction of our business and
having overall responsibility for our results. As with other pharmaceutical
companies, we operate in a highly competitive and difficult economic
environment. Accordingly, the Compensation Committee has structured the
Company's compensation to accomplish several goals: (a) to attract and retain
very talented individuals, (b) to reward creativity in maximizing business
opportunities and (c) to enhance stockholder value by achieving our short-term
and long-term business objectives.
Base Salary
The Compensation Committee considers peer data as well as individual
performance when approving base salaries for executive officers. The
Compensation Committee evaluates individual performance based on the achievement
of corporate or divisional operating goals and subjective criteria, as well as
the Chief Executive Officer's evaluation of the other executive officers. No
specific weight is assigned to any particular factor. We are currently
negotiating written employment agreements with Dr. Greeson and Mr. Boyle. Dr.
Thomas Lang and Dr. Christos Dakas each have employment agreements negotiated at
arm's length with the Compensation and Governance Committee, and each such
agreement provides for a minimum annual base salary. In setting base salaries,
the Board has considered (a) the contributions made by each executive to our
Company, (b) compensation paid by peer companies to their executive officers and
(c) outside compensation reports.
Stock Options
The short and long-term compensation program includes stock options
granted under the Amended Samaritan Pharmaceuticals, Inc. 2001 Stock Incentive
Plan and the Samaritan Pharmaceuticals, Inc. 2005 Stock Incentive Plan
(together, the "Plans") as well as non-qualified stock options. The Plans are
designed to (a) reward executives for achieving long-term financial performance
goals over a three (3) year to ten (10) year period, (b) provide retention
incentives for executives and (c) tie a significant portion of an executive's
total compensation to our long-term performance. Stock options for our executive
officers, key employees and key consultants are part of our incentive program
and link the enhancement of shareholder value directly to their total
compensation. The Compensation Committee determines the number of stock options
granted based upon several factors: (a) level of responsibility, (b) expected
contribution towards our performance and (c) total compensation strategy for mix
of base salary, short-term incentives and long-term incentives. The following
tables and notes present information concerning the compensation of the
Company's Chief Executive Officer and to the Company's most-highly compensated
executive officers other than the Company's Chief Executive Officer as of
December 31, 2005:
49
Summary Compensation Table
Annual Compensation Long -Term Compensation
--------------------------------------- ------------------------------------------------
Securities Other
Name And Principal Accrual Restricted Underlying Compensation
Position Year Salary Salary Stock Analysis Awards Options(4)
------------------------- ---- -------- ---------- -------------- ----------- -------------
Dr. Janet R. Greeson 2005 $323,434 136,027 -0- -0- -0-
CEO, President and 2004 $437,582 -0- -0- 4,253,560 $19,559
Chairman of the Board (1) 2003 $247,687 -0- $169,058 2,582,238 $ 8,871
Mr. Eugene J. Boyle 2005 $232,425 $73,882 -0- 2,641,088 -0-
CFO and COO (2) 2004 $291,721 -0- -0- 2,126,780 $600
2003 $156,200 -0- $121,630 1,291,119 $1,200
Mr. Thomas Lang 2005 $308,538 -0- -0- -0- -0-
Chief Drug Development 2004 $173,538 -0- -0- 1,300,000 -0-
Officer (3)(5)
Mr. George Weaver 2005 $66,363 $57,137 -0- -0- -0-
Regulatory Affairs 2004 $120,000 -0- -0- -0- -0-
Officer (4) 2003 $18,462 -0- $51,538 50,000 -0-
1) The Company and Dr. Greeson have entered into an employment agreement,
a copy of which is attached as Exhibit 10.9 to the Company's Quarterly
Report on Form 10-QSB as filed with the SEC on August 14, 2002. The
agreement filed on August 14, 2002 expired as of December 31, 2005. The
Company is currently negotiating a new agreement with the Dr. Greeson.
2) The Company and Mr. Boyle have entered into an employment agreement, a
copy of which is attached as Exhibit 10.8 to the Company's Quarterly
Report on Form 10-QSB as filed with the SEC on August 14, 2002. The
agreement filed on August 14, 2002 expired as of December 31, 2005. The
Company is currently negotiating a new agreement with Mr. Boyle.
3) The Company and Mr. Lang have entered into an employment agreement,
a copy of which is attached as Exhibit 10.6 to the Company's Quarterly
Report on Form 10-QSB, as filed with the SEC on August 16, 2004.
4) The amounts shown in this column cover amounts for the payment of
Medicare/Social Security taxes, life insurance premiums and life
annuity premiums for the benefit of the particular employee, and the
employers matching contribution to the particular employees 401(k).
5) Excludes payments to Strategic Development Consulting, Inc., a company
Dr. Lang was an employee of prior to being hired pursuant to his
employment agreement with Samaritan. Payments to Strategic Development
Consulting, Inc. included $50,000 and a five (5) year option for 25,000
shares with an exercise price of $0.50 for work prior to June 2004.
Excludes a one-time grant of 75,000 restricted shares into the George
Weaver Deferred Compensation Trust at the end of 2004.
Option Grants in Last Fiscal Year
Number of Percentage Of
Securities Total Options Grant Date
Underlying Granted To Exercise Base Present
Name Options Granted Employees Price Expiration Date Value(4)
------------------------- --------------- --------------- -------------- ---------------- ------------
Dr. Janet R. Greeson (1) -0- -0- -0- -0- -0-
Mr. Eugene J. Boyle (2) 2,641,088 99% $0.93 01/05/2015 $6,338
Mr. Thomas Lang (3) -0- -0- -0- -0- -0-
Mr. George Weaver -0- -0- -0- -0- -0-
-0- -0- -0- -0- -0-
50
1) The Company and Dr. Greeson have entered into an employment agreement,
a copy of which is attached as Exhibit 10.9 to the Company's Quarterly
Report on Form 10-QSB as filed with the U.S. Securities and Exchange
Commission on August 14, 2002. The agreement filed on August 14, 2002
expired as of December 31, 2005. The Company is currently negotiating a
new agreement with Dr. Greeson.
2) The Company and Mr. Boyle have entered into an employment agreement, a
copy of which is attached as Exhibit 10.8 to the Company's Quarterly
Report on Form 10-QSB as filed with the U.S. Securities and Exchange
Commission on August 14, 2002. The agreement filed on August 14, 2002
expired as of December 31, 2005. The Company is currently negotiating a
new agreement with Mr. Boyle.
3) The Company and Mr. Lang have entered into an employment agreement, a
copy of which is attached as Exhibit 10.6 to the Company's Quarterly
Report on Form 10-QSB, as filed with the U.S. Securities and Exchange
Commission on August 16, 2004.
4) The grant date present values per option share were derived using the
Black-Scholes option pricing model in accordance with the rules and
regulations of the U.S. Securities and Exchange Commission and are not
intended to forecast future appreciation of the Company's stock price.
The options expiring on January 5, 2015 had a grant date present value
of $0.0024 per option share. The Black-Scholes model with no dividend
was used with the following assumptions: volatility of twenty-five
percent (25%) based on a historical weekly average over five (5) years;
risk-free interest of three and seventy-two tenths percent (3.72%)
based on a U.S. Treasury rate of five (5) years; and a ten (10) year
option life.
Aggregate Option Exercises in Last Fiscal Year and Year-End Option Values
Number Of Securities
Underlying Number Of Unexercised
Shares Acquired Unexercised Options In-The-Money Options
Name On Exercise(1) Value Realized(1) At Fiscal Year-End At Fiscal Year-End (2)
------------------------ --------------- ----------------- --------------------- ----------------------
Dr. Janet R. Greeson(3) -0- -0- 11,679,902 $168,441
Mr. Eugene J. Boyle -0- -0- 8,036,116 $95,405
Mr. Thomas Lang (4) -0- -0- 1,325,000 -0-
Mr. George Weaver -0- -0- 50,000 $3,000
____________________
1) The Company engaged these executives pursuant to employment agreements
which allow each executive to defer compensation into Rabbi Trust
Agreements described herein below under the subsection entitled "Trust
Under Samaritan Pharmaceuticals, Inc.
Deferred Compensation Plan."
2) Value of unexercised in-the-money options is calculated based on the
fair market value of the underlying securities without restriction,
minus the exercise price, and assumes sale of the underlying securities
on December 31, 2005 the last trading day for 2004, at a price of $0.40
per share, the fair market value of the Common Stock on such date.
3) The Company and Dr. Greeson entered into an employment agreement, a
copy of which is attached as Exhibit 10.9 to the Company's Quarterly
Report on Form 10-QSB as filed with the U.S. Securities and Exchange
Commission on August 14, 2002. The agreement filed on August 14, 2002
expired as of December 31, 2005. The Company is currently negotiating a
new agreement with Dr. Greeson.
4) Excluded is a deferred grant of 5,282,176 options with an exercise
price of $0.93 to expire on 01/05/2015 for year 2005.
5) Executive received a grant of 1,200,000 options. One-quarter (1/4) of
said options vest every year. The price of the options was $1.08 with a
term of ten (10) years. Upon termination of the executive, as provided
hereinafter, such executive's 1,200,000 options (vested and non-vested)
shall expire within thirty (30) days.
51
401(k) Plan
We adopted a tax-qualified employee savings and retirement plan, or
401(k) plan, covering our full-time employees located in the United States. The
401(k) plan is intended to qualify under Section 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code"), so that contributions to the 401(k) plan
by employees, and the investment earnings thereon, are not taxable to employees
until withdrawn from the 401(k) plan. Under the 401(k) plan, employees may elect
to reduce their current compensation up to the statutorily prescribed annual
limit and have the amount of such contribution contributed to the 401(k) plan.
The 401(k) plan does permit additional matching contributions to the 401(k) plan
by us on behalf of participants in the 401(k).
Equity Compensation Plan Information
Number Of
Securities To Weighted
Be Issued Upon Average
Exercise Of Exercise Price
Outstanding Of Outstanding Number Of
Options, Options, Securities
Warrants And Warrants Remaining For
Name Of Plan Rights And Rights Future Issuance
---------------------------------------------------------------- -------------- -------------- ---------------
Equity compensation plans approved by security holders (1)(2) 24,076,018 $0.56 5,248,646
Equity compensation plans not approved by security holders (3) 31,990,749 $0.40 0
-------------- -------------- ---------------
Total 56,066,767 $0.48 5,248,646
============== ============== ===============
1) The Amended Samaritan Pharmaceuticals, Inc. 2001 Stock Incentive Plan
was filed as Exhibit 4.2 to the Company's Quarterly Report on Form
10-QSB, as filed with the SEC on August 16, 2004.
2) The Samaritan Pharmaceuticals, Inc. 2005 Stock Incentive Plan was
filed with the SEC on Schedule 14A as filed with the SEC on April 29,
2005.
3) Samaritan has entered into "Rabbi Trust" agreements to fund deferred
compensation benefits, with an institutional trustee providing for the
payment out of the assets of the trusts of benefits accrued under our
various benefit plans, employment agreements and other employment
arrangements as the Company specifies from time to time. To the extent
not already irrevocable, the trusts would become irrevocable upon a
change of control of Samaritan. The Company may contribute to the
trusts from time to time, and additional funding could be required upon
a change of control. The Rabbi Trust agreements are subject to their
terms and to the claims of our general creditors in specified
circumstances, to make payments under the terms of the benefit plans,
employment agreements and other employment arrangements from time to
times specified by the Company.
Employment Agreements
On June 1, 2004, the Company entered into a verbal employment
agreement with Mr. Thomas Lang pursuant to which Mr. Lang shall serve as the
Company's Chief Drug Development Officer for a term of four (4) years. Mr. Lang
is entitled to a base salary of $300,000 per year which may be paid in stock
pursuant to a formula as set forth in the agreement. Mr. Lang is entitled to
receive bonus payments of (a) $50,000 for FDA approval to move to Phase III or
Phase II/III for HIV drug SP-01A and (b) $50,000 for each Investigational New
Drug Applications "granted" by the FDA. Mr. Lang has received a one-time signing
bonus of 100,000 options to purchase our Common Stock at $1.00 per share, such
options to expire after three (3) years. Mr. Lang is entitled to moving expenses
up to $30,000. Mr. Lang shall receive a grant of 1,200,000 options, one-quarter
(1/4) of which shall vest each year. The price of the options shall be $1.08
with a term of ten (10) years. Upon termination of the employment agreement,
such 1,200,000 options (vested and non-vested) shall expire within thirty (30)
days thereafter. Mr. Lang shall have the opportunity to participate in all of
the Company's qualified defined benefit and defined contribution retirement
plans (subject to eligibility requirements in such plans), three (3) weeks paid
vacation (and paid holidays observed by the Company.
52
On June 1, 2000, the Company entered into a agreement with Dr.
Vassilios Papadopoulos pursuant to which Dr. Papadopoulos shall serve as a Key
Consultant to the Company for a monthly rate of $5,000. This engagement
agreement does not prohibit Dr. Papadopoulos from being employed by other
entities. Dr. Papadopoulos has disclosed that he receives payments and benefits
from other entities including Georgetown University. Dr. Papadopoulos has the
option to convert his compensation into shares and he receives 250,000 warrants
per year for the term of the agreement.
On June 29, 2005 the Company entered into an employment arrangement
with Christos Dakas to serve as the European Business Development and Managing
Director of Samaritan Pharmaceuticals S.A. in Greece, once such entity is
established ("Samaritan Pharmaceuticals Europe"). Mr. Dakas shall receive a base
salary of (euro) 105,280 per year, a car allowance equal to (euro)12,852 per
year and a performance based bonus to be awarded annually at the discretion of
the CEO of the Company. Mr. Dakas also is entitled to receive 100,000 Company
stock options priced at one hundred ten percent (110%) of the market price
effective July 11, 2005 and said options expire after three (3) years, or after
thirty (30) days after Mr. Dakas leaves his employ with Samaritan
Pharmaceuticals Europe. Mr. Dakas shall be entitled to health insurance and
other benefit programs per Samaritan Pharmaceuticals Europe.
Trust Under Samaritan Pharmaceuticals, Inc. Deferred Compensation Plan
The Company has entered into "Rabbi Trust" agreements with select
management and highly-compensated employees and has appointed a trustee that is
a non-Director and officer providing for the payment out of the assets of the
Rabbi Trust agreements accrued under the Company's various benefit plans,
employment agreements and other employment arrangements as the Company may
specify from time to time. To the extent not already irrevocable, the Rabbi
Trust agreements would become irrevocable upon a change of control of Samaritan.
The Company may make contributions to the Rabbit Trust agreements from time to
time, and additional funding may be required upon a change of control. To the
extent funded, the Rabbi Trust agreements are to be used, subject to their terms
and to the claims of the Company's general creditors in specified circumstances,
to make payments under the terms of the benefit plans, employment agreements and
other employment arrangements as the Company may specify from time to time.
Change of Control Plan
On May 30, 2006 the Board of Directors of Samaritan approved and
adopted the Change in Control Severance Plan for Certain Covered Executives and
Employees of Samaritan Pharmaceuticals (the "Plan"), effective May 30, 2006. The
Plan is intended to help avoid the loss and distraction of certain key employees
of the Company in the event of a change in control. The Plan has an initial term
of three years with automatic three-year extensions, unless terminated by the
Board at least six (6) months prior to the end of the then current term.
The Chief Executive Officer, Chief Operating Officer, Senior Vice
Presidents, Vice Presidents, and Directors are eligible to participate in the
Plan, and the Board may designate other employees of the Company as Plan
participants. The Company shall pay or cause to be paid to the participant a
cash severance calculated based on a multiplier of four (4) months of base
salary for every year of service up to maximum in of either twenty four (24)
months or thirty six (36) months depending on the participants job title or job
category. The severance amount equals the applicable multiplier times the sum of
(A) the Participant's highest annual rate of base salary as reported on the
participant's W-2 for employee or on the participant's 1099 for directors within
the thirty six (36) month period immediately preceding the Effective Date of the
change in control and (B) the participant's maximum annual target bonus in
effect upon the date of the change in control under the Company's bonus plan or
the Participant's actual earned commission incentive for the last two quarters,
which will be annualized, prior to the change in Control, not to exceed the
target at 100% of achievement as defined in the Company's Sales Incentive Plan
in effect upon the date of the change in control.
53
The Plan provides that, if, within three years following a "change in
control" (as defined in the Plan), a participant's employment is terminated by
the Company without "cause" (as defined in the Plan) or by the participant for
"good reason" (as defined in the Plan), the participant is eligible for
severance benefits equal to a multiple of the sum of the participant's base
salary and the higher of the participant's target bonus opportunity during the
year in which the change in control occurs or his or her target bonus
opportunity following the change in control. Each participant will also receive
his or her salary through the date of termination, a pro rata target bonus
payment for the year in which the termination occurs, a pro rata long-term
incentive payment to the extent provided in the Company's Long Term Incentive
Plan, and any earned but unpaid long-term incentive payments or annual bonuses.
In the event that a participant becomes subject to an excise tax under section
280G of the Internal Revenue Code of 1986, as amended, the participant will
generally be entitled to receive an additional amount such that the participant
is placed in the same after-tax position as if no excise tax had been imposed.
The Plan may be amended by the Board at any time, except that no amendment that
adversely affects the rights or potential rights of a participant will be
effective in the event that a change in control occurs within three (3) year of
such amendment.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial ownership is determined in accordance with the rules of the
SEC. Except as indicated by footnote, to our knowledge, the persons named in the
table below have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them. Options to purchase shares of
the Company's Common Stock that are exercisable within sixty (60) days of
December 28, 2006 are deemed to be beneficially owned by the person holding such
options for the purpose of computing ownership of such person, but are not
treated as outstanding for the purpose of computing the ownership of any other
person. Applicable percentage of beneficial ownership is based on 156,652,708
shares of Common Stock outstanding as of January 4, 2007.
The following table sets forth information we know with respect to the
beneficial ownership of our Common Stock as of December 28, 2006, for each
person or group of affiliated persons, whom we know to beneficially own more
than 5% of our Common Stock. The table also sets forth such information for our
directors and executive officers, individually and as a group. The address for
each listed stockholder is: c/o Samaritan Pharmaceuticals, Inc., 101 Convention
Center Drive, Suite 310, Las Vegas, Nevada 89109.
54
Percentage of
Total Number of Total
Number of Number of Options and Number of Shares
Shares Options Shares and Options
Beneficially Beneficially Beneficially Beneficially
Beneficial Owner Owned Owned Owned (1) Owned
---------------------------------------- -------------- --------------- ---------------- -----------------
Dr. Janet R. Greeson 6,447,642 11,679,902 18,127,544 11.6%
Mr. Eugene J. Boyle 1,507,106 8,036,116 9,543,222 6.1%
Dr. Thomas Lang 107,143 1,325,000 1,432,143 *
Ms. Kristi C. Eads 345,000 60,000 405,000 *
Mr. George Weaver -0- 110,000 110,000 *
Dr. Laurent Lecanu 50,000 80,000 130,000 *
Mr. Douglas D. Bessert 875,855 30,000 905,855 *
Dr. Erasto R.C. Saldi 47,030 80,000 127,030 *
Mr. Welter "Budd" Holden 2,635,421 80,000 2,715,421 1.7%
Mr. H. Thomas Winn 240,000 80,000 320,000 *
Ms. Cynthia C. Thompson 743,555 120,000 863,555 *
All Executive officers and directors
as a group (eleven persons) 12,998,752 21,681,,018 34,679770 22.1%
Dr. Vassilios Papadopoulos (2) 100,000 1,500,000 1,600,000 1.0%
Dr. Christos Dakas (3) -0- 100,000 100,000 *
*Less than one percent (1%)
1) If an officer or director had previously elected to exercise options or
deferred compensation through a program that involves the crediting of
deferred shares of the Company's Common Stock held pursuant to the
Trust under Samaritan Pharmaceuticals, Inc. Executive Benefit Plan (the
"Rabbi Trust") for distribution to the executive after termination of
employment, the shares were excluded from the above calculation. As of
April 6, 2006, the Company has issued 29,114,894 shares into the Rabbi
Trust with the following credit allocation: Dr. Janet Greeson
11,298,509; Mr. Eugene J. Boyle 10,925,186; Mr. Doug Bessert 4,000,000;
Dr. Vassilios Papadopoulos 1,497,845; Mr. George Weaver 675,117; Mr.
Welter "Budd" Holden 518,237; Ms. Cynthia C. Thompson 100,000; Mr. H.
Thomas Winn 80,000; and Dr. Erasto R. C. Saldi 20,000.
2) Dr. Vassilios Papadopoulos is a key consultant for Samaritan and a
former officer and director.
3) Dr. Christos Dakas is an executive of our subsidiary, Samaritan Europe.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have entered into indemnity agreements with all directors, and
officers and the following employee, George Weaver, which provide, among other
things, that we will indemnify such officer or director, under the circumstances
and to the extent provided for in the agreements, for expenses, damages,
judgments, fines and settlements he or she may be required to pay in actions or
proceedings which he or she is or may be made a party to by reason of his or her
position as a director, officer or other agent of the Company, and otherwise to
the full extent permitted under Nevada law and our bylaws. The Company filed a
form of the agreement as Exhibit 10.17 to the Company's Quarterly Report on Form
10-Q as filed with the SEC on August 14, 2006.
55
DISCLOSURE OF COMMISSION POSITION
OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Directors and officers are indemnified by our Bylaws against amounts
actually and necessarily incurred by them in connection with the defense of any
action, suit or proceeding in which they are a party by reason of being or
having been Directors or officers of the Company or Samaritan. Our Articles of
Incorporation as amended and restated, provide that no Director or officer shall
be personally liable for damages for breach of any fiduciary duty as a Director
or officer involving any act or omission made by any such Director or officer.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to such Directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by us of expenses incurred or paid by such Director, officer or
controlling person in the successful defense of any action, suit or proceeding,
is asserted by such Director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
This Prospectus is not an offer or solicitation in respect to these securities
in any jurisdiction in which such offer or solicitation would be unlawful. This
Prospectus is part of a Registration Statement that we filed with the Securities
and Exchange Commission. The Registration Statement that contains this
Prospectus (including the exhibits to the Registration Statement) contains
additional information about our company and the securities offered under this
Prospectus. That Registration Statement can be read at the SEC web site or at
the SEC's offices mentioned herein under the heading "Where You Can Find More
Information". We have not authorized anyone else to provide you with different
information or additional information. You should not assume that the
information in this Prospectus, or any supplement or amendment to this
Prospectus, is accurate at any date other than the date indicated on the cover
page of such documents.
56
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, December 31,
2006 2005
-------------------- ------------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,125,558 $ 456,463
Grants receivable - 51,117
Marketable securities - 496,068
Note receivable 250,000 250,000
Interest receivable 63,534 42,861
Prepaid expenses 22,219 10,587
-------------------- ------------------
TOTAL CURRENT ASSETS 2,461,311 1,307,096
PROPERTY AND EQUIPMENT 147,500 206,803
-------------------- ------------------
OTHER ASSETS:
Patent registration costs 826,446 700,798
Purchased technology rights 11,811 19,983
Organization costs-Samaritan Europe 3,605 -
Deposits 2,779 2,779
-------------------- ------------------
TOTAL OTHER ASSETS 844,641 723,560
-------------------- ------------------
$ 3,453,452 $ 2,237,459
==================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 155,181 $ 267,945
Accrued officers' salaries 517,314 247,856
Common stock to be issued - 46,259
-------------------- ------------------
TOTAL CURRENT LIABILITIES 672,495 562,060
-------------------- ------------------
SHAREHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized
at $.001 par value, -0- issued and
outstanding - -
Common stock, 250,000,000 shares authorized
at $.001 par value, 156,006,838 and 136,866,274
issued and outstanding at September 30,2006 and
December 31, 2005, respectively 156,007 136,866
Additional paid-in capital 41,804,687 35,589,683
Deferred compensation - (40,034)
Treasury stock (250,248) (250,248)
Accumulated other comprehensive income 32,609 (24,472)
Accumulated deficit during development stage (38,962,098) (33,736,396)
-------------------- ------------------
TOTAL SHAREHOLDERS' EQUITY 2,780,957 1,675,399
-------------------- ------------------
$ 3,453,452 $ 2,237,459
==================== ==================
See accompanying notes to the consolidated financial statements (unaudited)
57
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME
(UNAUDITED)
From
Inception
(09/05/94) Nine months ended September 30, Three months ended September 30,
To -------------------------------- --------------------------------
September 30, 2006 2006 2005 2006 2005
-------------------- --------------- ---------------- ---------------- ---------------
REVENUES:
Consulting $ 300,000 $ - $ - $ - $ -
Government research grants 289,226 32,379 135,429 10,586 120,179
-------------------- --------------- ---------------- ---------------- ---------------
589,226 32,379 135,429 10,586 120,179
-------------------- --------------- ---------------- ---------------- ---------------
EXPENSES:
Research and development 12,893,031 3,153,260 2,365,103 1,053,552 824,204
Interest, net (70,881) (24,136) (47,878) (7,622) (13,401)
General and administrative 25,741,273 2,017,875 1,844,385 701,144 628,357
Depreciation and amortization 1,353,871 107,922 50,286 38,100 25,534
Other (income)loss (365,970) 3,160 - - -
-------------------- --------------- ---------------- ---------------- ---------------
39,551,324 5,258,081 4,211,896 1,785,174 1,464,694
-------------------- --------------- ---------------- ---------------- ---------------
NET LOSS (38,962,098) (5,225,702) (4,076,467) (1,774,588) (1,344,515)
Other Comprehensive loss
Unrealized loss on marketable securities - 3,933 9,342 - 3,647
Foreign currency translation adjustment 32,609 53,149 (16,904) 43,620 (1,528)
-------------------- --------------- ---------------- ---------------- ---------------
Total Comprehensive loss $ (38,929,489) $ (5,168,620) $ (4,084,029) $ (1,730,968) $ (1,342,396)
==================== =============== ================ ================ ===============
Loss per share, basic and diluted $ (0.04) $ (0.03) $ (0.01) $ (0.01)
=============== ================ ================ ===============
Weighted average number of shares outstanding:
Basic and diluted 143,932,392 134,034,155 151,018,029 135,767,894
=============== ================ ================ ===============
See accompanying notes to the consolidated financial statements (unaudited)
58
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
Shares
Number Par Value Reserved Additional
of Common for Paid in
Shares Stock Conversion Capital Warrants
------------- ---------- ---------- ------------ -----------
Inception at September 5, 1994 - $ - $ - - $ -
Shares issued for cash, net of
offering costs 6,085,386 609 - 635,481 -
Warrants issued for cash - - - - 5,000
Shares issued as compensation
for services 714,500 71 - 1,428,929 -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1996 (Unaudited) 6,799,886 680 - 2,064,410 5,000
Issuance of stock, prior to
acquisition 206,350 21 - 371,134 -
Acquisition of subsidiary for
stock 1,503,000 150 - 46,545 -
Shares of parent redeemed, par
value $.0001 (8,509,236) (851) - 851 -
Shares of public subsidiary
issued, par value $.001 7,689,690 7,690 820 (8,510) -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1997 (Audited) 7,689,690 7,690 820 2,474,430 5,000
Conversion of parent's shares 696,022 696 (696) - -
Shares issued for cash, net of
offering costs 693,500 694 - 605,185 -
Shares issued in cancellation
of debt 525,000 525 - 524,475 -
Shares issued as compensation 400,000 400 - 349,600 -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1998 (Audited) 10,004,212 10,005 124 3,953,690 5,000
Conversion of parent's shares 13,000 13 (13) - -
Shares issued in cancellation
of debt 30,000 30 - 29,970 -
Shares issued for cash, net of
offering costs 45,000 45 - 41,367 -
Shares issued as compensation 3,569,250 3,569 - 462,113 -
Detachable warrants issued - - - - 152,125
Detachable warrants exercised 100,000 100 - 148,900 (149,000)
Debentures converted to stock 1,682,447 1,682 - 640,438 -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1999 (Audited) 15,443,909 15,444 111 5,276,478 8,125
Conversion of parent's shares 128,954 129 (111) (18) -
Shares issued for cash, net of
offering costs 1,575,192 1,575 - 858,460 -
Shares issued in cancellation
of debt 875,000 875 - 660,919 -
Shares issued in cancellation
of accounts payable 100,000 100 - 31,165 -
Shares issued as compensation 3,372,945 3,373 - 2,555,094 -
Warrants exercised 38,807 39 - 3,086 (3,125)
Warrants expired - - - 5,000 (5,000)
Net loss - - - - -
------------ --------- --------- ------------ -----------
December 31, 2000 (Audited) 21,534,807 21,535 - 9,390,184 -
See accompanying notes to the consolidated financial statements (unaudited)
59
Shares issued for cash, net of
offering cost 6,497,088 6,497 - 1,257,758 -
Shares issued as compensation 9,162,197 9,162 - 1,558,599 -
Shares issued for previously
purchased shares 342,607 342 - 188,208 -
Shares issued in cancellation
of accounts payable 200,000 200 - 68,880 -
Amortization of deferred
compensation - - - - -
Stock options issued for
services - - - 439,544 -
Net loss - - - - -
------------ ---------- -------- ------------ -----------
December 31, 2001 (Audited) 37,736,699 37,736 - 12,903,173 -
Shares issued for cash, net of
offering costs 18,657,500 18,658 - 2,077,641 -
Shares issued as compensation 3,840,525 3,841 - 1,044,185 -
Shares issued for previously
purchased shares 50,000 50 - 4,950 -
Shares issued in cancellation
of accounts payable 4,265,184 4,265 - 539,291 -
Amortization of deferred
compensation - - - -
Shares issued in cancellation
of notes payable - - - - -
Stock options issued for
services - - - 225,000 -
Net loss - - - - -
------------ ---------- --------- ------------ -----------
December 31, 2002 (Audited) 64,549,908 64,550 16,794,240
Shares issued for cash, net of
offering costs 17,493,664 17,493 - 2,392,296 -
Shares issued as compensation 4,062,833 4,063 - 549,779 -
Shares issued for previously
purchased shares 1,160,714 1,161 - 161,339 -
Shares issued in cancellation
of accounts payable and
accrued compensation 9,615,870 9,616 - 3,448,950 -
Shares issued in cancellation
of notes payable - - - - -
Shares issued in connection
with equity financing 3,125,000 3,125 (3,125) -
Exercise of stock options 7,770,892 7,771 - 1,112,077 -
Shares reacquired in settlement
of judgement (1,564,048) (1,564) - 251,812 -
Stock options issued for
services - - - 145,000 -
Net loss - - - -
------------ ---------- --------- ------------ -----------
December 31, 2003 (Audited) 106,214,833 106,214 - 24,852,369 -
Shares issued for cash, net
of offering costs 11,426,733 11,427 - 4,289,511 -
Shares issued as compensation,
expensed 2,081,249 2,081 - 1,788,397 -
Amortization of deferred
compensation - - - - -
Shares issued for previously
purchased shares 83,332 83 - 12,417 -
Exercise of stock options 16,950,468 16,951 - 4,841,869 -
Exercise of warrants 635,000 635 - 449,365 -
Shares issued in connection
with equity financing 8,758,240 8,758 - 3,091,243 -
Stock retired in settlement of
subscriptions receivable (13,869,656) (13,870) - (5,964,798) -
Shares reacquired in settlement
of judgement (250,000) (250) - (231,100) -
Stock options issued for services - - - 567,771 -
Other comprehensive income (loss) - - - - -
Net Loss - - - - -
------------ ---------- --------- ------------ -----------
December 31, 2004 (Audited) 132,030,199 132,030 - 33,697,043 -
Shares issued as compensation,
expensed 398,900 399 - 196,785 -
Amortization of deferred
compensation - - - - -
Exercise of stock options 170,000 170 31,330
Shares issued in connection
with equity financing 4,267,175 4,267 - 1,599,473 -
Stock options issued for services - - - 65,052 -
Other comprehensive income (loss) - - - - -
Net loss - - - - -
------------ ---------- --------- ------------ -----------
December 31, 2005 (Audited) 136,866,274 136,866 - 35,589,683 -
Shares issued for cash, net of
offering cost 7,212,500 7,213 - 2,037,787 -
Amortization of deferred
compensation - - - - -
Exercise of stock options 450,926 451 - 64,050 -
Shares issued in connection with
equity financing 11,477,138 11,477 - 4,003,296 -
Stock options issued for services - - - 109,871 -
Other comprehensive income (loss) - - - - -
Net loss - - - - -
------------ ---------- --------- ------------ -----------
September 30, 2006 (Unaudited) 156,006,838 $ 156,007 $ - $41,804,687 $ -
============ ========== ========= ============ ===========
See accompanying notes to the consolidated financial statements (unaudited)
59
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STATE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
Accumulated
Other Stock Total
Deferred Comprehensive Subscriptions Treasury Accumulated Shareholders'
Compensation Income Receivable Shares Deficit Deficit
------------- ------------ ------------ ----------- ------------- ---------------
Inception at September 5, 1994 $ - - $ - $ - $ - $ -
Shares issued for cash, net of
offering costs - - - - - 636,090
Warrants issued for cash - - - - - 5,000
Shares issued as compensation
for services - - - - - 1,429,000
Net loss - - - - (2,152,843) (2,152,843)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1996 (Unaudited) - - - - (2,152,843) (82,753)
Issuance of stock, prior to
acquisition - - - - - 371,155
Acquisition of subsidiary
for stock - - - - - 46,695
Shares of parent redeemed,
par value $.0001 - - - - - -
Shares of public subsidiary
issued, par value $.001 - - - - - -
Net loss - - - - (979,635) (979,635)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1997 (Audited) - - - - (3,132,478) (644,538)
Conversion of parent's shares - - - - - -
Shares issued for cash, net
of offering costs - - - - - 605,879
Shares issued in cancellation
of debt - - - - - 525,000
Shares issued as compensation - - - - - 350,000
Net loss - - - - (1,009,945) (1,009,945)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1998 (Audited) - - - - (4,142,423) (173,604)
Conversion of parent's shares - - - - - -
Shares issued in cancellation
of debt - - - - - 30,000
Shares issued for cash, net of
offering costs - - - - - 41,412
Shares issued as compensation - - - - - 465,682
Detachable warrants issued - - - - - 152,125
Detachable warrants exercised - - - - - -
Debentures converted to stock - - - - - 642,120
Net loss - - - - (1,671,255) (1,671,255)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1999 (Audited) - - - - (5,813,678) (513,520)
Conversion of parent's shares - - - - - -
Shares issued for cash, net of
offering costs - - - - - 860,035
Shares issued in cancellation
of debt - - - - - 661,794
Shares issued in cancellation
of accounts payable - - - - - 31,265
Shares issued as compensation (759,560) - - - - 1,798,907
Warrants exercised - - - - - -
Warrants expired - - - - - -
Net loss - - - - (3,843,308) (3,843,308)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 2000 (Audited) (759,560) - - - (9,656,986) (1,004,827)
See accompanying notes to the consolidated financial statements (unaudited)
59
Shares issued for cash, net
of offering costs - - - - - 1,264,255
Shares issued as compensation (230,512) - - - - 1,337,249
Shares issued for previously
purchased shares - - - - - 188,550
Shares issued in cancellation
of accounts payable - - - - - 69,080
Amortization of deferred
compensation 495,036 - - - - 495,036
Stock options issued for
services - - - - - 439,544
Net loss - - - - (4,079,806) (4,079,806)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 2001 (Audited) (495,036) - - - (13,736,792) (1,290,919)
Shares issued for cash, net
of offering costs - - - - - 2,096,299
Shares issued as compensation - - - - - 1,048,026
Shares issued for previously
purchased shares - - - - - 5,000
Shares issued in cancellation
of accounts payable - - - - - 543,556
Amortization of deferred
compensation 495,036 - - - - 495,036
Shares issued in cancellation
of notes payable - - - - - -
Stock options issued for
services - - - - - 225,000
Net loss - - - - (4,057,153) (4,057,153)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 2002 (Audited) - - - - (17,793,945) (935,155)
Shares issued for cash, net of
offering costs - - - - - 2,409,789
Shares issued as compensation - - - - - 553,842
Shares issued for previously
purchased shares - - - - - 162,500
Shares issued in cancellation
of accounts payable and
accrued compensation - - - - - 3,458,566
Shares issued in cancellation
of notes payable - - -
Shares issued in connection
with equity financing - - - - - -
Exercise of stock options - - (1,119,848) - - -
Shares reacquired in settlement
of judgement - - - (250,248) - -
Stock options issued for
services - - - - - 145,000
Net loss - - - - (5,520,531) (5,520,531)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 2003 (Audited) - - (1,119,848) (250,248) (23,314,476) 274,011
Shares issued for cash, net
of offering costs - - - - - 4,300,938
Shares issued as compensation,
expensed (544,416) - - - - 1,246,062
Amortization of deferred
compensation 240,000 - - - - 240,000
Shares issued for previously
purchased shares - - - - - 12,500
Exercise of stock options - - (4,858,820) - - -
Exercise of warrants - - - - - 450,000
Shares issued in connection
with equity financing - - - - - 3,100,001
Stock retired in settlement of
subscriptions receivable - - 5,978,668 - - -
Shares reacquired in settlement
of judgement - - - - (231,350)
Stock options issued for services - - - - 567,771
Other comprehensive income (loss) - (16,580) - - (16,580)
Net Loss - - - - (4,864,361) (4,864,361)
------------ ------------- ----------- ---------- ------------ ----------------
December 31, 2004 (Audited) (304,416) (16,580) 0 (250,248) (28,178,837) 5,078,992
Shares issued as compensation,
expensed (128,034) - - - - 69,150
Amortization of deferred
compensation 392,416 - - - - 392,416
Exercise of stock options - - - - 31,500
Shares issued in connection
with equity financing - - - - - 1,603,740
Stock options issued for services - - - - - 65,052
Other comprehensive income (loss) - (7,892) - - - (7,892)
Net loss - - - - (5,557,559) (5,557,559)
------------ ------------ ----------- ---------- ------------ ----------------
December 31, 2005 (Audited) (40,034) (24,472) - (250,248) (33,736,396) 1,675,399
Shares issued for cash, net of
offering cost - - - - - 2,045,000
Amortization of deferred
compensation 40,034 - - - - 40,034
Exercise of stock options - - - - - 64,501
Shares issued in connection with
equity financing - - - - - 4,014,773
Stock options issued for services - - - - - 109,871
Other comprehensive income (loss) - 57,081 - - - 57,081
Net loss - - - - (5,225,702) (5,225,702)
------------ ------------ ----------- ---------- ------------ ----------------
September 30, 2006 (Unaudited) $ - $ 32,609 $ - $(250,248) $(38,962,098) $ 2,780,957
============ ============ =========== ========== ============ ================
See accompanying notes to the consolidated financial statements (unaudited)
59
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
From
Inception
(September 5, 1994) Nine Months Ended September30,
To --------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: September 30, 2006 2006 2005
--------------------- --------------- --------------
Net loss $ (38,962,098) $ (5,225,702) $ (4,076,467)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 1,353,871 107,922 50,286
Stock based compensation 9,659,280 - 7,650
Stock options issued for services 1,552,238 109,871 65,052
Amortization of deferred compensation 1,662,522 40,034 416,912
Foreign currency (loss) gain 32,610 53,150 (16,904)
(Gains) losses on disposition of assets - 3,160 -
Other income (231,350) - -
(Increase) decrease in assets:
Accounts receivable - 51,117 (5,661)
Interest receivable and prepaids (98,993) (32,305) 6,270
Deposits 12,941 - -
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 2,533,309 156,694 162,091
--------------------- --------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (22,485,670) (4,736,059) (3,390,771)
--------------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of technology (108,969) - -
Purchase of furniture and equipment (342,310) (3,814) (208,791)
Organization costs, Samaritan-Europe (4,243) (4,243) -
Note receivable (250,000) - -
(Purchase) liquidation of marketable securities - 496,840 750,000
Patent registration costs (906,129) (161,643) (138,793)
--------------------- --------------- --------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,611,651) 327,140 402,416
--------------------- --------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from warrants/options 703,125 64,500 -
Proceeds from debentures 642,120 - -
Proceeds from stock issued for cash 14,628,569 2,045,000 -
Proceeds from equity financing 8,672,256 3,968,514 1,399,999
Common stock to be issued 252,309 - -
Short-term loan repayments (288,422) - -
Short-term loan proceeds 1,612,922 - -
--------------------- --------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,222,879 6,078,014 1,399,999
--------------------- --------------- --------------
INCREASE (DECREASE) IN CASH 2,125,558 1,669,095 (1,588,356)
CASH AT BEGINNING OF PERIOD - 456,463 2,438,451
--------------------- --------------- --------------
CASH AT END OF PERIOD $ 2,125,558 $ 2,125,558 $ 850,095
===================== =============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 5,098 $ - $ 468
NON-CASH FINANCING & INVESTING ACTIVITIES:
Purchase of net, non-cash assets of subsidiary
for stock $ 195,000 $ - $ -
Short-term debt retired through issuance
of stock $ 1,890,695 $ - $ -
Issuance of common stock, previously subscribed $ 226,259 $ 46,259 $ -
Treasury stock acquired through settlement
of judgement $ 250,248 $ - $ -
Stock subscriptions receivable $ 1,119,848 $ - $ -
Stock received in settlement $ (231,350) $ - $ -
Stock as compensation for services $ 6,533,527 $ - $ 1,352,034
Stock issued in cancellation of accounts payable $ 4,248,938 $ - $ -
Exercise of stock options $ 4,858,820 $ - $ -
See accompanying notes to the consolidated financial statements (unaudited)
60
SAMARITAN PHARMACEUTICALS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2006 and 2005
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
disclosures required for annual financial statements. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related footnotes for the year ended December 31, 2005,
included in the Form 10-K for the year then ended.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to fairly present the Company's financial
position as of September 30, 2006, and the results of operations and cash flows
for the nine (9) month period ending September 30, 2006 have been included. The
results of operations for the nine (9) month period ended September 30, 2006 are
not necessarily indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-K/A as filed with the U.S.
Securities and Exchange Commission on November 2, 2006 for the year ended
December 31, 2005.
Note 2. Summary of Significant Accounting Policies
General
Samaritan Pharmaceuticals, Inc. (the "Company") was formed in September 1994 and
became public in October 1997. The principle executive offices are located in
Las Vegas, Nevada.
The Company trades on the American Stock Exchange under the symbol "LIV."
The Company is working to ensure a longer and better life for patients suffering
with AIDS, Alzheimer's, cancer and cardiovascular disease. We are a
pipeline-driven biopharmaceutical company with a clear focus on advancing early
stage innovative drugs through clinical development, with the ultimate goal of
bringing novel therapeutics and diagnostic products to market.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All inter-company balances and
transactions have been eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid temporary cash investments with an
original maturity of six (6) months or less to be cash equivalents. The Company
maintains its cash in bank accounts at high credit quality financial
institutions. The balances at times may exceed federally insured limits.
Revenue Recognition
The Company follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin 104 for revenue recognition. The Company recognizes
revenue when persuasive evidence of a final agreement exists, delivery has
occurred, the selling price is fixed or determinable and the ability to collect
on the final agreement is reasonably assured. Government research revenue,
consisting of grant income was recognized when the qualifying expenditure was
incurred.
61
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using the
straight line method over the estimated useful lives of the assets.
Intangibles
a) Legal fees associated with filing patents are recorded at cost and amortized
over 17 years. The Company has one (1) issued U.S. patent and thirteen (13)
pending patent applications in the U.S. to protect its proprietary methods and
processes. The Company also filed corresponding foreign patent applications for
certain of these U.S. patent applications. As of September 30, 2006, its patent
portfolio outside the U.S. comprised of two (2) issued patents and fifty-two
(52) pending patent applications. The issued U.S. patents and pending patent
applications relate to Alzheimer's, cancer, cardiovascular and HIV indications.
Certain U.S. patents may be eligible for patent term extensions under the
Hatch-Waxman Act and may be available to the Company for the lost opportunity to
market and sell the invention during the regulatory review process.
The Company reviews patent costs for impairment by comparing the carrying value
of the patents with the fair market value. The Company believes it will recover
the full amount of the patent costs based on forecasts of sales of the products
related to the patents. Patent registration costs are amortized over seventeen
(17) years once approved. Patent amortization expense was $35,995 and $14,091
for the nine months and three months ended September 30, 2006. Amortization for
the three months and nine months ended September 30, 2005 was zero. Expected
amortization projected for the next five years is as follows:
------------- -----------
2006 $47,993
------------- -----------
2007 $47,909
------------- -----------
2008 $45,091
------------- -----------
2009 $42,438
------------- -----------
2010 $39,942
------------- -----------
b) Purchased technology rights are recorded at cost and are being amortized
using the straight line method over the estimated useful life of the technology.
Amortization was $8,172 and $2,724 for the nine months and three months ended
September 30, 2006 and 2005. Accumulated amortization at September 30, 2006 and
December 31, 2005 was $97,158 and $88,986, respectively. Expected amortization
projected is $2,724 for 2006 and $9,087 for 2007.
Loss Per Share
The Company reports loss per common share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." The per
share effects of potential common shares such as warrants, options, convertible
debt and convertible preferred stock have not been included, as the effect would
be antidilutive. The Company had 25,238,518 options outstanding at September 30,
2006 and 24,076,018 at September 30, 2005, which were not included in the
calculation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
affecting the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
62
Income Taxes
Pursuant to the Statement of Financial Accounting Standards, No. 109 (SFAS 109)
"Accounting for Income Taxes," the Company accounts for income taxes under the
liability method. Under the liability method, a deferred tax asset or liability
is determined based upon the tax effect of the differences between the financial
statement and tax basis of assets and liabilities as measured by the enacted
rates, which will be in effect when these differences reverse.
Research and Development Costs
Research and development costs are expensed when incurred. Research and
development costs for the nine (9) months and three (3) months ended September
30, 2006 and 2005, were $3,153,260 and $2,365,103 and $1,053,552 and $824,204,
respectively.
Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable assets related to
those on a quarterly basis for impairment whenever circumstances and situations
change, such that there is an indication that the carrying amounts may not be
recovered. At September 30, 2006 the Company does not believe any impairment has
occurred.
Fair Value of Financial Instruments
Statement of Financial Accounting Standard No.107, "Disclosures about Fair Value
of Financial Instruments" (SFAS 107) requires the disclosure of fair value
information about financial instruments whether or not recognized on the balance
sheet, for which it is practicable to estimate the value. Where quoted, market
prices are not readily available, fair values are based on quoted market prices
of comparable instruments. The carrying amount of cash, grants receivable,
marketable securities, accounts payable and accrued officers' salaries
approximates fair value because of the short maturity of those instruments.
Marketable Securities
At December 31, 2005, the Company held a brokered Certificate of Deposit with a
total market value of $496,068. It originally cost $500,000. Unrealized gains
and losses, determined by the difference between historical purchase price and
the market value at each balance sheet date, are recorded as a component of,
"Accumulated Other Comprehensive Loss in Shareholder's Equity." Realized gains
and losses will be determined by the difference between historical purchase
price and gross proceeds received when the marketable securities are sold.
During the first quarter of 2006, Samaritan sold the brokered Certificate of
Deposit and currently does not hold any brokered Certificates of Deposit.
Foreign Currency Translation
Assets and liabilities of subsidiaries operating in foreign countries are
translated into U.S. dollars, using the exchange rate in effect at the balance
sheet date of historical rate, as applicable. Results of operations are
translated using the average exchange rates prevailing throughout the year. The
effects of exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are included in shareholders' equity (Accumulated
other comprehensive loss), while gains and losses resulting from foreign
currency transactions are included in operations.
Accrued Officers' Compensation
Accrued officer's compensation consists of the unpaid portion of the respective
officer's contract salary.
63
Common Stock To Be Issued
Unissued stock consists of proceeds received by year-end or period-end for stock
yet to be issued. Such amounts were or will be retired through the issuance of
shares subsequent to the balance sheet date. These shares were issued in April
2006.
Stock Based Compensation
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R),
companies are required to measure the compensation costs of share-based
compensation arrangements based on the grant-date fair value and recognize the
costs in the financial statements over the period during which employees are
required to provide services. Share-based compensation arrangements include
stock options, restricted share plans, performance-based awards, share
appreciation rights and employee share purchase plans. In March 2005 the
Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No.
107, or (SAB 107). SAB 107 expresses views of the Staff regarding interaction
between SFAS No. 123(R) and certain SEC rules and regulations. It also provides
the Staff's views regarding the valuation of share-based payment arrangements
for public companies. SFAS No. 123(R) permits public companies to adopt its
requirements using one of two methods. On April 14, 2005, the SEC adopted a new
rule amending the compliance dates for SFAS 123R. Companies may elect to apply
this statement either prospectively, or on a modified version of retrospective
application under which financial statements for prior periods are adjusted on a
basis consistent with the pro forma disclosures required for those periods under
SFAS 123. Effective January 1, 2006, the Company has fully adopted the
provisions of SFAS No. 123R and related interpretations as provided by SAB 107.
As such, compensation cost is measured on the date of the grant as the excess of
the current market price of the underlying stock over the exercise price. Such
compensation amounts, if any, are amortized over the respective vesting periods
of the option grant. The Company applies this statement prospectively.
New Accounting Pronouncements
In February 2006, the FASB issued FASB Statement No. 155, which is an amendment
of FASB Statements No. 133 and 140. This Statement; a) permits fair value
remeasurement for any hybrid financial instrument containing an embedded
derivative that otherwise would require bifurcation; b) clarifies which
interest-only strip and principal-only strip are not subject to the requirements
of Statement 133; c) establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or hybrid financial instruments containing an embedded derivative
requiring bifurcation; d) clarifies concentrations of credit risk in the form of
subordination are not embedded derivatives; and e) amends Statement 140 to
eliminate the prohibition on a qualifying special-purpose entity from holding a
derivative financial instrument pertaining to a beneficial interest other than
another derivative financial instrument. This Statement is effective for
financial statements for fiscal years beginning after September 15, 2006.
Management believes this Statement will have no impact on the financial
statements of the Company once adopted.
In March 2006, the FASB issued FASB Statement No. 156, which amends FASB
Statement No. 140. This Statement establishes, among other things, the
accounting for all separately recognized servicing assets and servicing
liabilities. This Statement amends Statement 140 to require all separately
recognized servicing assets and servicing liabilities be initially measured at
fair value, if practicable. This Statement permits, but does not require, the
subsequent measurement of separately recognized servicing assets and servicing
liabilities at fair value. An entity using derivative instruments to mitigate
the risks inherent in servicing assets and servicing liabilities is required to
account for those derivative instruments at fair value. Under this Statement, an
entity may elect subsequent fair value measurement to account for its separately
recognized servicing assets and servicing liabilities. By electing that option,
an entity may simplify its accounting because this Statement permits income
statement recognition of the potential offsetting changes in fair value of those
servicing assets and servicing liabilities and derivative instruments in the
same accounting period. This Statement is effective for financial statements for
fiscal years beginning after September 15, 2006. Earlier adoption of this
Statement is permitted as of the beginning of an entity's fiscal year, provided
the entity has not yet issued any financial statements for that fiscal year.
Management believes this Statement will have no impact on the financial
statements of the Company once adopted.
64
In September 2005, the FASB issued FASB Statement No. 157. This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is a
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practices. This Statement is effective for
financial statements for fiscal years beginning after November 15, 2007. Earlier
application is permitted provided that the reporting entity has not yet issued
financial statements for that fiscal year. Management believes this Statement
will have no impact on the financial statements of the Company once adopted.
Note 3. Stock-Based Compensation
Prior to the adoption of SFAS No. 123 (R) for 2006 , "Share-Based Payment",
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123) encouraged, but did not require, companies to record
compensation cost for stock-based employee compensation plans at fair value.
Therefore, the Company chose to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No.
25,"Accounting for Stock Issued to Employees," and related interpretations. The
Company used the "disclosure only" alternative described in SFAS 123 and SFAS
148, which requires pro forma disclosures of net income and earnings per share
as if the fair value method of accounting had been applied. The following
disclosures are not required in the current year due to adoption of SFAS 123R as
described in the accounting policies.
Stock Options
The following table summarizes the Company's stock options outstanding at
September 30, 2006:
------------------------------------------------- ------------- ---------------
Weighted
average
Shares exercise price
------------------------------------------------- ------------- ---------------
Outstanding and exercisable at December 31, 2005 23,856,018 $ 0.60
------------------------------------------------- ------------- ---------------
Granted 2,137,500 0.86
------------------------------------------------- ------------- ---------------
Exercised (525,000) (0.20)
------------------------------------------------- ------------- ---------------
Expired (230,000) (1.11)
------------------------------------------------- ------------- ---------------
Outstanding and exercisable at September 30, 2006 25,238,518 $ 0.63
------------------------------------------------- ============= ===============
During the nine months ended September 30, 2006, the Company issued 525,000
stock options for services rendered. The options were valued under SFAS 123R.
Expense recorded pursuant to such issuances was $109,871. Pursuant to a private
placement that occurred during the quarter ended September 30, 2006, there were
1,612,500 non-detachable warrants issued expiring through May 2009.
During 2005, had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company's net loss would have been reported
as follows:
65
Three Months Nine Months
Ended Ended
September 30, September 30,
2005 2005
Net Loss:
As reported $ (1,344,515) $ (4,076,467)
Pro Forma $ (1,344,515) $ (5,406,298)
Basic & diluted loss per common
share
As reported $ (0.01) $ (0.03)
Pro Forms $ (0.01) $ (0.04)
The Company utilizes the Black-Scholes option-pricing model to calculate the
fair value of each individual issuance of options. The per-share weighted
average fair value of stock options granted for compensation during the nine
months ended September 30, 2006 and 2005 was $0.21 and $0.43, respectively. On
the date of grant, using the Black-Scholes pricing model, the following
assumptions were used for options granted during the nine (9) months ended
September 30, 2006 and 2005:
September 30, September 30,
2006 2005
Expected dividend yield 0% 0%
Risk-free interest rate 4.30-5.26% 5%
Volatility 95% 44%
At September 30, 2006, the range of exercise price for all of the Company's
outstanding stock options was $0.10 to $1.26, with an average remaining life of
5 years and an average exercise price of $0.63.
Note 4. Shareholders' Deficit
Stock as Compensation and Settlement of Debt
The Company issues stock as compensation for services valuing such issues
premised upon the fair market value of the stock. During the nine (9) months
ended September 30, 2006 and the year ended December 31, 2005, the Company
issued 11,477,138 and 4,267,175 shares, respectively, in connection with the
common stock purchase agreement with Fusion Capital and private placements. The
gross proceeds for these shares were $4,014,773 and $1,603,740, respectively,
for the nine months ended September 30, 2006 and the year ended December 31,
2005.
Authorized Capital Stock
The Company has 250,000,000 authorized shares of common stock and 5,000,000
authorized shares of preferred stock.
The Company completed one (1) private placement during the third quarter: On
September 30, 2006, the Company received a qualified subscription for 1,600,000
shares of common stock at a purchase price of $0.25 per share with no warrants
for total proceeds equal to $400,000.
66
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Samaritan Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of
Samaritan Pharmaceuticals, Inc. (a development stage company)as of December 31,
2005 and 2004 and the related consolidated statements of operations and
comprehensive income, shareholders' equity and cash flows for the years ending
December 31, 2005, 2004 and 2003 and for the period from January 1, 2000 through
December 31, 2005. The period beginning January 1, 1997 through December 31,
1999 was audited by the predecessor accounting firm. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, the consolidated financial position of Samaritan
Pharmaceuticals, Inc. (a development stage company) as of December 31, 2005 and
2004 and the consolidated results of its operations and its cash flows for the
years ending December 31, 2005, 2004 and 2003 and for the period from January 1,
2000 through December 31, 2005. The period beginning January 1, 1997 through
December 31, 1999 was audited by the predecessor accounting firm, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated cumulative statements of operations and
comprehensive income, shareholder's equity and cash flows regarding the period
from inception (September 5, 1994) through December 31, 1996, was activity prior
to our engagement as auditors upon which we or the predecessor auditor have not
performed procedures. Therefore, we do not express an opinion on them.
/s/ Sherb & Co., LLP
----------------------------------
Sherb & Co., LLP
Certified Public Accountants
New York, New York
March 30, 2006
67
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------------------
2005 2004
------------------- --------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 456,463 $ 2,438,451
Grant receivable 51,117 -
Marketable securities 496,068 1,490,812
Note receivable 250,000 -
Interest receivable 42,861 23,238
Prepaid expenses 10,587 53,111
------------------- --------------------
TOTAL CURRENT ASSETS 1,307,096 4,005,612
PROPERTY AND EQUIPMENT 206,803 37,221
------------------- --------------------
OTHER ASSETS:
Patent registration costs 700,798 430,060
Purchased technology rights 19,983 30,879
Marketable securities - 492,608
Note receivable - 250,000
Deposits 2,779 2,779
------------------- --------------------
TOTAL OTHER ASSETS 723,560 1,206,326
------------------- --------------------
$ 2,237,459 $ 5,249,159
=================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 267,945 $ 147,753
Accrued officers' salaries 247,856 22,414
Common stock to be issued 46,259 -
------------------- --------------------
TOTAL CURRENT LIABILITIES 562,060 170,167
------------------- --------------------
SHAREHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares
authorized at $.001 par value, -0-
issued and outstanding at December
31, 2005 and 2004
- -
Common stock, 250,000,000 shares
authorized at $.001 par value,
136,866,274 and 132,030,199 issued
and outstanding at December 31, 2005
and 2004, respectively 136,866 132,030
Additional paid-in capital 35,589,683 33,697,043
Deferred compensation (40,034) (304,416)
Treasury stock (250,248) (250,248)
Accumulated other comprehensive loss (24,472) (16,580)
Accumulated deficit during development
stage (33,736,396) (28,178,837)
------------------- --------------------
TOTAL SHAREHOLDERS' EQUITY 1,675,399 5,078,992
------------------- --------------------
$ 2,237,459 $ 5,249,159
=================== ====================
See accompanying notes to the consolidated financial statements.
68
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
From
From Inception
Jan. 1, 1997 (09/05/94)
To To For the Years Ended December 31,
Dec. 31, 2005 December 31, 1996 2005 2004 2003
--------------- ------------------ --------------- ------------- -------------
(Audited) (Unaudited)
REVENUES:
Consulting $ 300,000 - - - 250,000
Government research grants 256,847 - 256,847 - -
--------------- ------------------ --------------- ------------- -------------
$ 556,847 $ - $ 256,847 $ - $ 250,000
--------------- ------------------ --------------- ------------- -------------
EXPENSES:
Research and development 9,657,600 82,171 3,456,301 1,543,921 838,208
Interest, net (46,745) - (60,021) (36,730) 6,334
General and administrative 21,656,210 2,067,188 2,320,011 3,561,302 4,902,213
Depreciation and amortization 1,242,465 3,484 98,115 27,218 23,776
Other income (369,130) - - (231,350) -
--------------- ------------------ --------------- ------------- -------------
32,140,400 2,152,843 5,814,406 4,864,361 5,770,531
--------------- ------------------ --------------- ------------- -------------
NET LOSS (31,583,553) (2,152,843) (5,557,559) (4,864,361) (5,520,531)
Other Comprehensive Income (Loss):
Unrealized gain on marketable
securities (3,933) - 12,648 (16,580) -
Foreign translation adjustment (20,540) - (20,540) - -
--------------- ------------------ --------------- ------------- -------------
Total Comprehensive Loss $ (31,587,485) $ (2,152,843) $ (5,565,452) $ (4,880,941) $ (5,520,531)
=============== ================== =============== ============= =============
Loss per share, basic and diluted $ (0.04) $ (0.04) $ (0.07)
=============== ============= =============
Weighted average number of shares
outstanding:
Basic and diluted 134,560,596 124,483,372 79,767,085
=============== ============= =============
See accompanying notes to the consolidated financial statements
69
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FROM INCEPTION (SEPTEMBER 5, 1994) TO December 31, 2005
Shares
Number Par Value Reserved Additional
of Common for Paid in
Shares Stock Conversion Capital Warrants
------------- ---------- ---------- ------------ -----------
Inception at September 5, 1994 - $ - $ - - $ -
Shares issued for cash, net of
offering costs 6,085,386 609 - 635,481 -
Warrants issued for cash - - - - 5,000
Shares issued as compensation
for services 714,500 71 - 1,428,929 -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1996 (Unaudited) 6,799,886 680 - 2,064,410 5,000
Issuance of stock, prior to
acquisition 206,350 21 - 371,134 -
Acquisition of subsidiary for
stock 1,503,000 150 - 46,545 -
Shares of parent redeemed, par
value $.0001 (8,509,236) (851) - 851 -
Shares of public subsidiary
issued, par value $.001 7,689,690 7,690 820 (8,510) -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1997 (Audited) 7,689,690 7,690 820 2,474,430 5,000
Conversion of parent's shares 696,022 696 (696) - -
Shares issued for cash, net of
offering costs 693,500 694 - 605,185 -
Shares issued in cancellation
of debt 525,000 525 - 524,475 -
Shares issued as compensation 400,000 400 - 349,600 -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1998 (Audited) 10,004,212 10,005 124 3,953,690 5,000
Conversion of parent's shares 13,000 13 (13) - -
Shares issued in cancellation
of debt 30,000 30 - 29,970 -
Shares issued for cash, net of
offering costs 45,000 45 - 41,367 -
Shares issued as compensation 3,569,250 3,569 - 462,113 -
Detachable warrants issued - - - - 152,125
Detachable warrants exercised 100,000 100 - 148,900 (149,000)
Debentures converted to stock 1,682,447 1,682 - 640,438 -
Net loss - - - - -
------------- ---------- ---------- ------------ -----------
December 31, 1999 (Audited) 15,443,909 15,444 111 5,276,478 8,125
Conversion of parent's shares 128,954 129 (111) (18) -
Shares issued for cash, net of
offering costs 1,575,192 1,575 - 858,460 -
Shares issued in cancellation
of debt 875,000 875 - 660,919 -
Shares issued in cancellation
of accounts payable 100,000 100 - 31,165 -
Shares issued as compensation 3,372,945 3,373 - 2,555,094 -
Warrants exercised 38,807 39 - 3,086 (3,125)
Warrants expired - - - 5,000 (5,000)
Net loss - - - - -
------------ --------- ---------- ------------ -----------
December 31, 2000 (Audited) 21,534,807 21,535 - 9,390,184 -
70
Shares issued for cash, net of
offering cost 6,497,088 6,497 - 1,257,758 -
Shares issued as compensation 9,162,197 9,162 - 1,558,599 -
Shares issued for previously
purchased shares 342,607 342 - 188,208 -
Shares issued in cancellation
of accounts payable 200,000 200 - 68,880 -
Amortization of deferred
compensation - - - - -
Stock options issued for
services - - - 439,544 -
Net loss - - - - -
------------ ---------- ---------- ------------ -----------
December 31, 2001 (Audited) 37,736,699 37,736 - 12,903,173 -
Shares issued for cash, net of
offering costs 18,657,500 18,658 - 2,077,641 -
Shares issued as compensation 3,840,525 3,841 - 1,044,185 -
Shares issued for previously
purchased shares 50,000 50 - 4,950 -
Shares issued in cancellation
of accounts payable 4,265,184 4,265 - 539,291 -
Amortization of deferred
compensation - - - -
Shares issued in cancellation
of notes payable - - - - -
Stock options issued for
services - - - 225,000 -
Net loss - - - - -
------------ ---------- ---------- ------------ -----------
December 31, 2002 (Audited) 64,549,908 64,550 16,794,240
Shares issued for cash, net of
offering costs 17,493,664 17,493 - 2,392,296 -
Shares issued as compensation 4,062,833 4,063 - 549,779 -
Shares issued for previously
purchased shares 1,160,714 1,161 - 161,339 -
Shares issued in cancellation
of accounts payable and
accrued compensation 9,615,870 9,616 - 3,448,950 -
Shares issued in cancellation
of notes payable - - - - -
Shares issued in connection
with equity financing 3,125,000 3,125 (3,125) -
Exercise of stock options 7,770,892 7,771 - 1,112,077 -
Shares reacquired in settlement
of judgement (1,564,048) (1,564) - 251,812 -
Stock options issued for
services - - - 145,000 -
Net loss - - - -
------------ ---------- ---------- ------------ -----------
December 31, 2003 (Audited) 106,214,833 106,214 - 24,852,369 -
Shares issued for cash, net
of offering costs 11,426,733 11,427 - 4,289,511 -
Shares issued as compensation,
expensed 2,081,249 2,081 - 1,788,397 -
Amortization of deferred
compensation - - - - -
Shares issued for previously
purchased shares 83,332 83 - 12,417 -
Exercise of stock options 16,950,468 16,951 - 4,841,869 -
Exercise of warrants 635,000 635 - 449,365 -
Shares issued in connection
with equity financing 8,758,240 8,758 - 3,091,243 -
Stock retired in settlement of
subscriptions receivable (13,869,656) (13,870) - (5,964,798) -
Shares reacquired in settlement
of judgement (250,000) (250) - (231,100) -
Stock options issued for services - - - 567,771 -
Other comprehensive income (loss) - - - - -
Net Loss - - - - -
------------ ---------- ---------- ------------ -----------
December 31, 2004 (Audited) 132,030,199 $ 132,030 $ - $33,697,043 $ -
Shares issued as compensation,
expensed 398,900 399 - 196,785 -
Amortization of deferred
compensation - - - - -
Exercise of stock options 170,000 170 31,330
Shares issued in connection
with equity financing 4,267,175 4,267 - 1,599,473 -
Stock options issued for services - - - 65,052 -
Other comprehensive income (loss) - - - - -
Net loss - - - - -
------------ ---------- ---------- ------------ -----------
December 31, 2005 (Audited) 136,866,274 $ 136,866 $ - $35,589,683 $ -
============ ========== ========== ============ ===========
See accompanying notes to the consolidated financial statements
70
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STATE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FROM INCEPTION (SEPTEMBER 5, 1994) TO December 31, 2005
Accumulated
Other Stock Total
Deferred Comprehensive Subscriptions Treasury Accumulated Shareholders'
Compensation Income Receivable Shares Deficit Deficit
------------- ------------ ------------ ----------- ------------- ---------------
Inception at September 5, 1994 $ - - $ - $ - $ - $ -
Shares issued for cash, net of
offering costs - - - - - 636,090
Warrants issued for cash - - - - - 5,000
Shares issued as compensation
for services - - - - - 1,429,000
Net loss - - - - (2,152,843) (2,152,843)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1996 (Unaudited) - - - - (2,152,843) (82,753)
Issuance of stock, prior to
acquisition - - - - - 371,155
Acquisition of subsidiary
for stock - - - - - 46,695
Shares of parent redeemed,
par value $.0001 - - - - - -
Shares of public subsidiary
issued, par value $.001 - - - - - -
Net loss - - - - (979,635) (979,635)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1997 (Audited) - - - - (3,132,478) (644,538)
Conversion of parent's shares - - - - - -
Shares issued for cash, net
of offering costs - - - - - 605,879
Shares issued in cancellation
of debt - - - - - 525,000
Shares issued as compensation - - - - - 350,000
Net loss - - - - (1,009,945) (1,009,945)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1998 (Audited) - - - - (4,142,423) (173,604)
Conversion of parent's shares - - - - - -
Shares issued in cancellation
of debt - - - - - 30,000
Shares issued for cash, net of
offering costs - - - - - 41,412
Shares issued as compensation - - - - - 465,682
Detachable warrants issued - - - - - 152,125
Detachable warrants exercised - - - - - -
Debentures converted to stock - - - - - 642,120
Net loss - - - - (1,671,255) (1,671,255)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 1999 (Audited) - - - - (5,813,678) (513,520)
Conversion of parent's shares - - - - - -
Shares issued for cash, net of
offering costs - - - - - 860,035
Shares issued in cancellation
of debt - - - - - 661,794
Shares issued in cancellation
of accounts payable - - - - - 31,265
Shares issued as compensation (759,560) - - - - 1,798,907
Warrants exercised - - - - - -
Warrants expired - - - - - -
Net loss - - - - (3,843,308) (3,843,308)
------------ ------------- ------------ ----------- ------------- ---------------
December 31, 2000 (Audited) (759,560) - - - (9,656,986) (1,004,827)
See accompanying notes to the consolidated financial statements
70
Shares issued for cash, net
of offering costs - - - - - 1,264,255
Shares issued as compensation (230,512) - - - - 1,337,249
Shares issued for previously
purchased shares - - - - - 188,550
Shares issued in cancellation
of accounts payable - - - - - 69,080
Amortization of deferred
compensation 495,036 - - - - 495,036
Stock options issued for
services - - - - - 439,544
Net loss - - - - (4,079,806) (4,079,806)
----------- ------------- ------------ ----------- ------------- ---------------
December 31, 2001 (Audited) (495,036) - - - (13,736,792) (1,290,919)
Shares issued for cash, net
of offering costs - - - - - 2,096,299
Shares issued as compensation - - - - - 1,048,026
Shares issued for previously
purchased shares - - - - - 5,000
Shares issued in cancellation
of accounts payable - - - - - 543,556
Amortization of deferred
compensation 495,036 - - - - 495,036
Shares issued in cancellation
of notes payable - - - - - -
Stock options issued for
services - - - - - 225,000
Net loss - - - - (4,057,153) (4,057,153)
----------- ------------- ------------ ----------- ------------- ---------------
December 31, 2002 (Audited) - - - - (17,793,945) (935,155)
Shares issued for cash, net of
offering costs - - - - - 2,409,789
Shares issued as compensation - - - - - 553,842
Shares issued for previously
purchased shares - - - - - 162,500
Shares issued in cancellation
of accounts payable and
accrued compensation - - - - - 3,458,566
Shares issued in cancellation
of notes payable - - -
Shares issued in connection
with equity financing - - - - - -
Exercise of stock options - - (1,119,848) - - -
Shares reacquired in settlement
of judgement - - - (250,248) - -
Stock options issued for
services - - - - - 145,000
Net loss - - - - (5,520,531) (5,520,531)
----------- ------------- ------------ ----------- ------------- ---------------
December 31, 2003 (Audited) - - (1,119,848) (250,248) (23,314,476) 274,011
Shares issued for cash, net
of offering costs - - - - - 4,300,938
Shares issued as compensation,
expensed (544,416) - - - - 1,246,062
Amortization of deferred
compensation 240,000 - - - - 240,000
Shares issued for previously
purchased shares - - - - - 12,500
Exercise of stock options - - (4,858,820) - - -
Exercise of warrants - - - - - 450,000
Shares issued in connection
with equity financing - - - - - 3,100,001
Stock retired in settlement of
subscriptions receivable - - 5,978,668 - - -
Shares reacquired in settlement
of judgement - - - - (231,350)
Stock options issued for services - - - - 567,771
Other comprehensive income (loss) - (16,580) - - (16,580)
Net Loss - - - - (4,864,361) (4,864,361)
------------ ------------- ----------- ---------- ------------ ----------------
December 31, 2004 (Audited) $ (304,416) $ (16,580) $ 0 $(250,248) $(28,178,837) $ 5,078,992
Shares issued as compensation,
expensed (128,034) - - - - 69,150
Amortization of deferred
compensation 392,416 - - - - 392,416
Exercise of stock options - - - - 31,500
Shares issued in connection
with equity financing - - - - - 1,603,740
Stock options issued for services - - - - - 65,052
Other comprehensive income (loss) - (7,892) - - - (7,892)
Net loss - - - - (5,557,559) (5,557,559)
------------ ------------ ----------- ---------- ------------ ----------------
December 31, 2005 (Audited) (40,034) $ (24,472) $ - $(250,248) $(33,736,396) 1,675,399
============ ============ =========== ========== ============ ================
See accompanying notes to the consolidated financial statements
70
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FROM INCEPTION (SEPTEMBER 5, 1994) AND FOR THE YEARS
ENDED DECEMBER 31, 2003-2005
From From
From Inception Inception
Jan. 1, 1997 (09/05/94) (Sep. 5, 1994)
To To For the Years Ended December 31, To
CASH FLOWS FROM OPERATING ACTIVITIES: Dec. 31, 2005 Dec. 31, 1996 2005 2004 2003 DEC. 31, 2005
------------- ------------- ------------- ------------ -------------- ---------------
(Audited) (Unaudited) (Unaudited)
Net loss $(31,583,553) (2,152,843) $ (5,751,359) $(4,864,361) $ (5,520,531) $ (33,736,396)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,242,465 3,484 98,115 27,218 23,776 1,245,949
Stock based compensation 8,230,280 1,429,000 69,150 1,246,062 2,859,705 9,659,280
Stock options issued for services 1,442,367 - 65,052 567,771 145,000 1,442,367
Amortization of deferred compensation 1,622,488 - 586,216 240,000 - 1,622,488
Foreign currency loss (20,540) - (20,540) (20,540)
Other income (231,350) - - (231,350) - (231,350)
(Increase) decrease in assets:
Accounts receivable (56,701) 5,584 (51,117) (51,117)
Interest receivable and prepaids (66,688) - 22,901 (55,092) (18,256) (66,688)
Deposits 13,724 (783) - - 12,941 12,941
Increase (decrease) in liabilities:
Deferred revenue (200,000) 200,000 - - (250,000) -
Accounts payable and accrued expenses 2,347,341 29,274 345,634 (218,144) 513,524 2,376,615
------------- ------------- ------------- ------------ -------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (17,260,167) (486,284) (4,635,948) (3,287,896) (2,233,841) (17,746,451)
------------- ------------- ------------- ------------ -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of technology (13,492) (95,477) - - - (108,969)
Purchase of furniture and equipment (325,659) (12,837) (222,533) (17,316) (13,902) (338,496)
Note receivable (250,000) - - (250,000) - (250,000)
(Purchase) liquidation of Marketable
securities (500,000) - 1,500,000 (2,000,000) - (500,000)
Patent registration costs (719,620) (24,866) (305,007) (227,862) (4,832) (744,486)
------------- ------------- ------------- ------------ -------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (1,808,771) (133,180) 972,460 (2,495,178) (18,734) (1,941,951)
------------- ------------- ------------- ------------ -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from warrants/options 638,625 - 31,500 450,000 - 638,625
Proceeds from debentures 642,120 - - - - 642,120
Proceeds from stock issued for cash 11,942,479 641,090 - 4,300,938 2,409,790 12,583,569
Proceeds from equity financing 4,703,742 - 1,603,741 3,100,001 - 4,703,742
Common stock to be issued 252,309 - - - 12,500 252,309
Short-term loan repayments (288,422) - - - (156,955) (288,422)
Short-term loan proceeds 1,612,922 - 46,259 - - 1,612,922
------------- ------------- ------------- ------------ -------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,503,775 641,090 1,681,500 7,850,940 2,265,335 20,144,865
------------- ------------- ------------- ------------ -------------- ---------------
CHANGE IN CASH 434,837 21,626 (1,981,988) 2,067,866 12,760 456,463
CASH AT BEGINNING OF PERIOD 21,626 - 2,438,451 370,585 357,825 -
------------- ------------- ------------- ------------ -------------- ---------------
CASH AT END OF PERIOD $ 456,463 $ 21,626 $ 456,463 $ 2,438,451 $ 370,585 $ 456,463
============= ============= ============= ============ ============== ===============
NON-CASH FINANCING & INVESTING ACTIVITIES:
Purchase of net, non-cash assets of
subsidiary for stock $ 195 $ - $ - $ - $ - $ 195
Short-term debt retired through issuance
of stock $ 1,890,695 $ - $ - $ - $ - $ 1,890,695
Issuance of common stock, previously
subscribed $ 180,000 $ - $ - $ 12,500 $ 162,500 $ 180,000
Treasury stock acquired through settlement
of judgement $ 250,248 $ - $ - $ - $ 250,248 $ 250,248
Stock subscriptions receivable $ 1,119,848 $ - $ - $ - $ 1,119,848 $ 1,119,848
Stock retired in settlement of
subscriptions receivable $ (5,978,668) $ $ $(5,978,668) $ - $ (5,978,668)
Stock received in settlement $ (231,350) $ - $ - $ (231,350) $ - $ (231,350)
Stock as compensation for services $ 5,175,792 $ 1,357,735 $ 1,357,735 $ 1,246,062 $ 3,929,730 $ 6,533,527
Stock issued in cancellation of accounts
payable $ l4,248,938 $ - $ - $ - $ 1,815,203 $ 4,248,938
Exercise of stock options $ 4,858,820 $ - $ - $ 4,858,820 $ - $ 4,858,820
See accompanying notes to the consolidated financial statements
71
SAMARITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Samaritan Pharmaceuticals, Inc. (`the Company') was formed in September 1994
and became public in October 1997. Our principle executive offices are located
in Las Vegas, Nevada.
Samaritan Pharmaceuticals is working to ensure a longer and better life, for
patients suffering with AIDS, Alzheimer's, Cancer, and Cardiovascular disease.
Samaritan is a pipeline-driven Biopharmaceutical company, with a clear focus on
advancing early stage innovative drugs through clinical development, to become
commercially valuable compounds.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Consolidation
The accompanying financial statements include the accounts of the Company and
its wholly owned subsidiary. All intercompany balances and transactions have
been eliminated in consolidation.
B. Revenue recognition
The Company follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin 104 for revenue recognition. The Company recognizes
revenue when persuasive evidence of a final agreement exists, delivery has
occurred, the selling price is fixed or determinable and collectability is
reasonably assured. During 2005, revenue consisted of grant income recognized
when the qualifying expenditure was incurred. During 2003, revenue consisted of
a consulting fee deemed earned since there was no further services under the
agreement.
C. Cash Equivalents
The Company considers all highly liquid temporary cash investments with an
original maturity of three months or less to be cash equivalents.
The Company maintains its cash in bank accounts at high credit quality financial
institutions. The balances at times may exceed federally insured limits.
72
D. Concentration of Credit Risks
The Company is subject to concentrations of credit risk primarily from their
equity purchase agreement with Fusion Capital. If Fusion Capital is unable to
meet its commitments under the agreement or is unable to sell the stock in the
open market, this will have a materially adverse effect on the Company's
financial position and its ability to continue its current research.
E. Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using the
straight line method over the estimated useful lives of the assets.
F. Intangibles
1) Legal fees associated with filing patents are recorded at cost and amortized
over 17 years. The Company has one (1) issued U.S. patent and had thirteen (13)
pending patent applications in the U.S. to protect its proprietary methods and
processes. The Company also filed corresponding foreign patent applications for
certain of these U.S. patent applications. As of December 31, 2005, its patent
portfolio outside the U.S. comprised two (2) issued patent and fifty-two (52)
pending patent applications. The issued U.S. patent and pending patent
applications relate to Alzheimer's, Cancer, Cardiovascular and HIV indications.
Certain U.S. patents may be eligible for patent term extensions under the
Hatch-Waxman Act may be available to Samaritan for the lost opportunity to
market and sell the invention during the regulatory review process.
The Company reviews patent costs for impairment by comparing the carrying value
of the patents with the fair value. The Company believes it will recover the
full amount of the patent costs based on forecasts of sales of the products
related to the patents. Patent registration costs are amortized over seventeen
(17) years once approved. Patent amortization expense was $34,268 during the
year ended December 31, 2005. Expected amortization projected for the next five
years is as follows:
------------- -------------
2006 $41,233
------------- -------------
2007 $38,798
------------- -------------
2008 $36,516
------------- -------------
2009 $34,638
------------- -------------
2010 $32,347
------------- -------------
2) Purchased technology rights are recorded at cost and are being amortized
using the straight line method over the estimated useful life of the technology.
Amortization was approximately $10,896 for the years ended December 31, 2003
through 2005. Accumulated amortization at December 31, 2005 and 2004 was $88,986
and $78,090. Amortization expense associated with these technology rights in the
future will be $10,896 for 2006 and $9,087 for 2007.
73
G. Earnings (loss) per share
The Company reports loss per common share in accordance with Statement of
Financial Accounting Standards ("SFAS") no. 128, "Earnings Per Share." The per
share effects of potential common shares such as warrants, options, convertible
debt and convertible preferred stock have not been included, as the effect would
be antidilutive. The Company has 23,856,018 and 20,942,930 options outstanding
at December 31, 2005 and 2004, respectively, which were not included.
H. Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
I. Income Taxes
Pursuant to Statement of Financial Accounting Standards No. 109 (`SFAS 109')
Accounting for Income Taxes', the Company accounts for income taxes under the
liability method. Under the liability method, a deferred tax asset or liability
is determined based upon the tax effect of the differences between the financial
statement and tax basis of assets and liabilities as measured by the enacted
rates, which will be in effect when these differences reverse.
J. Research and Development Costs
Research and development costs are expensed when incurred.
K. Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable assets related to
those on a quarterly basis for impairment whenever circumstances and situations
change such that there is an indication that the carrying amounts may not be
recovered. At December 31, 2005 the Company does not believe that any impairment
has occurred.
L. Fair Value of Financial Instruments
Statement of Financial Accounting Standard No. 107 `Disclosures about Fair Value
of Financial Instruments' (SFAS 107) requires the disclosure of fair value
information about financial instruments whether or not recognized on the balance
sheet, for which it is practicable to estimate the value. Where quoted market
prices are not readily available, fair values are based on quoted market prices
of comparable instruments. The carrying amount of cash, accounts payable and
accrued expenses approximates fair value because of the short maturity of those
instruments.
74
M. Foreign Currency Translation
Assets and liabilities of subsidiaries operating in foreign countries are
translated into U.S. dollars using both the exchange rate in effect at the
balance sheet date of historical rate, as applicable. Results of operations are
translated using the average exchange rates prevailing throughout the year. The
effects of exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are included in stockholders equity (Accumulated
other comprehensive loss), while gains and losses resulting from foreign
currency transactions are included in operations.
N. Stock Based Compensation
Statement of Financial Accounting Standards No. 123, `Accounting for Stock-Based
Compensation,' (`SFAS 123'), encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
`Accounting for Stock Issued to Employees', and related Interpretations.
Accordingly, compensation cost for the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. The Company has
adopted the 'disclosure only' alternative described in SFAS 123 and SFAS 148,
which require pro forma disclosures of net income and earnings per share as if
the fair value method of accounting had been applied.
O. Marketable Securities
At December 31, 2005, the Company holds one brokered Certificate of Deposit with
a total market value of $496,068 which is classified as available for sale. The
original cost was $500,000. Unrealized gains and losses, determined by the
difference between historical purchase price and the market value at each
balance sheet date, are recorded as a component of Accumulated Other
Comprehensive loss in Shareholder's Deficit. Realized gains and losses will be
determined by the difference between historical purchase price and gross
proceeds received when the marketable securities are sold.
P. ACCRUED OFFICERS' COMPENSATION
Accrued officers' compensation consists of the unpaid portion of the respective
officer's contract salary.
Q. UNISSUED STOCK
Unissued stock consists of proceeds received by year-end for stock that had yet
to be issued. Such amounts were retired through the issuance of shares
subsequent to the balance sheet date.
75
R. New Accounting Pronouncements
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149 (`SFAS 149'), 'Amendment of Statement 133 on Derivative Instruments and
Hedging Activities'. This statement amends SFAS 133 to provide clarification on
the financial accounting and reporting of derivative instruments and hedging
activities and requires contracts with similar characteristics to be accounted
for on a comparable basis. The adoption of SFAS 149 did not have a material
effect on the business, results of operations, and financial condition of the
Company.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150
('SFAS 150'), 'Accounting for Certain Financial Instruments and Characteristics
of both Liabilities and Equity'. SFAS 150 establishes standards on the
classification and measurement of financial instruments with characteristics of
both liabilities and equity. SFAS 150 became effective for financial instruments
entered into or modified after May 31, 2003. The Corporation has not issued any
such instruments and therefore the adoption of SFAS 150 did not have any effect
on the business, results of operations, and financial condition of the Company.
In December 2004, the FASB issued FASB Statement No. 123R, 'Share-Based Payment,
an Amendment of FASB Statement No. 123' ('FAS No. 123R'). FAS No. 123R requires
companies to recognize in the statement of operations the grant date fair value
of stock options and other equity-based compensation issued to employees. FAS
No. 123R is effective beginning in the Company's second quarter of fiscal 2006.
The Company is in process of evaluating the impact of this pronouncement on its
financial position.
In May 2005, the FASB issued FASB Statement No. 154, which replaces APB Opinion
No.20 and FASB No. 3. This Statement provides guidance on the reporting of
accounting changes and error corrections. It established, unless impracticable
retrospective application as the required method for reporting a change in
accounting principle in the absence of explicit transition requirements to a
newly adopted accounting principle. The Statement also provides guidance when
the retrospective application for reporting of a change in accounting principle
is impracticable. The reporting of a correction of an error by restating
previously issued financial statements is also addressed by this Statement. This
Statement is effective for financial statements for fiscal years beginning after
December 15, 2005. Earlier application is permitted for accounting changes and
corrections of errors made in fiscal years beginning after the date of this
Statement is issued. Management believes this Statement will have no impact on
the financial statements of the Company once adopted.
In February 2006, the FASB issued FASB Statement No. 155, which is an amendment
of FASB Statements No. 133 and 140. This Statement; a) permits fair value
remeasurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation, b) clarifies which
interest-only strip and principal-only strip are not subject to the requirements
of Statement 133, c) establishes a requirement to evaluate interests in
76
securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation, d) clarifies that concentrations of credit
risk in the form of subordination are not embedded derivatives, e) amends
Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. This
Statement is effective for financial statements for fiscal years beginning after
September 15, 2006. Earlier adoption of this Statement is permitted as of the
beginning of an entity's fiscal year, provided the entity has not yet issued any
financial statements for that fiscal year. Management believes this Statement
will have no impact on the financial statements of the Company once adopted.
In March 2006, the FASB issued FASB Statement No. 156, which amends FASB
Statement No. 140. This Statement establishes, among other things, the
accounting for all separately recognized servicing assets and servicing
liabilities. This Statement amends Statement 140 to require that all separately
recognized servicing assets and servicing liabilities be initially measured at
fair value, if practicable. This Statement permits, but does not require, the
subsequent measurement of separately recognized servicing assets and servicing
liabilities at fair value. An entity that uses derivative instruments to
mitigate the risks inherent in servicing assets and servicing liabilities is
required to account for those derivative instruments at fair value. Under this
Statement, an entity can elect subsequent fair value measurement to account for
its separately recognized servicing assets and servicing liabilities. By
electing that option, an entity may simplify its accounting because this
Statement permits income statement recognition of the potential offsetting
changes in fair value of those servicing assets and servicing liabilities and
derivative instruments in the same accounting period. This Statement is
effective for financial statements for fiscal years beginning after September
15, 2006. Earlier adoption of this Statement is permitted as of the beginning of
an entity's fiscal year, provided the entity has not yet issued any financial
statements for that fiscal year. Management believes this Statement will have no
impact on the financial statements of the Company once adopted.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following as of December 31:
Estimated
Useful
Life 2004 2005
--------- ---- ----
Furniture and Fixtures 3-7 $106,494 $130,828
Software 3 9,470 10,392
Lab Equipment 3 - 197,279
--------- ----------
115,964 338,499
--------- ----------
Less: accumulated depreciation (78,743) (131,696)
--------- ----------
Total $37,221 $206,803
========= ==========
77
Depreciation expense for the years ended December 31, 2005, 2004 and 2003 was
$52,951, $16,322, and $12,880, respectively.
NOTE 4 - SHAREHOLDERS' EQUITY
On June 27, 2003, the Company amended its articles of incorporation to increase
the authorized number of shares to 200 million and on April 24, 2001, a class of
5 million shares of preferred stock. There are no outstanding preferred stock
shares at December 31, 2005.
A. Stock Option Plans.
The short and long-term compensation program includes stock options granted
under Stock Incentive Plans as well as non-qualified stock options. The company
currently has two stock option plans: The 2005 Stock Option Plan, approved by
the shareholders on June 10, 2005 as an additional plan to the Company's 2001
Stock Plan; and the 2001 Stock Option Plan, approved by the shareholders on
April 24, 2001. Both Option Plans are designed to reward executives for
achieving long-term financial performance goals over a three-year to ten-year
period, provide retention incentives for executives, and tie a significant
portion of an executive's total compensation to long-term performance. Stock
options for executive officers and key associates are part of the incentive
program and link the enhancement of shareholder value directly to their total
compensation.
Shares available under the 2005 Plan: On a calendar year basis, Awards under the
Plan may be made for a maximum of ten percent (10%) of the total shares of
Common Stock outstanding on a fully diluted basis (without taking into account
outstanding Awards at the end of the prior calendar year), less Awards
outstanding at the end of the prior calendar year. Notwithstanding this limit,
not more than three percent (3%) of the total shares of within the plan may be
subject to ISO Awards during the term of the Plan, and not more than seven
percent (7%) of the total shares within the plan may be subject to Awards in a
form other than options and SARs. No director, officer, or employee may be
granted options with respect to the total awards available under the plan to
more than half of the awards within the Plan, nor more than 5,000,000 shares per
fiscal year, subject to a limit of 2,500,000 shares per fiscal year for
individuals first hired that year. The number of shares subject to these limits
will be adjusted in the event of certain changes in the capitalization of the
Company.
Shares Available under the 2001 Plan: The number of awards that may be granted
under the 2001 Plan in each calendar year will not exceed twenty percent (20%)
of (i) the total shares of common stock outstanding on a fully diluted basis,
without taking into account awards outstanding under the 2001 Plan that are
exercisable for or convertible into common stock or that are unvested stock
awards (referred to as 'outstanding awards'), at the close of business on the
last day of the preceding calendar year, less (ii) the number of shares subject
to 'outstanding awards' at the close of business on that date.
78
There were 3,201,088 options granted, 170,000 options exercised, and 100,000
options expired pursuant to both plans. As of December 31, 2005, there were
23,856,018 options remains outstanding pursuant to both plans.
The following table summarizes the Company's stock options outstanding at
December 31, 2005, 2004, and 2003:
Weighted average
Shares exercise price
------------ -----------------
Outstanding and exercisable
at December 31, 2002 8,994,208 $ .25
Granted 14,758,942 .22
Exercised (7,770,892) (.14)
Expired (20,000) (.10)
------------- -----------------
Outstanding and exercisable
at December 31, 2003 15,962,258 .34
Granted 25,000,806 .51
Exercised (17,585,468) (.30)
Expired (2,452,666) (.51)
------------- -----------------
Outstanding and exercisable
at December 31, 2004 20,924,930 .56
Granted 3,201,088 .88
Exercised (170,000) (.19)
Expired (100,000) (1.00)
------------- -----------------
Outstanding and exercisable
at December 31, 2005
23,856,018 $ .60
------------- -----------------
The Company applies APB No. 25, `Accounting for Stock Issued to Employees,' and
related interpretations in accounting for its stock options. As a result no
compensation expense has been recognized for employee and director stock
options. Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, `Accounting for
Stock-Based Compensation,' the Company's net loss would have been reported as
follows:
December 31,
2003 2004 2005
------------ ------------ ------------
Net Loss:
As reported $(5,520,531) $(4,864,361) $(5,557,559)
Pro Forma
$(7,796,531) $(8,927,246) $(6,887,390)
Basic and diluted loss
per common share:
As reported (0.07) (0.04) (0.04)
Pro Forma (0.10) (0.07) (0.05)
79
The Company utilizes the Black-Scholes option-pricing model to calculate the
fair value of each individual issuance of options with the following assumptions
used for grants during the year ended December 31, 2005, 2004, and 2003. The
per-share weighted average fair value of stock options granted during 2005 and
2004 was $0.43 and $0.24 and $0.19, respectively, on the date of grant using the
Black Scholes pricing model and the following assumptions for the years ended
December 31:
2003 2004 2005
------------ ------------ ------------
Expected dividend yield 0% 0% 0%
Risk-free interest rate 5% 5% 5%
Annualized volatility 122% 82% NA
Average quarterly volatility
for applicable quarters 41%
-------------------------------------------------------------------------------------------------------------
Calendar Year 2005
-------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
--------------- ------------------------------------------------------- -------------------------------------
Weighted
-Average
Range of Remaining
Exercise Number Contractual Weighted -Average Number Weighted-Average
Prices Outstanding Life (Months) Exercise Price Exercisable Exercise Price
--------------- ---------------- ----------------- -------------------- ---------------- --------------------
.15 -.25 737,500 14 .19 737500 .19
--------------- ---------------- ----------------- -------------------- ---------------- --------------------
.25-.50 4,682,435 94 .35 4,682,435 .35
--------------- ---------------- ----------------- -------------------- ---------------- --------------------
.50-1.00 16,806,083 84 .64 16,806,083 .64
--------------- ---------------- ----------------- -------------------- ---------------- --------------------
Above 1.00 1,630,000 92 1.15 1,630,000 1.15
--------------- ---------------- ----------------- -------------------- ---------------- --------------------
C. Stock as compensation and settlement of debt
The Company issues stock as compensation for services valuing such issues
premised upon the fair market value of the stock.
During the year ended December 31, 2005, the Company issued an aggregate of
398,900 shares of common stock in consideration of services rendered or to be
rendered to the Company. Such shares were valued at an aggregate of $198,184
ranging from $.41 - $.72 per share, representing the fair value of the shares
issued. The issuances were recorded as non-cash compensation expense and
deferred compensation. The unamortized balance of deferred compensation at
December 31, 2005 is $40,034.
During the year ended December 31, 2004, the Company issued an aggregate of
2,081,249 shares of common stock in consideration of services rendered or to be
rendered to the Company. Such shares were valued at an aggregate of $1,790,478
ranging from $.16 - $1.19 per share, representing the fair value of the shares
issued. The issuances were recorded as non-cash compensation expense and
deferred compensation. The unamortized balance of deferred compensation at
December 31, 2004 is $304,416.
During the year ended December 31, 2003, the Company issued an aggregate of
937,833 shares of common stock in consideration of services rendered or to be
rendered to the Company. Such shares were valued at an aggregate of $553,842
ranging from $.16-$.71 per share, representing the fair value of the shares
issued. The issuances were recorded as non-cash compensation expense. During the
year ended December 31, 2003 the Company exchanged 12,740,870 shares of the
Company's common stock in settlement of accounts payable and accrued salaries
for officers totaling $1,152,703. To the extent that the market value of shares
issued as payment of accrued salaries exceeded the recorded amount of accrued
salaries, such amount was recognized as additional compensation. The amount of
additional compensation recorded at December 31, 2003 was $2,305,863.
80
During the year ended December 31, 2005, the Company also issued 2,567,175
shares in connection with the common stock purchase agreement with Fusion
Capital (Note 9).
During the year ended December 31, 2004, the Company also issued 8,758,240
shares in connection with the common stock purchase agreement with Fusion
Capital (Note 9).
During the year ended December 31, 2003, the Company also issued 3,125,000
shares in connection with the common stock purchase agreement with Fusion
Capital. Such amount was recorded at par value with a corresponding change
against Additional Paid-in Capital.
D. Private Placement
During the year ended December 31, 2005, the company did not offer any private
placements. During the year ended December 31, 2004, through various private
placements, the Company sold 11,426,733 shares for $4,300,938. During the year
2003, through various private placements, the Company sold 17,493,664 shares for
$2,409,789.
NOTE 5 - INCOME TAXES
The Company has net operating losses at December 31, 2005 of approximately
$16,190,000 expiring through 2025. Utilization of these losses may be limited by
the "change of ownership" rules as set forth in section 382 of the Internal
Revenue Code.
A reconciliation of the statutory U.S. Federal rate thirty-five percent (35%)
and effective rates is as follows:
Years Ended December 31,
2003 2004 2005
------------- ------------- -------------
Expected income tax (benefit)
at Federal statutory rate $ (1,932,000) $ (1,702,000) $ (1,945,000)
State tax (benefit) net of
Federal effect (276,000) (243,000) (278,000)
Permanent differences 741,000 821,000 230,000
Increase in valuation allowance 1,467,000 1,124,000 1,993,000
------------- ------------- -------------
$ - $ - $ -
============= ============== ==============
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December 31,
---------------------------------------
2004 2005
---------------- -----------------
Net operating losses $ 6,476,000 $ 8,469,000
Valuation allowance (6,476,000) (8,469,000)
---------------- -----------------
$ - $ -
================ =================
The valuation allowances have been established equal to the full amounts of the
deferred tax assets, as the Company is not assured that it is more likely than
not that these benefits will be realized.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
A. The Company leases various facilities under operating lease agreements
expiring through September 2008. Rental expense for the years ended December 31,
2005, 2004, and 2003 was $39,708, $49,883, and $40,006 respectively. Future
minimum annual lease payments under the facilities lease agreements for
agreements lasting more than one year are as follows:
2006 $55,011
2007 $56,572
2008 $43,307
B. During the year ended December 31, 2004, the Company amended its research
collaboration and licensing agreement with Georgetown University (`Georgetown'),
which terminates in 2014. As consideration for Georgetown's performance under
this Agreement the Company shall pay Georgetown $1,000,000 per year in quarterly
installments commencing with the quarter ended March 31, 2004.
C. The Company has entered into employment agreements with two officers. These
agreements started January 1, 2001 and are for five years with annual
compensation for both at $780,000, with an annual increase not less than five
percent (5%) per year. Each officer at their option can receive payment in
Company common stock calculated at the lowest closing price of the stock quoted
for the period for which the salary has been earned, divided by the current
discount rate for restricted stock offered by the Company.
Each officer is entitled to a bonus payable in ten year warrants based on a
calculation of the Company's market capitalization but each officer has foregone
their bonus despite reaching the performance goal. In addition each officer is
guaranteed annual incentive stock options of the greater of $250,000 or a
percentage of the issued and outstanding shares on the anniversary date of the
agreement. The percentage ranges from one percent (1%) to four (4%). Such
options vest twenty-five percent (25%) each quarter and are priced at the lowest
closing price of the Company's common stock in the quarter preceding the grant.
The options terminate after ten years.
81
NOTE 7 - RESEARCH AND DEVELOPMENT COSTS
Research and development expenses consist of the costs associated with our
research activities, as well as the costs associated with our drug discovery
efforts, conducting preclinical studies and clinical trials, manufacturing
development efforts and activities related to regulatory filings. Our research
and development expenses consist of:
o external research and development expenses incurred under agreements with
third-party contract research organizations and investigative sites, third-party
manufacturing organizations and consultants;
o employee-related expenses, which include salaries and benefits for the
personnel involved in our drug discovery and development activities.
We use our employee across multiple research projects, including our drug
development programs. We track direct expenses related to our clinical programs
on a per project basis. Accordingly, we allocate internal employee-related, as
well as third-party costs, to each clinical program. We do not allocate expenses
related to preclinical programs.
The following table summarizes our principal product development programs,
including the related stages of development for each product candidate in
development and the research and development expenses allocated to each clinical
product candidate. The information in the column labeled "Estimated Completion
of Current Trial" is our estimate of the timing of completion of the current
clinical trial or trials for the particular product candidate. The actual timing
of completion could differ materially from the estimates provided in the table.
Estimated
Completion Research and Development Expenses
Phase of of Current Year Ended December 31
Product Candidate Indication Development Trial 2003 2004 2005
------------------------ ----------- ------------- ------------- --------------- -------------- -----------
Clinical Development
SP-01A HIV Phase 2 2006 $ 105,708 $ 836,424 $2,263,903
Research and preclinical $ 732,500 $ 707,497 $1,192,398
--------------- -------------- -----------
$ 838,208 $ 1,543,921 $3,456,301
=============== ============== ===========
The successful development of our product candidates is highly uncertain. At
this time, we cannot reasonably estimate or know the nature, timing and
estimated costs of the efforts that will be necessary to complete the remainder
of the development of, or the period, if any, in which material net cash inflows
may commence from, SP-01A or any of our preclinical product candidates. This is
due to the numerous risks and uncertainties associated with developing drugs,
including the uncertainty of:
o the scope, rate of progress and expense of our clinical trials and other
research and development activities;
o the potential benefits of our product candidates over other therapies;
o our ability to market, commercialize and achieve market acceptance for any
of our product candidates that we are developing or may develop in the
future;
o future clinical trial results;
o the terms and timing of regulatory approvals; and
o the expense of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights.
A change in the outcome of any of these variables with respect to the
development of a product candidate could mean a significant change in the costs
and timing associated with the development of that product candidate. For
example, if the FDA or other regulatory authority were to require us to conduct
clinical trials beyond those which we currently anticipate will be required for
the completion of clinical development of a product candidate or if we
experience significant delays in enrollment in any our clinical trials, we could
be required to expend significant additional financial resources and time on the
completion of clinical development.
82
NOTE 8 - LITIGATION
Samaritan, from time to time, is involved in various legal proceedings in the
ordinary course of its business.
NOTE 9 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, we entered into transactions with Clay
County Holdings (`CCH'). These transactions include loans made to and from CCH.
In the past, CCH had made a loan to Samaritan which Samaritan paid off in 2003.
During 2004, Samaritan created a notes receivable with CCH for $250,000 which
amount bears interest at a rate of twelve percent (12%) per annum. The note
receivable is secured by pledge of common stock in Samaritan owned by CCH. CCH
is also an affiliate of Nevada Gold and Casinos through CCH ownership of over
ten percent (10%) of Nevada Gold and Casinos common stock. A Director of the
Company is the CEO of Nevada Gold and Casinos but is not a shareholder of CCH.
The CEO and CFO of the Company are mother and son.
NOTE 10 - OTHER INCOME
In the December 31, 2004 financial statements, other income consists of the
return of 250,000 shares of common stock that had been issued as compensation to
a consultant in a prior year. The shares were returned due to the fact that the
services were not performed. The shares were valued at their original issuance
value, $231,350.
NOTE 11 - FUSION TRANSACTION
On April 22, 2003, the Company entered into a common stock purchase agreement
with Fusion Capital Fund II, LLC, pursuant to which Fusion Capital has agreed to
purchase shares our common stock from time to time at the Company's option up to
an aggregate amount of $10,000,000. The SEC declared effective the Company's
registration statement on Form SB-2, Commission Registration No. 333-105818 on
October 9, 2003. During the year ended December 31, 2005, the Company also
issued 2,567,175 shares in connection with the common stock purchase agreement
with Fusion Capital.
On May 12, 2005, we entered into a second common stock purchase
agreement, as amended ("Purchase Agreement II") with Fusion Capital pursuant to
which Fusion Capital has agreed to purchase our common stock from time to time
at our option up to an aggregate amount of $40,000,000 over fifty (50) months
from the date the SEC declares effective a registration statement covering the
shares of common stock to be purchased by Fusion Capital pursuant to such
Purchase Agreement II. The SEC declared effective the Company's registration
statement on Form SB-2, Commission Registration No. 333-130356 on December 29,
2005, covering the shares of common stock to be purchased by Fusion Capital and
such shares will be priced based on the market price of our shares at the time
of sale to Fusion Capital. We have the right to sell to Fusion Capital up to
$40,000 of our common stock on each business day and may increase that amount
with additional $5,000 for every $0.25 increase in our stock price above $1.25
for five consecutive days immediately prior to the submission of Daily Purchase
Amount Increase Notice. We have the right to control timing and the amount of
shares we sell to Fusion Capital. On February 17, 2006, the conditions for
commencement of sales of our shares specified in the purchased agreement with
Fusion Capital were satisfied.
83
NOTE 12 - RISKS AND UNCERTAINTIES
Marketability of the product is dependent, among other things, upon securing
additional capital to successfully complete the clinical testing of the product,
securing FDA approval, and procurement of viable patents.
NOTE 13 - QUARTERLY FINANCIAL DATA - (Unaudited)
The following quarterly financial data are unaudited, but in the opinion of
management include all necessary adjustments for a fair presentation of the
interim results.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------------ ------------ ------------ ----------- ----------
Year ended December 31, 2005
Government Research Grants $ - $ 15,250 $ 120,179 $ 121,418 $ 256,847
Income from operations (1,261,556) (1,470,396) (1,344,515) (1,481,092) (5,557,559)
Net income (loss) (1,261,556) (1,470,396) (1,344,515) (1,481,092) (5,557,559)
Basic and diluted earnings (loss)
per share $ (.01) $ (.01) $ (.01) $ (.01) $ (.04)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------------ ------------ ------------ ----------- ----------
Year ended December 31, 2004
Government Research Grants $ - $ - $ - $ - $ -
Income from operations (828,585) (1,022,835) (959,172) (2,053,769) (4,864,361)
Net income (loss) (828,585) (1,022,835) (959,172) (2,053,769) (4,864,361)
Basic and diluted earnings (loss)
per share $ (.01) $ (.01) $ (.01) $ (.01) $ (.04)
NOTE 14 - SUBSEQUENT EVENTS (Unaudited)
On April 4, 2006, Samaritan Pharmaceuticals Europe, S.A. received notification
by the National Pharmaceuticals Organization, (EOF) for a new marketing
authorization for Amphocil in Greece. The National Pharmaceutical Organization,
(EOF), is the competent authority for granting approval to market pharmaceutical
and medical products in Greece, similar to the FDA in the United States.
Samaritan Europe is currently assembling all of the necessary documents to make
a pricing application with the Minister of Development who issues official
prices with the consent of the Minister of Health. A nine-member Pricing
Committee is responsible for providing expert non-binding advice on
pharmaceutical prices. Once price approval is obtained, Samaritan will launch
the product in the Greek market.
During the first quarter of 2006, the Company received $1,200,000 in exchange
for the issuance of 3,836,584 shares to Fusion Capital Fund II, LLC ("Fusion
Capital") pursuant to that certain Common Stock Purchase Agreement, dated May
12, 2005 and amended on December 19, 2005, with Fusion Capital. The Company also
completed the following two (2) placements: on March 1, 2006, the Company
received a qualified subscription for 4,000,000 shares of our common stock at a
purchase price of $0.25 per share of total proceeds equal to $1,000,000. On
March 29, 2006, the Company received qualified subscriptions for 1,175,000
shares of our common stock at a purchase price of $0.40 per share for total
proceeds equal to $470,000, plus warrant coverage equal to one hundred percent
(100%) of the total number of shares subscribed for at $1.00 per share.
84
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Registration Statement on Form S-1,
including exhibits and schedules, in connection with the Common Stock to be sold
in this offering. This Prospectus is part of the Registration Statement and does
not contain all the information included in the Registration Statement. For
further information about us and the Common Stock to be sold in this offering,
please refer to the Registration Statement. When a reference is made in this
Prospectus to any contract, agreement or other document, the reference may not
be complete and you should refer to the copy of that contract, agreement or
other document filed as an exhibit to the Registration Statement or to one of
our previous SEC filings.
We also file annual, quarterly and special reports, proxy statements,
and other information with the SEC. You may read and copy the Registration
Statement or any other document we file with the SEC at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
You can request copies of these documents by writing to the SEC and paying a fee
for the copying cost. Please call the SEC at l-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available to
the public from the SEC's website at www.sec.gov. In addition, our SEC filings
may be accessed at our website www.samaritanpharma.com via a link to the SEC's
website. Information contained on our website is not incorporated into, and does
not constitute any part of, this Prospectus.
PART II
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered:
Registration Fees $45,786.24
Legal Fees and Expenses $10,000.00
Accounting Fees $ 7,500.00
Miscellaneous $ 500.00
----------
Total (1) $18,000.00
==========
(1) Excludes the SEC registration fee of $786.24 and the AMEX additional shares
listing fee of $45,000 that were previously paid.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
None of our Directors will have personal liability to us or any of our
shareholders for monetary damages for breach of fiduciary duty as a Director
involving any act or omission of any such Director since provisions have been
made in the Articles of Incorporation (restated as last amended June 10,
2005)limiting such liability. The foregoing provisions shall not eliminate or
limit the liability of a Director (a) for any breach of the Director's duty of
loyalty to us or our shareholders, (b) for acts or omissions not in good faith
or, which involve intentional misconduct or a knowing violation of law, (c)
under applicable Sections of the Nevada Revised Statutes, (d) the payment of
dividends in violation of Section 78.300 of the Nevada Revised Statutes or (e)
for any transaction from which the Director derived an improper personal
benefit.
Our Bylaws provide for indemnification of the Directors, officers, and employees
of Samaritan in most cases for any liability suffered by them or arising out of
their activities as Directors, officers, and employees of Samaritan if they were
not engaged in willful misfeasance or malfeasance in the performance of his or
her duties; provided that in the event of a settlement the indemnification will
apply only when the Board of Directors approves such settlement and
reimbursement as being for the best interests of the Company. Our Bylaws
(restated as last amended April 18, 2005), therefore, limit the liability of
Directors to the maximum extent permitted by Nevada law (Section 78.751).
Our officers and Directors are accountable to us as fiduciaries, which mean they
are required to exercise good faith and fairness in all dealings affecting us.
In the event that a shareholder believes the officers and/or Directors have
violated their fiduciary duties to us, the shareholder may, subject to
applicable rules of civil procedure, be able to bring a class action or
derivative suit to enforce the shareholder's rights, including rights under
certain federal and state securities laws and regulations to recover damages
from and require an accounting by management. Shareholders who have suffered
losses in connection with the purchase or sale of their interest in Samaritan in
connection with such sale or purchase, including the misapplication by any such
officer or Director of the proceeds from the sale of these securities, may be
able to recover such losses from us.
85
The Company has entered into indemnification agreements with each of its
Directors and officers, indemnifying them against expenses, settlements,
judgments and fines incurred in connection with any threatened, pending or
completed action, suit, arbitration or proceeding, where the individual's
involvement is by reason of the fact that he or she is or was a Director or
officer or served at our request as a Director of another organization (except
that indemnification is not provided against judgments and fines in a derivative
suit unless permitted by Nevada law). An individual may not be indemnified if he
or she is found not to have acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of Samaritan
except to the extent Nevada law shall permit broader contractual
indemnification. The indemnification agreements provide procedures, presumptions
and remedies designed to substantially strengthen the indemnity rights beyond
those provided by Samaritan's Articles of Incorporation (restated as last
amended June 10, 2005) and by Nevada law.
RECENT SALES OF UNREGISTERED SECURITIES
Recent Sales of Unregistered Securities.
The following discussion sets forth securities sold by the Company in
the recent past, including any during the period covered by this Registration
Statement. These securities were shares of Common Stock of the Company, they
were sold for cash unless otherwise noted, they were sold in private
transactions to persons believed to be of a class of "accredited investors" not
affiliated with the Company unless otherwise noted, and purchasing the shares
with an investment intent, and the Company relied upon, among other possible
exemptions, Section 4(2) of the Securities Act of 1933, as amended. It's
reliance on said exemption was based upon the fact that no public solicitation
was used by the Company in the offer or sale, and that the securities were
legend shares, along with a notation at the respective transfer agent,
restricting the shares from sale or transfer as is customary with reference to
Rule 144 of the U.S. Securities and Exchange Commission ("SEC").
During the 3rd Quarter 2006, the Company completed one (1) private
placement. On September 30, 2006, the Company received a qualified subscription
for 1,600,000 shares of Common Stock at a purchase price of $0.25 per share with
no warrants for total proceeds equal to $400,000.
During the 2nd Quarter 2006, the Company completed the following two
(2) private placements: On March 1, 2006, the Company received a qualified
subscription for 4,000,000 shares of Common Stock at a purchase price of $0.25
per share for total proceeds equal to $1,000,000. On May 9, 2006, the Company
received qualified subscriptions for 1,612,500 shares of Common Stock at a
purchase price of $0.40 per share for total proceeds equal to $645,000, plus
warrant coverage equal to one hundred percent (100%) of the total number of
shares subscribed for at $1.00 per share. On April 26, 2006, the Company issued
200,000 shares of Common Stock at a price of $0.20 per share upon the exercise
of stock options. On May 03, 2006, the Company issued 225,926 shares of Common
Stock at a price of $0.20 per share upon the exercise of stock options. On May
03, 2006, the Company issued 25,000 shares of Common Stock at a price of $0.18
per share upon the exercise of stock options.
On April 26, 2006, the Company issued 200,000 shares of Common Stock
at a price of $0.20 per share upon the exercise of stock options. On May 03,
2006, the Company issued 225,926 shares of Common Stock at a price of $0.20 per
share upon the exercise of stock options. On May 03, 2006, the Company issued
25,000 shares of Common Stock at a price of $0.18 per share upon the exercise of
stock options.
86
During the 1st Quarter 2006, the Company completed the following two
(2) private placements: On March 1, 2006, the Company received a qualified
subscription for 4,000,000 shares of Common Stock at a purchase price of $0.25
per share for total proceeds equal to $1,000,000. As of May 9, 2006, the Company
received qualified subscriptions for 1,612,500 shares of Common Stock at a
purchase price of $0.40 per share for total proceeds equal to $645,000, plus
warrant coverage equal to one hundred percent (100%) of the total number of
shares subscribed for at $1.00 per share.
During the fiscal year ending December 31, 2005, the Company issued
an aggregate of 398,900 shares of Common Stock in consideration of services
rendered or to be rendered to the Company. Such shares were valued at an
aggregate of $197,184 ranging from $0.41 - $0.72 per share, representing the
fair value of the shares issued. The issuances were recorded as non-cash
compensation expense and deferred compensation. The unamortized balance of
deferred compensation at December 31, 2005 was $40,034.
During the year ended December 31, 2004, the Company issued an
aggregate of 2,081,249 shares of Common Stock in consideration of services
rendered or to be rendered to the Company. Such shares were valued at an
aggregate of $1,790,478 ranging from $0.16-$1.19 per share, representing the
fair value of the shares issued. The issuances were recorded as non-cash
compensation expense. During the year ended December 31, 2004 the Company
exchanged 11,426,733 shares of the Company Stock for $4,300,938.
During the year ended December 31, 2003, the Company issued an
aggregate of 4,062,833 shares of Common Stock in consideration of services
rendered or to be rendered to the Company. Such shares were valued at an
aggregate of $553,842 ranging from $0.16 to $0.71 per share, representing the
fair value of the shares issued. The issuances were recorded as non-cash
compensation expense. During the year ended December 31, 2003 the Company
exchanged 12,740,870 shares of the Common Stock in settlement of accounts
payable, accrued salaries for officers and equity financing totaling $1,152,703.
To the extent that the market value of shares issued as payment of accrued
salaries exceeded the recorded amount of accrued salaries, such amount was
recognized as additional compensation. The amount of additional compensations
recorded at December 31, 2003 was $2,305,863. During the year 2003, through
various private placements, the Company sold 17,493,664 shares for $2,409,789.
The offers and sales of securities described in paragraph (1) above
were deemed to be exempt from registration under the Securities Act in reliance
on Rule 506 of Regulation D in that the offers and sales of securities did not
involve a public offering. The recipients of securities in each of these
transactions acquired the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the securities issued in these transactions. Each of the
recipients of securities in these transactions was an accredited investor under
Rule 501 of Regulation D.
--------------------------------------------------------------------------------
The offer and sale of securities described in paragraphs (2), (3), (4),
(5) and (6) above were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act in that the
offers and sales did not involve a public offering. Each of the issuees
represented to us the issuees' intention to acquire the shares for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the certificate evidencing the
shares.
87
EXHIBITS
Listed below are all exhibits filed as part of this report. Some exhibits are
filed by the Registrant with the SEC pursuant to Rule 12b-32 under the
Securities Exchange Act of 1934, as amended.
EXHIBIT NO. DESCRIPTION LOCATION
----------- ------------------------------------------------ --------------------------------------------------------
2.1 Agreement and Plan of Reorganization Incorporated by reference to Exhibit 2.1 to the
Company's Form 10-SB12G as filed with the SEC on
July 21, 1999
3.1 Articles of Incorporation, restated as last Incorporated by reference to Exhibit 3.1 to the
amended June 10, 2005 Company's Current Report on Form 8-K as filed
with SEC on July 8,2005
3.2 Bylaws, restated as last amended April 18, 2005 Incorporated by reference to Exhibit 3.2 to the
Company's Current Report on Form 8-K as filed
with the SEC on July 21, 1999
4.1 Form of Common Stock Certificate Incorporated by reference to Schedule 14-A
Information Statement as filed with SEC on April
29, 2005 and approved by the shareholders on June
10, 2005
4.2 Amended Samaritan Pharmaceuticals, Inc. 2001 Incorporated by reference to Exhibit 4.2to the
Stock Option Plan Company's Quarterly Report on Form 10-QSB as
filed with the U.S. Securities
4.3 Samaritan Pharmaceuticals, Inc. 2005 Stock Incorporated by reference to Schedule 14-A
Option Plan Information Statement as filed with the SEC on
April 19, 2005 and approved by the shareholders
on June 10, 2005
5.1 Opinion re: legality Incorporated by reference to Exhibit 23.2 to the
Company's registration of securities on Form SB-2
as filed with the SEC on December 15, 2005
10.1 Assignment of Invention, dated September 6, Incorporated by reference to Exhibit 10.1 to the
2000, by and between Linda Johnson and the Company's Quarterly Report on Form-QSB as filed
Company with the SEC on August 14, 2002
10.2 Assignment of Invention, dated May 14, 2999, by Incorporated by reference to Exhibit 10.2 to the
and between Linda Johnson and Spectrum Company's Quarterly Report on Form 10-QSB as
Pharmaceuticals Corporation filed with the SEC on August 14, 2002
10.3 Assignment of Invention, dated May 22, 1990, by Incorporated by reference to Exhibit 10.3 to the
and between Alfred T. Sapse and Spectrum Company's Current Report on form 10-QSB as filed
Pharmaceutical Corporation with the SEC on April 14, 2002
10.4 Common Stock Purchase Agreement (Purchase Incorporated by reference to Exhibit 10.1 to the
Agreement I), dated April 22, 2003, by and Company's Current Report on Form 8-K as filed
between the Company and Fusion Capital Fund II, with the SEC on April 25, 2003
LLC
10.5 Registration Rights Agreement, dated April 22, Incorporates by reference to Exhibit 10.2 to the
2003, by and between the Company and Fusion Company's Current Report on Form 8-K as filed
Capital Fund II, LLC with the SEC on April 25, 2003
10.6 Employment Agreement dated as of January 1, Incorporated by reference t Exhibit 10.6 to the
2001, by and between Samaritan Pharmaceuticals, Company's Quarterly Report on Form 10-QSB as
Inc. and Mr. Thomas Lang filed with the SEC on August 16, 2004
88
10.7 Form of Trust Under Samaritan Pharmaceuticals, Incorporated by reference to Exhibit 10.10 to the
Inc. Deferred Compensation Plan Company's Quarterly Report on Form 10-QSB as
filed with the U.S. Securities and Exchange
Commission on August 14, 2002
10.8 Employment Agreement, dated as of June 1, 2004, Incorporated by reference to Exhibit 10.8 to the
by and between Samaritan Pharmaceuticals, Inc. Company's Quarterly Report on Form 10-QSB as
and Eugene Boyle filed with the SEC on August 14, 2002
10.9 Employment Agreement, dated as of January 1, Incorporated by reference to Exhibit 10.9 to the
2001, by and between Samaritan Pharmaceuticals, Company's Quarterly Report on Form 10-QSB as
Inc. and Janet Greeson filed with the SEC on August 14, 2002
10.10 Master Clinical Trial and Full Scale Incorporated by reference to Exhibit 10.10 to the
Manufacturing Agreement, dated October 5, 2004, Company's Quarterly Report on Form 10-QSB as
by and between the Company and Pharmaplaz, LTD filed with the SEC on November 15, 2004
10.11 Common Stock Purchase Agreement (Purchase Incorporated by reference to Exhibit 10.11 to the
Agreement II), dated May 12, 2005, by and Company's Quarterly Report on Form 10-QSB as
between the Company and Fusion Capital Fund II, filed with the SEC on May 13, 2005
LLC
10.12 Amendment to Common Stock Purchase Agreement, Incorporated by reference to Exhibit 10.12 to the
dated December 19, 2005, by and between the Company's Registration Statement on Form SB-2 as
Company and Fusion Capital Fund II, LLC filed with the SEC on December 15, 2005
10.13 Registration Rights Agreement, dated May 12, Incorporates by reference to Exhibit 10.12 to the
2005, by and between the Company and Fusion Company's Quarterly Report on Form 10-QSB as
Capital Fund II, LLC filed with the SEC on May 13, 2005
10.14 Norbrook Supply Agreement Incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K as filed
with the SEC on September 27, 2005
10.15 Research Collaboration and Licensing Agreement, Incorporated by reference to Exhibit 10.10 to the
dated June 8, 2001, by and between the Company Company's Registration Statement on Form SB-2 as
and Georgetown University filed with the SEC on July 30, 2003
10.16 Change in Control Severance Plan for Certain Incorporated by reference to Exhibit 10.16 to the
Covered Executives and Employees of Samaritan Company's Quarterly Report on Form 10-Q as filed
Pharmaceuticals, Inc. with the SEC on August 14, 2006
10.17 Samaritan Pharmaceuticals, Inc.'s Incorporated by reference to Exhibit 10.17 to the
Director/Officer's Indemnification Agreement Company's Quarterly Report on Form 10-Q as filed
with the SEC on August 14, 2006
10.18 Stock Purchase Agreement among Samaritan Incorporated by reference to Exhibit 10.18 to the
Pharmaceuticals, Metastatin Pharmaceuticals, Company's Quarterly Report on Form 10-Q as filed
and the shareholders of Metastatin with the SEC on November 14, 2006
Pharmaceuticals.
14.1 The Samaritan Pharmaceuticals, Inc. Code of Incorporated by reference to Exhibit 14.1 to the
Conduct Company's Annual Report on Form 10-KSB as filed
with the SEC on April 15, 2003
16.1 Letter Regarding Change in Certifying Accountant Incorporated by reference to Exhibit 16.1 to the
Company's Quarterly Report on Form 8-K as filed
with the SEC on September 27, 2002
89
21 List of Subsidiaries Incorporated by reference to Exhibit 21 to the
Company's Quarterly Report on Form 10-Q as filed
with the SEC on May 15, 2006
23.1 Consent of Independent Registered Public
Accounting Firm Provided herewith
23.2 Consent of Nevada Counsel Contained in Exhibit 5.1
UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of Prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in this Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for the purpose of determining liability under the Securities
Act of 1933 to any purchaser:
(i) If the registrant is relying on Rule 430B:
(A) Each Prospectus filed by the registrant pursuant to Rule
424(b)(3) shall be deemed to be part of the Registration Statement as
of the date the filed Prospectus was deemed part of and included in the
Registration Statement; and
90
(B) Each Prospectus required to be filed pursuant to Rule
424(b)(2), (b)(5), or (b)(7) as part of a Registration Statement in
reliance on Rule 430B relating to an offering made pursuant to Rule
415(a)(1)(i), (vii), or (x) for the purpose of providing the
information required by section 10(a) of the Securities Act of 1933
shall be deemed to be part of and included in the Registration
Statement as of the earlier of the date such form of Prospectus is
first used after effectiveness or the date of the first contract of
sale of securities in the offering described in the Prospectus. As
provided in Rule 430B, for liability purposes of the issuer and any
person that is at that date an underwriter, such date shall be deemed
to be a new effective date of the Registration Statement relating to
the securities in the Registration Statement to which that Prospectus
relates, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof. Provided, however,
that no statement made in a Registration Statement or Prospectus that
is part of the Registration Statement or made in a document
incorporated or deemed incorporated by reference into the Registration
Statement or Prospectus that is part of the Registration Statement
will, as to a purchaser with a time of contract of sale prior to such
effective date, supersede or modify any statement that was made in the
Registration Statement or Prospectus that was part of the Registration
Statement or made in any such document immediately prior to such
effective date; or
(ii) If the registrant is subject to Rule 430C, each Prospectus filed
pursuant to Rule 424(b) as part of a Registration Statement relating to an
offering, other than Registration Statements relying on Rule 430B or other than
Prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and
included in the Registration Statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a Registration
Statement or Prospectus that is part of the Registration Statement or made in a
document incorporated or deemed incorporated by reference into the Registration
Statement or Prospectus that is part of the Registration Statement will, as to a
purchaser with a time of contract of sale prior to such first use, supersede or
modify any statement that was made in the Registration Statement or Prospectus
that was part of the Registration Statement or made in any such document
immediately prior to such date of first use.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to existing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form S-1 and authorized this Registration
Statement to be signed on its behalf by the undersigned in the City of Las
Vegas, Nevada, on January 9, 2007.
SAMARITAN PHARMACEUTICALS, INC.
By: /s/ Dr. Janet R. Greeson
---------------------------
Dr. Janet R. Greeson
Chief Executive Officer and
Principal Executive Officer
By: /s/ Mr. Eugene Boyle
---------------------------
Mr. Eugene Boyle
Chief Financial Officer and
Principal Financial Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated:
Signature Title Date
------------------------------- --------------------------------------------------- ---------------
/s/ Janet Greeson, Ph.D. Chairman, President and Chief Executive Officer January 9, 2007
------------------------ (principal executive officer)
Janet Greeson
/s/ Eugene J. Boyle Chief Financial Officer (principal financial and January 9, 2007
------------------------ accounting officer) and Chief Operating Officer
Eugene J. Boyle
/s/ Laurent Lecanu, Ph.D. Director January 9, 2007
-------------------------
Laurent Lecanu, Ph.D.
/s/ Erasto Saldi, MD Director January 9, 2007
-------------------------
Erasto Saldi, MD
/s/ H. Thomas Winn Director January 9, 2007
-------------------------
H. Thomas Winn
/s/ Cynthia Thompson Director January 9, 2007
-------------------------
Cynthia Thompson
/s/ Budd Holden Director January 9, 2007
-------------------------
Budd Holden
/s/ Doug Bessert Director January 9, 2007
-------------------------
Doug Bessert