<PAGE>2
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10SB/A
AMENDMENT 4
General Form for Registration of Securities of Small
Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
INFECTECH, INC.
(Exact name of Small Business Issuer in its charter)
DELAWARE 34-1760019
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Suite Two, 87 Stambaugh Avenue, Sharon, PA 16146
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (724) 346-1302
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 par value
Forward-Looking Statements and Associated Risk. This Registration
Statement, including the information incorporated herein by reference,
contains forward-looking statements including statements regarding,
among other items, Infectech's growth strategies, and anticipated
trends in Infectech's business and demographics. These forward-
looking statements are based largely on Infectech's expectations and
are subject to a number of risks and uncertainties, certain of which
are beyond Infectech's control. Actual results could differ
materially from these forward-looking statements.
<PAGE>3
ITEM 1. DESCRIPTION OF BUSINESS
A. Infectech was incorporated in June 1989 under the laws of the
State of Delaware. Drs. Felder and Ollar began discussions on
obtaining patents for important bacterial pathogens that utilized
paraffin as their sole carbon source. They believed a method could be
found to identify these faster and the symptoms treated more
efficiently and effectively, thereby reducing the time patients spent
being diagnosed for these illnesses. Infectech engaged in research
and obtaining patents which we successfully began to obtain with our
first patent being issued in 1992. We conducted additional research
over several years leading to the development of more patents related
to the use of paraffinophilic (paraffin-eating) bacteria which would
then be used in testing devices, so that the presence of harmful
bacteria could be more quickly detected then by conventional methods.
In 1995, Infectech began testing and research at a laboratory facility
in Milford, PA under the direction of Dr. Ollar. From 1995 to the
present, Infectech has maintained the laboratory at which Dr. Ollar
conducts research on the existing technology and developing related
applications.
On November 19, 1996, the Articles of Incorporation were amended to
increase the authorized shares from 120,000 to 20,000,000 and a 50 to 1
stock split was declared. Infectech has remained a development stage
company engaged in research and development of diagnostic tests and
therapeutics for infectious human diseases. Infectech has obtained 30
patents on this technology. Infectech's technology has extended to the
field of environmental bio-remediation which is the nontoxic
degradation of pollutants and other harmful substances utilizing the
same bacteria used in the medical diagnostic kit. Infectech has also
applied this technology to a cancer therapy known as apoptosis
involving the destruction of harmful cancer cells.
Infectech is registering our common stock under the Exchange Act of
1934 to be eligible for the quotation of our stock on the NASD Bulletin
Board.
The Infectech Method. Infectech's research regarding paraffin
as a sole carbon source led to the concept that paraffin-coated glass
slides may be used to grow, identify and perform antibiotic sensitivity
assays on paraffinophilic bacteria. Paraffinophilic bacteria are
bacteria that use paraffin as their sole food source. Infectech then
developed a technology that employs a paraffin carbon source that
enables viable or living paraffinophilic organisms to be separated from
viable non-paraffinophilic bacteria and from non-viable or dead
bacteria. In this method only viable paraffinophilic bacteria grow on
the paraffin coated glass slides. Those living or viable bacteria
found on the surface of the paraffin coated slides may be stained and
examined microscopically to determine the presence of suspect
pathogens, or disease carrying organisms.
Having identified the disease-causing bacterium, providing a patient
cure is the next step. In a manner similar to identification of the
pathogen, tests are conducted with a separate series of tubes
containing antibiotics. Macroscopic and microscopic examination of the
paraffin-coated slides indicate those tubes where there is an absence
of bacterial growth on the paraffin slide surface. Such absence means
that the antibiotic in question was able to kill the pathogen at a
particular concentration of antibiotic. Infectech's patented
technology will enable the medical community to conduct antibiotic
sensitivity testing upon a pathogen once it has been identified,
thereby enabling a more rapid and effective treatment of bacterial
infections. This enables the hospital or doctor to determine the most
appropriate antibiotic to use as well as the most effective in treating
the patient.
Infectech's paraffin slide culture technology provides a simple and
inexpensive method for isolating, identifying and performing antibiotic
sensitivity testing of paraffinophilic pathogens in markets ranging
from the largest metropolitan urban hospitals to modest third world
field laboratories. Of particular benefit to small hospitals, medical
centers and third world field laboratories is the potential of using a
variety of body fluids and fecal matter to provide samples for
identification. The convenience, efficiency, and safety of this method
also provide enhanced safety to the patient because of the non-
intrusive nature of gathering the samples.
<PAGE>4
The IDENTIKIT TM process, from the perspective of the physician and the
patient, will operate relatively simply. For example, a patient enters
a hospital with serious burns. Since burn patients are at high risk
for bacterial infection including Pseudomonas, a bacteria which causes
pneumonia, blood poisoning and other life-threatening disease, the
physician will order a sample of blood or sputum to be taken from the
patient. The sample will then be added to a series of test tubes
containing Infectech's patented growth media. Paraffin slides are then
added to the tube, and, with respect to Pseudomonas, for example,
within 24 hours (using the IDENTIKIT TM) a laboratory technician will
be able to observe the growth of bacteria on the paraffin and perform
biochemical tests on it which will enable the identification,
specification and antibiotic sensitivity testing of the patient's
strain of Pseudomonas. The physician will then be able to administer
the most appropriate antibiotic treatment.
Since 1997, Infectech has obtained over two dozen additional patents
and has begun to use the Infectech technology at several research
hospital facilities in the United States. Infectech has also
developed applications of its technology in the non-medical use of
environmental bio-remediation. In this application, the Infectech
method is used to produce bacteria which feeds upon certain toxic
pollutants. This allows the bio-remediation (or biological cleanups)
of polluted areas and such harmful substances as TCE (tri-
chloroethylene). Infectech has entered into a licensing agreement
with a bio-remediation firm actively engaged in this field.
Products. IDENTIKIT TM. Infectech intends to offer two types of
IDENTIKITs TM, one utilizing non-genetic microbiology and one utilizing
genetic and amplification technology. Both types of IDENTIKITs TM will
be used for all applications outside of the body in a noninvasive
technique and may be used without additional specialized equipment.
Both types of IDENTIKITs TM can be used for identification,
specification and antibiotic sensitivity testing.
Both types of IDENTIKITs TM, non-genetic and genetic amplification
technology can be tailored with design, composition and instructions
intended to meet specific customer requirements in identifying one or
more of the paraffinophilic, non-paraffinophilic and non-
paraffinophic/hydrophobic (water repellent) microorganisms. The price
of each kit will be dependent on the number of paraffinophilic
microorganisms to be tested by the kit. For example, the cost of a kit
designed to identify all known paraffinophilic microorganisms will
exceed the cost of a kit specifically designed to identify one
microorganism (e.g. an MAI IDENTIKIT TM).
The Non-genetic Microbiology Identification (NMI) IDENTIKIT TM is of a
standard design and suitable for identifying any number of
paraffinophilic, nonparaffinophilic or nonparaffinophilic/hydrophobic
microorganisms. This kit is suitable for 100 tests. The anticipated
list price of the kit for this testing of one of the disease causing
organisms is $200.00.
The Non-genetic Microbiology Antibiotic Sensitivity (NMAS) IDENTIKIT TM
is designed for determining the effectiveness of a drug or bacteria for
a paraffinophilic microorganism. Any number of paraffinophilic
microorganisms may be tested. This kit is also suitable for 100 tests
and can be shipped from stock. The anticipated list price of the kit
determining the effectiveness of a drug or bacteria is approximately
$300.00.
The Non-genetic Microbiology Antibiotic Sensitivity for
NonParaffinophilic Hydrophobic Organisms (NMAS) IDENTIKIT TM is
designed for determining antibiotic sensitivity for a specific
nonparaffinophilic/hydrophobic microorganism. This kit is also
suitable for 100 tests and can be shipped from stock. The anticipated
list price of this kit is approximately $300.00.
The Non-genetic Microbiology Antibiotic Sensitivity for Several
Organisms (Paraffinophilic, Nonparaffinophilic,
Nonparaffinophilic/hydrophobic) is designed for determining antibiotic
sensitivity for several organisms (user's choice of organism). This
kit is also suitable for 100 tests and will be approximately $500.00
list price.
No additional research or development is necessary to complete the non-
genetic paraffinophilic kits. Additional research is presently ongoing
for the nonparaffinophilic and nonparaffinophilic/hydrophobic
<PAGE>5
non-genetic kits. This research is currently being conducted at the
VA Medical Center in New York City and at Infectech's laboratory in
Milford, Pennsylvania. However, the manufacturing, marketing and
sales will need to occur through a relationship with a large
international corporation. See "Sales and Marketing." Once such
relationship is established, sales of the non-genetic kit can begin in
overseas markets and domestic experimental markets for use in
laboratory research. With the exception of experimental markets, sales
in the U.S. cannot occur until FDA approval is granted.
Infectech has begun to obtain the requisite number of clinical trials
at the VA Medical Center in New York. We intend to obtain the
required clinical trials and to submit application for a 510-K (90 day)
approval from the United States Food and Drug Administration.
Genetic Based Probe/Amplification Technology for Identification (PATID)
is designed to rapidly identify specific microorganisms. The kit is a
genetic based system and components are specific for the type of
organisms to be scanned for. One kit is suitable for 100 tests.
Genetic Based Probe/ Amplification Technology for Antibiotic
Sensitivity (PATAS) is designed to perform rapid antibiotic sensitivity
testing for specific microorganisms. The kit genetic based procedure
and components are specific for a type of organism to be assayed for
antibiotic sensitivity testing. One kit is suitable for 100 tests.
By using Infectech's non-genetic IDENTIKITs TM, physicians will be
given better data earlier about their patients' conditions, freeing
them to make more effective treatment decisions. The following chart
illustrates comparisons of Infectech's method with conventional testing
for two life-threatening diseases.
<TABLE>
<S> <C> <C> <C> <C>
Infectech
Genetic
Infectech IDENTIKIT
Conventional Conventional Genetic Antibiotic
Method of Antibiotic IDENTIKIT Sensitivity
Identification Sensitivity Identification Testing
Mycobacterium
avium-intracellularae
(MAI) 8-30 days An additional 18-25 days 4-21 days total 8 days
Pseudomonas 24-48 hours An additional 24-48 hours 24 hours total 24 hours
</TABLE>
MAI is an infection which affects organs, often the respiratory and
gastrointestinal tracts of AIDS patients and is often fatal.
Pseudomonas is a disease-causing bacteria which affects cystic-
fibrosis, burn unit patients and other persons suffering from immune
deficiencies resulting in serious illness and death.
Infectech believes that its patented testing method may be the only one
available, which can be successfully used with amplification techniques
for rapid antibiotic sensitivity testing. As a result, Infectech is
presently performing experimentation to combine its patented method
with amplification techniques in an easy-to-use amplification IDENTIKIT
TM, resulting in even more accelerated identification and antibiotic
sensitivity testing, as the following chart illustrates:
<TABLE>
<S> <C> <C> <C> <C>
Infectech
Genetic
Infectech IDENTIKIT
Conventional Conventional Genetic Antibiotic
Method of Antibiotic IDENTIKIT Sensitivity
Identification Sensitivity Identification Testing
MAI 8-18 days An additional 18-25 days 48-96 hours 48-72 hours
Pseudomonas 24-48 hours An additional 24-48 hours 24 hours total 24 hours
</TABLE>
MD Diagnostics. In 1999, Infectech became interested in the use of
the Internet for its diagnostics. Management believed that the
Internet offered an excellent method of interpreting microbiology test
results over distances for its own tests and other medical tests.
<PAGE>6
Infectech formed MD Diagnostics-com, Inc. in the state of Delaware on
April 2000. MDD-com is developing a business plan that would offer
medical diagnostic second opinions using specialists who would
interpret a variety of medical tests, including CAT scans, EKGs and
other tests. The MDD-com activities are not limited to Infectech-
based medical technology and will be a resource for a wide range of
medical tests.
The Market. Markets for the Identikits TM include hospitals,
clinical laboratories, medical research institutions, medical schools,
pharmaceutical companies and physician's offices. There are over 9,000
hospitals and medical laboratories in the United States, all of which
are logical customers for the Identikit TM products. It is anticipated
that the Identikit TM can capture a large percentage of the worldwide
market for identification of paraffinophilic pathogens due to its low
cost and the rapidity with which an assay can be completed.
At present, before FDA approval, both the non-genetic and the genetic
amplification kit can be sold in overseas markets subject to regulatory
requirements in a particular country, which vary. It can also be sold
in domestic experimental markets for use in laboratory research.
Marketing and Sales. Infectech is positioning itself to capture
the market for MAI and Tuberculosis bacteria diagnosis and antibiotic
sensitivity testing. Prior to the AIDS epidemic, MAI was a rare
disease. After the advent of widespread AIDS infection, MAI was found
to infect AIDS patients at a very high rate. According to the World
Health Organization (Global Tuberculosis Control: March 1999) world
health authorities have estimated that more than 70% of AIDS patients
harbor an MAI infection. MAI affects the bone marrow, spleen, liver
and lungs. It compromises the lymph nodes, thereby further destroying
the patient's immune system. MAI also causes opportunistic
infections among non-HIV infected children and the elderly. MAI is
believed to be a major contributor to AIDS wasting syndrome. Based on
in-house research, in addition to MAI, there are at least 20 other
disease-causing paraffinophilic bacteria for which Infectech's
Infectech method can be utilized.
Infectech initially plans to market its products through licensing and
distribution arrangements with large, well-established medical
diagnostic companies. Infectech's markets will potentially include
hospitals, clinical laboratories, medical research institutions,
medical schools, pharmaceutical companies (antibiotic sensitivity
testing methodology can be used to create new drugs to treat
paraffinophilic microorganisms), and physicians' offices.
Any contractual arrangements with others concerning the marketing and
distribution of its products may result in a lack of control by
Infectech over any or all of the marketing and distribution of such
products. Although Infectech is currently engaged in preliminary
efforts to establish such marketing arrangements, there can be no
assurance that Infectech will be able to enter into any such
arrangements on terms acceptable to Infectech, or at all.
As part of its overall service to the technical medical community,
Infectech is prepared to offer workshops and consultation in the
general area of medical diagnostics. While these two activities are
not large, they will produce minor amounts of revenue, but more
importantly will serve as the focal point for the dissemination of
information and training required for Infectech's. technology.
Infectech's future growth and profitability will depend, in large part,
on the success of its personnel and others in fostering acceptance by
the medical community. Such acceptance will be substantially dependent
on educating the medical community as to the distinctive
characteristics and perceived benefits of Infectech's proposed
products. There can be no assurance that Infectech's efforts or those
of others will be successful, or that any of its products will receive
the necessary acceptance by the medical community.
Potential Markets for Infectech's Technology.
Diagnostics. Infectech believes that significant demand exists
for an inexpensive diagnostic test for pathogens that
- does not need highly skilled manpower or technology to isolate
and distinguish deadly bacteria
- produces results rapidly and accurately,
- limits pre-preparation requirements,
<PAGE>7
- tests a broad range of specimens and
- assays for antibiotic sensitivity to determine the optimal
treatment method.
Infectech believes that its patented slide culture technology meets
these requirements.
Infectech's technology provides for rapid and accurate identification
of at least 20 life-threatening paraffinophilic pathogens. These
pathogens include Pseudomonas, the major cause of death in intensive
care and burn units and the second leading cause of death in cancer
patients, Mycobacterium Avium Intracellular ("MAI"), the bacterial
infection most often associated with AIDS in the developed world) and
Mycobacterium Tuberculosis, a non-paraffinophilic hydrophobic pathogen
that can be grown via Infectech's technology. Mycobacterium
Tuberculosis is the causative agent of tuberculosis, the world's
deadliest infection. Each year in the United States alone, more than
10,000,000 tests are conducted for Mycobacterium Tuberculosis,
5,000,000 tests are conducted for Pseudomonas and more than 1,000,000
tests are conducted for MAI.
Using Infectech's patented slide-culture technology in combination with
gene amplification methodologies, life-threatening bacteria can rapidly
be identified. Using Infectech's proprietary baiting technology, the
efficacy of potentially appropriate antibiotics (e.g., penicillin) to
treat for these bacteria can be tested through rapid, inexpensive
antibiotic sensitivity tests. Infectech believes that its patented
testing method may be the only method available that can be
successfully used with amplification techniques for rapid antibiotic
sensitivity testing.
According to the World Health Organization, approximately 1.7 billion
people worldwide carry the Tuberculosis bacterium which equals
approximately 1 in 3 persons in the world. Although the majority of
these cases are in underdeveloped and developing countries, it is
thought by experts that as many as 10 million Americans may be infected
with TB. (Global Tuberculosis Control: March 1999)
This widespread health problem indicates a huge need for diagnostic
testing of those infected individuals. At an average testing cost of
merely $.45 per individual, a potential global market of at least $200
million exists.
Infectech is positioning itself to capture a significant share of the
market for MAI and Tuberculosis bacteria diagnosis and bacteria
sensitivity. Historically, the search for MAI and other members of the
genus Mycobacterium Tuberculosis has been very difficult. These
organisms grow slowly, and specimens require rigorous preparation to
prevent overgrowth of other more rapidly growing organisms often found
co-existing in specimens. Handling of mycobacterial specimens has
required highly-trained technicians and specialized equipment. This is
not true of Infectech's technology. The Identikit is a self-contained
testing device which requires little preparation. The sample is
simply added to the test tube. It is sealed and then examined. The
examination can be performed by any laboratory technician who need only
analyze the visual results on the test tube slide.
In addition, Infectech's technology permits sampling of a variety of
tissues, not just blood or sputum. Although MAI forms in the
gastrointestinal tract, physicians using conventional methods are
unable to detect the bacteria until they reach the bloodstream. Using
Infectech's technology, physicians will be able to analyze fecal matter
or urine to detect MAI where it begins, in the gastrointestinal tract
thereby leading to earlier treatment of the disease. Management is of
the opinion that the convenience, efficiency and safety of Infectech's
patented slide culture technology will provide enhanced safety for
patients because of the non-invasive nature of required procedures.
Management believes that its slide-culture technology also can be used
to detect the presence of non-paraffinophilic bacteria through use of
non-paraffin-based carbon coatings in a clean-room environment and
sampling of certain body fluids such as blood and spinal fluid.
The Infectech patented technology of paraffin slide culture does not
require the use of highly skilled manpower. Infectech's advantages in
this user-friendly method are:
<PAGE>8
1. Eliminates the need for many processing steps currently needed to
decontaminate and concentrate specimens. Since only a few types of
organisms grow on paraffin, overgrowth due to specimen contamination is
not a problem. This avoids the need for highly-trained
mycobacteriologists who are customarily required to manipulate the slow
growing organisms.
2. The system eliminates the need for expensive and sophisticated
machinery like centrifuges.
3. As a self-contained system, the Infectech technology can be used
even in facilities in which electrical power and refrigeration are not
available. The test media utilized can be stored in a dehydrated
state at room temperature.
In addition, Infectech has filed a patent for a method of inducing
apoptosis, a method of controlled cell-death or cell "suicide", with
hydrophobic hydrocarbons, notably paraffin. Many types of cancer
therapy use drugs to kill cells. The use of paraffin to induce cell
death has important advantages, since paraffin is non-toxic and its
effect is local. Dr. Richard A. Lockshin, Ph.D., of St. John's
University, President of the Cell Death Society, has agreed to
collaborate with Infectech on electron microscopy work necessary on
this project.
Bio-remediation of Chlorine-contaminated Aquifers, Air and Soil.
Infectech believes that its utility patent for use of Compound C in
baiting paraffinophilic micro-organisms has broad application in
environmental bio-remediation of chlorine compounds such as
TriChloroEthylene. Infectech has granted a world wide exclusive
license to use this technology for bio-remediation to a Hermitage
Pennsylvania-based company, Bio-remedial Technologies, Inc. BRT
received a $250,000 grant from the state of Pennsylvania to treat
contaminated air streams containing styrene and other hazardous air
pollutants identified by the United States Environmental Protection
Agency, utilizing Infectech's patented technology in 1998. BRT
continues to use the Infectech method in its TCE degradation.
Veterinary Applications. Infectech intends to develop a kit to test
for Johne's Disease (caused by Mycobacterium Paratuberculosis) in
cattle, a possible cause of Crohn's Disease in humans. Federal Drug
Administration approval is not required for this product.
Proprietary Slide-culture Technology. Infectech has found that
paraffin-coated slides can be used to grow, identify and perform
antibiotic sensitivity assays on paraffinophilic bacteria. Infectech
has developed a technology utilizing a paraffin carbon source that
enables viable or living paraffinophilic organisms to be separated from
viable non-paraffinophilic bacteria grown on the paraffin-coated glass
slides. Living or viable bacteria can then be stained and examined
microscopically to determine the present of suspect pathogens.
Efficacy of an antibiotic can be tested on disease-causing bacteria in
a manner similar to identification of the pathogen. Test tubes in
which there is an absence of bacterial growth can be determined.
Absence of bacterial growth indicates that the antibiotic was able to
kill the pathogen at a particular concentration. Presence of bacterial
growth can indicate lack of effectiveness of the antibiotics to treat
for the pathogen. The technology also enables the user to determine
appropriate concentration of the antibiotic.
These features make Infectech's technology ideal for markets ranging
from large urban hospitals to third-world field laboratories.
Infectech believes that its technology can contribute to reducing
healthcare costs and significantly improving patient care.
Rapid Detection Advantage of Infectech's Slide-culture Technology.
By using Infectech's technology, laboratories will be able to
accurately identify and perform antibiotic sensitivity testing for
multiple pathogens in less time than conventional methods and with
greater accuracy. Using Infectech's technology, management
anticipates that:
Infectech's methods permit the sampling of a variety of tissue samples
(not just blood or sputum) with minimal preparation. The significance
of this may be seen, for example, in the current state of the art in
identifying and treating MAI, the bacterial infection most often
<PAGE>9
associated with AIDS patients in the developed world. Although MAI
forms in the gastrointestinal tract, physicians normally cannot detect
it until it reaches the bloodstream using conventional methods.
Through analyzing fecal matter or urine, physicians using Infectech's
methods can detect MAI where it begins in the gastrointestinal tract,
leading to earlier treatment which can sometimes make the difference
between life and death in an AIDS patient.
Infectech's methods do not require specialized equipment or highly
skilled personnel to perform the protocols, unlike the existing
conventional methodologies. In fact, Infectech's methods may be
automated, resulting in a faster, more precise and cheaper diagnostic
process for the more than 9,000 hospitals and medical laboratories in
the United States, and similar customers throughout the world.
Infectech's solution can contribute to reducing health care costs,
which are continually rising.
Manufacturing. Before any sales of the Genetic Based
Probe/Amplification Technology kits can occur, Infectech must reach an
agreement with a large international corporation to manufacture, market
and sell the product. Once this occurs, sales of the Genetic Based
Probe/Amplification Technology kits can begin in overseas markets and
domestic experimental markets for use in laboratory research.
Infectech has entered into an exclusive, worldwide license and royalty
agreement for the manufacture and distribution of the PARASLC/TM with
Erie Scientific, Inc. The PARA SL/CTM is the paraffin-coated slide
used solely as a central component of the IDENTIKIT TM. Erie is the
largest manufacturer and distributor of medical glass slides in North
America, and a wholly owned subsidiary of Sybron International
Corporation. The license and royalty agreement calls for a net royalty
of 15% to be paid to Infectech on all worldwide sales of the PARASLC/TM
by Erie. In addition, Infectech has agreed to provide to Erie
consulting services for the paraffin slide culture technology.
To date, the production has been limited to several thousand slide
units due to the developmental state of Infectech. Although Infectech
is currently engaged in preliminary efforts to establish other
manufacturing arrangements with respect to certain of its proposed
products, there can be no assurance that the Company will be able to
enter into any such additional arrangements, on acceptable terms or at
all, or that any manufacturer will be able to meet any demand for such
products on timely basis.
Competition. Infectech believes that most existing methodologies for
identification and antibiotic sensitivity testing of paraffinophilic
bacteria are expensive and time-consuming. Infectech further believes
that there is limited competition in the field of antibiotic
sensitivity testing combined with amplification techniques for
paraffinophilic microorganisms. While the principal components of
Infectech's technology are patented, there can be no assurance that
larger, better-financed companies will not enter the market or that
others will not develop competing technologies.
Currently, the market for manufacture and distribution of diagnostic
kits for each of these pathogens is highly concentrated. The
competitors for manufacture and sale of kits for growing the pathogen
for tuberculosis on conventional solid media are Difco and Remel.
Difco has been consolidated into Becton Dickinson, which holds the
majority of the market for diagnostic tests for Tuberculosis using
continuous monitoring methods, which are utilized, extensively in major
urban U.S. areas. Similarly, the market for testing for Pseudomonas
and MAI is concentrated in Becton Dickinson, which sells petri-dish-
based diagnostic tests.
Licensing/Transactions. On September 14, 1999, Infectech and BRT
signed an exclusive licensing agreement for the licensing of certain
intellectual property and patents relating to the application in bio-
remediation fields. BRT is a company which specializes in the
biodegradation of chlorinated compounds and hydrocarbons. Unlike
other bio-remediation companies, BRT uses specially prepared microbes
to degrade volatile organic compounds from air, ground water and soil.
The term of the exclusive licensing agreement with BRT is for a period
of ten years. BRT will utilize Infectech's intellectual property
solely as it applies in the field of bio-remediation for the creation
of
<PAGE>10
microbes for the specific task of bio-remediation. Infectech shall
receive a royalty of 15% per bio-remediation project during the
licensing period.
Infectech allows BRT the ability to maintain intellectual property
protection for methodologies involved in degrading VOC air emission,
and ground water and solid remediation. The technology will remain
that of Infectech with the application or enhancement of BRT being
additional. Infectech's management believes that there will be a
likelihood of success based upon early in-house laboratory studies
performed in conjunction with BRT which showed Infectech's methodology
to be superior to any current competing procedure in degrading
TriChloroEthylene (TCE). TCE is the most abundant groundwater
contaminant in the United States. TCE is not utilized as a food or
energy source by the microorganisms in the soil or groundwater. As a
result, the chemical accumulates in the environment and generates a
public health risk. BRT will require EPA approval for all site
projects involving bio-remediation.
The exclusive licensing agreement can be terminated early if
- either the assets or stock of BRT are acquired;
- BRT attempts to assign, sub-license, lease or otherwise transfer
its license without prior express written approval by Company.
- insolvency of BRT
- disqualification of BRT to conduct business;
- material adverse change in the financial condition of BRT
- BRT defaults on any provision of the agreement and does not cure
the default within 15 business days after written notice is
received.
On October 15, 1997 Infectech signed a letter of intent (LOI) with the
Erie Scientific Company (a wholly owned subsidiary of Sybron
International) for the development of Infectech's Paraffin Slide
Culture (Para SL/Ctm) technology into a commercially marketable product
for the detection and susceptibility testing of pathogenic
Mycobacteria.
If development efforts are completed and all the requisite pre-
marketing regulatory approvals for any proposed products are obtained,
Infectech will need to establish manufacturing and marketing
capabilities, either directly or through contractual arrangements with
others, such as joint venture, licensing or similar collaborative
agreements in order to commercialize any such products. Infectech is
currently engaged in preliminary efforts to establish manufacturing and
marketing capabilities with respect to certain of its proposed
products; however, there can be no assurance that Infectech will be
able to enter into such arrangements or that it will be able to obtain
the necessary financing to manufacture and market such products
directly.
Once a suitable manufacturing relationship is established, the non-
genetic and genetic amplification IDENTIKITsTM are essentially ready
for production.
<PAGE>11
On November 18, 1993, Infectech entered into an exclusive worldwide
license and royalty agreement for the manufacture and distribution of
the PARA SL/CTM with Erie Scientific, Inc. The PARA SL/CTM is the
paraffin-coated slide used solely as a major component of the IDENTIKIT
TM. Erie Scientific, Inc., is the largest manufacturer and distributor
of medical glass slides in North American, and is a wholly owned
subsidiary of Sybron International Corporation. The license and
royalty agreement calls for a net royalty of 15% paid to Infectech of
all worldwide sales of the PARA SL/CTM Erie. In addition, Infectech
has agreed to provide to Erie consulting services for the IDENTIKIT TM.
Patents and Proprietary Rights. Infectech has been issued and
granted thirty (30) U.S. patents, including:
<TABLE>
<CAPTION>
Patent No. Issue Date Title
<S> <C> <C>
5,153,119* October 6, 1992 Method For Speciating
And Identifying MAI
(Mycobacterium Avium-
Intracellular)
5,316,918 May 31, 1994 Method and Apparatus For
Testing MAI (Mycobacterium
Avium-Intracellulare) For
Antimicrobial Agent
Sensitivity
5,472,877 December 5, 1995 Apparatus For Determining
The Presence Or Absence of
MAI (Mycobacterium Avium-
Intracellular)
5,569,592 October 29,1996 Apparatus For Testing MAI
(Mycobacterium Avium-
Intracellular) For
Antimicrobial Agent
Sensitivity
5,637,5011 June 10, 1997 Method And Apparatus For
Automatically Testing The
Antibiotic Sensitivity Of
A Paraffinophilic
Microorganism
5,639,675 June 17, 1997 A Method Of Identifying
A Nonparaffinophilic
Microorganism Using
Various Milieus And An
Associated Apparatus***
5,641,645 June 24, 1997 A Method For Determining
The Antimicrobial Agent
Sensitivity Of A
Nonparaffinophilic
Microorganism Using
Various Milieus And An
Associated Apparatus
5,654,194 August 5, 1997 A Method Of Identifying
A Nonparaffinophilic
Microorganism Using
Various Milieus And
An Associated Apparatus
5,663,056 September 2, 1997 A Method For Determining
The Antimicrobial Agent
Sensitivity Of A
Nonparaffinophilic
Microorganism And An
Associated Apparatus***
5,668,010 September 16, 1997 A Method For Determining
The Antimicrobial Agent
Sensitivity Of A
Nonparaffinophilic
Microorganism Using
Various Milieus And An
Associated Apparatus
<PAGE>12
5,667,169 October 14, 1997 A Method For Determining
The Antimicrobial Agent
Sensitivity Of A
Nonparaffinophilic
Microorganism And An
Associated Apparatus
5,698,414 December 16, 1997 Method And Apparatus For
Testing Paraffinophilic
Microorganisms For
Antimicrobial Agent
Sensitivity
5,707,824 January 13, 1998 Method of Determining The
Presence Or Absence Of A
Paraffinophilic Microorganism***
5,721,112 February 24, 1998 A Method Of Determining The
Presence Or Absence Of A
Nonparaffinophilic Microorganism
In A Specimen And An Associated
Apparatus
5,726,030 March 10, 1998 Method for automatically testing
the antibiotic sensitivity of a
nonparaffinophilic microorganism
5,750,363 May 12, 1998 Method for determining the
antibiotic agent sensitivity
of a nonparaffinphilic
microorganism and an associated
apparatus
5,776,722 July 7, 1998 Method of testing a body specimen
taken from a patient for the presence
or absence of a microorganism and a
further associated method and associated
apparatus
5,801,009 September 1, 1998 Method for determining the antimicrobial
sensitivity of a paraffinophilic
microorganism using various milous and
an associated apparatus
5,804,406 September 8, 1998 Determining sensitivity of paraffinophilic
microorganisms to antimicrobials
5,846,760 December 8, 1998 Method for determining a presence of a
nonparaffinophilic hydrophobia microorganism
in a body specimen and an associated apparatus
5,854,013 December 29, 1998 Method of determining presence or absence of a
nonparaffinophilic microorganism in a specimen
5,854,014 December 29, 1998 Apparatus for testing paraffinophilic
microorganisms for antimicrobial sensitivity
5,882,919 March 16, 1999 Apparatus for determining the presence or
absence of a nonparaffinophilic microorganism in a
specimen
5,882,920 March 16, 1999 Apparatus for determining the presence or absence
of a nonparaffinophilic microorganism
5,891,662 April 6, 1999 Method for determining the antimicrobial agent
sensitivity of a nonparaffinophilic hydrophobic
microorganism
5,962,306 Method of determining the presence or absence of a
nonparaffinophilic microorganism in a specimen and
an associated apparatus.
5,989,902 Method for determining the antimicrobial agent
sensitivity of a nonparaffinophilic hydrophobic
microorganism and an associated apparatus.
<PAGE>13
5,935,806 Method and apparatus for speciating and identifying
MAI, (mycobacterium avium-intracellulare) and
testing the same for antibiotic sensitivity
5,981,210 Method for determining a presence or absence of a
nonparaffinophilic hydrophobic microorganism in a
body specimen by using a DNA extraction procedure
and a novel DNA extraction procedure
5,994,120 Method of bioremediating an organic hazardous
substance
</TABLE>
* Corresponding patents in Australia (parent and divisional) and
Europe (parent and divisional); corresponding application in Canada
*** Corresponding patent in South Africa as of November 27, 1996
1 Corresponding applications will be filed in
AU/BR/CA/CH/EP/JP/MX/NZ/RF/SK
2 Corresponding applications will be filed in
AU/BR/CA/CH/EP/JP/MX/NZ/RF/SK
3 Term of patent shall not extend beyond expiration of Patent
5,677,169
4 Term of patent shall not extend beyond expiration of Patent
5,654,194
Each of the above patents expire seventeen years after the date of
grant.
Infectech is presently allowing its patented technology to be used at
the VA Medical Center of New York to perform research confirming the
efficacy of the IDENTIKIT TM and to perform additional research with
amplification techniques. It is anticipated that the technique will
increase the rapidity with which both bacterial identifications and
antibiotic sensitivities can be determined, reducing the time required
by one or two orders of magnitude.
The slide culture technology may be automated. Infectech is presently
in negotiation with several diagnostic companies for the automation of
the paraffin baiting method. Infectech has been granted a patent for
the automation method. This will potentially lower the cost for
identification and antibiotic sensitivity testing for MAI and for all
other paraffinophilic microorganisms.
There can be no assurance that any issued patents will provide
Infectech with significant competitive advantages, or that challenges
will not be instituted against the validity or enforceability of any
patent owned by Infectech or, if instituted, that such challenges will
not be successful. The cost of litigation to uphold the validity and
prevent infringement can be substantial. Furthermore, there can be no
assurance that others will not independently develop similar
technologies or duplicate Infectech's technologies or design around the
patented aspects of Infectech's technologies. While obtaining
patents is deemed important to Infectech, patents are not considered
essential to the success of its business. However, if further patents
do not issue from present or future applications, Infectech may be
subject to greater competition.
Infectech also relies on a combination of non-competition and
confidentiality agreements with its employees, licensing agreements,
trademarks and trade secret laws to establish and protect proprietary
rights to its technologies. There can be no assurance that trade
secrets will be established, that secrecy obligations will be honored,
or that others will not independently develop similar or superior
technologies.
Dependence on One or a Few Major Customers. Infectech does not
expect that any single customer will account for more than ten percent
of its business.
Employees. Infectech employs four full time persons and six part
time persons. Infectech shall employ additional individuals as
required.
Governmental Regulation. In order to gain broad acceptance,
Infectech's diagnostic kits will require approval from the United
States Food and Drug Administration ("FDA") and regulatory bodies
outside of the United States. Infectech intends to apply for FDA
<PAGE>14
approval based upon clinical testing programs conducted at major
medical centers including the New York's VA Hospital, the University of
West Virginia School of Medicine and the State University of New York
School of Medicine. Data obtained from these institutions will enable
Infectech to apply for FDA approval process testing kits through the
510-K application process.. No assurance can be given that Infectech
will successfully develop or commercialize any proposed applications of
its technology.
With the exception of experimental markets, sales in the United States
cannot occur until FDA approval is granted. FDA approval will take no
less than one year. This includes 4-5 months of research, 4-5 months
of clinical trials and the 2-3 months for review by the FDA. The
research associated with the FDA approval will cost approximately
$200,000.
Regulatory requirements for the FDA include:
Device Classifications - The device clarification is under 510K
regulations for a non-invasive device.
Investigational device exemptions - There would be no exemptions
except for utilization of these devises used solely for experimental
purposes.
Clinical investigator monitoring - Infectech technology is being
monitored for clinical investigation at the Bronx VA in New York.
Institutional review board approval - The Infectech product
reviewed at the VA Medical Center will have the Lutine review board
method of approval.
Premarket approval applications and conditions of approval - Medical
articles have already been written by the University of West Virginia
School of Medicine and articles are being prepared for peer-review
journals by the VA Medical Center in New York and St. Vincent's
Hospital in New York.
Registration and Listing - will occur on completion of FDA testing
at the VA medical Center.
Labeling - The labeling will take approximately one month after the
FDA approval for this noninvasive test.
Manufacturing, including design controls - controlled by the Sybron
Corporation and its Erie Scientific Division which is a wholly owned
subsidiary of Sybron Corporation.
Post-market obligations, including medical device reporting (MDR)
and recalls - Infectech shall be governed by the FDA and its medical
reporting apparatus.
Import and export requirements - These will be fulfilled according
to the jurisdiction of each foreign country in which Infectech intends
to market its products.
Penalties and legal remedies available to the FDA for violations of
the Federal Device and Cosmetic Act and the regulations promulgated
under its authority - These will be routine penalties and legal
remedies available to the FDA for a noninvasive device under 510K
regulations.
These various FDA regulatory requirements bear certain inherent risks
in any type of activity involving noninvasive medical devices unique to
Infectech but are generally applicable to all providers of similar
products in the medical diagnostics field. While Infectech does not
have unique requirements, this field is highly regulated and subject to
FDA oversight and monitoring which poses risk in this type of activity
which would include the suspension of sales activities and distribution
of the products should the government exercise those remedies. The
broad range of actions the FDA can utilize would include the suspension
of further production distribution and sales.
In addition to working on obtaining the necessary governmental
approvals to bring the product to market and looking for additional
marketing arrangements through established distribution channels, the
Company plans to perform contract experimental work testing for the
efficacy of chemotherapeutic agents against paraffinophilic
microorganisms. Infectech has no specific time-frame for performing
experimental work for this testing.
Infectech expects to begin clinical trials of its slide-culture
technology in early 2001 and expects to receive approval of its
technology from the FDA before the summer of 2002 through the 510-K
application process. Infectech expects to begin marketing its test
kits internationally during the first quarter of 2001.
<PAGE>15
Compliance with Environmental Laws. Infectech has no material costs
or effects of compliance with federal, state or local environmental
laws.
Seasonal Nature of Business Activities. Infectech's business
activities are not seasonal.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Trends and Uncertainties. Demand for Infectech's products will be
dependent on, among other things, market acceptance of Infectech's
concept, the quality of its products, government approval and general
economic conditions, which are cyclical in nature. Inasmuch as a major
portion of Infectech's activities will be the receipt of revenues from
the sales of its products, Infectech's business operations may be
adversely affected by Infectech's competitors and prolonged
recessionary periods.
Capital and Source of Liquidity. Infectech requires substantial
capital in order to meet its ongoing corporate obligations and in order
to continue and expand its current and strategic business plans.
Initial working capital has been obtained by the private sale of
Infectech's common shares from November 1996 to present.
For the nine months ended September 30, 1999, Infectech received
proceeds from the issuance of common stock of $133,234 resulting in net
cash provided by financing activities of $133,234 for the nine months
ended September 30, 1999.
For the nine months ended September 30, 1998, Infectech had proceeds
from the issuance of common stock of $270,074. As a result, Infectech
had net cash provided by financing activities of $270,074 for the nine
months ended September 30, 1998.
For the nine months ended September 30, 1999, Infectech had patent
costs of $55,997, purchase of equipment of $2,450 and an increase in
deposits of $51 resulting in net cash used in investing activities of
$58,498. Infectech anticipates that costs associated with product
testing and development will continue to increase.
For the nine months ended September 30, 1998, Infectech received
$200,000 from the redemption of certificate of deposit. Infectech
purchased equipment for $4,505 and had patent costs of $179,554 for the
nine months ended September 30, 1998. Infectech had an increase in
deposits of $82 and had deferred merger and offering costs of $76,070
for that same period. As a result, Infectech had net cash used in
investing activities of $60,211 for the nine months ended September 30,
1998.
Infectech has a $10,500 line of credit, all of which was available at
September 30, 1999. The line of credit is collateralized by the
personal guarantee of a stockholder.
On a long-term basis, liquidity is dependent on continuation and
expansion of operation and receipt of revenues, additional infusions of
capital and debt financing. Infectech believes that additional
capital and debt financing in the short term will allow Infectech to
increase its marketing and sales efforts and thereafter result in
increased revenue and greater liquidity in the long term. However,
there can be no assurance that Infectech will be able to obtain
additional equity or debt financing in the future, if at all.
Results of Operations. Since inception, Infectech has not received
any material revenues from operations.
Research and development expenses were $49,352 for the nine months
ended September 30, 1999 versus $65,266 for the nine months ended
September 30,, 1998. This decrease was due to research activities for
its patents being shifted to work done internally in 1999. Wages
increased to $86,592 for the nine months ended September 30, 1999 from
$29,470 for the nine months ended September 30, 1998. This was the
result from one employee working full time in research and development
starting the later part of 1998. Legal and accounting decreased to
$19,726 for the nine months ended September 30, 1999 versus $52,239 for
the nine months ended September 30, 1998. The 1999 decrease was due
to a change in law firms to a less costly firm and less usage during
1999.
<PAGE>16
Consulting and professional fees increased to $116,059 for the nine
months ended September 30, 1999 from $12,000 for the nine months ended
September 30, 1998. This increase is due to increasing activity with
consultants regarding marketing and commercialization of Infectech's
product.
Insurance expense decreased from $5,536 for the nine months ended
September 30, 1998 to $51 for the nine months ended September 30, 1999
since Infectech discontinued life insurance coverage on its officers.
Public relation expenses were $30,188 for the nine months ended
September 30, 1999 versus -0- for the nine months ended September 30,
1998. This is due again to Infectech starting to market its product.
Infectech incurred $30,614 in expenses for the nine months ended
September 30, 1999 in connection with starting a subsidiary, MD-
Diagnostics.com, Inc. to develop internet sites for medical
diagnostics.
Infectech had sales of $3,669 for 1998 versus -0- for 1997 and 1996.
The revenue was due to a royalty payment earned in 1998.
Research and development expenses increased to $92,004 for 1998 from
$60,697 for 1997 and $17,500 for 1996. This was due to increasing
research activities for its patents. Wages increased to $121,092 for
1998 from $24,568 for 1997 and $16,000 for 1996. This was the result
from one employee working full time in research and development for
1998. Legal and accounting was $61,556 for 1998, $60,938 for 1997 and
$80,711 for 1996. The 1998 and 1997 decrease was due to a change in
law firms to a less costly firm.
Travel expenses were $11,467 for 1998, $27,053 for 1997 and $9,310 for
1996. The increase travel expenses for 1997 was due to more trips to
biotech companies and investment bankers. Consulting and professional
fees increased to $183,466 for 1998 from $104,971 for 1997 and $43,360
for 1996. These increases are due to increasing activity with
consultants regarding marketing and commercialization of Infectech's
product.
Plan of Operation. Infectech is in the development stage and has not
conducted any significant operations to date and has received only
minimal royalty revenues. Infectech may experience problems; delays,
expenses and difficulties sometimes encountered by an enterprise in
Infectech's stage of development, many of which are beyond Infectech's
control. These include, but are not limited to, unanticipated problems
relating to product development, testing, regulatory compliance,
manufacturing costs, production and marketing problems, additional
costs and expenses that may exceed current estimates and competition.
Infectech has funding needs of approximately $1.2 million. Infectech
shall seek equity or debt financing for intellectual Property
($30,000), research and development for Tuberculosis Pseudomonas
($814,400), legal expense for patents ($263,419) and internet research
and development ($50,000). This does not include Infectech's working
capital need. Research and development expenses will be dependent on
the availability of funds. Infectech does not expect any additional
purchases of plant and equipment. There are no expected significant
changes in the number of employees. If Infectech obtained funding,
support type of employees such as secretarial, etc, may be required.
As of September 30, 1999, Infectech had working capital of $47,964.
Infectech expects to use this capital to continue research and
development of patents and for the costs associated with executing an
initial public stock offering. Infectech believes that the net
proceeds from equity financing together with revenues from operations,
if any, will be sufficient to meet its anticipated cash needs for
working capital and capital expenditures until approximately December
1999. There can be no assurance, however, that the net proceeds from
equity financing will not be expended prior thereto due to
unanticipated changes in economic conditions or other unforeseen
circumstances. Unless growth in Infectech's revenues from operations
substantially exceeds management's current expectations, by
approximately December 1999, Infectech will be required to seek
additional equity or debt financing to fund the costs of its
operations, including continued development of its products. There can
be no assurance that additional financing will be available or that, if
available, such financing will be on acceptable terms to enable
Infectech to complete development of or commercialize any of its
proposed products or technologies.
<PAGE>17
Infectech is not delinquent in any of its obligations even though
Infectech has generated limited operating revenues. Infectech
intends to market its products utilizing cash made available from the
private and public sale of its securities. Infectech's management is of
the opinion that revenues from the sale of its products and the
proceeds of the sales of its securities will be sufficient to pay its
expenses until its business plan can be fully implemented.
Year 2000 Issues. To date, Infectech has had no material effects from
the Year 2000 issues.
ITEM 3. DESCRIPTION OF PROPERTY
Infectech will operate out of two locations. The corporate
headquarters will remain in Sharon, Pennsylvania and the clinical lab
will continue in Milford, Pennsylvania. These offices consist of 3100
square feet. Infectech pays approximately $2,500 per month for use of
these two locations. Infectech may consolidate operations to a single
location once clinical testing is successfully completed. Also,
Infectech will use the offices of Dr. Felder as its corporate
headquarters. Dr. Felder will sublease a portion of his offices at a
rate of approximately $550 per month to partially cover the cost of
rent, office equipment, utilities and office personnel. Infectech
retains the right to increase these payments in accordance with any
rental time and increased need for office equipment, utilities and
office personnel at both locations.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tabulates holdings of shares of Infectech by each person
who, subject to the above, at the date of this prospectus, holds of
record or is known by Management to own beneficially more than 5.0% of
the Common Shares and, in addition, by all directors and officers of
Infectech individually and as a group. Each named beneficial owner
has sole voting and investment power with respect to the shares set
forth opposite his name.
Shareholdings at Date of
This Prospectus
<TABLE>
<CAPTION>
Percentage of
Number & Class(1) Outstanding
Name and Address of Shares Common Shares
<S> <C> <C>
Mitchell S. Felder, M.D. (2) (3) 2,252,589 31.75%
Suite 2
87 Stambaugh Avenue
Sharon, PA 16146
Robert Ollar, Ph.D. (2) 1,697,322 23.92%
122 Cornelia Lane
Milford, PA 18337
David Bernstein, Esq. (2) (3) 246,837 3.48%
33111 Seneca Drive
Solon, OH 44139
Susan Felder (2) 382,967 5.40%
Suite 2
87 Stambaugh Avenue
Sharon, PA 16146
Stephen Lewis 100,000 1.41%
112 Mehard Avenue
Greenville, PA 16125
Thomas Inman 0 0.00%
27 Garrett Lane
Mercer, PA 16137
William Moder 0 0.00%
Kerrwood Place, Suit 104
2500 Highland Road
Hermitage, PA 16148
<PAGE>18
All Directors & Officers
as a group (7 persons) 4,679,715 65.96%
</TABLE>
(1)Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the voting) and/or
sole or shared investment power (including the power to dispose or
direct the disposition) with respect to a security whether through a
contract, arrangement, understanding, relationship or otherwise.
Unless otherwise indicated, each person indicated above has sole power
to vote, or dispose or direct the disposition of all shares
beneficially owned, subject to applicable unity property laws.
(2)Assumes exercise of all outstanding stock options. Includes for
each of Dr. Felder, Dr. Ollar, Mr. Bernstein and Mrs. Felder, 42,535,
23,368, 37,978 and 29,167 shares, respectively, which such person has
the right to acquire under options issued to him/her under the 1996
Stock Option Plan at a purchase price of $1.20 per share.
(3)Includes for each of, Dr. Felder and Mr. Bernstein, 77,500 and
10,000 shares, respectively, for repayment of loans made to Infectech.
Stock Options. The Corporation has issued options for the purchase of
up to 828,852 shares of common stock to fourteen persons. The options
are "non-qualified stock options" which are not qualified for treatment
under Section 422 of the Internal Revenue Code of 1986, as amended.
The term of the options has generally been up to ten years from the
date of grant, and provide for vesting over a period of three years
from the date of grant.
The Corporation's 1996 Stock Option Plan provides for the issuance of
options for the purchase of 1,182,750 shares of the Corporation's
Common Stock to employees and consultants. In lieu of salary for past
services, certain employees have received stock options to purchase up
to 322,406 shares at a purchase price of $1.20 per share under the
Stock Option Plan. Of the total 322,406 shares eligible for purchase
pursuant to options, Dr. Felder, Dr. Ollar, Thomas Inman, William Moder
II, David Bernstein, Steve Lewis, and Susan Felder have options to
purchase a total of 227,200 shares. The remaining 95,116 shares
eligible for purchase pursuant to options were distributed among 8
other employees.
The Corporation's 1998 Stock Option Plan provides for the issuance of
options for the purchase of 1,200,000 shares of the Corporation's
Common Stock to employees and consultants. Currently no options have
been issued under the 1998 Stock Option Plan.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Board of Directors. The following persons listed below have been
retained to provide services as director until the qualification and
election of his successor. All holders of Common Stock will have the
right to vote for Directors of Infectech. The Board of Directors has
primary responsibility for adopting and reviewing implementation of the
business plan of Infectech, supervising the development business
plan, review of the officers' performance of specific business
functions. The Board is responsible for monitoring management, and
from time to time, to revise the strategic and operational plans of
Infectech. Directors receive no cash compensation or fees for their
services rendered in such capacity.
The Executive Officers and Directors are:
<TABLE>
<CAPTION>
Name Position Term(s) of Office
<S> <C> <C>
Mitchell S. Felder, M.D.
age 47 CEO, President and Inception
Treasurer and Director to present
<PAGE>19
Robert A. Ollar, Ph.D.
age 52 Executive Vice President Inception
and Chief of Scientific to present
Affairs and Product Development
and Director
Susan Felder
age 46 General Manager and Director Inception
to present
David Bernstein, age 39 Corporate General Counsel
and Director
Stephen R. Lewis, age 40 Director 1995
to present
<PAGE>19
Thomas Inman, age 45 Secretary and Controller June 1995
to present
William J. Moder, III, age 48 Director Sept. 1998
to present
</TABLE>
Resumes:
Mitchell S. Felder, M.D., is a co-founder of Infectech, a founding
member of Infectech's Scientific Advisory Board, and serves as Vice
Chairman of Infectech's board of directors. Dr. Felder is a
contributor to certain of the patent applications for Infectech's
products, and has worked in Infectech's clinical medical effort. He
received his M.D. degree from the University of Rome, Italy in 1983,
and has been an attending Neurologist at the Horizon Hospital System in
Greenville, Pennsylvania since 1997. Dr. Felder is married to Susan
Felder and is a first cousin of Mr. Bernstein.
Robert A. Ollar, Ph.D. is a co-founder of Infectech, a founding member
of Infectech's Scientific Advisory Board, and has served as Chairman of
the board of directors of Infectech since 1989. Dr. Ollar received his
Ph.D. degree from the University of Surrey, England, United Kingdom in
1993. Prior to that, he received his Master of Science Degree majoring
in Microbiology in 1984 from the University of Glasgow, Great Britain.
Prior to that, he performed research at the Institute Pasteur Du
Brabant in Brussels, Belgium. Dr. Ollar is the inventor of Infectech's
slide culture technology. Dr. Ollar is presently an Assistant
Professor of Neurology at the New York Medical College.
Susan Felder has served as General Manager and director of Infectech
since its inception in 1989. From 1978 to 1989 she had progressive
analyst responsibilities with the Insurance Services Office, Inc.
leading to the position of Computer Programmer which she held until
1989. From 1978 to 1979 she held the position of Marketing Research
Analyst for the Continental Insurance Company. She received her B.A.
in Economics from Rutgers College in 1976. She is the wife of Dr.
Felder.
David Bernstein, Attorney-at-Law, is Corporate Counsel for Infectech
and is a director of Infectech. Mr. Bernstein is a sole practitioner
practicing law in Cleveland, Ohio. Prior to engaging in sole practice,
Mr. Bernstein was an attorney at Bekaert Corporation, a manufacturing
company. He received his Juris Doctor of Law from The University of
Akron in 1983 and his Bachelor's Degree in Accounting from Kent State
University in 1980. Mr. Bernstein is a first cousin of Dr. Felder.
Stephen R. Lewis has served as a director of Infectech since 1995. Mr.
Lewis is an investment broker with, and shareholder of Butler Wick &
Co., Inc. of Sharon, Pennsylvania since 1988. He received his
Bachelor's Degree in Finance from Indiana University of Pennsylvania in
1983.
Thomas L. Inman was the Corporate Controller for Infectech, having
served from June 1995 to September 1999. Mr. Inman is the Secretary of
Infectech. Since 1999, Mr. Inman is employed by the Mercer County
Agency on Aging and was previously employed as an internal auditor for
the County of Mercer in Pennsylvania from 1990 to 1999.
William Moder, III is General Counsel for Infectech and has been a
director of Infectech since September, 1998. Mr. Moder is an attorney
engaged in private practice in Hermitage, Pennsylvania. He has advised
<PAGE>20
Infectech as local counsel, primarily on contract issues. Prior to
entering private practice, Mr. Moder was corporate counsel for First
National Bank of Pennsylvania, a subsidiary of F.N.B. Corporation, for
14 years. He is a 1974 graduate of Edinboro University of
Pennsylvania and earned his juris doctorate degree in 1980 from the
University of Akron.
The Corporation has not established any committees, other than the
Compensation Committee and the Stock Option Plan Committee, which
administers the issuance of options under the Corporation's 1996 and
1998 Stock Option Plans. The Compensation Committee is composed of Dr.
Felder, Dr. Ollar, Mr. Shardy. and Mr. Moder. The Stock Option Plan
Committee consists of Dr. Felder and Dr. Ollar
Scientific Advisory Board. In July 1995 Dr. Ollar and Dr. Felder
founded the Corporation's Scientific Advisory Board, which in addition
to them consists of the following members:
Nancy D. Connell, Ph.D., Assistant Professor, Dept. Of Microbiology and
Molecular Genetics, UMDNJ/New Jersey Medical School
Carl Gene Coin, M.D., Department of Radiology, University of Miami
School of Medicine
Joseph Giordano, M.D., Attending Internist, Sharon Regional Health
System
Vincent LaBombardi, Ph.D. Chief of the Department of Microbiology, St.
Vincent's Hospital New York, New York; Assistant Professor of
Microbiology, New York Medical College.
Richard Steinfeld, M.D., Attending Internist, Sharon Regional Health
System
Benjamin M. Blumberg, Ph.D., Professor of Neurology, University of
Rochester Medical School
Joseph H. Kite, Jr., M.D., Professor of Microbiology; State University
at Buffalo School of Medicine and Biomedical Sciences
Jane Pascale, M.D., Assistant Professor of Microbiology; State
University at Buffalo, NY
Sheldon Brown, M.D., Assistant Professor of Medicine; Mt. Sinai School
of Medicine, NY, NY; Attending Physician Infectious Diseases; Bronx
V.A. Hospital
Dale Pokorney, M.D., Assistant Professor of Dermatology, Case Western
Reserve School of Medicine
Pattisapu R.J. Gangadharam, Ph.D., Professor of Medicine, Microbiology
and Pathology, Director of Mycobacteriology research, University of
Illinois at Chicago
Thomas Kelly, Ph.D., Professor of Microbiology Laboure College; Boston,
MA
David Sklansky*, Author of seven books on probability theory and
wagers.
Zsuzua (Susan), Polgar*, Women's World Chess Champion.
Ms. Polgar and Mr. Sklansky do not have a scientific background.
Each member of the Scientific Advisory Board has received an option to
purchase six hundred fifty (650) shares of stock at $4.50 per share.
Such options vest over a three-year period beginning on December 6,
1996, and expire without further vesting within ninety (90) days after
each member's termination of Scientific Advisory Board service.
ITEM 6. EXECUTIVE COMPENSATION
No executive officer of Infectech, except for Dr. Robert Ollar,
received any cash compensation for the fiscal year ended December 31,
1997. Dr. Ollar received cash compensation of $23,333 during fiscal
year ended December 31, 1997. When operations allow, Dr. Ollar will
receive a salary of $60,000 per year based on his full time work at
<PAGE>21
Infectech's laboratory; and Dr. Felder will receive a salary of $60,000
per year based upon part-time work. Infectech retains the right to
increase or decrease the cash compensation of its employees as
necessitated by business conditions. In lieu of salary for past
services, certain employees have received options to purchase up to
322,406 shares of Infectech's common stock at a price of $1.20 per
share.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
(a) (b) (c) (d) (e) (f) (g)
Name Securities
And Other Annual Restricted Stock Underlying
Principle Cal. Salary Bonus Compensation Award(s) Options
Position Yr. ($) ($) ($) ($) (#)
<S> <C> <C> <C> <C> <C> <C>
Dr. Felder 1998 0 0 75,175
CEO 1997 0 0 179,756
1996 0 0 0 0
Dr. Ollar 1998 $36,395 0 0
Executive 1997 $23,333 0 92,189
Vice Pres. 1996 $16,000 0 0 0
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Shares Number of securities underlying Value of Unexercised In-the
Acquired Unexercised Options/SARs at Money Options at
On Exercise Value FY-End (#) FY-End($)
Name # Realized Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
Dr. Felder 0 0 114,895/110,036 $47,833/$35,867
Dr. Ollar 6,250 7,438 55,209/30,730 $12,396/$39,666
</TABLE>
Option in Last Fiscal Year (1998)
Individual Grants
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
<S> <C> <C> <C> <C>
Number of Securities % of Total
Underlying Options Exercise or Expiration
Options Granted to Employees Base Price Date
Name Granted (#) in Fiscal Year ($/Sh)
Dr. Mitchell Felder 75,175 98% $1.20 2008
Dr. Robert Ollar 0 0% n/a n/a
</TABLE>
Employment Agreements. Dr. Robert Ollar is employed under an
employment agreement for $20,000 per year. Other than Infectech's
standard form of non-competition and confidentiality agreement,
Infectech does not presently have any employment contracts in effect
with the named executive officers of Infectech, including any
compensatory plans or arrangements resulting from the resignation,
retirement or other termination of the named executive officers of
Infectech, other than the compensation arrangements discussed above.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions. Prior to July 1995, all of Infectech's
expenditures were funded by Dr. Mitchell Felder. Dr. Felder advanced
Infectech $26,776 in 1993, $36,649 in 1994, $19,564 in 1995 and $36,189
in 1996. Advances from inception of Infectech to December 31, 1992
totaled $39,387. Under an agreement with Infectech, $64,833 of the
amounts loaned was converted to common stock.
In 1992, David Bertstein, a stockholder, provided legal services
amounting to $12,000 in exchange for a non-interest bearing note
payable due or before December 1, 1999. Mr. Bernstein has agreed to
accept 10,000 Common Shares of Infectech as repayment of this debt upon
completion of this offering.
<PAGE>22
Infectech subleases a portion of its office space from Dr. Felder,
President, at a rate of $550 per month to cover the cost of rent,
office rent, computer equipment, utilities and office personal. These
payments totaled $6,600 in 1999.
William Moder serves as general counsel for Infectech. Mr. Moder is
paid on an hourly basis for professional services at the rate of $50
per hour and is also given stock options in an equal amount,
exercisable at a price of $1.20 per share. In 1998, Mr. Moder
received $11,015 in cash and 11,015 stock options for legal services
provided to Infectech.
Infectech entered into a consulting agreement with Steven Lewis, a
stockholder and director of Infectech. The term of the consulting
agreement is one (1) year commencing May 18, 1998. Infectech has not
extended the agreement and it expired May 18, 1999. Mr. Lewis shall be
paid a $4,000 per month payable quarterly under the terms of the
Agreement. Additionally, Mr. Lewis has received 30,000 stock options
with an option price of $1.20 per share. The agreement provided that
upon Infectech receiving $300,000 during its term, that Mr. Lewis would
receive an additional 30,000 stock options at the option price of $1.20
per common share, which did not occur. During 1997 and 1996, Mr.
Lewis was paid $31,347 and $18,360, respectively for his prior services
to forfeiture, which number will be reduced by 16,137 Common Shares
Mr. Lewis was never awarded the additional 30,000 stock options due to
non-performance and termination of the contract.
ITEM 8. DESCRIPTION OF SECURITIES
Qualification. The following statements constitute brief
summaries of Infectech's Certificate of Incorporation and Bylaws, as
amended. All material portions of the Certificate of Incorporation and
Bylaws have been discussed.
Infectech is authorized to issue 20,000,000 shares of Common Stock, par
value $.02 per share. As of the date hereof, there are 6,265,588
shares of Common Stock outstanding, excluding shares reserved for
issuance upon the exercise of 828,852 issued and outstanding common
stock options.
The holders of the Common Stock are entitled to one vote per share with
respect to all matters on which holders of Infectech's common stock are
entitled to vote. Holders of the common stock have the right to
dividends from funds legally available therefor, when, as and if
declared by the board of directors and re-entitled to share ratably, in
all of the assets of Infectech available for distribution to holders
of shares of common stock upon liquidation, dissolution or winding up
of the affairs of Infectech. Holders of common stock do not have
preemptive, subscriptive or conversion rights. The common stock does
not have cumulative voting rights and, therefore, holders of shares
entitled to exercise more than 50% of the voting power are able to
elect 100% of the Directors of Infectech. As a result, the existing
shareholders of Infectech have the power to retain control over
Infectech, despite any accumulation of common stock pursuant to this
offering.
Transfer Agent. Florida Atlantic Stock Transfer, Inc. of
Tamarac, Florida currently acts as Infectech's transfer agent.
<PAGE>23
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Infectech common shares are listed on the National Quotation Board
("pink sheets") under the symbol IFEC.
Quarter ended High Bid Low Bid
June 30, 1999 $2.00 $1.50
September 30, 1999 $1.50 $1.00
December 31, 1999 $1.00 $ .06
March 31, 2000 $2.90 $ .38
June 30, 2000 $1.75 $ .80
September 30, 2000 $1.00 $ .38
Infectech has never paid any cash dividends nor does it intend, at this
time, to make any cash distributions to its shareholders as dividends
in the near future.
As of October 31, 2000, the number of holders of Infectech's common
stock is 77.
ITEM 2. LEGAL PROCEEDINGS
Merger With Regal One Corporation ("Regal"). On April 7, 1998, the
Corporation entered into a Plan and Agreement of Merger with Regal, a
Florida Corporation, whose shares are listed on the OTC Bulletin Board
under the symbol "RONE." Regal was to issue approximately 26,320,520
Common Shares to the Corporation's stockholders so that on the
effective date of the merger, the shareholders of the Corporation would
have owned in the aggregate 85% of the Common Shares of Regal, which
upon closing will change its name to Infectech. A condition of the
merger was that the Corporation raise a minimum of $300,000 prior to
June 30, 1998. This condition was not met and the Corporation
exercised its right to terminate the transaction.
The Corporation filed for arbitration in Pennsylvania (AAA Case No. 55-
136-0131-98) to recover monies advanced to Regal One and other fees and
costs. The matter has been amicably settled.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
During Infectech's two most recent fiscal years or any later interim
period, there have been no changes in or disagreements with Infectech's
principal independent accountant or a significant subsidiary's
independent accountant.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the first and second quarter of 1997 Infectech issued 522,450
Common Shares at $1.20 per share in cash to the following individuals
and entities.
Jean C. Harnett 46,250
James Gessler 10,000
James M. Holl & Steve D. Gurrera 10,000
Carl Shardy 42,000
David A. & Betty I. Geisel 5,000
Mark B. Jubelirer 10,000
John F. Loretta A. Hamley 3,000
Dale Pokorney 16,000
Martin M. Horowitz 50,000
Cathi Gurska 12,500
Samuel Bungo 7,000
Gary W. Podobruck 4,000
Beverly D. Beshore 20,000
Scott D. Payne 4,000
Karen Gagen 14,700
Richard J. Donatelli 2,500
M. Virginia Larimer 5,000
Charles O. & Lorraine A. Stepp 2,000
Alexis J. Loomis 10,000
Stacey B. Enck 5,000
Ian C. Horowitz 5,000
Annamarie Denis 5,000
<PAGE>24
Ronald L. Susan D. Campbell 33,000
Patricia E. Loomis & James L.
Gibson 10,000
Steven B. Bakst 40,000
Mitchell S. Felder 37,500
Scott A. Riley 18,000
Glenn B. Harnell 80,000
Allen D. Kidd 15,000
Marten C. Owens 15,000
Steve D. Gurrera 2,500
Christine & David Kirila 10,000
John A. & Joyce A. Mackey
Custodians 10,000
These issuances were made in compliance with Rule 505, Regulation D of
the Securities Act of 1933 by Registrant's management, consultants and
selected broker/dealers. No commissions or other remuneration was paid
to anyone. No general solicitation was utilized. The determination
of whether an investor was accredited or non-accredited was based on
the responses in the subscription agreement filled out by each
investor.
During the second quarter of 1998, Infectech issued 225,000 Common
Shares for cash payments of $1.20 to the following:
Bruno Melaragno 20,000
Anthony Melaragno 20,000
Carl Shardy 27,000
Dale Pokorney 10,000
John & Joyce Mackey, Custodians 10,000
Marten C. Owens 10,000
Peter Melaragno 20,000
Victor Melaragno 20,000
Ronald Campbell 10,000
Victor Melaragno, Custodian 10,000
Richard J. Donatelli 10,000
Steve D. Gurrera 3,000
Christine & David Kirila 10,000
A. William Senopole, Jr. 10,000
Aurelio Berardinelli 20,000
William E. Brest 15,000
These issuances were made in compliance with Rule 505, Regulation D of
the Securities Act of 1933 by Registrant's management, consultants and
selected broker/dealers. No commissions or other remuneration was paid
to anyone. No general solicitation was utilized. The determination
of whether an investor was accredited or non-accredited was based on
the responses in the subscription agreement filled out by each
investor.
In January 1998, Infectech issued 121 Common Shares pursuant to option
exercise at $.01 per Common Shares to Thomas A. Kelly, Ph.D. The
Common Shares were issued to a sophisticated investor who had access to
information on Infectech necessary to make an informed investment
decision for cash consideration pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933.
In the second and third quarters of 1998, Infectech issued Common
Shares for option exercise at $.01 per Common Share as follows.
Name Common Shares Cash Payment
Thomas A. Kelly, Ph.D 1,017 $ 10.17
Robert A. Ollar, Ph.D. 6,250 $ 62.50
Jeffrey Lewis 49,825 $498.25
Dr. Kelly obtained the options during 1997 for his work with the
scientific advisory board. Dr. Kelly also obtained options in 1997
and 1998 for services on the scientific advisory board. Dr. Ollar
received options for scientific contributions to Infectech. Mr. Lewis
was granted options for financial consulting services to Infectech in
1997 and 1998. The option price of $1.20 is based upon the previous
private offering price.
The Common Shares were issued to sophisticated investors who had access
to information on Infectech necessary to make an informed investment
decision for cash consideration or services pursuant to an exemption
from registration under Section 4(2) of the Securities Act of 1933.
<PAGE>25
During the first quarter of 1999, Infectech issued 111,000 common
shares at $1.20 per common share cash payment (aggregate of $133,200)
to the following:
Robert Hudock 10,000 Common Shares
James A. Hudock 10,000 Common Shares
John Zullo 10,000 Common Shares
Frank Shardy 19,000 Common Shares
Victor Melaragno 10,000 Common Shares
Anthony Melaragno 10,000 Common Shares
Bruno Melaragno 20,000 Common Shares
Aurelio Berarolineli 10,000 Common Shares
John Demas, Sr. 12,000 Common Shares
These issuances were made in compliance with Rule 504, Regulation D of
the Securities Act of 1933 by Registrant's management, consultants and
selected broker/dealers. No commissions or other remuneration was paid
to anyone. The determination of whether an investor was accredited or
non-accredited was based on the responses in the subscription agreement
filled out by each investor.
In March 1999, Infectech issued 3,334 Common Shares pursuant to option
exercise at $.01 per Common Shares to June Pasacic for financial
consulting services provided in 1996. The Common Shares were issued
to a sophisticated investor who had access to information on Infectech
necessary to make an informed investment decision for cash
consideration or services pursuant to an exemption from registration
under Section 4(2) of the Securities Act of 1933.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Indemnification. Infectech shall indemnify to the fullest extent
permitted by, and in the manner permissible under the laws of the State
of Delaware, any person made, or threatened to be made, a party to an
action or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he is or was a director or
officer of Infectech, or served any other enterprise as director,
officer or employee at the request of Infectech. The Board of
Directors, in its discretion, shall have the power on behalf of
Infectech to indemnify any person, other than a director or officer,
made a party to any action, suit or proceeding by reason of the fact
that he/she is or was an employee of Infectech.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of Infectech,
Infectech has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by Infectech of expenses incurred or paid by a director,
officer or controlling person of Infectech in the successful defense of
any action, suit or proceedings) is asserted by such director, officer,
or controlling person in connection with any securities being
registered, Infectech 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 Act and will be
governed by the final adjudication of such issues.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING THE CORPORATION FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IS HELD TO BE
AGAINST PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION AND IS
THEREFORE UNENFORCEABLE.
Limitation on Liability and Indemnification Matters. The Certificate
of Incorporation of the Corporation limits the liability of directors
of the Corporation to the Corporation or its stockholders to the
fullest extent permitted by Delaware law. Specifically, directors of
the Corporation will not be personally liable for money damages for
breach of a duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Act, which
relates to unlawful declarations of dividends or other distributions of
assets to stockholders or the unlawful purchase of shares of the
corporation, or (iv) for any transaction from which the director
derived an improper personal benefit.
<PAGE>26
PART F/S
The following financial statements required by Item 310 of Regulation
S-B are furnished below
Independent Auditor's Report dated March 24, 1999
Balance Sheet as of December 31, 1998 and 1997
Statement of Operations for the Years ended December 31, 1998, 1997 and
1996 and the period from June 21, 1989 (inception) to December 31, 1998
Statement of Stockholders' Equity for the Years ended December 31,
1998, 1997 and 1996 and for the period from June 21, 1989 to December
31, 1998
Statement of Cash Flows for the Years ended December 31, 1998, 1997 and
1996 and for the period from June 21, 1989 to December 31, 1998
Notes to Financial Statements
Balance Sheet as of September 30, 1999
Statement of Operations for the Nine Months ended September 30, 1999
and 1998
Statement of Cash Flows for the Nine Months ended September 30, 1999
and 1998
Notes to Financial Statements
<PAGE>27
March 24, 1999
Board of Directors
Infectech, Inc.
Sharon, Pennsylvania
Independent Auditors' Report
We have audited the accompanying balance sheets of Infectech, Inc., a
development stage enterprise, as of December 31, 1998 and 1997 and the
related statements of operations, stockholders equity (deficit) and
cash flows for each of the three years in the period ended December 31,
1998 and for the period from June 21, 1989 (inception) to December 31,
1998. These financial statements are the responsibility of Infectech's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the 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
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Infectech,
Inc. as of December 31, 1998 and 1997 and the results of its operations
and its cash flows for each of the three years in the period ended
December 31, 1998 and for the period from June 21, 1989 (inception) to
December 31, 1998 in conformity with generally accepted accounting
principles.
/s/Hill Barth & King, Inc.
Certified Public Accountants
Sharon, Pennsylvania
-1-
<PAGE>28
BALANCE SHEETS
INFECTECH, INC
(A development stage enterprise)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
A S S E T S
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 217,295 $ 295,489
Certificate of deposit 0 200,000
EQUIPMENT
Medical equipment 43,517 37,013
Less accumulated depreciation 16,078 10,192
---------- ---------
NET EQUIPMENT 27,439 26,821
----------- ---------
OTHER ASSETS
Deposit 1,669 1,456
Patent costs, net of accumulated amortization
of $82,442 in 1998 and $51,686 in 1997 522,092 361,475
---------- ---------
TOTAL OTHER ASSETS 523,761 362,931
$ 768,495 $ 885,241
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable $ 33,006 $ 16,205
Accrued payroll taxes 522 363
Accrued state taxes 2,468 2,516
---------- ----------
TOTAL CURRENT LIABILITIES 35,996 19,084
---------- ----------
STOCKHOLDERS EQUITY - NOTES E, F, G AND H
Common stock - $.02 par value per share:
Authorized 20,000,000 shares; issued and
outstanding 6,366,450 shares in 1998
and 6,033,200 shares in 1997 127,329 120,664
Additional paid-in capital 1,853,546 1,446,993
Deficit accumulated during the
development stage (1,248,376) (701,500)
---------- ---------
TOTAL STOCKHOLDERS EQUITY 732,499 866,157
---------- ---------
$ 768,495 $ 885,241
========== ==========
</TABLE>
See accompanying notes to financial statements
-2-
<PAGE>29
STATEMENTS OF OPERATIONS
INFECTECH, INC.
(A development stage enterprise)
Years ended December 31, 1998, 1997, 1996 and
period from June 21, 1989 (inception) to December 31, 1998
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 21, 1989
(INCEPTION)
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997 1996 1998
----- ----- ----- ----
<S> <C> <C> <C> <C>
OPERATING INCOME
Sales $ 3,669 $ 0 $ 0 $ 3,669
OPERATING EXPENSES
Research and development 92,004 60,697 17,500 206,011
Wages 121,092 24,568 16,000 177,404
Telephone 7,592 9,955 3,595 29,255
Office expense 9,746 7,541 2,328 22,675
Insurance 5,536 5,066 6,765 17,692
Legal and accounting 61,556 60,938 80,711 234,743
Travel 11,467 27,053 9,310 68,416
Payroll taxes 3,185 2,268 1,573 8,627
State and local taxes 4,796 3,777 2,584 11,692
Amortization 30,756 20,669 14,194 85,282
Depreciation 5,886 5,288 4,410 16,079
Rent 28,212 26,713 19,808 74,733
Consulting and professional fees 183,466 104,971 43,360 331,797
Miscellaneous 6,656 8,355 956 17,526
------- ------- ------ --------
TOTAL OPERATING EXPENSES 571,950 367,859 223,094 1,301,932
-------- ------- ------- ----------
LOSS FROM OPERATIONS (568,281)(367,859)(223,094) (1,298,263)
-------- ------- ------- ---------
OTHER INCOME (DEDUCTION)
Interest expense 0 0 (661) (661)
Interest earned 21,405 21,634 2,833 50,548
-------- ------- ------- ----------
21,405 21,634 2,172 49,887
------- -------- ------ ---------
NET LOSS $(546,876)$(346,225)$(220,922) $(1,248,376)
========= ======== ======= =========
Basic Earnings (Loss) per share $ (.09)$ .06)$ (.04)
========= ========= =========
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>30
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
INFECTECH, INC.
(A development stage enterprise)
Years ended December 31, 1998, 1997, 1996
and the period from June 21, 1989 (inception) to December 31, 1998
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING RECEIVABLE
COMMON PAID-IN DEVELOPMENT FROM SALE
STOCK CAPITAL STAGE OF STOCK TOTAL
------ ---------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
Balance June 21, 1989 (inception) $ 0 $ 0 $ 0 $ 0 $ 0
Net loss 0 0 (98) 0 (98)
-------- -------- ------- ------- -----
Deficit December 31, 1989 0 0 (98) 0 (98)
Net loss 0 0 (388) 0 0
-------- -------- ------- ------- -----
Deficit December 31, 1990 0 0 (486) 0 (486)
Net loss 0 0 (907) 0 (907)
-------- -------- ------- ------- -----
Deficit December 31, 1991 0 0 (1,393) 0 (1,393)
Issuance of 1,849,300 shares of stock in
exchange for $20,000 in long-term loans 20,000 0 0 0 20,000
Issuance of 1,811,100 shares of stock in
exchange for research and development 35,810 0 0 0 35,810
Issuance of 100,000 shares of
stock for organization costs 2,000 0 0 0 2,000
Issuance of 105,000 shares of stock
for out-of-pocket costs 2,100 0 0 0 2,100
Issuance of 134,600 shares of stock in
exchange for legal services 13,000 0 0 0 13,000
Net loss 0 0 (67,027) 0 (67,027)
------ ------ ------- -------- -------
Balance (deficit) December 31, 1992 72,910 0 (68,420) 0 4,490
Net loss 0 0 (7,993) 0 (7,993)
------ ------ ------- -------- ------
Balance (deficit) December 31, 1993 72,910 0 (76,413) 0 (3,503)
Net loss 0 0 (14,160) 0 (14,160)
------ ------ ------- -------- ------
Balance (deficit) December 31, 1994 72,910 0 (90,573) 0 (17,663)
Conversion of long-term debt to
additional paid-in capital 0 44,833 0 0 44,833
Transfer of costs in excess of
par value upon change to $1
par value from no par value 7,090 (7,090) 0 0 0
Private placement of 500,000 shares of
stock at $.20 per share 10,000 90,000 0 0 100,000
Private placement of 507,500 shares of
stock at $.40 per share 10,150 192,850 0 0 203,000
Private placement of 25,000 shares of
Stock at $.80 per share 500 19,500 0 0 20,000
Costs relating to sale of stock 0 (10,200) 0 0 (10,200)
Issuance of 100,000 shares of stock at $.06
Per share 2,000 4,000 0 (6,000) 0
Net Loss 0 0 (43,780) 0 (43,780)
-------- ------- -------- ------ --------
Balance (deficit) December 31, 1995 102,650 333,893 (134,353) (6,000) 296,190
Cancellation of 15,250 shares of stock (305) 305 0 0 0
Issuance of 87,500 shares of stock for
debt 1,750 103,250 0 0 105,000
Collection of receivable 0 0 0 6,000 6,000
Private placement of 306,000 shares of stock
At $1.20 per share 6,120 361,080 0 0 367,200
Costs relating to sale of stock 0 (36,000) 0 0 (36,000)
Net loss 0 0 (220,922) 0 (220,922)
------- ---------- --------- ----- --------
Balance (deficit) December 31, 1996 110,215 762,528 (355,275) 0 517,468
Private placement of 522,450
shares of stock at $1.20 per share 10,449 616,491 0 0 626,940
Expense relating to stock options 0 67,974 0 0 67,974
Net loss 0 0 (346,225) 0 (346,225)
--------- --------- --------- ----- ---------
Balance (deficit) December 31, 1997 120,664 1,446,993 (701,500) 0 866,157
Private placement of 225,000 shares
of stock at $1.20 per share 4,500 265,500 0 0 270,000
<PAGE>31
Issuance of 57,213 shares of stock
upon exercise of options at
$.01 per share 1,144 (572) 0 0 572
Issuance of 51,037 shares of
stock for services 1,021 65,372 0 0 66,393
Costs relating to sale of stock 0 (41,148) 0 0 (41,148)
Expense relating to stock options 0 117,401 0 0 117,401
Net loss 0 0 (546,876) 0 (546,872)
------ -------- ---------- ---- --------
Balance (deficit) December 31, 1998 $127,329 $1,853,546 $(1,248,376) $ 0 $ 732,499
========= ========== =========== ====== =========
</TABLE>
See accompanying notes to financial statements
<PAGE>32
STATEMENTS OF CASH FLOWS
INFECTECH, INC.
(A development stage enterprise)
Years ended December 31, 1998, 1997, 1996
and the period from June 21, 1989 (inception) to December 31, 1998
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 21, 1989
(INCEPTION)
TO
DECEMBER 31,
1998 1997 1996 1998
----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(546,876) $(346,225) $(220,922) $(1,248,376)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization 30,756 20,669 14,194 85,282
Depreciation 5,886 5,288 4,410 16,079
Increase (decrease) in payables 16,801 (60,867) 71,089 31,212
Increase in accrued expenses 111 2,132 412 4,052
Expenses exchanged for capital 183,794 67,974 0 302,678
--------- -------- -------- ---------
NET CASH USED IN
OPERATING ACTIVITIES (309,528) (311,029) (130,817) (809,073)
--------- -------- -------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase (redemption) of
certificate of deposit 200,000 (200,000) 0 0
Purchase of equipment (6,504) (849) (22,328) (43,518)
Patent costs (191,373) (108,549) (119,572) (605,374)
Increase in deposits (213) (26) (1,430) (1,669)
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,910 (309,424) (143,330) (650,561)
--------- --------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES
Fees in connection with
issuance of stock (41,148) 0 (36,000) (87,348)
Proceeds from issuance of
long-term debt 0 0 36,189 170,565
Proceeds from issuance of
common stock 270,572 626,940 373,200 1,593,712
---------- ---------- --------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 229,424 626,940 373,389 1,676,929
---------- ---------- --------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (78,194) 6,487 99,242 217,295
CASH AND CASH EQUIVALENTS
Beginning of period 295,489 289,002 189,760 0
--------- --------- ---------- ---------
End of period $ 217,295 $ 295,489 $ 289,002 $ 217,295
========== ========= ========== ===========
CASH WAS PAID FOR
Interest $ 0 $ 0 $ 661 $ 661
========== ========= ========== ===========
</TABLE>
See accompanying notes to financial statements
-5-
<PAGE>33
NOTES TO FINANCIAL STATEMENTS
INFECTECH, INC.
(A development stage enterprise)
December 31, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations:
These financial statements are those of a development stage company,
Infectech, Inc., that was incorporated in 1989 to develop diagnostic
tests for infectious diseases. A paraffin slide technology has been
developed that greatly reduces the time required to identify bacteria
and diagnose disease. This technology has been patented in the United
States, major European countries and Australia.
Infectech's operations have consisted primarily of incurring legal
costs to obtain patents in the United States and foreign countries and
conducting research and development activities.
Cash and Cash Equivalents:
Infectech considers highly liquid debt instruments purchased with
maturity dates of three months or less to be cash equivalents.
Infectech maintains deposits in savings, checking and transfer accounts
in one bank located in Hermitage, Pennsylvania. Deposits at times may
exceed federally insured amounts.
Equipment:
Equipment is stated at cost. Depreciation is computed on the straight-
line method.
Patent Costs:
Patent costs are stated net of amortization. Amortization is computed
on the straight-line method over a 17 year period. Infectech has
capitalized only legal fees related to patent rights acquired; all
other such costs have been expensed as incurred.
Research and Development Costs:
Research and development costs not directly reimbursable by others,
totaling $35,810 in 1992, were charged to expense when stock was issued
in exchange for patent rights. Research and development costs of
$92,004 in 1998, $60,697 in 1997 and $17,500 in 1996 were charged to
expense when incurred.
Use of Estimates:
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.
Revenue Recognition
Substantially all revenues are recognized when finished products are
delivered or services have been rendered, with appropriate provision
for uncollectible accounts. Royalty income is recognized when earned.
Long-Lived Assets
In 1997, Infectech adopted SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The
adoption of SFAS 121 had no impact on Infectech's financial position or
on its results of operations.
In accordance with SFAS 121, long-lived assets held and used by
Infectech are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an assets may not be
recoverable. For purposes of evaluating the recoverability of long-
lived assets, the recoverability test is performed using undiscounted
net cash flows estimated to be generated by those assets compared to
the carrying value of the asset.
NOTE B - LINE OF CREDIT
Infectech has a $10,500 line of credit, all of which was available at
December 31, 1998. The line of credit is collateralized by the personal
guarantee of a stockholder.
<PAGE>34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFECTECH, INC.
(A development stage enterprise)
December 31, 1998 and 1997
NOTE C - LEASES WHERE COMPANY IS LESSEE
Infectech has a three year operating lease for laboratory space, with a
renewal option for an additional three years. Following is a summary
of future minimum lease payments as of the lease inception:
Year ending -
December 31, 1999 $ 3,602
NOTE D - INCOME TAXES
Following is a reconciliation between federal income taxes at statutory
rates and actual taxes based on income before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory taxes 35.0% (35.0%) (35.0%)
Effect of valuation reserve 35.0 35.0 35.0
------ ----- ------
.0% .0% .0%
======= ====== =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets are presented below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------------
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss $400,000 $215,000
Less valuation allowance (400,000) (215,000)
--------- ---------
NET DEFERRED TAX ASSETS $ 0 $ 0
</TABLE>
Infectech has no significant deferred tax liabilities.
At December 31, 1998, Infectech had unused net operating tax loss
carryovers of approximately $1,179,000 available for federal income tax
purposes for offset against future taxable income, $547,000 expiring in
2013, $325,000 expiring in 2012, $220,000 expiring in 2011, $43,800
expiring in 2010, $14,000 expiring in 2009, $8,000 expiring in 2008 and
the balance expiring in the years 2004 through 2008. The utilization
of the loss carryovers may be limited to a reduced annual amount after
an ownership change as defined by Section 382 of the Internal Revenue
Code.
NOTE E - STOCK OPTIONS
Infectech adopted a stock option plan, which provides for the issuance
of up to 1,182,750 shares of common stock to key employees and
directors and other individuals involved in Infectech. During 1998,
the plan was amended to increase the number of shares by 1,250,000.
A summary of Infectech's option plans at December 31, 1998 and December
31, 1997 and changes during the periods ending on those dates are shown
below:
<PAGE>35
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
---------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------------- ---------------
<S> <C> <C> <C> <C>
Employees
Outstanding at beginning of period 203,921 $1.20 66,766 $1.20
Granted 146,638 .63 137,155 1.20
Options exercised (6,750) .01 0 .00
-------- -------
Outstanding at end of period 343,809 .98 203,921 1.20
======== ===== ======= =====
Options exercisable
At end of period 236,866 $ .84 0 $ .00
========= ===== ======= =====
Nonemployees
Outstanding at beginning of period 525,263 $2.14 158,330 $1.31
Granted 69,199 1.14 366,933 2.51
Options exercised (50,463) .01 0 .00
--------- ----- ------- -----
Outstanding at end of period 543,999 2.22 525,263 2.14
======== ===== ======= =====
Options exercisable at end of
period 198,200 $2.08 53,492 $ .00
</TABLE>
All shares issued before 1998 vest in equal installments over a three
year period on each anniversary date of the grant. The shares granted
in 1998 vest immediately. The terms of the options are generally for
10 years.
In addition, on December 9, 1995 one consultant to Infectech was
granted a fully vested option to purchase $15,000 worth of stock at a
price equal to one-half of the price any stock is sold in an initial
public offering.
Following is a summary on the status of options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
EXERCISE CONTRACTUAL EXERCISE
PRICE NUMBER LIFE PRICE NUMBER
EMPLOYEES
<S> <C> <C> <C>
$ .01 63,750 10 years $ .01 63,750
.20 60,000 10 years .20 20,000
1.20 217,120 10 years 1.20 119,688
NONEMPOYEES
$ .01 15,000 10 years $ .01 11,666
.02 1,650 10 years .02 1,650
1.20 221,188 10 years 1.20 113,462
3.00 300,000 10 years 3.00 100,000
4.50 9,100 9 years 4.50 6,500
</TABLE>
The Company charges expense for the fair value of the stock options
issued to nonemployees. The fair value of each option granted to
nonemployees is estimated on the grant date using the Black-Scholes
model. The following assumptions were made in estimating fair value:
<PAGE>36
Dividend yield 0
Risk-free interest rate 5%
Expected life 10 years
Expected volatility None
Infectech applies APB Opinion 25 in accounting for its stock options
for employees. Accordingly, compensation cost has been recognized only
to the extent that the market value at grant date exceeded the option
price. The amount of compensation cost recognized for 1998 was
$83,300. No compensation cost was recognized for the plan in 1997.
Had compensation cost been determined on the basis of fair value
pursuant to FASB Statement No. 123, net loss would have been increased
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net loss -
As reported $(546,876) $(346,225) $(220,922)
========= ========= =========
Per Share $(.09) $(.06) $(.04)
========= ========= =========
Pro forma $(587,931) $(449,891) $(324,399)
========= ========= =========
Pro forma Per Share $(.10) $(.08) $(.06)
========= ========= =========
</TABLE>
The independent contractors were granted options to purchase 57,459 and
60,146 shares from $.01 to $1.20 per share in exchange for services
rendered during 1998 and 1997, respectively. Infectech recognized an
expense of $34,667 for 1998 and $67,974 for 1997 equal to the value of
this option. Following is a table listing the independent contractor
and the options issued.
Options Issued
Independent Contractor 1998 1997
---------------------- ---- ----
Steven Lewis 30,000 0
Jeff Lewis - 50,025
Tom Kelly 650 5,121
Sara Giordano 15,138 5,000
James Johnson 270 0
William Modor 10,401 0
Larry Sanata 1,000 0
------- ------
TOTAL OPTIONS ISSUED 57,459 60,146
======= ======
In addition, one independent contractor, Timothy Miles, was granted
50,000 common shares in exchange for services in 1998. Infectech
recognized a $60,000 expense for the value of the shares issued during
1998.
NOTE F - CONTROLLING INTEREST AND RELATED PARTY TRANSACTIONS
Controlling Interest:
Dr. Mitchell Felder and Dr. Robert Ollar own 63.0% and 66.6% of
Infectech's outstanding common stock at December 31, 1998 and 1997,
respectively.
Related Party Transactions:
Prior to July 1995, all of Infectech's expenditures were funded by a
loan from Dr. Mitchell Felder. Infectech also utilizes office space
provided by Dr. Felder at no charge to Infectech.
Dr. Felder advanced Infectech $26,776 in 1993, $36,649 in 1994, $19,564
in 1995 and $36,189 in 1996. Advances from inception of Infectech to
December 31, 1992 totaled $39,387.
Under an agreement with Infectech, $64,833 of the amounts loaned were
converted to common stock. At December 31, 1995, $56,811 was payable
to Dr. Felder.
Attorney David Bernstein provided legal services in exchange for common
stock. Mr. Bertstein also provided legal services during 1992 in
exchange for a $12,000 note payable.
<PAGE>37
During 1996, $105,000 in loans from Dr. Felder and Attorney Bernstein
were converted to 87,500 shares of common stock.
Infectech has entered into a two-year consulting agreement with Steven
Lewis, a stockholder and director of Infectech to provide consulting
and advisory services to Infectech in consideration for cash payments
equal to 5% of the gross proceeds to Infectech from a variety of
financial transactions in which they may engage. During 1998, 1997 and
1996, $32,000, $31,347 and $18,360, respectively, was expensed under
this agreement.
NOTE G - NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1992, Infectech issued common stock
in exchange for $13,000 in legal fees incurred to Attorney Bertstein
and $35,810 in research and development costs provided by Dr. Ollar and
$2,100 in organization costs incurred by Dr. Ollar. Infectech also
incurred $12,000 in long-term debt in exchange for legal services
performed by Attorney Bernstein. Infectech also converted $20,000 in
long-term debt to stock owed to Dr. Felder during 1992.
Dr. Felder paid company expenses or loaned amounts to Infectech on a
long-term basis as follows:
Year Amount
----- -------
1989 $ 2,522
1990 4,946
1991 8,914
1992 23,005
1993 26,776
1994 36,649
1995 19,564
1996 35,813
$158,189
========
During the year ended December 31, 1995, $44,833 in noninterest bearing
long-term debt was transferred to paid-in capital in exchange for a
transfer of stock among Dr. Felder, Susan Felder, Attorney Bernstein
and Dr. Ollar.
During the year ended December 31, 1995, Infectech issued common stock
to Steven Lewis in exchange for a $6,000 subscription receivable, which
was repaid during 1996.
During the year ended December 31, 1996, Infectech issued common stock
to Dr. Felder and Attorney Bernstein in exchange for $105,000 in long-
term debt.
NOTE H - STOCK SPLITS AND STOCK OFFERING
On November 19, 1996, the stockholders amended the articles of
incorporation increasing the authorized shares from 120,000 to
20,000,000. In addition, a 50 to 1 stock split was declared increasing
the outstanding shares to 5,117,250.
On June 1, 1995, the stockholders amended the articles of incorporation
increasing the authorized shares from 3,000 to 120,000 shares. In
addition, a 40 to 1 stock split was declared increasing the outstanding
shares to 120,000. At this time, the stockholders contributed 40,000
shares of stock back to Infectech. All per share amounts and number of
shares have been restated to reflect the stock splits.
On November 27, 1996, Infectech offered for sale 1,000,000 shares of
common stock under a private placement. As of December 31, 1998,
903,450 shares have been issued.
NOTE I - TERMINATION OF MERGER AGREEMENT
On April 7, 1998, Infectech signed a merger agreement with Regal One
Corporation, an inactive public company located in Las Vegas, Nevada.
The agreement called for each share of Infectech, Inc. to be exchanged
for 3.8483 shares of Regal One Corporation subject to adjustment for
stock options and any additional shares issued under the private
placement. After the merger, Infectech, Inc. stockholders would have
<PAGE>38
owned approximately 85% of the combined company. The agreement was
terminated in 1998. Infectech incurred approximately $56,000 in
expenses in connection with this failed merger which were charged to
operations during 1998.
<PAGE>39
Infectech, Inc. and Subsidiary
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Balance Sheet
Unaudited Audited
September 30 Dec. 31
ASSETS 1999 1998
------------ -------
CURRENT ASSETS
Cash and cash equivalents $ 81,466 $217,295
EQUIPMENT
Medical equipment 45,967 43,517
Less accumulated depreciation 20,872 16,078
-------- --------
NET EQUIPMENT 25,095 27,439
OTHER ASSETS
Deposit 1,721 1,669
Patent costs, net of accumulated amortization
Of $110,438 in 1999 and $82,442 in 1998 550,093 522,092
------- -------
TOTAL OTHER ASSETS 551,814 523,761
------- -------
$658,375 $768,495
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 28,413 $33,006
Accrued expenses 5,380 522
Accrued state taxes 0 2,468
------- -------
TOTAL CURRENT LIABILITIES 33,793 35,996
------- -------
STOCKHOLDERS' EQUITY
Common stock - $.02 par value
Authorized 20,000,000 shares issued and
outstanding 6,480,784 shares in 1999 129,616 127,329
Additional paid-in capital 2,152,097 1,853,546
Deficit accumulated during the development
stage (1,657,131) (1,248,376)
--------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 624,582 732,499
--------- ----------
$ 658,375 $ 768,495
========= =========
See accompanying notes to consolidated financial statements
<PAGE>40
Infectech, Inc. and Subsidiary
Consolidated Statement of Operations
(A DEVELOPMENT STAGE ENTERPRISE)
(Unaudited)
<TABLE>
<CAPTION>
For the For the Period from
Three Months Ended Nine Months Ended June 21, 1989
September 30, September 30, (Inception) to
1999 1998 1999 1998 September 30, 1999
-------- ------ ------- ------ --------------
<S> <C> <C> <C> <C> <C>
OPERATING INCOME
Sales & Royalties $ 7,290 $0 $ 7,290 $ 0 $ 10,959
OPERATING EXPENSES:
Research and development 14,363 42,504 49,352 65,266 255,363
Wages 73,513 11,027 86,592 29,470 263,996
Telephone 1,656 1,021 8,106 6,980 37,361
Office expense 919 2,070 9,674 8,194 32,349
Insurance 0 266 51 5,536 17,743
Legal & accounting 3,785 12,000 19,726 52,239 254,469
Travel (77) 4,299 5,580 6,645 73,996
Payroll Taxes 617 819 1,917 2,495 10,544
State & local taxes 0 1,374 2,621 4,774 14,313
Amortization 9,470 11,933 27,995 23,051 113,277
Depreciation 1,686 1,648 4,794 4,320 20,873
Rent 6,293 8,304 14,739 20,609 89,472
Consulting & professional fees 101,341 12,398 116,059 12,000 447,856
Public relations 3,378 0 30,188 0 30,188
Royalties 1,822 0 1,822 0 1,822
Misc. operating expenses 6,211 1,801 11,420 5,911 28,946
MD-diagnostics.com expenses 0 0 30,614 0 30,614
---------- ---------- ----------- ---------- ------------
TOTAL OPERATING EXPENSES 224,977 111,464 421,250 247,490 1,723,182
---------- ---------- ----------- ---------- ------------
LOSS FROM OPERATIONS (217,687) (111,464) (413,960) (247,490) (1,712,223)
OTHER INCOME (DEDUCTION)
Interest expense 0 0 0 0 (661)
Interest earned 1,144 3,022 5,205 18,503 55,753
---------- ----------- ----------- ---------- -----------
NET LOSS $(216,543) $(108,442) $(408,755) $(228,987) $(1,657,131)
========== ========== =========== ========== ===========
BASIC LOSS PER SHARE $ (.03) $ (.02) $ (.06) $ (.04)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES 6,480,784 6,258,631 6,436,972 6,133,173
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>41
Infectech, Inc. and Subsidiary
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the For the Period from
Nine Months Nine Months June 21, 1989
Ended Ended (Inception) to
Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999
-------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($408,755) ($228,987) ($1,657,131)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization 27,995 23,051 113,277
Depreciation 4,794 4,319 20,873
Increase (decrease) in payables (4,593) 2,077 26,619
Increase (decrease) in accrued expenses 2,390 1,141 6,442
Expenses exchanged for capital 167,604 0 470,282
-------- -------- ----------
NET CASH USED IN OPERATING ACTIVITIES (210,565) (198,399) (1,019,638)
CASH FLOWS FROM INVESTING ACTIVITIES
Redemption (Purchase) of certificate of deposit 0 200,000 0
Purchase of equipment (2,450) (4,505) (45,968)
Patent costs (55,997) (179,554) (661,371)
Increase (decrease) in deposits (51) (82) (1,720)
Deferred merger & offering costs 0 (76,070) 0
------- ------ --------
NET CASHED USED IN INVESTING ACTIVITIES (58,498) (60,211) (709,059)
CASH FLOWS FROM FINANCING ACTIVITIES
Fees in connection with issuance of stock 0 0 (87,348)
Proceeds from issuance of long-term debt 0 0 170,565
Proceeds from issuance of common stock 133,234 270,074 1,726,946
-------- -------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 133,234 270,074 1,810,163
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (135,829) 11,464 81,466
CASH AND CASH EQUIVALENTS
Beginning of Period 217,295 295,489 0
End of Period $ 81,466 $ 306,953 81,466
========== ========== =========
CASH WAS PAID FOR
Interest $ 0 $ 0 $ (661)
========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>42
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations:
These financial statements are those of a development stage company,
Infectech, Inc., that was incorporated in 1989 to develop diagnostic
tests for infectious diseases and one 95% owned subsidiary. The
accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with instructions to form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary have
been made for the fair presentation of the company's results for the
nine month period ended September 30, 1999. These results are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1999.
<PAGE>43
PART III
ITEM 1. INDEX TO EXHIBITS
(2) Charter and by-laws
(3) Instruments defining the rights of security holders
(5) Voting Trust Agreement - Not Applicable
(6) Material Contracts
(7) Material Foreign Patents - Not Applicable
(12) Additional Exhibits
ITEM 2. DESCRIPTION OF EXHIBITS
(2.1) Articles of Incorporation incorporated by reference to
Form 10SB filed June 17, 1999
(2.1.1) Amendment to Articles of Incorporation dated July 4, 1995
incorporated by reference to Form 10SB filed June 17, 1999
(2.1.2) Amendment to Articles of Incorporation dated November 21,
1996 incorporated by reference to Form 10SB filed June 17,
1999
(2.2) Bylaws incorporated by reference to Form 10SB filed June 17,
1999
(3.1) Common Stock Certificate - to be filed by amendment
(3.2) Preferred Stock Certificate - to be filed by amendment
(6.1) License Agreement dated October 4, 1993, between Infectech
and Erie Scientific Company incorporated by reference to
Form 10SB filed June 17, 1999
(6.2) Investment and Licensing Agreement dated June 11, 1998
between Infectech and BioRemedial Technologies, Inc.
incorporated by reference to Form 10SB filed June 17, 1999
(6.3) Consulting Agreement dated July 8, 1998, between Infectech
and Breakthru Technologies, L.L.C. incorporated by reference
to Form 10SB filed June 17, 1999
(6.4) Consulting Agreement dated September 24, 1998, between the
Company and Timothy Miles d/b/a/ Little Pond Enterprises
incorporated by reference to Form 10SB filed June 17, 1999
(6.5) Letter agreement together with Option Agreement and Research
Agreement exhibits dated August 19, 1998, between Infectech
and Brigham and Women's Hospital incorporated by reference to
Form 10SB filed June 17, 1999
(6.6) Consulting Agreement dated September 15, 1998, between the
Company and Merrill Weber & Co., Inc. incorporated by
reference to Form 10SB filed June 17, 1999
(6.7) Letter Agreements dated April 14, 1997 and May 14, 1997
between Infectech and NEN Life Science, Inc. incorporated
by reference to Form 10SB filed June 17, 1999
(6.8) Letter Agreement dated November 19, 1997, between Infectech
and Starplex Scientific incorporated by reference to Form
10SB filed June 17, 1999
(6.9) Exclusive Licensing Agreement dated September 14, 1999
between Infectech and BioRemedial Technologies, Inc.
(6.10) Consulting Agreement dated September 13, 1999 between the
Company and Bridgeport Group, LLC
<PAGE>44
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
INFECTECH, INC.
Mitchell Felder, M.C.
Date: December 8, 2000 --------------------------------
By: Mitchell Felder, President
