<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
--------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-22501
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SPECTRUMEDIX CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 25-1686354
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2124 Old Gatesburg Road, State College, Pennsylvania 16803
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(Address of principle executive offices)
(814) 867-8600
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 4,198,041 shares of Common
Stock, par value $.00115 per share, outstanding as of February 15, 2000.
<PAGE>
SPECTRUMEDIX CORPORATION
QUARTERLY REPORT
QUARTER ENDED DECEMBER 31, 1999
CONTENTS
PART I. FINANCIAL INFORMATION
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Page
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Item 1 Financial Statements
Condensed Balance Sheets - December 31, 1999 and March 31, 1999........................................ 1
Condensed Statements of Operations - Nine and Three Months Ended December 31, 1999 and December 31,
1998.................................................................................................. 2
Condensed Statements of Cash Flows - Nine Months Ended December 31, 1999 and December 31, 1998......... 3
Notes to Financial Statements.......................................................................... 4-7
Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition............ 8
<CAPTION>
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings....................................................................... 11
Item 2. Changes in Securities and Use of Proceeds............................................... 11
Item 3. Defaults Upon Senior Securities......................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders..................................... 11
Item 5. Other Information....................................................................... 11
Item 6. Exhibits and Reports on Form 8-K........................................................ 11-12
(a) Exhibits........................................................................... 11
(b) Reports on Form 8-K................................................................. 12
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SPECTRUMEDIX CORPORATION
CONDENSED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 1999 AND MARCH 31, 1999
ASSETS
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<CAPTION>
December 31, March 31,
1999 1999*
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<S> <C> <C>
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 681,312 $ 20,318
Certificates of deposit 2,041,638 -
Accounts receivable, net 28,807 55,319
Inventories 582,381 527,979
Prepaid expenses 17,695 4,582
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TOTAL CURRENT ASSETS 3,351,833 608,198
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PROPERTY AND EQUIPMENT, net 464,340 463,536
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OTHER ASSETS:
Patent fees 419,398 358,816
License and license options, net 28,776 106,343
Security deposit 8,479 8,479
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TOTAL OTHER ASSETS 456,653 473,638
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TOTAL ASSETS $4,272,826 $1,545,372
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,450,722 $ 2,389,486
Current portion of long-term debt 31,916 29,926
Officer's note 83,307 161,423
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TOTAL CURRENT LIABILITIES 1,565,945 2,580,835
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NON-CURRENT LIABILITIES:
Long-term debt, net of current portion 79,766 103,273
Deferred income 2,722,222 -
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TOTAL NON-CURRENT LIABILITIES 2,801,988 103,273
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STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.00115 par value, 2,000,000 shares 2 -
authorized, 2,000 and 0 shares issued and outstanding, respectively
Common stock, $.00115 par value, 23,000,000 shares authorized 4,206 4,059
3,658,041 and 3,530,214 shares issued and outstanding, respectively
Additional paid-in capital 12,626,754 10,631,756
Accumulated deficit (12,570,286) (11,512,684)
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Total 60,676 (876,869)
Less: Deferred compensation (155,783) (261,867)
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TOTAL STOCKHOLDERS' (DEFICIT) (95,107) (1,138,736)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 4,272,826 $ 1,545,372
============ ============
</TABLE>
*Derived from audited financial statements
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SPECTRUMEDIX CORPORATION
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE AND THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
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<CAPTION>
Nine Months Ended Three Months Ended
December 31, December 31,
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
REVENUES $ 107,523 $ 163,482 $ 11,803 $ 31,992
COST OF REVENUES 284,734 346,879 127,472 91,198
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GROSS INCOME (LOSS) (177,211) (183,397) (115,669) (59,206)
----------- ----------- ---------- ----------
OPERATING EXPENSES:
Research and development costs, net 486,590 875,943 126,721 199,235
General and administrative expenses 701,581 1,153,946 239,861 314,254
----------- ----------- ---------- ----------
TOTAL OPERATING EXPENSES 1,188,171 2,029,889 366,582 513,489
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OPERATING LOSS (1,365,382) (2,213,286) (482,251) (572,695)
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OTHER INCOME (EXPENSE):
Interest income 57,875 15,965 32,551 562
Interest expense (27,873) (4,558) (4,077) (2,294)
Consulting income 277,778 - 166,667 -
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TOTAL OTHER INCOME (EXPENSE) 307,780 11,407 195,141 (1,732)
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NET LOSS $(1,057,602) $(2,201,879) $ (287,110) $ (574,427)
=========== =========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 3,646,166 3,515,214 3,658,041 3,515,214
=========== =========== ========== ==========
BASIC AND DILUTED LOSS PER
SHARE $(.29) $(.62) $(.08) $(.16)
=========== =========== ========== ==========
</TABLE>
<PAGE>
SPECTRUMEDIX CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
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<CAPTION>
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(1,057,602) $(2,201,879)
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Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization 97,392 54,083
Amortization of sub-license income (277,778) -
Sub-license agreement 1,000,000 -
Consulting agreement 2,000,000 -
Non-cash compensation expense 106,084 457,324
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 26,512 (44,299)
(Increase) in inventories (54,402) (80,485)
(Increase) in other assets (13,113) (91,654)
Increase (decrease) in accounts payable and accrued expenses (938,764) 406,313
(Decrease) in customer deposits - (5,960)
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Total adjustments 1,945,931 695,322
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 888,329 (1,506,557)
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CASH FLOWS USED BY INVESTING ACTIVITIES:
Purchase of equipment (71,471) (143,588)
Increase in patent fees (62,555) -
Increase in certificates of deposit (2,041,638) -
Reimbursement of license costs 52,815 -
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NET CASH USED BY INVESTING ACTIVITIES (2,122,849) (143,588)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from officer's notes 222,031 25,000
Repayment of notes payable - others (21,517) (12,460)
Repayment of officer's notes (300,000) -
Proceeds from sale of Preferred stock 1,995,000 -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,895,514 12,540
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 660,994 (1,637,605)
CASH AND CASH EQUIVALENTS - beginning of period 20,318 1,680,643
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CASH AND CASH EQUIVALENTS - end of period $ 681,312 $ 43,038
=========== ===========
NON-CASH INVESTMENT AND FINANCING ACTIVITIES:
During the nine months ended December 31, 1998, additional paid-in capital and
deferred compensation increased by $735,850 from compensation stock options
issued to non-employees. In addition, during the nine months ended December 31,
1998, property and equipment of $100,720 was purchased and capital lease
obligations of $100,720 were assumed. During the nine months ended December 31,
1999, officer's notes decreased and common stock increased by $147 as a result of
the exercise of stock options to purchase 127,827 common shares at $0.00115 per
share
</TABLE>
<PAGE>
SPECTRUMEDIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of SpectruMedix
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-QSB. Accordingly, they do not contain all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, the accompanying unaudited financial statements contain all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly (a) the financial position as of December 31, 1999, (b) the
results of operations for the nine months and three months ended December
31, 1999 and 1998 and (c) changes in cash flows for the nine months ended
December 31, 1999 and 1998. For more information, refer to the audited
financial statements for the fiscal year ended March 31, 1999, which were
included in the Company's Annual Report on Form 10-KSB.
Financial results for the interim periods ended December 31, 1999 and 1998
may not be indicative of the financial results for the fiscal year ending
March 31, 2000.
NOTE 2 - GENERAL
The Company devotes substantially all of its resources to the development
of its high-speed DNA/gene sequencing instrumentation (the "DNA
Sequencer"), an instrument for the acquisition, analysis and management of
complex genetic information. The DNA Sequencer was developed in part from
research efforts conducted at the United States Department of Energy and
Ames Laboratories' Institute for Physical Research and Technology/Iowa
State University. The Company believes DNA sequencing has significant
implications for medical, genetic and forensic science applications.
At March 31, 1999, the Company has available carryforward losses applicable
to the reduction of future Federal income taxes aggregating approximately
$11,638,000, which expire on various dates through 2014.
NOTE 3 - ECONOMIC DEPENDENCY
To date, all of the Company's revenues have been derived from sales of the
Company's original product lines, which included mass spectrometers,
luminoscopes, electronic components and software. As noted above,
currently, the Company is devoting substantially all of its resources to
the development, commercialization and marketing of the DNA Sequencer.
The Company achieved limited sales of its other product lines and such
sales were materially dependent on a limited number of customers. The
nature of the Company's business was such that during any individual
accounting period it sold its products to a limited number of significant
customers. The Company has not sold any DNA Sequencer units, but sales of
the DNA Sequencer may also be characterized by sales to a limited number of
customers during any individual accounting period.
The Company's DNA Sequencer requires high quality raw materials and
components that the Company purchases from third party suppliers. Certain
raw materials or components may, however, from time to time, be difficult
to obtain, which difficulties may result in production delays or require
the Company to find alternate means of production. In particular, both the
lasers and capillaries used in the DNA Sequencer are each purchased from
one manufacturer who only produces a limited number of units. Such
manufacturers may not be able to supply all of the Company's needs. Thus,
the Company's ability to manufacture its products will depend on its
ability to establish and maintain commercial relationships with at least
certain of such suppliers. The Company does not currently maintain supply
agreements with any of its suppliers.
<PAGE>
NOTE 4 - LEGAL PROCEEDINGS
Rubin Matter
On April 21, 1997, a complaint was filed in the Supreme Court of the State
of New York alleging breach of contract. Specifically, the plaintiff
alleges that the Company defaulted under a promissory note issued to
plaintiff on May 16, 1996 in the amount of $175,000 (the "Rubin Note") and
that the Company is liable and indebted to plaintiff in the principal
amount of $175,000, together with interest and expenses. The Company, on
May 2, 1997, paid the principal and interest due under the Rubin Note.
The main remaining issue asserted by the plaintiff is whether, pursuant to
an alleged related agreement, the plaintiff is entitled to 152,174 shares
(adjusted to reflect stock splits) of common stock of the Company or,
alternatively, $875,000. Plaintiff alleges that the Company undertook to
enter into a securities purchase agreement pursuant to which he should have
received the aforementioned shares of common stock. The Company contends
that such securities purchase agreement was never discussed and,
accordingly, no agreement was reached with respect to the terms thereof.
Such securities purchase agreement was not signed by either of the parties
to the Rubin Note. The Company believes that it has meritorious defenses
to the above-described claims and it intends to defend the litigation
vigorously. However, due to the nature of litigation and because the
lawsuit is in the initial stages, the Company cannot determine the total
expense or possible loss, if any, that may ultimately be incurred either in
the context of a trial or as a result of a negotiated settlement. While
management believes that the resolution of this matter will not have a
material adverse effect on the Company's business, financial condition and
results of operations, the results of these proceedings are uncertain and
there can be no assurance to that effect.
NOTE 5 - STOCK OPTIONS
In May 1999, the Company granted options to purchase 38,000 shares of its
common stock to employees under the Company's Stock Incentive Plan (the
"Plan") at an exercise price of $0.0938 per share, the estimated fair value
of the common stock on the date of grant. The options vest in four
tranches, with the first tranche vesting in May 2000. The stock options
are exercisable for a period of ten years from the date of grant.
Additionally, in May 1999, the Company provided to its employees an
opportunity to exchange the options they previously received under the Plan
for new options ("New Options"). The New Options have the same terms as the
options granted under the Plan except that the exercise price has been
changed from $4.60 to $0.0938 per share, the estimated fair value of the
common stock on the date the New Options were granted. In connection with
the exchange, 237,008 New Options were granted.
In May 1999, an officer of the Company exercised stock options to purchase
127,827 shares of the Company's common stock at $0.00115 per share.
In December 1999, the Company granted options to purchase 200,956 shares of
its common stock to employees under the Plan at an exercise price of
$0.0938 per share, the estimated fair value of the common stock on the date
of grant. The options vest in four tranches, with the first tranche
vesting in December 2000. The stock options are exercisable for a period
of ten years from the date of grant.
NOTE 6 - AMENDED LICENSE AGREEMENT AND SUBLICENSE AGREEMENT, AND CONSULTING
AGREEMENT
Amended License Agreement and Sublicense
Due to the Company's financial condition during fiscal year 1999, it was
not able to make certain required payments under its license agreement with
a major university relating to the DNA Sequencer. On July 30, 1999, Iowa
State University Research Foundation (the "University") and the Company
entered into an amendment to the license agreement ("Amended License"),
pursuant to which the Company agreed to pay $500,000 under the Amended
License and the University agreed to waive any defaults for the failure to
pay overdue amounts. The parties agreed to a revised schedule of minimum
royalties. Additionally, the University consented to the grant of a
sublicense to a company, and the Company agreed to pay the
<PAGE>
University a majority of the minimum royalties received under the
sublicense for the first three years, and all of the minimum royalties
thereafter. However, in the event royalties under the Sublicense exceed
certain milestone amounts, such royalties will be shared equally with the
University. The Company also granted the University a phantom stock award
equal to 150,000 shares of the Company's Common Stock, which will have the
right to participate in the increase in value of the Company's Common Stock
between July 30, 1999 and the date of any sale of the Company. However, if
the Company consummates one or more transactions in which it receives net
cash proceeds of $25,000,000 or more, the Company will be obligated to pay
to the University in the same calendar year and each year thereafter (i)
100 percent of Sublicense fees up to $1,000,000 and (ii) 50 percent of
Sublicense fees greater than $1,000,000.
In the event the Company fails to make required payments to the University
under the Amended License, the Amended License may be canceled. The
University may then require the Company to grant to the University a non-
exclusive license to any patents, trade secrets and other technology owned
or developed by the Company in connection with its business of
manufacturing, distributing and/or selling DNA sequencing equipment. The
University would be required to pay the Company 50 percent of all revenues
received by the University in connection with any such license.
Concurrently with entering into the Amended License with the University,
the Company entered into a sublicense agreement pursuant to which the
Company granted a company (the "Sublicensee") an exclusive sublicense to
use certain patents for the development of DNA sequencing machines using 30
or fewer capillaries and using side entry illumination. The Company also
granted the Sublicensee a right of first refusal to sublicense such
technology for use in DNA sequencing machines using more than 30
capillaries. On July 30, 1999, the Sublicensee paid the Company a non-
refundable Sublicense issue fee of $1,000,000, and, commencing with the
twelve-month period beginning August 1, 2001, the Sublicensee agreed to pay
to the Company certain minimum annual royalties. Such minimum royalties
are non-refundable, but are credited against the earned royalties payable
pursuant to the sublicense agreement. The non-refundable fee has been
credited to deferred income in the accompanying financial statements.
Consulting Agreement
On July 30, 1999, the Company and the Sublicensee entered into a three-year
consulting agreement pursuant to which the Company will provide consulting
services to the Sublicensee. In connection with such agreement, the
Company received a lump sum fee of $2,000,000, which was credited to
deferred income. Such consulting fees are being credited to income over the
three-year term of the agreement.
NOTE 7 - SERIES A PREFERRED STOCK
On July 30, 1999, the Company completed the sale and issuance of 2,000
shares of Series A Preferred Stock ("Series A Preferred") at $1,000 per
share, providing gross proceeds of $2,000,000 and net proceeds, after
expenses paid by the Company, of $1,995,000.
The holders of Series A Preferred are entitled to (i) share in dividends on
a pro-rata basis with common stockholders on an as-converted basis; (ii) a
liquidation preference equal to the sum of the price paid per share and all
declared and unpaid dividends (the "Liquidation Preference"); (iii)
optional redemption by the Company of the Liquidation Preference with
notice of at least 20 days; (iv) vote on all matters on an as converted
basis; and (v) convert to Common Stock at the Liquidation Preference Amount
multiplied by the shares to be converted divided by the conversion price
(the "Conversion Price") per share. The initial Conversion Price is equal
to $2.50 per share of Common Stock, and is subject to adjustment in the
event that shares of Common Stock are issued without consideration or for
consideration per share less than the conversion price.
NOTE 8 - SUBSEQUENT EVENTS
As of January 1, 2000, Stephen J. Wertheimer, a managing director of Credit
Research & Trading LLC, was appointed to the Board of Directors of the
Company. Mr. Wertheimer was granted 100,000 shares of Common Stock, having
a fair market value of $0.125 per share, in connection with such
appointment and in recognition of the consulting services he provided to
the Company on an uncompensated basis since August 1999.
<PAGE>
On January 13, 2000, the Company amended and restated the promissory note
it issued to Dr. Joseph K. Adlerstein in respect of amounts advanced to the
Company since December 1998. Dr. Adlerstein advanced funds to the Company
to pay payroll and for other working capital purposes at a time when the
Company did not have sufficient funds to meet its expenses and could not
obtain capital from any other sources. The amended note extended the term
of the loans to December 31, 2000 and provided that each $1,000 of
principal amount and accrued but unpaid interest outstanding under the
amended note may be converted into one share of the Company's Series B
Preferred Stock. On January 13, 2000, Dr. Adlerstein converted $103,125
outstanding under the note into 103.125 shares of the Company's Series B
Preferred Stock.
The Series B Preferred Stock have a liquidation preference of $1,000 per
share and rank junior to the Series A Preferred Stock in the event of a
dissolution of the Company. Each share of Series B Preferred Stock is
convertible into 8,000 shares of Common Stock, subject to adjustment for
stock splits, reclassifications and recombinations. Except as otherwise
required by law, the Series B Preferred Stock votes together with the
Common Stock and each share of Series B Preferred Stock is entitled to
80,000 votes per share, subject to adjustment for stock splits,
reclassifications and recombinations.
In recognition of his efforts on behalf of the Company during 1999, on
January 13, 2000, the Board of Directors of the Company granted Dr.
Adlerstein 100,000 shares of Common Stock, having a fair market value of
$0.125 per share. Also, on January 13, 2000, Dr. Adlerstein was granted an
option to purchase 100,000 shares of Common Stock with an exercise price
equal to the closing price of the Common Stock on January 13, 2000. The
options vest in three equal installments if certain performance goals are
met during calendar year 2000.
On January 3, 2000, the Company also sold 340,000 shares of its common
stock for $0.125 per share, the closing market price of the Company's
common stock on such date, to certain of its consultants and advisors,
including 40,000 shares to a consultant who has been acting in the capacity
of the Company's chief financial officer.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
SpectruMedix Corporation's (the "Company") Consolidated Financial Statements and
Notes thereto included elsewhere in this Quarterly Report on Form 10-QSB.
Except for the historical information contained herein, the discussion in this
Quarterly Report contains certain forward-looking statements, within the meaning
of Section 27A of the Securities Act and Section 27E of the Exchange Act, that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. Forward-looking statements are based
on management's current expectations and are subject to a number of risks and
uncertainties that could cause actual results to differ materially from expected
results. The cautionary statements made in this Quarterly Report should be read
as being applicable to all related forward-looking statements wherever they
appear in this Quarterly Report. Factors that could cause or contribute to such
differences include, the ability of the Company to market the DNA Sequencer, the
availability of the necessary capital to fund the Company's plans, and the
availability of specialized components necessary to manufacture the DNA
Sequencer, as well as those factors discussed under the heading "Risk Factors"
and elsewhere herein.
Overview
Currently, the Company devotes substantially all of its resources to the
development of high-speed DNA/gene sequencing instrumentation (the "DNA
Sequencer"), an instrument for the acquisition, analysis and management of
complex genetic information. The DNA Sequencer was developed in part from
research efforts conducted at the United States Department of Energy and Ames
Laboratories' Institute for Physical Research and Technology/Iowa State
University ("Ames Laboratories"). The Company believes DNA sequencing has
significant implications for medical, genetic and forensic science applications.
During the period from April 1992 (inception) through June 1992, the Company was
engaged in organizational activities, including negotiating agreements with the
Bankruptcy Court in Harrisburg, Pennsylvania to lease, on a temporary basis, the
assets and facilities of Nuclide Corporation ("Nuclide") and Measurement and
Analytic Systems, Inc. ("MAAS"). In December 1992, pursuant to a court order,
the Company acquired the assets of Nuclide and MAAS. In April 1993, the Company
acquired all the assets of Lab Data, including an inventory of computer hardware
and a complete line of data acquisition and instrument control software. From
June 1992 until mid-1998, the Company devoted substantially all of its resources
to upgrade and improve the Company's line of instrumentation (mass
spectrometers, Luminoscopes, etc.), electronic components and software. The
Company sold a line of magnetic sector mass spectrometers, new and improved
luminoscope add-ons, and high-performance software for a variety of applications
in the petrochemical, environmental and geochemical areas, among others. The
Company was not able to achieve meaningful sales of these products.
Accordingly, the Company has shifted its focus to the commercialization of the
DNA Sequencer, and, as discussed above, currently devotes substantially all of
its resources to the commercialization and marketing of the DNA Sequencer. To
date, the Company has not sold any DNA Sequencer units.
The Company has not been profitable since inception and had an accumulated
deficit of $12,570,286 at December 31, 1999. Successful future operations depend
upon the Company's ability to develop and commercialize its products.
The Company has financed its operations primarily through the private sale and
issuance of equity securities and proceeds from an initial public offering (the
"Public Offering") of equity securities during September 1997. All such funds
have been utilized by the Company and, from December 1998 through July 1999, the
Company has relied on cash infusions from its Chief Executive Officer. On July
30, 1999, the Company restructured its license agreement with Iowa State
University Research Foundation, an affiliate of Ames Laboratories ("ISURF"), for
technology used to develop the DNA Sequencer, and entered into a sublicense
agreement relating to certain of such technology with PE Biosystems ("PE Bio").
In connection with the sublicense agreement, PE Bio made an investment in the
Company and retained the Company as a consultant.
The aggregate gross proceeds from the sublicense and related agreements with PE
Bio will provide the Company with additional liquidity and allow it to pay
amounts owing under its license agreements, and, the Company believes, allow it
to meet its current obligations over the next twelve months. There can be no
assurance, however,
<PAGE>
that such funds will be sufficient. In order to proceed with the realization of
its plans for development and growth, the Company anticipates that over the next
twelve months it will need significant additional capital to greatly expand its
manufacturing capabilities, and launch a substantial sales and marketing
campaign. There can be no assurance, however, that the Company will be able to
obtain such capital on terms acceptable to it.
Results of Operations - Nine Months Ended December 31, 1999 and 1998
The Company had total revenues of $107,523 and $163,482 for the nine months
ended December 31, 1999 and 1998, respectively. Revenues for both periods
reflect sales of products from product lines other than the DNA Sequencer. The
decrease in revenues of $55,959, or approximately 34%, was due primarily to the
increased focus of the Company on the commercialization of the DNA Sequencer and
to the lack of a full time sales and marketing staff. Cost of revenues were
$284,734 and $346,879 during the nine months ended December 31, 1999 and 1998,
respectively, a decrease of $62,145, or approximately 18%. The reason for the
decrease in the cost of revenues is due to decreased revenues.
Of the total revenues discussed above, revenues derived from the sale of the
Company's services totaled $19,889 and $27,249 for the nine months ended
December 31, 1999 and 1998, respectively. The decrease in service revenue of
$7,360, or approximately 27%, was due primarily to the increased focus of the
Company on the commercialization of the DNA Sequencer and to the lack of a full
time sales and marketing staff.
Research and development expenses decreased $389,353 in 1999 to $486,590 from
$875,943 in 1998, due primarily to grants of $328,346 during 1999 (compared to
$395,319 during the nine months ended December 31, 1998) which decreased the
costs borne by the Company. In addition, during the nine months ended December
31, 1998 the Company incurred additional research and development expenses in
connection with a project that was substantially completed in early 1999.
General and administrative expenses were $701,581 and $1,153,946 during the nine
months ended December 31, 1999 and 1998, respectively, a decrease of $452,365,
or approximately 39%. Approximately 55% and 75% of the total general and
administrative expenses for the nine months ended December 31, 1999 and 1998,
respectively, were attributable to payroll, payroll taxes, employee benefits and
professional and consulting services. Prior to July 30, 1999, the Company did
not have the financial ability to hire and retain necessary personnel,
consultants and advisors. As a result, the Company has reported a lower general
and administrative expense than would otherwise have been incurred. Currently,
the Company has sufficient funds to retain such staff and intends to do so in
the near future. Accordingly, the Company expects to report higher general and
administrative expenses in the future. There can be no assurance, however, that
the Company will be able to attract and retain the necessary personnel,
consultants and advisors. The Company's reduced staffing levels have adversely
impacted the Company. In particular, the Company does not have a sufficient
marketing staff.
Interest expense was $27,873 and $4,558 for the nine months ended December 31,
1999 and 1998, respectively, an increase of 512%. Interest expense increased
primarily as a result of increased borrowings to fund operations, which
borrowings were substantially repaid during the quarter ended September 30,
1999.
Three Months Ended December 31, 1999 and 1998
The Company had total revenues of $11,803 and $31,992 for the three months ended
December 31, 1999 and 1998, respectively, a decrease of $20,189, or
approximately 63%. Revenues for both periods reflect sales of products from
product lines other than the DNA Sequencer. The decrease in total revenues was
due primarily to the increased focus of the Company on the commercialization of
the DNA Sequencer and to the lack of a full time sales and marketing staff. Cost
of revenues were $127,472 and $91,198 during the three months ended December 31,
1999 and 1998, respectively, an increase of $36,274, or approximately 40%.
Of the total revenues, revenues derived from the sale of the Company's services
totaled $5,700 and $3,338 for the three months ended December 31, 1999 and 1998,
respectively, an increase of $1,862, or approximately 56%. The increase in
service revenues was due primarily to a one-time service project.
Research and development expenses decreased 36% to $126,721 for the three months
ended December 31, 1999 from $199,235 for the three months ended December 31,
1998. Grants of $112,955 and $251,623 during the three months ended December 31,
1999 and 1998 respectively decreased the costs borne by the Company. In
addition,
<PAGE>
during the three months ended December 31, 1998 the Company incurred additional
research and development expenses in connection with a project that was
substantially completed in early 1999. The Company anticipates that research and
development expenses will increase for fiscal year 2000 as a result of expenses
relating to its license agreement with ISURF and its license and research and
development agreements with the University of Pennsylvania. The Company expects
to fund certain of such activities from the proceeds of the sale of preferred
stock.
General and administrative expenses decreased 24% to $239,861 for the three
months ended December 31, 1999 from $314,254 for the three months ended December
31, 1998. Prior to July 30, 1999, the Company did not have the financial ability
to hire and retain necessary personnel, consultants and advisors. As a result,
the Company has reported a lower general and administrative expense than would
otherwise have been incurred. Currently, the Company has sufficient funds to
retain such staff and intends to do so in the near future. Accordingly, the
Company expects to report higher general and administrative expenses in the
future. There can be no assurance, however, that the Company will be able to
attract and retain the necessary personnel and advisors. The Company's reduced
staffing levels have adversely impacted the Company. In particular, the Company
does not have a sufficient marketing staff.
Interest expense of $4,077 and $2,294 for the three months ended December 31,
1999 and 1998, respectively, resulted from borrowings. Interest expense during
the three months ended December 31, 1999 increased over the three months ended
December 31, 1998 primarily as a result of loans from the Company's Chief
Executive Officer made prior to July 30, 1999.
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through the sale
of equity securities and loans, most of which loans were repaid with the
proceeds from the Company's initial public offering. All of such funds were
expended on the development and commercialization of the Company's products,
primarily its mass spectrometers and luminoscopes. From December 1998 through
July 30, 1999, the Company has been dependent primarily on funds advanced by its
Chief Executive Officer to meet payroll and expenses, and the Company has failed
to make payments under its license agreements. As a result of its financial
condition, the Company was not able to exercise or renew its option with the
University of California, Berkeley relating to diagnostic kinetics technology.
On July 30, 1999, the Company restructured its license agreement with ISURF for
technology used to develop the Company's DNA Sequencer and entered into a
sublicense agreement relating to certain of such technology with PE Bio. In
connection with the sublicense agreement, PE Bio made an investment in the
Company. PE Bio also retained the Company as a consultant.
The aggregate $5,000,000 in gross proceeds received July 30, 1999 from the
sublicense and sale of preferred stock to PE Bio, and other agreements, will
provide the Company with additional liquidity, allow it to pay amounts owing
under its license agreement with ISURF, complete the initial commercialization
of the DNA Sequencer and, the Company believes, meet all of its existing
obligations over the next twelve months. There can be no assurance, however,
that such funds will be sufficient. In order to further develop and expand the
business in accordance with its plans, the Company anticipates that over the
next twelve months it will need significant additional capital to greatly expand
its manufacturing capabilities, launch a substantial sales and marketing
program, pay various required license and milestone fees, establish third-party
collaborations and pursue additional research and development. The Company's
capital requirements depend on many factors, including the status of the
development of its products, obtaining manufacturing capabilities to produce its
products in volume, prosecuting and enforcing its intellectual property rights,
competing technological and market developments, and the ability of the Company
to develop new collaborative and licensing arrangements.
If the Company is unable to obtain the necessary funds, by issuing equity or
debt securities, entering into collaborative agreements or obtaining grants, it
will not be able to complete the commercialization of, and effectively market
and manufacture, its DNA Sequencer and may not be able to continue its
operations.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Robert M. Rubin v. SpectruMedix Corporation et. al. On April 21, 1997, a
complaint was filed in the Supreme Court of the State of New York alleging
breach of contract. Specifically, the plaintiff alleges that the Company
defaulted under a promissory note issued to plaintiff on May 16, 1996 in the
amount of $175,000 (the "Rubin Note") while such Note was outstanding and
therefore that the Company is liable and indebted to plaintiff in the principal
amount of $175,000, together with interest and expenses. The Company, on May
2,1997, paid the principal and interest due under the Rubin Note. The main
remaining issue asserted by the plaintiff is whether, pursuant to an alleged
related agreement, the plaintiff is entitled to 152,174 shares (adjusted to
reflect stock splits) of Common Stock or, alternatively, $875,000. Plaintiff
alleges that the Company undertook to enter into a securities purchase agreement
pursuant to which he should have received the aforementioned shares of Common
Stock. The Company contends that such securities purchase agreement was never
discussed and therefore that no agreement was reached with respect to the terms
thereof. Such securities purchase agreement was not signed by either of the
parties to the Rubin Note. The Company believes that it has meritorious defenses
to the above-described claims and it intends to defend the litigation
vigorously. However, due to the nature of litigation and because the lawsuit is
in the initial stages, the Company cannot determine the total expense or
possible loss, if any, that may ultimately be incurred either in the context of
a trial or as a result of a negotiated settlement. While management believes
that the resolution of this matter will not have a material adverse effect on
the Company's business financial condition and results of operations, the
results of these proceedings are uncertain and there can be no assurance to that
effect. Regardless of the ultimate outcome of the litigation, it could result in
significant diversion of time by the Company's personnel.
Other than the foregoing, the Company is not a party to any other material
legal proceedings.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
(a) Change in Securities. None.
--------------------
(b) Use of Proceeds. None
---------------
Item 3. Defaults Upon Senior Securities. None.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. None.
---------------------------------------------------
Item 5. Other Information. None.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
--------
The following documents are referenced or included in this report:
Exhibit No.
-----------
3.1 Certificate of Designation of Rights and Preferences of
Series B Preferred Stock of SpectruMedix Corporation, filed
with the Secretary of State of the State of Delaware on
February 22, 2000
10.1 Amended and Restated Promissory Note, dated as of December
31, 1998, made by SpectruMedix Corporation in favor of Dr.
Joseph K. Adlerstein
10.2 Option Agreement, dated January 13, 2000, between
SpectruMedix Corporation and Dr. Joseph K. Adlerstein
27 Financial Data Schedule.
<PAGE>
(b) Reports on Form 8-K.
-------------------
On December 15, 1999 the Company filed Form 8-K stating the
resignation of its auditors PricewaterhouseCoopers with the
Commission.
SIGNATURES
----------
In accordance with the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed in its
behalf by the undersigned thereunto duly authorized.
SPECTRUMEDIX CORPORATION
DATED: February 22, 2000 By: /s/ Joseph K. Adlerstein
-------------------------------------------
Joseph K. Adlerstein
President, Chief Executive Officer and
Chairman of the Board (Principal Executive and
Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Designation of Rights and Preferences of Series
B Preferred Stock of SpectruMedix Corporation, filed with the
Secretary of State of the State of Delaware on February 22,
2000
10.1 Amended and Restated Promissory Note, dated as of December 31,
1998, made by SpectruMedix Corporation in favor of Dr. Joseph
K. Adlerstein
10.2 Option Agreement, dated January 13, 2000, between SpectruMedix
Corporation and Dr. Joseph K. Adlerstein
27 Financial Data Schedule.
<PAGE>
Exhibit 3.1
CERTIFICATE OF DESIGNATION OF
RIGHTS AND PREFERENCES OF
SERIES B PREFERRED STOCK OF
SPECTRUMEDIX CORPORATION
------------------------
SpectruMedix Corporation, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: That the name of the Corporation is SpectruMedix Corporation,
and the original certificate of incorporation of the Corporation was filed with
the Secretary of State of the State of Delaware on April 16, 1992 under the name
Premier American Technologies Corp. and the Second Amended and Restated
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on September 16, 1997.
SECOND: That the Certificate of Incorporation of the Corporation
authorizes the issuance of 2,000,000 shares of preferred stock, with the Board
of Directors of the Corporation authorized to establish the rights and
preferences thereof in accordance with Section 151(g) of the Delaware General
Corporation Law.
THIRD: That, on January 13, 2000, the Board of Directors of the
Corporation duly adopted resolutions setting forth the rights and preferences of
the Series B Preferred Stock.
FOURTH: That the rights and preferences of the Series B Preferred
Stock shall be as follows:
1. Designation; Number of Shares. The Corporation hereby authorizes the
-----------------------------
issuance of a series of preferred stock, par value $1,000 per share, to be
called the "Series B Preferred Stock." The total number of shares of Series B
Preferred Stock that the Corporation shall have the authority to issue is 750.
The Corporation shall have the authority to issue fractional shares.
2. Dividends; Ranking. Holders of Series B Preferred Stock shall be entitled
------------------
to receive dividends, whether such dividends are payable in cash, securities or
other property, only as and when the Corporation shall declare and pay dividends
in respect of its common stock, par value $.0015 per share (the "Common Stock"),
and absent such a declaration, no dividends shall be payable, accrue or
accumulate in respect of shares of Series B Preferred Stock. If the Corporation
shall declare a dividend in respect of its Common Stock, each holder of Series B
Preferred Stock shall be paid in an amount equal to the dividend that would be
payable if such holder had converted his shares of Series B Preferred Stock into
shares of Common Stock immediately prior to the record date for the payment of
such dividend. The Series B Preferred Stock shall rank (i) prior to the Common
Stock, and (ii) junior to the Series A Preferred Stock of the Corporation, in
each case, as to distributions of assets upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary.
3. Liquidation Preference. In the event of any voluntary or involuntary
----------------------
liquidation, dissolution or winding-up of the Corporation, the holders of the
Series B Preferred
<PAGE>
Stock shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, before any distribution of assets
shall be made to the holders of the Common Stock of the Corporation or any other
capital stock of the Corporation ranking junior to the Series B Preferred Stock
as to any such distribution, an amount in cash for each share equal to the par
value of the Series B Preferred Stock plus all declared and unpaid dividends for
each share of Series B Preferred Stock, if any (collectively, the
"Liquidation Preference"). If upon any voluntary or involuntary liquidation,
----------------------
dissolution or winding-up of the Corporation, the amounts payable with respect
to the Series B Preferred Stock and any other stock of the Corporation ranking
as to any such distribution on a parity with the Series B Preferred Stock shall
not be paid in full, then the holders of the Series B Preferred Stock and such
parity stock shall share ratably in any such distribution of assets of the
Corporation in proportion to the full preferential amounts to which they are
entitled. The merger of the Corporation with or into any other corporation, or
the sale of substantially all the assets of the Corporation in consideration for
the issuance of equity securities of another corporation, shall not be regarded
as a liquidation, dissolution or winding-up of the Corporation within the
meaning of this Section 3, but no merger or sale of assets shall in any way
impair the rights, preferences, privileges or priorities of the Series B
Preferred Stock.
4. Conversion of Series B Preferred Stock.
--------------------------------------
(a) Right to Convert. Each holder of Series B Preferred Stock shall have the
----------------
right, at such holder's option, to convert all or any portion of such
holder's shares of Series B Preferred Stock into 8,000 fully paid and
nonassessable share of Common Stock (the "Conversion Stock") for each share
of Series B Preferred Stock presented for conversion, subject to adjustment
as provided in Section 5 hereof. The holder of any shares of Series B
Preferred Stock converted in accordance with the provisions of this Section
4 shall be entitled to payment of any declared but unpaid dividends thereon
on the Series B Preferred Stock to be converted to the date of issuance by
the Corporation of the shares of Conversion Stock.
(b) Exercise of Conversion Right. The holder of any shares of Series B
----------------------------
Preferred Stock may exercise the conversion right pursuant to Section 4(a)
hereof by delivering to the Corporation during regular business hours, at
the office of any transfer agent of the Corporation for the Series B
Preferred Stock, or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares of the shares
to be converted, duly endorsed or assigned in blank to the Corporation,
accompanied by written notice (a "Conversion Notice") stating that such
-----------------
holder elects to convert all or a specified portion of such shares and
stating the name or names (with address) in which the certificate or
certificates for the shares of Conversion Stock are to be issued and the
class or classes of Conversion Stock to be issued; provided, however, that,
-------- -------
if such name or names are other than that of the holder, such issuance of
Conversion Stock is permitted by applicable Federal and state securities
laws. The date of receipt of such certificate or certificates and notice
by the Corporation or transfer agent, as the case may be, shall be the
conversion date (the "Conversion Date"). As soon as practicable after the
---------------
Conversion Date, the Corporation shall issue and deliver to the holder, or
upon the written order of such holder, to the place designated by such
holder, (i) a certificate or certificates for the number of full shares of
Conversion Stock to which such holder is entitled, (ii) a check or cash in
respect of any fractional interest in a share of Common Stock, as provided
in Section 4(c) hereof, payable with respect to the shares of Series B
Preferred Stock so converted up to and including
<PAGE>
the Conversion Date and (iii) a check or cash representing declared but
unpaid cash dividends, if any, on the Series B Preferred Stock converted in
accordance with Section 4(a). The person in whose names the certificate or
certificates for Conversion Stock are to be issued shall be deemed to have
become a stockholder of record on the next succeeding date on which the
transfer books are open. Upon conversion of only a portion of the number of
shares covered by a certificate representing shares of Series B Preferred
Stock surrendered for conversion, the Corporation shall issue and deliver
to or upon the written order of the holder of the certificate so
surrendered for conversion, at the expense of the Corporation, a new
certificate covering the number of shares of Series B Preferred Stock
representing the unconverted portion of the certificate so surrendered.
(c) No Fractional Shares. No fractional shares of Conversion Stock or scrip
--------------------
shall be issued upon conversion of shares of Series B Preferred Stock. If
more than one share of Series B Preferred Stock shall be surrendered for
conversion at any one time by the same holder, the number of full shares of
Conversion Stock issuable upon conversion thereof shall be computed using
the aggregate number of shares of Series B Preferred Stock so surrendered.
Instead of issuing any fractional shares of Conversion Stock that would
otherwise be issuable upon conversion of any shares of Series B Preferred
Stock, the Corporation shall make payment to such holder, in cash, of an
amount equal to the fraction of a share of Conversion Stock otherwise
issuable to such holder, multiplied by the Market Price on the Business Day
immediately prior to conversion.
(d) Stamp Taxes, Etc. The Corporation shall pay all documentary, stamp or
----------------
other transactional taxes or governmental charges attributable to the
issuance or delivery of shares of capital stock of the corporation upon
conversion of any shares of Series B Preferred Stock; provided, however,
-----------------
that the Corporation shall not be required to pay any taxes which may be
payable in respect of any transfer involved in the issuance or delivery of
any certificate of such shares in a name other than that of the holder of
the shares of Series B Preferred Stock in respect of which such shares are
being issued.
(e) Reservation of Common Stock. The Corporation shall reserve, free from
---------------------------
preemptive rights, out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of
Series B Preferred Stock sufficient shares to provide for the conversion of
all outstanding shares of Series B Preferred Stock. The Corporation shall
take all such actions as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for
official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance). The Corporation shall not take any
action which would cause the number of authorized but unissued shares of
Common Stock to be less than the number of such shares required to be
reserved hereunder for issuance upon conversion of the Series B Preferred
Stock.
(f) No Liens. All shares of Conversion Stock which may be issued in connection
--------
with the conversion provisions set forth herein will, upon issuance by the
Corporation, be validly issued, fully paid and nonassessable and free from
all taxes, liens or charges with respect thereto created or imposed by the
Corporation.
<PAGE>
(g) No Impairment. The Corporation shall not, by amendment of its Certificate
-------------
of Incorporation or through any reorganization, recapitalization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Corporation, but shall at all times in good faith assist in the
carrying out of all provisions of Sections 4 and 5 hereof and in the taking
of all such action as may be necessary or appropriate to protect the
conversion rights of the holders of the Series B Preferred Stock against
impairment.
5. Adjustment of Number of Shares of Common Stock. The applicable number of
----------------------------------------------
shares of Common Stock issuable upon conversion the Series B Preferred Stock
shall be subject to adjustment from time to time as hereinafter provided for in
this Section 5.
Subdivision or Combination of Stock. In case the Corporation shall at
-----------------------------------
any time subdivide the outstanding shares of Common Stock into a greater number
of shares, the number of shares issuable upon conversion of the Series B
Preferred Stock immediately prior to such subdivision shall be proportionately
increased, and conversely, in case the outstanding shares of Common Stock shall
be combined at any time into a smaller number of shares, the number of shares
issuable upon conversion of the Series B Preferred Stock immediately prior to
such combination shall be proportionately reduced.
Adjustments for Consolidation, Merger, Sale of Assets, Reorganization,
----------------------------------------------------------------------
etc. In case the Corporation (i) consolidates or merges with or into any other,
- ----
or (ii) transfers all or substantially all of its properties and assets to any
other corporation, or (iii) effects a capital reorganization or reclassification
of the capital stock of the Corporation in such a way that holders of Common
Stock shall be entitled to receive stock, securities, cash or assets with
respect to or in exchange for Common Stock, then, and in each such case, proper
provision, in form and substance reasonably satisfactory to the holders of 66-
2/3% of the Series B Preferred Stock then outstanding, shall be made so that,
upon the basis and upon the terms and in the manner provided in this Section
5(b), upon the conversion of the Series B Preferred Stock at any time after the
consummation of such consolidation, merger, transfer, reorganization or
reclassification, each holder shall be entitled to receive, in lieu of shares
issuable upon such conversion of the Series B Preferred Stock prior to such
consummation, the stock and other securities, cash and assets to which such
holder would have been entitled upon such consummation if such Holder had so
converted such Series B Preferred Stock immediately prior thereto. The
Corporation shall not effect any such consolidation, merger or sale, unless
prior to the consummation thereof, the successor entity (if other than the
Corporation) resulting from consolidation or merger or the entity purchasing
such assets assumes by written instrument, the obligation to deliver to each
such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to acquire.
Notice of Adjustment. Whenever the number of shares issuable upon the
--------------------
conversion of the Series B Preferred Stock is adjusted, as provided in this
Section 5, the Corporation shall prepare and mail to each holder a certificate
setting forth (i) the number of shares issuable upon the conversion of the
Series B Preferred Stock after such adjustment, (ii) a brief statement of the
facts requiring such adjustment and (iii) the computation by which such
adjustment was made.
<PAGE>
Treasury Shares. The number of shares of Common Stock outstanding at
---------------
any given time shall not include shares of Common Stock owned or held by or for
the account of the Corporation. The disposition of any shares of Common Stock
owned or held by or for the account of the Corporation shall be considered an
issue of Common Stock for the purposes of this Section 5.
Certain Adjustment Rules. The provisions of this Section 5 shall
------------------------
similarly apply to successive transactions.
6. Voting Rights.
-------------
Except to the extent the Delaware General Corporation Law requires a
separate vote of the holders of the Common Stock, each holder of outstanding
shares of Series B Preferred Stock shall vote together with the holders of the
Common Stock as a single class and each share of Series B Preferred Stock shall
be entitled to ten votes for each share of Common Stock issuable upon conversion
of a share of Series B Preferred Stock; provided, however, that if any Person
-------- -------
other than Joseph Adlerstein or a member of his immediate family is a holder of
Series B Preferred Stock, each share of Series B Preferred Stock shall be
entitled to one vote for each share of Common Stock issuable upon conversion of
a share of Series B Preferred Stock.
Notwithstanding the provisions of Section 6(a), so long as any shares
of Series B Preferred Stock shall be outstanding, the affirmative vote or
written consent of the holders of 66-2/3% of the Series B Preferred Stock then
outstanding, voting or consenting separately as a class, shall be required for
the Corporation to:
(i) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws if such action
would change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series B Preferred Stock, or
increase or decrease the number of shares of Series B Preferred Stock
authorized hereby; or
(ii) reclassify any class or series of any Common Stock into
securities having any preference or priority as to the right to receive
either dividends or amounts distributable upon liquidation, dissolution or
winding up of the Corporation superior to any such preference or priority
of the Series B Preferred Stock.
7. Definitions.
-----------
(a) "Business Day" shall mean any day that is not a Saturday, a Sunday or a day
------------
on which banks are required or authorized by law to be closed in the City
of New York, New York.
(b) "Convertible Securities" means any evidences of indebtedness, shares of
----------------------
stock, or other securities directly or indirectly convertible into or
exchangeable for Common Stock.
(c) "Market Price" means the average of the closing prices of any security's
------------
sales on the principal securities exchange on which such security may at
the time be listed, or, if there
<PAGE>
have been no sales on such exchange on any day, the average of the highest
bid and lowest asked prices on such exchange at the end of such day, or, if
on any day such security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00
P.M., New York time, or, if on any day such security is not quoted in the
NASDAQ System, the average of the highest bid and lowest asked prices on
such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor
organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and
the 20 consecutive business days prior to such day. If at any time such
security is not listed on any securities exchange or quoted in the NASDAQ
System or the over-the counter market, the "Market Price" shall be the fair
value thereof determined in good faith by the Board of Directors of the
Corporation.
(d) "Option" means any right, option, or warrant to subscribe for, purchase, or
------
otherwise acquire Common Stock or Convertible Securities.
(e) "Person" shall mean any corporation, natural person, firm, joint venture,
------
partnership, trust, unincorporated organization, enterprise, government or
any department or agency of any government.
8. Registration of Transfer. The Corporation shall keep at its
------------------------
principal office a register for the registration of Series B Preferred Stock.
Upon the surrender of any certificate representing Series B Preferred Stock at
such place, the Corporation shall, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
shares as is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Series B Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such Series B Preferred
Stock represented by the surrendered certificate.
9. Replacement. Upon receipt of evidence reasonably satisfactory to
-----------
the Corporation (an affidavit of the registered holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Series B Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Series B Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment this 22nd day of February, 2000.
/s/ Joseph K. Adlerstein
----------------------------------
Joseph K Adlerstein, Chairman and
Chief Executive Officer
<PAGE>
Exhibit 10.1
AMENDED AND RESTATED PROMISSORY NOTE
(Revolving Credit)
$750,000 New York, New York
December 31, 1998
FOR VALUE RECEIVED, the undersigned SPECTRUMEDIX CORPORATION (the
"Borrower") hereby promises to pay to DR. JOSEPH ADLERSTEIN (the "Lender")
- --------- ------
the principal sum of Seven Hundred Fifty Thousand Dollars ($750,000) (the
"Facility") or, if less, the principal amount of all loans made hereunder, in
--------
immediately available funds, no later than December 31, 2000, unless otherwise
earlier due hereunder (the "Maturity Date").
-------------
Subject to the terms and conditions set forth herein, the Lender shall
make available to the Borrower, from time to time at Lender's sole and absolute
discretion, revolving credit loans which in the aggregate outstanding principal
amount shall not at any time exceed the Facility, which loans shall be recorded
on the Schedule attached hereto.
The Borrower promises also to pay interest on the unpaid principal of
each loan hereunder in like money and like funds at said place of payment. Each
loan shall bear interest on the unpaid principal thereof, for each day from the
date such loan is made until it is paid, at a rate equal to 12% per annum;
provided that the interest rate applicable hereunder shall at all times be the
lesser of (a) the rate specified herein or (b) the maximum permitted by law.
Interest shall be payable at maturity. Interest shall also be payable
upon any prepayment hereon (to the extent accrued on the amount thereof); at
maturity (whether by acceleration or otherwise) and after maturity, on demand.
All payments hereunder shall be made in immediately available funds,
free and clear of any lien, set-off, counterclaim, taxes (withholding or
otherwise), levy or deduction.
The holder of this Note may convert all or any portion of the unpaid
principal amount of this Note and accrued but unpaid interest hereon (the
"Outstanding Amount") into shares of Series B Preferred Stock of the Borrower at
a rate of one share of Series B Preferred Stock for each $1,000 of the
Outstanding Amount converted, by executing and delivering to the Borrower the
Conversion Notice attached hereto as Exhibit 1.
The obligations of the Borrower under this Note shall be absolute,
unconditional and irrevocable, and shall be paid strictly in accordance with the
terms of this Note, including without limitation, irrespective of the following
circumstances: (i) the existence of any claim, set-off, defense or other right
which the Borrower may have at any time against the Lender; (ii) the form,
validity, sufficiency, accuracy, or legal effect of any statement or any other
document presented under any Letter of Credit, or any such statement or document
proving to be forged, fraudulent, incorrect or invalid in any respect, or any
statement therein being untrue or inaccurate
<PAGE>
in any respect whatsoever; or (iii) any error, omission, interruption or delay
in the transmission or delivery of any communication.
Upon the occurrence of any of the following specified events of
default: (a) the Borrower shall default in the due and punctual payment of any
principal, interest or fees due on this Note; (b) the Borrower shall default in
the due payment of $100,000 or more of indebtedness (direct or contingent) for
borrowed money or evidenced by a bond, debenture, note or other security or by
an agreement of guarantee or any holder of any such indebtedness of the Borrower
(or a person acting on their behalf) shall become entitled to cause any such
indebtedness to become, or any such indebtedness shall become, due prior to its
stated maturity; or (c) the Borrower shall suspend or discontinue its business,
or shall make an assignment for the benefit of, or composition with, creditors,
or shall become insolvent or unable or generally fail to pay its debts when due;
or the Borrower shall become a party or subject to any liquidation or
dissolution action or proceeding with respect to the Borrower or any bankruptcy,
reorganization, insolvency or other proceeding for the relief of financially
distressed debtors with respect to the Borrower, or a receiver, liquidator,
custodian or trustee shall be appointed for the Borrower or a substantial part
of its assets and, if any of the same shall occur involuntarily as to the
Borrower, it shall not be dismissed, stayed or discharged within 90 days; or if
any order for relief shall be entered against the Borrower under Title 11 of the
United States Code, or the Borrower shall take any action to effect, or which
indicates its acquiescence in any of the foregoing; then, and in any such event,
and at any time thereafter if any such event of default shall then be
continuing, the Lender may, by written notice to the Borrower, declare the
principal of, and interest on, this Note to be immediately due and payable and
the Lender's commitment to lend hereunder to be terminated, all without
presentment, demand, protest or other notice of any kind; provided that, if an
event set forth in clause (c) occurs and is continuing, the principal of, and
interest on, this Note shall be automatically due and payable and the Lender's
commitment to lend hereunder shall be automatically terminated, all without
presentment, demand, protest or other notice of any kind.
The Borrower represents and warrants that (i) all acts, filings,
conditions and things required to be done and performed and to have happened
(including, without limitation, the obtaining of necessary governmental
approvals) precedent to the issuance of this Note to constitute this Note the
duly authorized, legal, valid and binding obligations of the Borrower,
enforceable in accordance with its terms have been done, performed and have
happened in due and strict compliance with all applicable laws; (ii) the
issuance and performance of this Note will not violate any law, rule,
regulation, order, decree, permit, agreement or instrument to which the Borrower
is a party or is subject, or its charter or by-laws, or result in the imposition
of any lien upon any of the Borrower's assets; (iii) the proceeds of the loans
will not be used to "purchase" or "carry" "margin stock" as such terms are used
in Regulation U of the Board of Governors of the Federal Reserve System; and
(iv) the Borrower is in material compliance with all applicable laws.
At the option of the Borrower, this Note may be prepaid in whole or in
part without premium or penalty. The Borrower waives presentment, demand,
protest or notice of any kind in connection with this Note and agrees to pay to
the holder hereof, on demand, all costs and expenses (including reasonable legal
fees) incurred in connection with the enforcement and collection of this Note.
<PAGE>
This Note shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto, and,
in particular, shall inure to the benefit of the holders from time to time of
the Note; provided, however, that the Borrower may not assign or transfer its
rights or obligations hereunder without the prior written consent of the Lender.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICTS
OF LAWS.
The Borrower agrees that any legal action or proceeding with respect
to this Note against the Borrower may be brought in the courts of the State of
New York located in the city of New York, Borough of Manhattan, or of the United
States of America of the Southern District of New York, and the Borrower
consents to such jurisdiction, and that such service shall be deemed effected 10
days after mailing thereof. Nothing herein shall affect the right of the Lender
to serve process in any other manner permitted by law or to commence legal
proceedings in any other jurisdiction.
SPECTRUMEDIX CORPORATION
By: /s/ Joseph K. Adlerstein
------------------------
Name: Joseph K. Adlerstein
Title: Chief Executive Officer
Address: 2124 Old Gatesburg Road
State College, Pennsylvania 16803
Jurisdiction of
Organization: Delaware
<PAGE>
Exhibit 10.2
SPECTRUMEDIX CORPORATION
NON-QUALIFIED STOCK OPTION
--------------------------
THIS STOCK OPTION (this "option") is granted as of January 13, 2000
(the "Grant Date") by SPECTRUMEDIX CORPORATION (the "Corporation") to JOSEPH K.
ADLERSTEIN ("Optionee").
RECITALS
--------
A. The Board has determined that it is in the best interests of the Corporation
to grant to Optionee the non-qualified stock options documented herein in order
to reward Optionee for his past performance and in order to provide proper
incentives to Optionee.
B. All capitalized terms in this option shall have the meaning assigned to them
in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. Subject to the terms and conditions hereinafter set forth,
---------------
the Corporation, with the approval of the Board, hereby grants to Optionee, as
of the Grant Date, an option to purchase up to 100,000 Option Shares at the
purchase price of $0.125 per share (the "Exercise Price"). This option is a
Non-Statutory Option.
2. Option Term. This option shall have a maximum term of ten (10) years
-----------
measured from the Grant Date and shall accordingly expire at the close of
business on January 13, 2010 (the "Expiration Date"), unless sooner terminated
in accordance with Paragraph 5 or 6.
3. Limited Transferability. This option shall be neither transferable nor
-----------------------
assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee. Notwithstanding the foregoing, this option may, in
connection with Optionee's estate plan, be assigned in whole or in part during
Optionee's lifetime to one or more members of Optionee's immediate family or to
a trust established exclusively for Optionee and/or one or more such family
members. The assigned portion shall be exercisable only by the person or
persons who acquire a proprietary interest in the option pursuant to such
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for this option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Corporation may
deem appropriate.
4. Dates of Exercise. This option shall be exercisable with respect to 33,333
-----------------
Option Shares upon the first sale or lease by the Company of a high-speed DNA
sequencer (the "DNA Sequencer"). This option shall become exercisable with
respect to an additional 33,333 Option Shares immediately after the Company's
revenues from the sale or lease of DNA Sequencers equal $1,000,000. This option
shall become exercisable with respect to the remaining 33,334 Option Shares
immediately after the Company's
<PAGE>
revenues from the sale or lease of DNA Sequencers equal $3,400,000. This option
shall terminate on December 31, 2000 with respect to any Option Shares for which
it is not exercisable by such date.
5. Cessation of Service. The option term specified in Paragraph 2 shall
--------------------
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason (other than
death, Disability or Misconduct) while this option is outstanding, then
Optionee shall have a period of three (3) months (commencing with the date
of such cessation of Service) during which to exercise this option, but in
no event shall this option be exercisable at any time after the Expiration
Date.
(b) If Optionee dies while this option is outstanding, then the personal
representative of Optionee's estate or the person or persons to whom the
option is transferred pursuant to Optionee's will or in accordance with the
laws of descent and distribution shall have the right to exercise this
option. Such right shall lapse, and this option shall cease to be
outstanding, upon the earlier of (i) the expiration of the twelve (12)
month period measured from the date of Optionee's death or (ii) the
Expiration Date.
(c) Should Optionee cease Service by reason of Disability while this option is
outstanding, then Optionee shall have a period of twelve (12) months
(commencing with the date of such cessation of Service) during which to
exercise this option. In no event shall this option be exercisable at any
time after the Expiration Date.
(d) During the limited period of post-Service exercisability, this option may
not be exercised in the aggregate for more than the number of vested Option
Shares for which the option is exercisable at the time of Optionee's
cessation of Service. Upon the expiration of such limited exercise period
or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding for any vested Option Shares for which the option
has not been exercised. However, this option shall, immediately upon
Optionee's cessation of Service for any reason, terminate and cease to be
outstanding with respect to any Option Shares in which Optionee is not
otherwise at that time vested or for which this option is not otherwise at
that time exercisable.
(e) Should Optionee's Service be terminated for Misconduct, then this option
shall terminate immediately and cease to remain outstanding.
6. Special Acceleration of Option.
------------------------------
(a) This option, to the extent outstanding at the time of a Corporate
Transaction but not otherwise fully exercisable, shall automatically
accelerate so that this option shall, immediately prior to the effective
date of the Corporate Transaction, become exercisable for all of the Option
Shares at the time subject to this option and may be exercised for any or
all of those Option Shares as fully-vested shares of Common Stock. No such
acceleration of this option, however, shall occur if and to the extent: (i)
this option is, in connection with the Corporate Transaction, to be assumed
by the successor
<PAGE>
corporation (or parent thereof) or (ii) this option is to be replaced with
a cash incentive program of the successor corporation which preserves the
spread existing at the time of the Corporate Transaction on the Option
Shares for which this option is not otherwise at that time exercisable (the
excess of the Fair Market Value of those Option Shares over the aggregate
Exercise Price payable for such shares) and provides for subsequent pay-out
in accordance with the same Exercise Schedule in effect for those Option
Shares.
(b) Immediately following the Corporate Transaction, this option shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate Transaction, then
this option shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to
the Exercise Price, provided the aggregate Exercise Price shall remain the
same.
(d) This option may also be subject to acceleration in whole or in part in
accordance with the terms of any special Addendum attached to this option.
(e) This option shall not in any way affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer
all or any part of its business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common Stock
---------------------------
by reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the total number and/or class of securities
subject to this option and (ii) the Exercise Price in order to reflect such
change and thereby preclude a dilution or enlargement of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any
------------------
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the Option Shares.
9. Manner of Exercising Option.
---------------------------
(a) In order to exercise this option with respect to all or any part of the
Option Shares for which this option is at the time exercisable, Optionee
(or any other person or persons exercising the option) must take the
following actions:
(i) Pay the aggregate Exercise Price for the Option Shares in one or more
of the following forms:
<PAGE>
(A) cash or check made payable to the Corporation; or
(B) a promissory note payable to the Corporation, but only to the extent
authorized by the Corporation in accordance with Paragraph 13.
(C) in shares of Common Stock held by Optionee (or any other person or persons
exercising the option) for the requisite period necessary to avoid a charge
to the Corporation's earnings for financial reporting purposes and valued
at Fair Market Value on the Exercise Date; or
(D) through a special sale and remittance procedure pursuant to which Optionee
(or any other person or persons exercising the option) shall concurrently
provide irrevocable instructions (a) to a Corporation-designated brokerage
firm to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate Exercise Price payable for the
purchased shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by reason of
such exercise and (b) to the Corporation to deliver the certificates for
the purchased shares directly to such brokerage firm in order to complete
the sale.
Except to the extent the sale and remittance procedure is utilized in
connection with the option exercise, payment of the Exercise Price must
accompany the Notice of Exercise delivered to the Corporation in connection with
the option exercise.
Furnish to the Corporation appropriate documentation that the
person or persons exercising the option (if other than Optionee) have the
right to exercise this option.
Make appropriate arrangements with the Corporation (or Parent or
Subsidiary employing or retaining Optionee) for the satisfaction of all
Federal, state and local income and employment tax withholding requirements
applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation shall issue
to or on behalf of Optionee (or any other person or persons exercising this
option) a certificate for the purchased Option Shares, with the appropriate
legends affixed thereto.
(c) In no event may this option be exercised for fractional shares.
10. Compliance with Laws and Regulations.
------------------------------------
(a) The exercise of this option and the issuance of the Option Shares upon such
exercise shall be subject to compliance by the Corporation and Optionee
with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National
Market, if applicable) on which the Common
<PAGE>
Stock may be listed for trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any regulatory
body having authority deemed by the Corporation to be necessary to the
lawful issuance and sale of any Option Shares pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance
or sale of the Option Shares as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain
all such approvals.
11. Successors and Assigns. Except to the extent otherwise provided in
----------------------
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.
12. Notices. Any notice required to be given or delivered to the Corporation
-------
under the terms of this Agreement shall be in writing and addressed to the
Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
112 81st Street, Kew Gardens, New York. All notices shall be deemed effective
upon personal delivery or upon deposit in the U.S. mail, postage prepaid and
properly addressed to the party to be notified.
13. Financing. The Corporation may, in its absolute discretion and without any
---------
obligation to do so, permit Optionee to pay the Exercise Price for the purchased
Option Shares by delivering a full-recourse promissory note payable to the
Corporation. The terms of any such promissory note (including the interest
rate, the requirements for collateral and the terms of repayment) shall be
established by the Corporation in its sole discretion.
14. Governing Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
-------------
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
SPECTRUMEDIX CORPORATION
By: /s/ Joseph K. Adlerstein
--------------------------
Name: Joseph K. Adlerstein
Title: Chief Executive Officer
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify SpectruMedix Corporation, (the "Corporation") that I
elect to purchase __________ shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $0.125 per share (the
"Exercise Price") pursuant to that certain option (the "Option") granted to me
on January 13, 2000.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise.
___________, 2000
Date
________________________
Optionee
Address: ________________________
________________________
Print name in exact manner
it is to appear on the stock
certificate: ___________________________
Address to which certificate
is to be sent, if different
from address above: ___________________________
___________________________
Social Security Number:
___________________________
<PAGE>
APPENDIX
--------
The following definitions shall be in effect
under the Agreement:
A. Board shall mean the Corporation's Board of Directors.
-----
B. Code shall mean the Internal Revenue Code of 1986, as amended.
----
C. Common Stock shall mean the Corporation's common stock.
------------
D. Corporate Transaction shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
E. Corporation shall mean SpectruMedix Corporation, a Delaware corporation, and
-----------
any successor corporation which assumes the Plan and the outstanding options
thereunder, including the option evidenced by this Agreement.
F. Disability or Disabled shall mean the inability of the Optionee to engage in
----------------------
any substantial gainful activity by reason of any medically determinable
physical or mental impairment expected to result in death or to be of
continuous duration of twelve (12) months or more.
G. Employee shall mean an individual who is in the employ of the Corporation
--------
(or any Parent or Subsidiary), subject to the control and direction of the
employer entity as to both the work to be performed and the manner and
method of performance.
H. Exercise Date shall mean the date on which the option shall have been
-------------
exercised in accordance with Paragraph 9 of the Agreement.
I. Exercise Price shall mean the exercise price per share as specified in
--------------
Section 1 of the option.
J. Exercise Schedule shall mean the schedule specified in Section 4 of the
-----------------
option pursuant to which the option is to become exercisable for the Option
Shares in a series of installments over Optionee's period of Service.
K. Expiration Date shall mean the date on which the option expires as specified
---------------
in Section 2 of the option.
<PAGE>
L. Fair Market Value per share of Common Stock on any relevant date shall be
-----------------
determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as the price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Corporation to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) If the Fair Market Value of Common Stock is not
determinable pursuant to subparagraph (i) or (ii) of this provision, then
the Fair Market Value shall be determined by the Board, after taking into
account such factors as it shall deem appropriate.
M. Grant Date shall mean the date of grant of the option as specified in the
----------
option.
N. Misconduct shall mean the commission of any act of fraud, embezzlement or
----------
dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be
deemed to be inclusive of all the acts or omissions which the Corporation
(or any Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of Optionee or any other person in the Service of the Corporation
(or any Parent or Subsidiary).
O. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
--------
P. Non-Statutory Option shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
Q. Notice of Exercise shall mean the notice of exercise in the form attached
------------------
hereto as Exhibit I.
R. Option Shares shall mean the number of shares of Common Stock subject to the
-------------
option as specified in Section 1 of the option.
S. Optionee shall mean the person to whom the option is granted as specified in
--------
the Grant Notice.
<PAGE>
T. Parent shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
U. Service shall mean the Optionee's performance of services for the
-------
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
V. Stock Exchange shall mean the American Stock Exchange or the New York Stock
--------------
Exchange.
W. Subsidiary shall mean any corporation (other than the Corporation) in an
----------
unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at
the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed balance sheet and unaudited condensed statement of
operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 681,312
<SECURITIES> 2,041,638
<RECEIVABLES> 28,807
<ALLOWANCES> 0
<INVENTORY> 582,381
<CURRENT-ASSETS> 3,351,833
<PP&E> 729,903
<DEPRECIATION> 265,563
<TOTAL-ASSETS> 4,272,826
<CURRENT-LIABILITIES> 1,565,945
<BONDS> 0
0
2
<COMMON> 4,206
<OTHER-SE> (99,315)
<TOTAL-LIABILITY-AND-EQUITY> 4,272,826
<SALES> 107,523
<TOTAL-REVENUES> 107,523
<CGS> 284,734
<TOTAL-COSTS> 1,188,171
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,873
<INCOME-PRETAX> (1,057,602)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,057,602)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,057,602)
<EPS-BASIC> (.29)
<EPS-DILUTED> (.29)
</TABLE>
