10QSB 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly period ended March 31, 2003 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 001-13835 HEMOXYMED, INC. --------------- (Exact name of Registrant as specified in its Charter) DELAWARE 39-1661164 -------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 50 LAKEVIEW PARKWAY, SUITE 111, VERNON HILLS, IL 60061 ------------------------------------------------------- (Address of Principal Executive Offices and Zip Code) (847) 573-8000 --------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant: (1) filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, $0.0025 par value - 47,701,098 shares outstanding as of May 12, 2003. Transitional small business disclosure format: Yes [ ] No [X] HEMOXYMED, INC. (a development stage company) QUARTERLY REPORT ON FORM 10-QSB QUARTER ENDED MARCH 31, 2003 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1- Financial Statements (Unaudited) Consolidated Balance Sheets .............................................2 Consolidated Statements of Operations....................................3 Consolidated Statements of Cash Flows....................................4 Notes to Consolidated Financial Statements...............................6 Item 2 - Management's Discussion and Analysis or Plan of Operation...........10 Item 3 - Controls and Procedures.............................................12 PART II. OTHER INFORMATION Item 1 - Legal Proceedings...................................................12 Item 2 - Changes in Securities...............................................12 Item 3 - Defaults Upon Senior Securities.....................................12 Item 4 - Submission of Matters to a Vote of Security Holders.................12 Item 5 - Other Information...................................................12 Item 6 - Exhibits and Reports on Form 8-K....................................12 SIGNATURES...................................................................13 CERTIFICATIONS...............................................................14 1
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HEMOXYMED, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS MARCH 31, DECEMBER 31, 2003 2002 ---- ---- (UNAUDITED) ------------ ASSETS Current assets: Cash and cash equivalents.......................................... $ 472,519 $ 202,877 Accounts receivable................................................ 380 205,245 Prepaids and other current assets.................................. 100,485 45,093 ----------- ----------- Total current assets............................................. 573,384 453,215 ----------- ----------- Property and equipment: Furniture, equipment and leaseholds................................ 2,075,996 2,064,005 Accumulated depreciation........................................... (2,056,711) (2,054,641) ------------ ------------ Net property and equipment....................................... 19,285 9,364 ----------- ----------- Other assets: Deposits........................................................... 15,133 14,718 ----------- ----------- Total other assets............................................... 15,133 14,718 ----------- ----------- Total assets.................................................. $ 607,802 $ 477,297 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable................................................... $ 256,227 $ 254,283 Loans payable...................................................... 1,610,000 1,010,000 Capital lease payable, current portion............................. 3,313 - Deferred research agreement revenues............................... 200,000 200,000 Accrued wages...................................................... 293,310 293,310 Accrued collaborator payments...................................... 208,042 124,026 Accrued consultant fees............................................ 127,200 121,800 Other accrued expenses............................................. 251,495 203,993 ----------- ----------- Total current liabilities ....................................... 2,949,587 2,207,412 ----------- ----------- Long term liabilities: Capital lease payable, net of current portion....................... 8,453 - ----------- ----------- Total long term liabilities 8,453 - ----------- ----------- Stockholders' deficit: Common stock par value $0.0025: authorized shares 50,000,000; issued and outstanding shares 47,701,098......................... 119,253 119,253 Treasury stock..................................................... (10,614) (10,614) Additional paid in capital ........................................ 30,915,927 30,651,984 Deficit accumulated during the development stage .................. (33,374,804) (32,490,738) ----------- ----------- Total stockholders' deficit........................................ (2,350,238) (1,730,115) ----------- ------------ Total liabilities and stockholders' deficit................... $ 607,802 $ 477,297 =========== =========== See accompanying notes to consolidated financial statements.
2 HEMOXYMED, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
PERIOD FROM MARCH 14, THREE MONTHS ENDED 1992, (INCEPTION) TO MARCH 31 MARCH 31, 2003 ----------------------------------------- 2003 2002 ---- ---- Research agreement revenues $ - $ - $ 500,000 Grant revenues. . . . . . . . . . . . . - - 669,022 ------------- ------------ ------------- Total revenues. . . . . . . . . . . . - - 1,169,022 ------------- ------------ ------------- Operating expenses: Research and development. . . . . . . . 420,481 280,366 22,469,199 General and administrative. . . . . . . 446,484 175,213 8,343,369 Loss on impairment of intangible assets - - 411,016 Net writedown of leasehold improvements - - 1,406,057 ------------- ------------ ------------- Total operating expenses. . . . . . . . 866,965 455,579 32,629,641 ------------- ------------ ------------- Operating loss. . . . . . . . . . . . . (866,965) (455,579) (31,460,619) ------------- ------------ ------------- Other (income) expense: Interest expense. . . . . . . . . . . . 17,101 55,247 376,836 Interest income . . . . . . . . . . . . - - (704,387) Amortization of debt discount . . . . . - - 272,837 Beneficial conversion of debt to equity - - 274,072 Inducement to convert debt to equity. . - - 1,631,107 Other (income) expense . . . . . . . . - - 63,720 ------------- ------------ ------------- Total other expense . . . . . . . . . . 17,101 55,247 1,914,185 ------------- ------------ ------------- Net loss. . . . . . . . . . . . . . . . $ (884,066) $ (510,826) $(33,374,804) ============= ============ ============= Basic and diluted loss per share: Net loss per share. . . . . . . . . . . $ (0.02) $ (0.03) $ (3.81) Weighted average shares . . . . . . . . 47,701,098 15,460,411 9,258,532 See accompanying notes to consolidated financial statements.
3 HEMOXYMED, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED PERIOD FROM MARCH 31 MAR. 14, 1992 --------------------- (INCEPTION) TO 2003 2002 MARCH 31, 2003 ---------- ---------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss. . . . . . . . . . . . . . . . . . . $(884,066) $(510,826) $ (33,374,804) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization . . . . . . . . 2,070 3,960 2,541,804 Non-cash expense for warrant and option compensation to non-employees . . . . . . - 17,868 841,794 Non-cash expense for equity compensation to employees and directors 263,943 - 528,366 Non-cash interest expense . . . . . . . . . . - 51,652 90,202 Non-cash expense for beneficial conversion of debt. . . . . . . . . . . . . . . . . . . - - 274,072 Non-cash expense for induced conversion of debt. . . . . . . . . . . . . . . . . . . - - 1,631,107 Amortization of intangible assets . . . . . . - - 328,812 Loss on writedown of leasehold improvements . - - 1,406,057 Loss on impairment of intangible assets . . . - - 411,016 Gain on sale of equipment. . . . . . . . . . - - (250) Issuance of common stock for services . . . . - - 791,454 Changes in assets and liabilities: Accounts receivable . . . . . . . . . . . . . 204,865 630 202,910 Prepaids and other assets . . . . . . . . . . (55,807) (487) (100,900) Accounts payable. . . . . . . . . . . . . . . 1,944 (72,280) 352,831 Deferred research agreement revenues. . . . . - - 200,000 Accrued wages . . . . . . . . . . . . . . . . - 72,163 293,310 Accrued collaborator payments . . . . . . . . 84,016 38,934 208,042 Accrued consultant fees . . . . . . . . . . . 5,400 23,400 127,200 Other accrued expenses. . . . . . . . . . . . 47,502 28,446 282,302 ---------- ---------- --------------- Net cash used in operating activities. . . . . (330,133) (346,540) (22,964,675) ---------- ---------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of investment securities. . . . . - - (9,138,407) Redemption of investment securities . . . . . - - 9,138,407 Acquisition of intangible assets. . . . . . . - - (339,829) Acquisition of equipment and leasehold improvements, net . . . . . . . . . . . . (225) - (3,953,009) ---------- ---------- --------------- Net cash used in investing activities. . . . . (225) - (4,292,838) ---------- ---------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of preferred stock . . - - 12,193,559 Proceeds from issuance of common stock. . . . - 325,000 11,616,977 Advances from director. . . . . . . . . . . . - - 120,000 Proceeds from promissory loans payable. . . . 600,000 - 3,574,500 Payments to repurchase common stock . . . . . - - (10,614) Payments received for employee stock purchase notes. . . . . . . . . . . . . . . . - - 235,610 ---------- ---------- --------------- Net cash provided by financing activities. . . 600,000 325,000 27,730,032 ---------- ---------- ---------------
4 See accompanying notes to consolidated financial statements.
THREE MONTHS ENDED PERIOD FROM MARCH 31 MAR. 14, 1992 --------------------- (INCEPTION) TO 2003 2002 MARCH 31, 2003 ---------- ---------- --------------- Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . 269,642 (21,540) 472,519 Cash beginning of period. . . . . . . . . . . . . . . . . . . . . . 202,877 43,772 - -------- --------- -------------- Cash end of period. . . . . . . . . . . . . . . . . . . . . . . . . $472,519 $ 22,232 $ 472,519 ======== ========= ============== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . $ 145 $ - $ 39,082 ======== ========= ============== SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Issuance of stock for prior services. . . . . . . . . . . . . . . . $ - $ - $ 4,149,521 ======== ========= ============== Intangible assets acquired in exchange for stock. . . . . . . . . . $ - $ - $ 400,000 ======== ========= ============== The Company entered into a lease for new equipment during the three months ended March 31, 2003 and thus incurred a capital lease obligation of $11,766. See accompanying notes to consolidated financial statements 5
HEMOXYMED, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BUSINESS Hemoxymed, Inc. (Hemoxymed" or the "Company") is a development stage biopharmaceutical company with two wholly-owned operating subsidiaries. One of the wholly-owned operating subsidiaries is Molecular Geriatrics Corporation ("MGC"), a development stage biopharmaceutical company incorporated in November 1991 to develop diagnostics to detect, and therapeutics to treat, Alzheimer's disease. The other wholly-owned operating subsidiary is Hemoxymed Europe, SAS, a development stage biopharmaceutical company incorporated in February 1995 to develop therapies aimed at improving tissue oxygenation by increasing oxygen release from hemoglobin to provide therapeutic value to patients with serious, although unmet or underserved, medical needs. On September 10, 2002, Hemoxymed established a strategic alliance through the closing of its merger (the "Merger") with MGC. Under the terms of the Merger, Hemoxymed acquired all of MGC's outstanding common stock, options and warrants from MGC holders in exchange for Hemoxymed's issuance and delivery to MGC shareholders, optionholders and warrantholders of approximately 22,800,000 new, unregistered shares of Hemoxymed common stock plus options and warrants to purchase approximately 4,830,000 shares of Hemoxymed common stock. Immediately following the closing, Hemoxymed had approximately 47,700,000 shares of common stock issued and outstanding plus options and warrants to purchase approximately 7,400,000 shares of common stock, of which former Hemoxymed and former MGC holders each own approximately 50%, on a fully diluted basis. The Merger Agreement further provided that the management team and Board of Directors of MGC took over control of the merged company. The transaction was tax-free to the shareholders of both companies. This transaction has been accounted for as a reverse merger. For financial reporting purposes, MGC is continuing as the primary operating entity under the Hemoxymed name, and its historical financial statements have replaced those of Hemoxymed. The Company is subject to risks and uncertainties common to small cap biotech companies, including competition from larger, well capitalized entities, patent protection issues, availability of funding and government regulations. The Company is currently attempting to secure funding to advance its various programs, including clinical development of its most advanced programs. In the event that the Company is not able to secure adequate financing, it may not be able to continue its operations. NOTE 2. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Hemoxymed, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America and applicable Securities and Exchange Commission regulations for interim financial information. These financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is presumed that users of this interim financial information have read or have access to the audited financial statements of Hemoxymed contained in Hemoxymed's Annual Report on Form 10-KSB for the year ended December 31, 2002. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year ending December 31, 2003. 6 The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company has experienced losses since inception and had a negative working capital balance at March 31, 2003. These matters raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. The Company's ability to continue as a going concern is dependent on obtaining adequate funding and ultimately achieving profitable operations. The accompanying financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that may result from the outcome of this uncertainty. The consolidated financial statements have been prepared in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage Enterprises," which requires development stage companies to employ the same accounting principles as operating companies. NOTE 3. STOCK OPTIONS The Company accounts for its stock-based compensation plans using the intrinsic value method of accounting for options granted to employees. An alternative to the intrinsic value method is the fair value method. Had the Company used the fair value method, pro forma net loss and loss per share would have been:
Three months ended March 31, ---------------------------- 2003 2002 ---------- ---------- Net loss, as reported ($884,066) ($510,826) ------------------------------------------ ---------- ---------- Add: Stock-based employee compensation expense included in reported net loss 263,943 - ------------------------------------------ ---------- ---------- Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards (103,605) (101,443) ------------------------------------------ ---------- ---------- Net loss, pro forma ($723,728) ($612,269) ------------------------------------------ ========== ========== Net loss per share: ------------------------------------------ Basic and fully diluted, as reported ($0.02) ($0.03) ------------------------------------------ ========== ========== Basic and fully diluted, pro forma ($0.02) ($0.04) ------------------------------------------ ========== ==========
NOTE 4. NET LOSS PER SHARE Net loss per share is computed based upon the weighted average number of common shares outstanding during the period as if the exchange of common shares in the merger between Hemoxymed and MGC was in effect at the beginning of both periods presented. Net loss per share is based on the weighted average number of common shares outstanding with potential equivalent shares from stock options and warrants excluded from the computation because their effect is antidilutive. The Company had 4,582,636 stock options and 2,758,109 warrants outstanding to issue common stock at March 31, 2003. 7 NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS In April 2002, Statement of Financial Accounting Standards (SFAS) No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement no. 13, and Technical Corrections, was issued. SFAS No. 145 rescinds SFAS No. 4, which required all gains and losses from the extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. SFAS No. 145 was effective for fiscal years beginning after May 15, 2002, with early adoption related to the provisions of the rescission of SFAS No. 4 encouraged. The adoption of SFAS No. 145 did not have a material effect on the consolidated financial statements. In July 2002, SFAS No. 146, Accounting for Costs Associated with an Exit or Disposal Activity, which supercedes EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring), was issued. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. SFAS No. 146 requires that a company record a liability when that liability is incurred and can be measured at a fair value. Incurred is defined as when an event obligates the entity to transfer or use assets. The recognition of termination benefits to employees will depend on whether additional service is required of the employee. If the employee must continue to provide service for a period of at least a minimum of sixty days in order to be eligible for the benefits (called a "minimum retention period"), the fair value of the benefits should be accrued over the time the employee renders the service. If future service beyond a minimum retention period is not required, the liability for the fair value of the benefits should be recognized at the time the company communicates the arrangement to the employees. The Company adopted SFAS No. 146 on January 1, 2003. The adoption of SFAS No. 146 did not have a material effect on the consolidated financial statements. In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), Guarantor's Accounting Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness to Others. This interpretation expands the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees and requires the guarantor to recognize a liability for the fair value of an obligation assumed under guarantee. In general, FIN 45 applies to contracts or indemnification agreements that contingently require that the guarantor make payments to the guaranteed party. The disclosure requirements of FIN 45 are effective as of December 31, 2002, and require disclosure of the nature of the guarantee, the maximum potential amount of future payments that the guarantor could be required to make under the guarantee, and the current amount of the liability, if any, for the guarantor's obligations under the guarantee. The recognition requirements of FIN 45 are to be applied prospectively to guarantees issued or modified after December 31, 2002. The Company has disclosed all guarantee arrangements within the accompanying consolidated financial statements. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As of March 31, 2003, we have elected not to change to the fair value based method of accounting for stock-based employee compensation. We account for employee stock options under Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to Employees, under which no compensation cost was recognized by us. Certain disclosure requirements of SFAS No. 148 were adopted as of December 31, 2002 and are included in the accompanying consolidated financial statements. In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities to provide new guidance with respect to the consolidation of certain previously unconsolidated entities, including special purpose entities. We believe that the adoption of this interpretation, required immediately for variable interest entities created after January 31, 2003 and in the first interim period beginning after June 15, 2003 for all other variable interest entities, will not have a material impact on our consolidated financial position or results of operations. 8 NOTE 6. COLLABORATION AGREEMENTS The Company has various License and Collaborative Research Agreements (the "Agreements") with Albert Einstein College of Medicine ("AECOM"). These Agreements grant the Company the exclusive rights to AECOM's Alzheimer's disease technology for diagnostic and therapeutic applications for as long as the Company continues to fund the technology. These Agreements were amended in March 2002 and again in September 2002 to reduce and restructure past and future amounts due. As part of the restructuring, AECOM received 1,097,324 shares of common stock in exchange for $500,000 of various past due collaboration payments in March 2002. The minimum annual payments to be made to AECOM, which consist of payments due for support of research conducted in Dr. Davies' lab and for annual license maintenance, are as follows: YEAR AMOUNT ---- ------ 2003 $325,000 2004 325,000 2005 375,000 2006 425,000 2007 475,000 2008 500,000 The Company will continue to pay AECOM $500,000 each year after 2008 that the Agreements are still in effect. In addition, the Company is obligated to pay AECOM a percentage of all revenues received from selling and/or licensing any aspects of the AD technology. The Company can terminate the Agreement at any time with sixty days written notice, but would be required to reimburse AECOM for any salary obligations undertaken by AECOM for the research projects covered by the Agreements for up to one year from the termination date. The Company has a collaborative research agreement with the University of British Columbia ("UBC") through June 2003. The Company has agreed to fund a project at UBC for $233,140, of which $51,470 was funded by a Foundation with no affiliation to the Company. Additionally, the Company is obligated to fund patent costs arising from the project. The Company has the rights to the technology developed through this research agreement and would be responsible for certain milestone payments to UBC upon advancement of the technology through the various stages of the FDA approval process. This agreement can be extended by mutual agreement. In addition, the Company has an option agreement on a license agreement with UBC that obligates the Company to cover certain patent costs associated with the technology covered by the license agreement. NOTE 7. BORROWINGS At March 31, 2003, Hemoxymed had raised $1,610,000 in a current bridge financing by issuing promissory loans convertible into common stock. These promissory loans accrue interest at an annual rate of 6% and have an automatic conversion feature based on a future minimum financing of at least $3,000,000. The conversion rate is based on 50% of the per share price of the future financing. NOTE 8. SUBSEQUENT EVENTS In December 2002, the Board of Directors approved the following corporate actions: 1) to amend the Company's Certificate of Incorporation to change the corporate name to ADoxy Biotechnology, Inc. 2) to approve the Hemoxymed 2003 Stock Option Plan, and 3) to increase the number of authorized shares from 50,000,000 to 205,000,000; consisting of 200,000,000 Common Shares and 5,000,000 Preferred Shares. The Company is required to solicit and obtain the approval of shareholders before the Articles of Incorporation can be amended. This approval was received on April 1, 2003. As of March 31, 2003, the Company had approximately 47,700,000 common shares outstanding and needs to increase the number of common shares authorized in order to i) permit the exercise of outstanding options and warrants; ii) convert the outstanding loans to common stock; and iii) raise funds by issuing shares of stock. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the financial statements and the related notes thereto included in this document. OVERVIEW On September 10, 2002, Hemoxymed established a strategic alliance through the closing of its Merger with MGC. This transaction has been accounted for as a reverse merger. In order to comply with generally accepted accounting principles, for financial reporting purposes, MGC is continuing as the primary operating entity under the Hemoxymed name, and its historical financial statements have replaced those of Hemoxymed. Thus, all financial information prior to the Merger date is the financial information of MGC only. Hemoxymed is a development stage biopharmaceutical company with two wholly-owned operating subsidiaries. One of the wholly-owned operating subsidiaries is MGC, a development stage biopharmaceutical company incorporated in November 1991 to develop diagnostics to detect, and therapeutics to treat, Alzheimer's disease. The other wholly owned operating subsidiary is Hemoxymed Europe, SAS. Hemoxymed is a development stage biopharmaceutical company incorporated in February 1995 to develop therapies aimed at improving tissue oxygenation by increasing oxygen release from hemoglobin to provide therapeutic value to patients with serious, although unmet or underserved, medical needs. Hemoxymed has had a limited operating history characterized by operating losses, and expects to generate operating losses for the foreseeable future. As of March 31, 2003, Hemoxymed's accumulated deficit was approximately $33,000,000. Hemoxymed anticipates that it will continue to incur significant losses until successful commercialization of its technology generates sufficient net revenues to cover all of the costs of its operation. RESULTS OF OPERATIONS - THE THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2002 RESEARCH AND DEVELOPMENT Research and development expenses consist primarily of compensation of personnel and related benefits and taxes, funding of research related to license agreements, scientific consultant expenses, patent costs, and laboratory supplies. Research and development expenses for the three-month period ended March 31, 2003 increased 50% or $140,115 from $280,366 for the three-month period ended March 31, 2002 to $420,481 for the three-month period ended March 31, 2003. This increase was primarily due to an increase in outside project and collaborator expenses due to the UBC collaboration and additional AECOM collaboration funding due to the amended agreements, inclusion of our French subsidiary's operating expenses and increased patent costs. GENERAL AND ADMINISTRATIVE General and administrative expenses consist primarily of compensation of personnel and related benefits and taxes, legal and accounting expenses, and occupancy related expenses. General and administrative expenses for the three-month period ended March 31, 2003 increased 155% or $271,271 from $175,213 for the three-month period ended March 31, 2002 to $446,484 for the three-month period ended March 31, 2003. The increase was primarily due to an increase in the non-cash compensation charge for variable accounting for previously issued options to employees and board members, and an increase in legal and accounting fees. OTHER (INCOME) EXPENSE Interest expense for the three-month period ended March 31, 2003 decreased by 69% or $38,146 from $55,247 for the three-month period ended March 31, 2002 to $17,101 for the three-month period ended March 31, 2003. This decrease was primarily due to a $44,273 cost associated with the debt discount for the beneficial conversion of debt to equity in 2002. The Company had no other items of other income or expense during the three-month periods ended March 31, 2002 and 2003. 10 Hemoxymed currently does not hedge foreign exchange transaction exposures. The Company's assets and liabilities denominated in foreign currencies are immaterial. PLAN OF OPERATION The Company is currently attempting to raise between $3 million and $8 million in investment capital to fund the development of its technology, including the clinical development of its most advanced products. Until a minimum of $3 million additional investment capital is raised, our activities will be limited to pre-clinical development of the AD and HEMOXygenation technologies and fund raising activities in the United States and Europe. Our efforts to raise investment capital consist of: o presenting Hemoxymed as an investment opportunity to: o angel investors and angel investor groups o small and large venture capital firms o other investment groups o seeking government investment and/or collaboration within both the United States and France o seeking strategic corporate alliances or joint ventures with biotechnology and pharmaceutical companies who have products that may benefit from such arrangements Subject to the successful completion of the next round of financing of $3 million to $8 million, the strategic plan involves focusing Company resources, and establishing priorities, to maximize the return to the shareholders. In order to accomplish this objective, it is expected that the initial priority will be to focus on the projects in the pipeline that are closest to commercialization. Thus, our initial concentration will be advancing the commercialization of the CSF diagnostic in the U.S. and Europe, a well as advancing the Hemox technology into clinical development in Europe for an initial indication, possibly peripheral vascular disease ("PVD"). Based on these results, we plan to evaluate expanding the clinical development program for additional indications. We also plan to explore collaborative partners and/or licensing opportunities at each stage of development. Simultaneous with these efforts, we plan to commit additional resources to furthering the completion of the development of the serum-based diagnostic to detect AD, and anticipate identifying the right time to enter into a collaborative or licensing agreement with a partner for clinical development, approval and marketing. We also plan to continue to advance the discovery and preclinical development of the AD therapeutic program utilizing the in-vitro screen, directed towards the identification of a novel lead compound. It is anticipated that we would subsequently license the lead compound and/or the AD screen to a large pharmaceutical company. If sufficient funds are raised, we plan to restart our program to discover antimitotics to treat cancer. If this happens, we hope that we will be able to discover some new antimitotic agents to address cancer through a potential collaboration with the University of British Columbia (UBC). This will allow us to pursue licensing opportunities with pharmaceutical companies. We are also exploring the opportunity to utilize the Hemox technology together with the antimitotic agents developed through this potential collaboration to advance the development of treatments for cancer. If the development of these cancer treatments is successful, we hope to explore potential partnering and licensing opportunities. We do not expect significant revenues from our CSF-based diagnostic to detect AD or our HEMOXygenation technology in the near term. There can be no assurance that we will raise a minimum of $3 million investment capital in 2003 or that adequate funds on acceptable terms will be available in the future when we need them. If at any time we are unable to obtain sufficient additional investment capital, we will be required to delay, restrict or eliminate some or all of our research or development programs, dispose of assets or technology or cease operations. 11 LIQUIDITY AND CAPITAL RESOURCES At March 31, 2003, our cash and cash equivalents were $472,519. As stated above in our Plan of Operations, we require a minimum capital investment of $3 million to fund day-to-day operations through 2003. Our current operations consist of continuation of the development of our Alzheimer's programs, limited pre-clinical activities for our tissue oxygenation programs in France and investment capital raising activities in the United States and Europe. We will need to raise significantly more than the $3 million to advance the clinical development of our technologies. The Company's current cash inflows are through investor funding, primarily equity investments and convertible debt investments. The Company's current cash outflows are primarily expenditures for research and development activities and management and overhead costs. We used cash in operating activities of $330,133 for the three months ended March 31, 2003 versus cash used in operating activities of $346,540 for the three months ended March 31, 2002. This decrease of $16,407 was comprised of higher cash outlays in 2003 for outside project and collaborator expenses, inclusion of our French subsidiary's operating expenses, and professional fees that were offset by a $200,000 payment received under a research agreement. In addition, cash outlays for payroll expense were higher in 2003 due to officer payroll deferrals in 2002 to conserve cash flow. Cash received from financing activities was $600,000 for the three months ended March 31, 2003 versus cash received from financing activities of $325,000 for the three months ended March 31, 2003. This increase was due to additional funds raised in 2003. ITEM 3. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures: An evaluation of Hemoxymed's disclosure controls and procedures (as defined in section13(a) - 14(c) of the Securities Exchange Act of 1934 (the "Act")) was carried out under the supervision and with the participation of Hemoxymed's Chief Executive Officer and Chief Financial Officer and several other members of Hemoxymed's senior management within the 90-day period preceding the filing date of this quarterly report. Hemoxymed's Chief Executive Officer and Chief Financial Officer concluded that Hemoxymed's disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by Hemoxymed in the reports it files or submits under the Act is (i) accumulated and communicated to Hemoxymed's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. (b) Changes in Internal Controls: In the quarter ended March 31, 2003, Hemoxymed did not make any significant changes in, nor take any corrective actions regarding, its internal controls or other factors that could significantly affect these controls. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - None ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None ITEM 5. OTHER INFORMATION - None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - None 12 SIGNATURE PAGE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HEMOXYMED, INC. Dated: May 12, 2003 By: /S/ DAVID ELLISON --------------------- Chief Financial Officer (Principal Accounting and Financial Officer) In connection with the Quarterly Report of Hemoxymed, Inc. (the "Company") on Form 10-QSB for the quarter ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned each hereby certifies, pursuant to 18 U.S.C ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (i) the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 12, 2003 /S/ BRUCE N. BARRON --------------------- Bruce N. Barron Chief Executive Officer /S/ DAVID ELLISON . ------------------ David Ellison Chief Financial Officer (Principal Accounting and Financial Officer) 13 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATE OF CHIEF EXECUTIVE OFFICER I, Bruce N. Barron, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Hemoxymed, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /S/ BRUCE N. BARRON -------------------- Bruce N. Barron, Chief Executive Officer Date: May 12, 2003 14 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATE OF CHIEF FINANCIAL OFFICER I, David Ellison, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Hemoxymed, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /S/ DAVID ELLISON ------------------ David Ellison, Chief Financial Officer Date: May 12, 2003 15