SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB __X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 OR ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________to ______________ Commission file number 000-26775 Samaritan Pharmaceuticals, Inc. ---------------------------------- (Exact name of Registrant as Specified in Its Charter) Nevada 88-0431538 (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 101 Convention Center Drive, Suite 310, Las Vegas, Nevada 89109 (Address of Principal Executive Offices with Zip Code) Registrant's Telephone Number, Including Area Code: 702-735-7001 ------------ --------------------------------------------------------------------- Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report Indicate by check mark whether the registrant (1) has 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 by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No __ ------- The number of shares of common stock issued and outstanding as of May 14, 2004 was 127,616,987 Transitional Small Business Disclosure Format (Check one): Yes No X ---- --- SAMARITAN PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Balance Sheet as of March 31, 2004 Consolidated Statements of Operations for the period from Inception (September 5, 1994) to March 31, 2004, and for the Three Months Ended March 31, 2004 and 2003 Consolidated Statements of Stockholders' Equity (Deficit) for the period from Inception (September 5, 1994) to March 31, 2004 Consolidated Statements of Cash Flows for the period from Inception (September 5, 1994) to March 31, 2004 and for the Three Months Ended March 31, 2004 and 2003 Notes to Interim Financial Statements Item 2. Management's Discussion and Analysis of Plan of Operations Item 3. Controls and Procedures PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 6. Exhibit 31.1 Exhibit 31.2 Exhibit 32.1 Signatures SAMARITAN PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET (UNAUDITED) March 31, 2004 ASSETS CURRENT ASSETS: Cash $ 3,786,549 Stock subscriptions receivable 2,029,543 Prepaid expenses 20,815 ------------------ TOTAL CURRENT ASSETS 5,836,907 ------------------ PROPERTY AND EQUIPMENT 38,335 ------------------ OTHER ASSETS: Patent registration costs 215,218 Purchased technology rights 39,051 Deposits 2,779 ------------------ TOTAL OTHER ASSETS 257,048 ------------------ $ 6,132,290 ================== LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable and accrued expenses $ 357,757 ------------------ TOTAL CURRENT LIABILITIES 357,757 ------------------ SHAREHOLDERS' DEFICIT: Common stock, 200,000,000 shares authorized at $.001 par value, 126,007,790 issued and outstanding 126,007 Additional paid-in capital 31,482,622 Stock subscriptions receivable (1,440,787) Treasury stock (250,248) Deficit accumulated during development stage (24,143,061) ------------------ TOTAL SHAREHOLDERS' DEFICIT 5,774,533 ------------------ $ 6,132,290 ================== See accompanying notes to the consolidated financial statements (unaudited). F-3 SAMARITAN PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FROM INCEPTION (SEPTEMBER 5, 1994) TO MARCH 31, 2004 AND FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 From Inception (September 5, 1994) To Three months ended March 31 March 31, 2004 2004 2003 ------------------ ------------ ------------- REVENUES: $ 300,000 $ - $ - ------------------ ------------ ------------- EXPENSES: Research and development 4,844,702 105,153 187,695 Interest, net 50,006 - 3,947 General and administrative 18,558,829 716,744 439,998 Depreciation and amortization 1,127,304 6,688 6,337 Forgiveness of debt (137,780) - - ------------------ ------------ ------------- 24,443,061 828,585 637,977 ------------------ ------------ ------------- NET LOSS $ (24,143,061) $ (828,585) $ (637,977) ================== ============ ============= Loss per share, basic and diluted $ (0.95) $ (0.01) $ (0.01) ================== ============ ============= Weighted average number of shares outstanding: Basic and diluted 25,361,063 108,951,996 66,635,265 ================== ============ ============= See accompanying notes to the consolidated financial statements (unaudited) F-4 SAMARITAN PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (UNAUDITED) FROM INCEPTION (SEPTEMBER 5, 1994) TO March 31, 2004 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 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 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 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 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 21,534,807 21,535 - 9,390,184 - See accompanying notes to the consolidated financial statements.(unaudited) F-5 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 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 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 0 0 - 0 - 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 106,214,833 $ 106,214 $ - $24,852,369 $ - ============ ========== ========== ============ =========== Shares issued for cash, net of offering costs 9,183,236 9,183 - 3,204,950 - Shares issued as compensation 597,341 597 - 351,878 - Shares issued for previously purchased shares 83,332 83 - 12,417 - Shares issued in connection with equity financing 7,758,240 7,758 - 2,742,241 - Exercise of stock options 2,170,808 2,171 - 318,768 - Stock options issued for services - - - Net Loss - - - ------------ ---------- ---------- ------------ ----------- March 31, 2004 126,007,790 $ 126,007 $ - $31,482,622 $ - ============ ========== ========== ============ =========== See accompanying notes to the consolidated financial statements.(unaudited) F-5 SAMARITAN PHARMACEUTICALS, INC. (A DEVELOPMENT STATE COMPANY) CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT FROM INCEPTION (SEPTEMBER 5, 1994) TO DECEMBER 31, 2003 Stock Total Deferred Subscriptions Treasury Accumulated Shareholders' Compensation 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 - - - (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 - - - (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 - - - (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 - - - (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 (759,560) - - (9,656,986) (1,004,827) See accompanying notes to the consolidated financial statements.(unaudited) F-5 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 (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 (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 $ - $(1,119,848) $ (250,248) $(23,314,476) $ 274,011 =========== ============ =========== ============= =============== Shares issued for cash, net of offering costs - - - - 3,214,133 Shares issued as compensation - - - - 352,475 Shares issued for previously purchased shares - - - - 12,500 Shares issued in connection with equity financing - - - - 2,749,999 Exercise of stock options - (320,939) - - - Stock options issued for services - - - - - Net Loss - - - (828,585) (828,858) ----------- ------------ ---------- ------------- --------------- March 31, 2004 - $(1,440,787) $(250,248) $(24,143,061) $ 5,774,533 =========== ============ ========== ============= =============== See accompanying notes to the consolidated financial statements.(unaudited) F-5 SAMARITAN PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FROM INCEPTION (SEPTEMBER 5, 1994) AND FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 From For the Three Months Inception Ended (September 5, 1994) March 31 To ------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: March 31, 2004 2004 2003 ---------------------- ------------- --------------- Net loss $ (24,143,061) $ (828,585) $ (637,977) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 136,303 6,688 6,338 Stock based compensation 9,687,544 352,475 - Stock options issued for services 809,544 - - Amortization of deferred compensation 990,072 - - (Increase) decrease in assets: - - Accounts receivable and prepaids (18,335) 442 (4,350) Deposits (2,779) - - Increase (decrease) in liabilities: - - Deferred revenue - - - Accounts payable and accrued expenses 2,218,571 (30,553) 79,937 ---------------------- ------------- --------------- NET CASH USED IN OPERATING ACTIVITIES (10,322,141) (499,533) (556,052) ---------------------- ------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of technology (108,969) - - Purchase of furniture and equipment (104,720) (6,073) (5,474) Patent registration costs (224,637) (13,020) (2,410) ---------------------- ------------- --------------- NET CASH USED IN INVESTING ACTIVITIES (438,326) (19,093) (7,884) ---------------------- ------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from warrants 157,125 - - Proceeds from debentures 642,120 - - Proceeds from stock issued for cash 12,217,221 3,934,590 301,000 Common stock to be issued 206,050 - 214,700 Short-term loan repayments (288,422) - (21,065) Short-term loan proceeds 1,612,922 - - ---------------------- ------------- --------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 14,547,016 3,934,590 494,635 ---------------------- ------------- --------------- CHANGE IN CASH 3,786,549 3,415,964 (69,301) CASH AT BEGINNING OF PERIOD - 370,585 357,826 ---------------------- ------------- --------------- CASH AT END OF PERIOD $ 3,786,549 $ 3,786,549 $ 288,525 ====================== ============= =============== NON-CASH FINANCING & INVESTING ACTIVITIES: Purchase of net, non-cash assets of subsidiary for stock $ 195 $ - $ - ====================== ============= =============== Issuance of common stock, subscriptions receivable- private placement $ 2,029,543 $ 2,029,543 $ - ====================== ============= =============== Issuance of common stock, previously subscribed $ - $ 12,500 $ - ====================== ============= =============== Treasury stock acquired through settlement of judgement $ - $ - $ - ====================== ============= =============== Stock subscriptions receivable $ 1,440,787 $ 320,939 $ - ====================== ============= =============== Stock issued in cancellation of accounts payable and accrued salaries $ - $ - $ - ====================== ============= =============== See accompanying notes to the consolidated financial statements (unaudited) F-6 Samaritan Pharmaceuticals, Inc. Notes to Consolidated Financial Statements (Unaudited) March 31, 2004 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-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all the information and disclosures required for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes for the year ended December 31, 2003, included in the Form10-KSB for the year then ended. In the opinion of the Company's management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as of March 31, 2004, and the results of operations and cash flows for the three month period ending March 31, 2004 have been included. The results of operations for the three month period ended March 31, 2004 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-KSB/A as filed with the Securities and Exchange Commission for the year ended December 31, 2003. Note 2 - Stock Subscriptions Receivable The subscriptions receivable classified as a current asset at March 31, 2004 were collected on various dates between April 1, 2004 and April 26, 2004. Item 2. Management's Discussion and Analysis or Plan of Operation THE FOLLOWING ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO OF THE COMPANY, CONTAINED ELSEWHERE IN THE FORM 10-QSB. General Samaritan Pharmaceuticals is a Biopharmaceutical Company that focuses on bridging University bright ideas through drug development, thereby, creating a path for promising new innovative drugs to become commercially viable products. Samaritan's HIV drug is the closest to commercialization, having completed Phase II human clinical trials, with significance in demonstrating antiviral properties and increasing the quality of life. Samaritan plans to advance its HIV drug to Phase III trials as soon as the FDA clears its proposed protocol. In addition, Samaritan is advancing a growing pipeline of future drugs for AIDS, Alzheimer's, and Cardiovascular disease through preclinical trials, in preparation, for future growth, under its collaboration with Georgetown University. A key currency in the biotechnology and pharmaceutical market is patents, intellectual property. Our central intellectual property activity has been, and continues to be, the acquisition of patents, development, and patent maintenance, directly in support of our product development. We continue to expend significant funds and efforts on licensed technology and patent protection. In addition, we are continually examining our intellectual property positions in relation to competitive activities and our ability to operate and defend our patent positions in relation to products. We believe that this is a key value element for our continued development. Samaritan Pharmaceuticals Product Pipeline xxx = Completed x = In Progress Drug Candidates Patent Pre -Clinical IND Phase I Phase II Phase III ----------------------------------------------------------------------------------------------------------- HIV.Procaine HCl (SP-01) xxx xxx xxx xxx xxx HIV, Alzheimer's(AD), Dementia.(SP-10) x x HIV, AD.(SP-02 to 25) x x HIV, AD.(SP-26 to 50) x x Alzheimer's.(SP-222) x x Alzheimer's.(SP-233) x x Alzheimer's.(SP234-250) x x Nerve Gas Inhibitor.(SP-04) x Stem Cell Therapy.(SP-sc2) x x Stem Cell Therapy.(SP-sc7) x x Cancer.(SP-222c) x x Cancer.(SP-234c-250c) x x Cancer Diagnostic and Drug. (SP-5000) x x Pharmacologic AD Rat Model Alzheimer's Rat Model. (New Drug Test) In Vitro Testing In Vivo Testing --------------------------------------------------------------------------------------- xxx xxx Diagnostics In Vitro Human Human Testing Test Small Test Large ----------------------------------------------------------------------------------------- Breast Cancer.(BC Tumor Agress-Analysis) xxx xxx x Alzheimer's.(AD Blood Test Diagnostic) xxx xxx x Alzheimer's Generation II xxx xxx Alzheimer's Generation III xxx Current Research Agreement Samaritan Pharmaceuticals has a research collaboration agreement with Georgetown University with the objectives: (1) to develop "one molecule" drugs and extend clinical studies to in vivo experiments in animal models simulating Alzheimer's disease, (2) to develop an accurate, reliable diagnostic for nuero-degeneration (Alzheimer's), and (3) to focus on new drug development in Oncology and Neurology with the ability to protect the brain from neuronal damage and tumor growth. Starting with the quarter beginning April 1, 2004, the research collaboration between Georgetown University and Samaritan budget has been increased to $1,000,000 per year to further develop Samaritan's pipeline. The $1,000,000 is paid quarterly, is unallocated, and covers the general research and development effort. In addition, we have incurred direct research and development expenses of approximately $350,000 for each of the last two fiscal years related primarily to clinical trials and the retention of consultants to assist in the FDA process. Under the agreement, 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 their team of seven research professionals (including five 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 any milestone payments. Georgetown is entitled to receive royalties based on our revenue from product sales and sublicenses, if any. Samaritan has, at its own expense, assumed responsibility 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 responsibilities for the prosecution and maintenance in respect to any patent rights related to the licensed technology. SIGNIFICANT ACCOUNTING POLICIES A summary of significant accounting policies is included in Note 3 to the audited consolidated financial statements included in the Company's Annual Report on Form10-KSB for the year ended December 31, 2003. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the company's operating results and financial condition. Results of Operations Three months ended March 31, 2004 as compared to the three months ended March 31, 2003 The Company continued to have no significant revenues. During the first quarter of 2004, we continued our research and development efforts in connection with our products for HIV/AIDS. We incurred research and development expenses of $105,153 for the quarter; down from $187,695 in the year-earlier period. General and administrative expenses for the first quarter of 2004 increased by $276,746 to $716,744 from $439,569 in the year-earlier period primarily due to the increased expenses related to patent prosecution and the increased use of consultants to the company. Depreciation and amortization amounted to $6,668 and $6,337 for three months ended March 31, 2003 and 2002, respectively. Interest expense amounted to $0 and $3,947 for the three months ended March 31, 2004 and 2003, respectively. The decrease is due to the retirement of notes payable during 2003. As a result of the factors noted above, net losses since inception on September 5, 1994 to March 31, 2004 was $24 million. We had net losses of $(828,585) and $(637,977) for three months ended March 31, 2004 and 2003, respectively and the loss per share save the same at $(0.01) per share in the year-earlier period. Liquidity and Capital Resources To date, none of our proprietary products has reached a commercial stage, and hence, we do not have, nor do we 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 collaboration with Georgetown University, and patent prosecution. We have funded our operations through a series of private placements and through our agreement with Fusion Capital dated April 22, 2003, described below, which we believe will assist the Company in meetings its cash needs. Except for an agreement to sell shares to Fusion Capital, discussed below, no commitment exists for continued investments, or for any underwriting. Even with our financing arrangement with Fusion Capital, we may require substantial additional funds to sustain our operations and to grow our business. The amount of which will depend, among other things, on the rate of progress and the cost of our research and product development programs and clinical trial activities, the cost of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights, and 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 and may be expected to utilize $5 to $20 million over a three to six 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 that we will be able to do so in the event we seek to do so. We need to obtain additional funds to develop our therapeutics 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 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 and the extent to which we are able to secure working capital from other sources. If obtaining sufficient financing from Fusion Capital were to prove prohibitively expensive, we will need to secure another source of funding in order to satisfy our working capital needs. Even if we are able to access the full $10.0 million under the common stock purchase agreement 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 certain of our 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, any of which might have a material adverse effect upon us. 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 be a material adverse effect on our business, operating results, financial condition, and prospects. We have been able to substantially meet our cash needs during the past 12 months. We believe we will be able to continue to find avenues to obtain the capital needed for our operations through private placements and by sale of our shares to Fusion Capital. Forward-Looking Statements. This report and other oral and written statements made by us to the public contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based upon management's current expectations that are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in our forward-looking statements. Such statements address the following subjects: our need for and ability to obtain additional capital, including from the sale of equity and/or from federal or other grant sources; our expected future losses; the sufficiency of cash and cash equivalents; our ability to generate revenues; our ability to develop commercially successful products, including our ability to obtain FDA approval to initiate further studies of our potential products and our technologies; the high cost and uncertainty of the research and development of pharmaceutical products; the unpredictability of the duration and results of the U.S. Food and Drug Administration's review of new drug applications; the possible impairment of our existing, and the inability to obtain new, intellectual property rights and the cost of protecting such rights as well as the cost of obtaining rights from third parties when needed on acceptable terms; our ability to enter into successful partnering relationships with respect to the development and/or commercialization of our product candidates; our dependence on third parties to research, develop, manufacture and commercialize and sell any products developed; our ability to improve awareness and understanding of our Company, our technology and our business objectives; whether our predictions about market size and market acceptability of our products will prove true; and our understandings and predictions regarding the utility of our potential products and our technology. Statements in this report expressing our expectations and beliefs regarding our future results or performance are forward-looking statements that involve a number of substantial risks and uncertainties. When used in this Form 10-KSB, the words "anticipate," "believe," "estimate," "expect," "intend," may be," "seek," "plan," "focus," and "potential" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Our actual future results may differ significantly from those stated in any forward-looking statements. As a result of the foregoing and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect our business, financial condition, operating results and stock price. We are not under any duty to update any of the forward-looking statements in this report to conform these statements to actual results, unless required by law. For further information, refer to the more specific risks and uncertainties discussed above and throughout this report. Item 3. Controls and Procedures Based on their evaluation, as of a date within 90 days of the filing date of this Form 10-QSB, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) are effective. There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION Item 1. Legal Proceedings. We are, from time to time, involved in various legal proceedings in the ordinary course of our business. While it is impossible to predict accurately or to determine the eventual outcome of these matters, the Company believes that the outcome of these proceedings will not have a material adverse effect on the annual financial statements of the Company. Item 2. Changes in Securities. Securities, unregistered, were sold by the Company in the first quarter of 2004 under an exemption from registration. The title of these securities was the Common Stock of the Company. They were sold for cash unless otherwise noted in this section. They were sold in private transactions to persons believed to be of a class of private investors acting on their own comprised of "accredited investors" (as such term is defined in Regulation D of the U.S. Securities and Exchange Commission or "SEC") and a limited number of non-accredited investors. All investors, to the best knowledge of the Company, not affiliated with the Company, purchased the shares with apparent investment intent. 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 legended 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 SEC. Management notes that stock was issued as follows during the three months ended March 31, 2004. No. of shares Issued Pursuant To Price/valuation ------------- --------------- ---------------------- 3,384,591 Sale of restricted stock $1,184,590 5,798,645 Subscriptions due at March 31, 2004 $2,029,543 The total offering price, during the first quarter as to these shares, was $3,214,133 less expenses, estimated the total to be $7,000 for printing, legal, postage, and other expenses related to respective offering. The SEC declared effective the Company's registration statement on Form SB2, Commission Registration No. 333-105818, on June 6, 2004 (as amended and supplemented from time to time, "Registration Statement"). Under the Registration Statement, certain selling shareholders may sell shares of Common Stock, acquired from the Company. The Company will not receive any proceeds from the sale of securities being offered by the selling shareholders under the Registration Statement. The Company registered the shares for sale to provide the selling shareholders with freely tradable securities, but the registration of the shares does not necessarily mean that any of the shares will be offered or sold by the selling shareholders. However, we may receive payments under agreements relating to the shares and may receive proceeds from the exercise of warrants. Such proceeds are intended for use as to working capital and other corporate purposes. The Registration Statement registered a total of 18,125,000 shares (inclusive of the 3,125,000 shares issued to Fusion Capital as a commitment fee) assuming Fusion Capital purchases all $10.0 million of common stock. The amount of shares sold by the selling shareholders during this quarter is believed to be for aggregate proceeds of $2,750,000. The Company received, under its agreements as noted above, proceeds of $2,750,000 and incurred, in connection with the registration, estimated expenses of $12,000 for legal, printing, and related offering expenses, with net proceeds to the Company of approximately $2,738,000 used primarily for working capital, legal fees and for payments to Georgetown University (again not from the sale of the securities under the Registration Statement, but from agreements with the selling shareholders). Item 6. Exhibits and Reports on Form 8-K. (b) Exhibits Exhibit 31.1 Exhibit 31.2 Exhibit 32.1 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SAMARITAN PHARMACEUTICAL, INC Dated: May 14, 2004 By: /s/ Eugene Boyle ------------ Eugene Boyle, CFO, COO, Director