U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NUMBER 3 TO FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUER
PURSUANT TO SECTION 12 (B) OR (G) OF THE
SECURITIES EXCHANGE ACT OF 1934
AUTOLOGOUS WOUND THERAPY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2958959
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1523 BOWMAN ROAD, SUITE A
LITTLE ROCK, ARKANSAS 72211
(501) 225-8400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
DENNIS G. HENDREN
PRESIDENT AND CHIEF OPERATING OFFICER
1523 BOWMAN ROAD, SUITE A
LITTLE ROCK, ARKANSAS 72211
(501) 225-8400
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.0001 Par Value
(Title of Class)
<PAGE>
FORWARD-LOOKING STATEMENTS
The Company's management cautions readers that certain
important factors may affect the Company's actual results
and could cause such results to differ materially from any
forward-looking statements that may be deemed to have been
made in this Form 10-SB or that are otherwise made by or on
behalf of the Company. For this purpose, any statements
contained in the Form 10-SB that are not statements of
historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the
foregoing, words such as"may," "expect," "believe,"
"anticipate," "intend," "could," "estimate," "plans," or
"continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-
looking statements. Factors that may affect the Company's
results include, but are not limited to, the Company's lack
of operating history, its ability to produce additional
products, governmental regulation of its proprietary wound
therapy, the availability of third party payment or
reimbursement for its wound care therapy, its need for
additional financing and competition. Any forward-looking
statements in this report should be evaluated in light of
the important risk factors contained in this registration
statement. The Company is also subject to other risks
detailed herein or that will be set forth from time to time
in the Company's filings with the Commission. FOR A COMPLETE
UNDERSTANDING OF SUCH FACTORS, THIS ENTIRE DOCUMENT,
INCLUDING THE FINANCIAL STATEMENTS AND THE ACCOMPANYING
NOTES, SHOULD BE READ IN ITS ENTIRETY.
PART I.
ITEM 1. BUSINESS.
OVERVIEW
Autologous Wound Therapy, Inc. (the "Company") is a
Delaware corporation formed on April 29, 1998. Formerly
known as Informatix Holdings, Inc., the Company is the
successor in interest by merger of Music and Entertainment
Network, Inc., a Nevada corporation, which had previously
been named Blue Grizzly Truck, Inc., Sable Palm Airways,
Inc. and U. S. Retail, Inc. The Company is the surviving
corporation in a merger between Informatix Holdings, Inc.
and Autologous Wound Therapy, Inc., an Arkansas corporation
formed December 11, 1998 ("Old AWT"), pursuant to a Plan and
Agreement of Merger and Reorganization dated October 22,
1999 (the "Merger").
<PAGE>
The Merger was consummated on November 4, 1999 with Old
AWT being merged with and into the Company. In the merger,
each share of issued and outstanding Old AWT common stock
was converted into fifty (50) shares of Company common stock
and fifty (50) shares of the Company's Series B convertible
preferred stock after giving effect to a 1:2 reverse common
stock split on the Company's common stock effective
November 8, 1999. Simultaneous with the consummation of
the merger, the name of the surviving corporation was changed
to Autologous Wound Therapy, Inc.
The Company was originally intended to serve as a public
shell company, defined as an inactive publically-quoted
company with nominal assets and liabilities. It was intended
that such a public shell would be attractive to privately-
held companies, such as Old AWT, interested in becoming
publicly traded by means of a business combination with
the Company rather that by offering their own securities to
the public. Prior to the Merger, the Company did not
engage in any business of any kind. From 1996 to January 13
1998, the Company was inactive and had its corporate charter
revoked by the Secretary of State of Nevada. On January 14,
1998, all of the Company's outstanding filing fees, licenses
and penalties were paid and the Company's charter was
reinstated.
Prior to the Merger, the Company's most recent activity had
been the execution of a letter of intent in March, 1999, to
acquire 100% of the outstanding common stock of Videonet
Corporation in exchange for certain convertible preferred
stock. Negotiations with respect to the purchase of
Videonet Corporation were discontinued and, at that time,
the Company was pursuing other viable operating businesses
or enterprises. On October 22, 1999, the Company entered
into the Plan and Agreement of Merger and Reorganization
with Old AWT and consumated the merger on November 4, 1999.
Old AWT was formed on December 11, 1998, to develop, market
and sell a proprietary system for the treatment for chronic
wounds. By virtue of the Merger, the Company continues
the business conducted by Old AWT to develop, market and
sell a proprietary system for the treatment for chronic
wounds using the AuTolo-Cure TM System (the Business ). To
date, the Company has realized minimal revenues from the
sale and licensing of the AuTolo-Cure TM System.
<PAGE>
THE AUTOLO-CURE TM SYSTEM
Webster's defines "autologous" as " derived from the
same individual". Prior to forming Old AWT, Charles
Worden ("Worden"), the inventor of AuTolo-Gel TM, was
engaged in research and development of autologous products
for the treatment of wounds. The AuTolo-Cure TM system is
based upon the use of a process developed by Worden for the
application of an autologous platelet-rich concentrated gel
to chronic wounds. The process removes platelets from the
individual, applies a process developed by Worden to create
AuTolo-Gel TM and then applies the gel to the wound. By
using the patient's own platelets to create the gel, the
system is an autologous process. The Company intends to
market and sell its proprietary system for the treatment of
chronic wounds presently identified by the servicemark,
AuTolo-Cure TM ("the AuTolo-Cure TM system") . The
process is identified by the servicemarks, AUTOLOGOUS
PLATELET GEL TM and AuTolo-Gel TM. The AuTolo-Cure TM
system will be used by physicians and other health
<PAGE>
facilities and providers to treat various types of chronic
wounds. It is the Company's belief that because of the
nature of the AuTolo-Cure TM system and the use of the
patient's own blood to produce AuTolo-Gel in the clinical
setting at the time the treatment is applied, that the
marketing of the AuTolo-Cure TM system is not subject to
prior regulatory approval by the Food & Drug Administration.
However, as noted in the "Regulation" discussion below, if
the FDA or any state takes a different position on required
approvals, the marketing efforts of the Company could be
delayed or restricted during the approval process.
A chronic wound is defined as a wound of three or more
months duration. The three foremost types of chronic wounds
are diabetic ulcers, venous stasis wounds and pressure sores
(such as bedsores). People suffering from these afflictions
are commonly affected by debilitating diseases (i.e.
diabetes) that affect the circulatory system, resulting in a
decreased ability to heal through the body's natural
mechanism. The result is a chronic, nonhealing wound that,
should its progression not be controlled, could lead to
amputation and, ultimately, death. The AuTolo-Cure TM
system is a designed to be a turnkey package that will
enable a qualified health care provider to use the AuTolo-
Gel TM product in the treatment of chronic wounds. In the
sense of "turnkey," the Company will provide the user with
the machine necessary to remove the patients blood platelets,
the disposable products used in that process, the components
necessary to formulate the AuTolo-GEL TM, the wound dressings
to be applied after the treatment and the necessary training,
licensing and support of the user and it's personnel. The
AuTolo-Cure TM system will consist of the lease of a
machine, an agreement to purchase a monthly minimum number
of packs (disposable blood recovery components required for
each application of AuTolo-Gel TM), training, authorization
and licensing in the preparation of AuTolo-Gel TM, state-of-
the-art wound care software (optional) and ongoing technical
support by the Company's wound care professionals.
THE AUTOLO-CURE TM PROCESS
This process is designed to assist in healing previously
nonhealing, chronic wounds. Examples of these types of
wounds include: diabetic foot ulcers, venous or arterial
wounds, pressure ulcers, trauma, venomous bites, or surgical
dehiscence. Physicians trained in comprehensive wound
management assess the wound and the patient s overall
condition to determine if the patient is eligible. The
patient must meet certain criteria to ensure their
appropriateness for the process.
<PAGE>
If the physician determines that the patient could benefit
from being treated with AuTolo-Gel, a procedure is performed
where blood is drawn from the patient resulting in collection
of platelets and a small amount of plasma with red blood
cells being captured using the sequestration machine. The
remaining plasma is then returned to the patient. This is a
sterile, individualized process for each patient and takes
about 20 minutes to complete.
The wound bed is prepared for the treatment by thoroughly
cleaning the area to remove all necrotic (dead), infected
tissue. The wound is then ready for the application of
AuTolo TM - Gel. The platelets and plasma collected from
the patient is mixed with the Company's proprietary
activator products, at which time the liquid evolves into
a gel. This AuTolo TM - Gel is then applied onto the prepared
wound area by the physician and molded to fill the entire
wound cavity and seal the wound. A dressing is placed over
the treated area and is left in place for five days or
according to the physician order. This entire autologous
process is conducted at the point of care under physician
direction.
The patient leaves the facility with AuTolo TM - Gel applied
to the wound area and the dressing in place. The patient is
then scheduled for a follow-up visit according to the
physician's order. On the return visit, the physician
removes the dressing and observes the wound. The wound is
re-dressed for the next seven days, or according to physician
order and the patient would be rescheduled for follow-up at
the end of this period.
<PAGE>
After the second follow-up visit (approximately 12 days after
the original treatment), the physician reassesses the wound
to determine if another application of AuTolo TM - Gel would
be beneficial. If necessary, the procedure of drawing blood,
preparing and applying the gel and the follow-up visit cycle
would be repeated until the wound heals.
SUMMARY OF TESTING
Since July, 1999, Dr. Keith Bennett and Bennett Medical, LLC,
an entity controlled by Bennett, have conducted tests on
over 150 chronic non-healing wounds using the AuTolo-Cure TM
Process. Of the wounds treated, approximately 50% were
diabetic ulcers, 22% venous stasis wounds, 9% arterial
disease wounds, 7.3% pressure ulcers (bed sores) and the
remaining a combination of surgical and trauma wounds. Of
the 150 cases, thirty-three (33) have been completed
with the wound closing. The following summarizes the
outcomes of the completed cases:
Type Number of Wound Volume Wound Duration Healing AuTolo-Gel
Wounds (Average mm3) (Average Weeks) Time Treatments
(Average Number)
---- --------- ----------- ------------- ---- -------------
Diabetic
ulcers 21 436.56 mm3 38.38 wks 6.57 wks 1.33
Venous
stasis 11 1960.66 mm3 705.55 wks 6.72 wks 2.27
The healing time for diabetic ulcers ranged from four days to
sixteen weeks with the average healing time of 6.57 weeks.
For venous wounds the healing time ranged from three weeks to
eleven weeks, with the average of 6.72 weeks. Of particular
note is the average known wound duration for the venous
stasis wounds in terms of years and the relative short
average healing time of approximately seven weeks. Because
of the limited number of completed venous stasis cases, the
average known wound duration is skewed by two wounds that
have been in existence for more than twenty years. Excluding
those wounds, the average duration is reduced to
approximately 2 years.
The remaining cases are ongoing and the wounds are closing
with the healing time and number of treatments being
consistent with the completed cases. Of the 150 cases
treated by Dr. Bennett, the AuTolo-Cure process has been
discontinued in four cases. Two patients were dismissed for
failing to comply with treatment procedures (one did not
return after the first treatment), one patient decided to
have a skin graft after the first treatment and one case was
<PAGE>
discontinued because the treatment was ineffective due to the
patient's lack of blood flow to the wound area and condition
of the wound at the time treatment was sought.
As more fully detailed below, Bennett, BMI and the
Company entered into an independent contractor agreement
covering the services to be provided by Bennett and BMI to
the Company. As compensation for the testing, Bennett and
BMI retained all professional fees associated with the
treatments and received warrants to purchase up to 250,000
shares of the Company's common stock at an exercise price
of $.01 per share and upon exercise of the warrant, BMI
will be entitled to participate in the Non-Qualified Stock
Option Plan on a one-for-one basis with the number of shares
exercised under the warrant for up to an additonal 250,000
shares of common stock. BMI holds an option to purchase
135,000 shares of the Company's common stock at an exercise
price of $1.00 per share as compensation for acting as a
sales agent for the licensing of the AuTolo-Cure process and
sale of disposable supplies and training services for the
Company. The warrant and options are fully vested and may
be exercised by Bennett and BMI at any time. A more
detailed description of the contractural agreement between
Bennett, BMI and the Company, including the terms of the
warrants and options, may be found under "ITEM 7. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
THE CHRONIC WOUND CARE MARKET
The chronic wound care market is estimated to be in
excess of $ 6.2 billion annually (1). It is estimated that
there were as many as 67,000 chronic wound-related
amputations in 1998 in the United States alone (2).
Management believes that with the aging population, these
diseases and wounds are on the rise and are expected
to continue impacting the health care market at an increased
rate of nearly 10% a year (3). Management also believes
that traditional methods of treatment (inert dressings,
whirlpools, etc.) have had limited effectiveness in treating
chronic wounds. Recently, advances in biotechnologies have
made the possibility of proactive therapies and produced an
alternative to traditional methods of treatment. Health
care manufacturers have invested large sums of money and
attention in the proactive market. The health care system,
as it turns more toward managed care from fee-for-service,
is demanding more cost effective means of treatment and
personnel interaction. The outpatient industry, and health
care as a whole, is being affected by changing reimbursement
environments. The traditional methods of chronic wound
<PAGE>
treatment call for frequent dressing changes and personnel
interaction to control infection and advancement.
Management believes that the proactive approach, in part,
has the potential of not only accelerating healing rates,
but also providing relief to the traditional labor-intensive
treatments.
The Company believes that the chronic wound market is
best suited for introduction to AuTolo-GelTM The three most
common types of chronic wounds are diabetic foot ulcers,
venous stasis ulcers, and decubitus ulcers (bedsores).
Following are some facts and estimates regarding these most
common types of chronic wounds:
Diabetic Foot Ulcers
Diabetes mellitus is a group of diseases
characterized by high levels of blood glucose
as a result of defects in insulin secretion
or insulin action. The US estimates are that
15.7 million people, or 5.9% of the
population, have diabetes. (4) There are
four types of diabetes:
Type 1
Previously called insulin dependent
diabetes mellitus (IDDM) or juvenile-
onset diabetes. Type 1 diabetes may
account for 5% to 10% of all diagnosed
cases. Generally, risk factors of Type
1 diabetes are less than Type 2.
Type 2
Previously called non insulin-dependent
diabetes mellitus (NIDDM) or adult-onset
diabetes. It is believed that Type 2
diabetes accounts for up to 95% of all
diagnosed cases in the U.S. (5) African-
Americans, Native American Indians and
Pacific Islanders are at particularly
high risk for Type 2 diabetes. Risk
factors include older age, obesity,
family history and race/ethnicity. This
type has a greater risk for developing
chronic ulcers.
Type 3
Gestational diabetes.
____________________
(1) Wedbush, Morgan Securities, Biotechnology in Wound Care, 4th
Edition, Jan. 1999.
The Company did not request or obtain permission from Wedbush
or any other sourch footnoted or quoted in connection with
this Registration Statement but notes that all cited sources
are from publicly available documents, reports or publications.
Copies of the cited sources will be made available to any
person requesting them from the Company.
(2) Success in Home Care, Jan/Feb 1999, page 44.
(3) Success in Home Care, Jan/Feb 1999, page 44.
(4) Arkansas Diabetes Control Program, Annual Report, 1997
(5) Arkansas Diabetes Control Program, Annual Report, 1997
<PAGE>
Type 4
All other specific types.
Complications of diabetes include heart
disease, stroke, blindness, high blood
pressure, kidney disease, nervous system
disease, amputations (from ulcers, etc.) and
others. Treatments such as education and
prevention knowledge are more prevalent today
as the disease is on the increase. There is
currently no cure for diabetes.
It has been estimated that Type 1 diabetic
patients spend over $1 billion on insulin,
consume $300 million in bandages and
dressings, and account for $1.2 billion in
nursing services on an annual basis. (6)
Worldwide estimates of the foot ulcer market
are as follows (7):
Patients
US Europe ROW* TOTAL
___________________________________________________________
750,000 980,000 1.1 million 2.8 million
($ Spent $450 million $590 million $400 million $1.4 billion
annually)
* Rest of World
The large manufacturing companies, such as
Johnson & Johnson, Smith & Nephew, Chiron and
<PAGE>
3M dominate the market for products for the
treatment of foot ulcers. With diabetes on
the rise and an increasing and aging
population, the number of annual foot ulcers
is expected to increase. As stated earlier,
the changing environment and the need for
better treatments is expected to continue to
fuel a change from traditional (inert) to a
proactive philosophy. AuTolo-Gel. TM, the
Company believes, can be used in the
treatment of foot ulcers, improving cost
containment and treatment efficacy.
Venous stasis ulcers (VSUs)
Several elements and diseases may contribute
to VSUs. Typically they occur just above the
ankles on sedentary elderly people. Blood
flow becomes sluggish, leading to skin cell
deaths. As the skin cells die from oxygen
starvation brought on by poor circulation, an
open wound is left with a poor chance of
healing. Management believes that the market
should, under current treatment regimens,
continue to grow for the same population
issues as the diabetic ulcer market. Some
worldwide annual estimates for the VSU market
are (8):
Patients
US Europe ROW* TOTAL
__________________________________________________________
800,000 980,000 1.9 million 3.6 million
($ Spent $730 million $820 million $1.4 billion $2.9 billion
annually)
* Rest of World
The VSU market is expected to be an early
target for the Company. Management believes
that AuTolo-Gel TM may be applicable to a
greater percentage of venous stasis patients
than diabetics, as there appear to be less
symptoms of disease that may exclude them
from treatment.
__________________
(6) Eli Lilly & Co., Annual Report, 1997
(7) Wedbush, Morgan Securities, Biotechnology in Wound Care, 4th
Edition, Jan. 1999.
(8) Wedbush, Morgan Securities, Biotechnology in Wound Care, 4th
Edition, Jan. 1999.
<PAGE>
The Company is attempting to develop a joint
study program utilizing AuTolo-Gel TM on VSUs
with a nationally recognized teaching
institution. Although the cooperative
program is yet to be finalized, management is
hopeful that the study could begin within a
few months.
Decubitus ulcers
Decubitus ulcers (bedsores) form when the
skin is under pressure via immobility for
10-12 hours. Normally healthy people tend
to move throughout the night, keeping the
blood flow balanced. Paraplegics and immobile
elderly people lack the ability to shift body
weight on their own, and thus account for
the vast percentage of decubitus ulcers.
Again due to the aging population, the
decubitus ulcer market is expected to grow at
an increased rate relative to the other main
chronic wound types. The 55 and over segment
of the US population is anticipated to grow
at an estimated 2.5 times the rate of the
general population in the next six years.
Nursing home bed capacity (US) is 1.7
million, with an average occupancy of 90%.
Some estimates indicate that up to 60% of the
nursing home population (not to mention
hospital and home patients) have open
bedsores at any one time. Management
believes that the problem is immense, as
<PAGE>
generally the rest of the world's elderly
care is, on the average, less than that in
the U.S. Some of the worldwide market
estimates are (9):
Patients
US Europe ROW* TOTAL
_________________________________________________________
690,000 900,000 4.5 million 6.1 million
($ Spent $220 million $285 million $1.4 billion $1.9 billion
annually)
* Rest of World
Management believes that many nursing home
patients are too advanced in age and/or malnutrition to
make good candidates for treatment with AuTolo-Gel TM.
The market is almost entirely dominated by
traditional dressings. Prevention regimens are still
the best deterrent. Because of the proactive status of
AuTolo-Gel TM, the treatment involving venous entry
(which may not be possible on some nursing home
patients) and nutrition playing a major role in
healing, the Company believes this market to be the
least likely of the three for initial entry. However,
management believes that there is a certain percentage
of these people that can benefit from AuTolo-Gel TM .
The Company intends to integrate long term care
facilities into the early stage marketing plan.
These three markets represent the bulk of the
chronic wound market as a whole. The combined
estimates from these sources are: 12.5 million annual
patients accounting for $6.2 billion in annual health
care dollars. At this time, management believes that
there is no other product available on the market that
employs the amount of growth factors and is autologous.
The Company believes that, if its case studies and
marketing efforts prove successful, AuTolo-Gel TM will
become widely accepted as a cost-effective and
successful alternative to other treatments for chronic
wounds. The foregoing figures represent the potential
market of the Company and management has formulated a
marketing plan to expand the presence of the AuTolo TM
-Cure System and capture market share in the domestic
market while also exploring worldwide opportunities.
- --------------------
(9) Wedbush, Morgan Securities, Biotechnology in Wound Care, 4th
Edition, Jan. 1999.
<PAGE>
MARKETING PLAN
The Company, as a developing entity, is just
beginning to enter the initial marketing stages.
The Company will initially self-market. From the
home office in Little Rock, management believes
that the Company can have a potential sales
presence covering Arkansas, Eastern Oklahoma, Southern
Missouri, Southern Kansas, Northern Texas, Louisiana,
Northern Mississippi, and Eastern Tennessee, without
additional personnel. Because it is the Company's
belief that because of the nature of the AuTolo-Cure TM
system and the use of the paitent's own blood to
produce AuTolo-Gel in the clinical setting at the time
the treatment is applied and thereby not subject to
prior regulatory approval by the Food & Drug
Aministration, the marketing efforts are currently in
progress . However, as noted in the "Regulation"
discussion below, if the FDA or any state takes a
different position on required approvals, the marketing
efforts of the Company could be delayed or restricted
during the approval process.
The Company intends to market the AuTolo-Cure TM
system by means of providing end-users (health care
providers and facilities) with AuTolo -Cure License
packages. The License package consists of sequestration
machine used to isolate platelets, an agreement to
purchase a set monthly minimum number of packs
(disposable blood recovery components required for each
<PAGE>
application of AuTolo-Gel TM, training, authorization
and licensing in the preparation of AuTolo-Gel TM,
state-of-the-art wound care software software
(optional) and ongoing technical support by the
Company's wound care professionals.
Management anticipates the AuTolo-Cure TM Licenses
will have a term of three years, with renewal
capability. The AuTolo-Cure TM License will provide a
facility with the ability to prepare and administer
AuTolo-Gel TM to its patients within its own location
in a turnkey manner. The license will be a non-
exclusive arrangement; however, in some areas, an
exclusive market license package may be offered.
Management believes that this method of product
implementation will be cost-effective and attractive,
as existing physicians and personnel will be utilized,
eliminating outsourced, high-expense management
contracts. The Company has executed licenses in Texas,
Arkansas and is negotiating other licenses for the
AuTolo-Cure TM system.
The company intends to grant development rights to
certain agents authorizing the agents to market the
AuTolo-Cure TM system on behalf of the Company. The
"development rights" refer to the agent's right to
expand and develop the sales and licensing of the
AuTolo-Cure TM system and treatment packs within a
specific territory or geographic area, and not any
rights in the development or testing of the AuTolo-
Cure TM system or AuTolo-Gel. Additionally, the use
of developer rights as opposed to distributors,
marketers or other similar terms distinguishes the fact
that the Company does not sell a product, but rather
a license of the use of proprietary intellectual
property rights and certain activators and disposables
used in the blood sequestration process. Agents will
present potential candidates for licensing to the
Company for consideration and the Company will
determine whether or not to grant such license in its
sole and absolute discretion. The company intends to
pay a commission of approximately twenty-eight percent
(28%) of the intial license fees received to the
developer that is responsible for presenting the
licensee to the Company. A potential licensee may
purchase multiple licenses based upon the number
sequestration machines needed at the licensee's
facility. Each license only includes the authority
to use one sequestration machine.
The Company's marketing strategy is to reach all
levels of wound care providers. The traditional
targets of hospitals and large specialty facilities are
part of the Company's targeted markets; however,
management believes that these entities are subject to
significant amounts of corporate and regulatory
requirements, such that it generally take some time for
such organization to make and implement a decision.
The Company has identified additional potential end-
users that are not traditionally targeted and believes
that a strategy of approaching them with a state of the
art, turnkey system as a catalyst into the larger
targets is an efficient means of obtaining market share
for its process.
<PAGE>
The chronic wound care market has been broken down
into three segments, which are being developed
simultaneously by the Company:
1. Global Marketing Partners
This segment includes the large manufacturing
companies, pharmaceuticals and major health care
concerns.
2. Hospitals and Wound Care Providers
This segment includes acute care facilities,
<PAGE>
wound care centers, nursing homes, wound care
provider chains and companies.
3. Private Operators
Including home health service companies, family
practitioners, podiatrists, private practice
groups and potential start-up initiatives.
Because of the potential offered by each segment
and the operational strategy of the Company, an initial
entry plan has been developed for each.
Global Marketing Partners
The Company is currently exploring the possibility
of securing one or more marketing partners in this
segment. Because of the obvious reasons of existing
sales forces and customer bases, as well as resources
for product protection, the Company believes that a
strategic partnering would be the quickest route to
worldwide market. The wound care industry appears to
be shifting focus from traditional methods of wound
care to new, proactive approaches. Currently, the
Company has contacted two such entities and serious
discussions are ongoing with one. A partnership or
strategic alliance would likely involve a licensing of
the AuTolo-Cure System and AuTolo-Gel in exchange for
an initial licensing fee and continuing royalties on
future sales and revenues. The Company intends to
continue these efforts.
Hospitals and Wound Care Providers
The American Hospital Association reports that
there are approximately 6,100 hospitals in the United
States which collectively operate 1,035,390 staffed
beds with admissions in excess of 33,500,000 in 1998.
The total expenses of these AHA registered hospitals in
1998 was in excess of $340,000,000,000.00.
The Company has devised, what it believes, the
best route into these end-users relative to the nature
of the business. The plan contains two parts, phase A
and phase B.
<PAGE>
Phase A
Several hospitals with wound care centers are now
being approached with a user-friendly, 90-day, no
further obligation review period of AuTolo-Gel.
TM Under the plan, a targeted facility will be
given the chance to review the efficacy of AuTolo-
Gel TM for 90 days with minimum pack usage
obligations. The Company will provide the machine
and technicians for production of AuTolo-Gel TM at
the facility. The physician or attending
personnel will apply the gel to the selected wound
care patients.
After the 90-day period, the Phase A participants
will be afforded the opportunity to become fully
certified and licensed as AuTolo -Cure facilities.
Because of the high-profile status of the phase A
targets, and their affiliations with hundreds of
additional facilities, management believes that
the trickle-down effect from these hospitals
will be significant, thus allowing further
licensing of the AuTolo -Cure system.
Phase B
Phase B includes the licensing and further
contracting with hospitals and wound treatment
centers following Phase A and further AuTolo -Cure
license marketing efforts. As the corporate
goals of additional documentation and wide
recognition of the product are met, it is
anticipated that the rigors of a 90-day review
period will not be necessary and Phases A and
B will be merged and hospitals and wound
treatment centers will immediately acquire
licensing for the AuTolo -Cure system.
The Company continues to evaluate the need for a
Phase A program given the clinical results and
acceptance of the AuTolo -Cure System. It is likely
that the Phase A program would be discontinued prior to
<PAGE>
December 31, 2000.
Private Operators
In the Company's initial test marketing efforts in
Arkansas, it is apparent that there is a major market
available in the private sector. Private
practitioners, such as family doctors, podiatrists and
home health care providers have shown very high
interest in AuTolo-Gel TM and the AuTolo -Cure system.
These physicians and service providers are seeing the
vast number of the patients with wounds prior to their
being referred to acute care facilities. With access to
the latest technology, the potential of retaining
patients, increasing patient base and new treatment
opportunities, management believes that the potential
income stream from an AuTolo -Cure license can be
extremely attractive to the private practitioners.
In the case of the individual practitioners and
podiatrists, the largest drawback is the number of
patients seen that could benefit from AuTolo-Gel TM .
Although these professionals are seeing the largest
percentage of wounds prior to the hospitals, the number
of patients is spread out among many providers. For
example, a single podiatrist may see 40 to 60 patients
annually who are potential cases for AuTolo-Gel TM.
When multiplied by ten area podiatrists, there would be
a combined total of 400 to 600 potential cases within a
geographic area. The potential individual cases of 40
to 60 are not enough to sustain an AuTolo-Cure TM
license, but the combined cases would be more than
sufficient.
In order to address this dispersion of potential
AuTolo-Gel TM patients among multiple providers, the
Company is considering the possibility of licensing
private operators such as home health providers. A
private operator in any given area could make the
process available to multiple private facilities by
means of mobile AuTolo -Cure units. The machine and
necessary packs, as well as ancillary equipment, are
portable (they fit in the back seat of a compact car)
and through proper scheduling, a single unit could
serve several facilities.
In addition to the private physician offices,
management believes that nursing homes are a viable
target market for private operators. Notwithstanding
<PAGE>
the possible limitations to treatment in the decubitus
market (as described above), management feels that the
possibility of drawing patients from this environment
is significant. Nursing homes generally have staff
doctors providing the health care needs of the
patients. These doctors may prescribe AuTolo-Gel TM
treatment. Possible civil liability, regulatory fines
and censures regarding bedsores may overshadow
reimbursement issues for a nursing home. AuTolo-Gel TM
may be a way to address these exposures for nursing
homes.
Home health companies are also part of the private
operator market for AuTolo-Gel TM. Management believes
that home health companies treating patients with
chronic wounds spend significant amounts on nursing
through daily regimens of dressing changes. The put
it on and leave it alone protocols of AuTolo-Gel TM
may provide a major positive impact on operating
expenses while increasing the efficacy of treatment.
Management believes that some additional
incentives are:
* Quick route to market
* New treatment and revenue capability (physicians)
in a reducing reimbursement environment
* Cost effective (apply AuTolo-Gel TM and do not
revisit for 5-7 days)
* Effective back-door to hospitals (the hospitals
will begin to feel the revenue loss from decreased
referrals)
* Incentive for franchisees to protect the
technology from infringement.
The possibility of contracting with one or more distributors
is being explored to quickly cover the largest portions of
segments 2 and 3.
The Company is beginning to contact potential operators
in segment 3 and plans to advertise through trade shows and
publications. It is important to understand that, due to
the fledgling status of the Company and product and the
<PAGE>
enormity of the market, the Company intends to maintain
flexibility in the final determination of marketing
strategies and pricing.
The Company is approaching each of the three market
segments simultaneously. Segment 1 is underway with
discussions being initiated. Segment 2 is underway with
the Company and consultants actively approaching high
profile, chain-affiliated hospitals and wound care
centers with the user-friendly phase A entry plan.
Segment 3 is developing, with the first developer programs
going into effect in Arkansas and Texas. The possibility
of entering the long-term care facilities is also being
explored.
The Company believes that through a planned schedule of
public education and awareness of the product campaigns,
patient word of mouth will be the catalyst to introduce
AuTolo-Gel. TM into each market segment. Management
further believes that with market awareness, people
suffering from chronic wounds will request AuTolo-Gel TM as
an alternative to long, costly traditional care methods and
certainly as one to amputation.
INTELLECTUAL PROPERTY RIGHTS
Worden developed and was the owner of certain
intellectual property rights, including the exclusive rights
to use, market and exploit the process of treatment of
chronic wounds. Pursuant to an Assignment from Worden
effective as of April 27, 1999, the Company has the
exclusive right to utilize the process to make and apply
AuTolo-Gel TM and full and exclusive right, title and
interest, both national and international, to certain patent
applications identified as the Patent Cooperation Treaty
Application entitled Enriched Platelet Wound Healant, filed
February 13, 1999, Serial No. PCT/US99/02981; United States
Provisional Patent Application entitled Autologous Platelet
Gel Preservation, filed June 22, 1998, Serial No. 60/090,
167; and United States Provisional Patent Application
entitled Autologous Platelet Gel Antibiotic, filed August
26, 1998, Serial No. 60/097, 897 (collectively, the
"Applications"), together with all Letters Patents issued in
the United States and elsewhere on any other Applications
(the "Patents"). The Applications and the Patents being
collectively referred to as the "Technology". As
consideration for such Assignment, the Company has agreed to
<PAGE>
pay Worden pursuant to a Royalty Agreement described in Item
7 below.
In addition to the Technology, the Company has the
exclusive rights to the use of certain trademarks and
servicemarks including Autologous Platelet Gel, AuTolo-Gel
TM, and AuTolo-Cure TM. The Company considers its
trademarks to be material to its business. The Company's
rights to such trademarks will last indefinitely so long as
the Company continues to use and police the marks and to
renew filings with the applicable agencies. The Company is
not aware of any adverse claim concerning any of its owned
or licensed marks.
The Patents have not been issued and there can be no
assurance that they will be issued. As of the date of this
filing, the Company is not aware of any existing patents or
patent applications involving a multi-growth factor
enriched platelet process similar to ours. The failure of
the Company to obtain the Patents or the existence of a
substantially similar process could have an adverse effect
on the Company's ability to compete in the wound care
market given its size and resources compared to that of
its competitors descirbed below.
COMPETITION
The following information regarding competing products
has been compiled by the Company from public sources
believed to be reliable. It is not intended to infer
independent knowledge of the products, other than AuTolo-Gel
TM. The following is not intended to be a complete
independent survey of any and all potential competing
products, rather a synopsis of the products that the Company
believes are the closest competitors to AuTolo-Gel TM .
Independent research of the markets and products is
encouraged.
Currently, to the Company's knowledge, there are no
other multi-growth factor products (products stimulating
multiple cell regeneration versus a single conversion)
widely available on the market that are comparable to
AuTolo-Gel TM. The autologous nature of AuTolo-Gel TM and
being within the practice of medicine (physician applied)
represents a deviation from the norm of packaged topical
products and opens a door that has not previously been
available. To management's knowledge, there are two products
available today that employ growth factor(s).
Regranex is a single growth factor product bioengineered
from baker's yeast. Johnson & Johnson and Ortho-McNeil are
jointly marketing Regranex. Having received FDA approval in
late 1997, Regranex went to market in 1998. Inquiry by the
Company into the effectiveness of Regranex on chronic wounds
has provided little support for efficacy. However, being
the only widely available growth factor product on the
market, Regranex sales figures surpassed 50 million in its
first year. Estimates put prescriptions for Regranex in
1998 at over 133,000 tubes at an average cost of $375.00 per
<PAGE>
tube. (10) Management believes that the commercial success
of Regranex is due to the marketing strength of Johnson &
Johnson, and to the fact that Regranex has been the only
widely available growth factor product for chronic wound
treatment.
Procuren is an autologous growth factor topical, owned and
produced by Curative Health Services, Inc (CURE, Nasdaq).
Curative has been focused on total wound care as a whole
through hospital management contracts for outpatient
services and using Procuren as an adjunct therapy. A
patient undergoes screening for blood transmitted diseases
and blood donation criteria. If inclusion criteria is met,
blood is collected for processing. The whole blood is
shipped to one of Curative's processing facilities where
Procuren is produced. The product is then shipped, frozen,
to the patient for self-application. A normal full
treatment cycle would include 75 to 92 (avg.) 10cc doses in
individual tubes. Presently, Procuren is only available
through Curative-managed facilities. Procuren was
introduced into the market in 1989.
There are currently under development by several
companies, new proactive approaches to wound care treatment,
such as bioengineered living tissue for grafting. Because
of the size and increasing nature of the market, the Company
believes that there will be more and more attention given to
proactive solutions. However, at this time and based upon
the limited amount of testing done, management believe that
there is nothing that is more effective than AuTolo-Gel TM
for the treatment of chronic wounds.
The Company has initially priced AuTolo-Gel TM to end-
users at $385.00 per treatment package, a cost below that of
its perceived competitors. In addition, management believes
that the advanced technology of AuTolo-Gel TM will
considerably shorten full treatment times from those of
its competitors, and, thus, reduce the number of treatments
and full treatment cost significantly below that of its
competitors.
As outlined in the discussion of the Intellectual
Property Rights above, the inability of the Company to
obtain the patent protection necessary for the AuTolo-Cure
TM system could have an adverse effect on the Company and
- ------------------
(10) Wedbush, Morgan Securities, Biotechnology in Wound Care, 4th
Edition, Jan. 1999.
<PAGE>
its business. With Johnson & Johnson, Ortho-McNeil and
Curative as the Company's main competitors in the chronic
wound market, all billion dollar companies, the sheer
enormity of their resources compared to those of the Company
could preclude the Company from effectively competing in
the business without the Patents.
REGULATION
AuTolo-Gel TM is made from each patient's blood under
the direction of the treating physician at the time of
treatment. Because the gel is autologous, that is, it is
made from the patient's own blood, there is no off-site
preparation of the gel, and because it is not shipped
across state lines, the Company does not believe that
AuTolo-Gel TM is required to have any form of premarket
approval by governmental agencies such as the Food and Drug
Administration ("FDA") at the present time. Once the
treatment is applied and the would dressing applied, there
is no further use of the AuTolo-Gel TM produced in the
process outlined above and there is no subsequent use of any
materials, platelets or plasma and there is no storing,
shipping, labeling or subsequent off-site application of
the gel produced at the time of treatment. Management
believes that the formulation of AuTolo-Gel TM and the
application to the would come within the exemption from
registration and blood products listing for licensed
physician's use of blood products solely in the course
of their professional practice of medicine. (11)
The Food and Drug Administration ("FDA") regulates the
development, manufacture, and marketing of drugs and certain
biological products. The Federal Food, Drug and Cosmetic
Act (the FDC Act ) defines a drug as "articles intended
for use in the diagnosis, cure, mitigation, treatment, or
prevention of disease in man or other animals." Thus,
AuTolo-Gel TM would most likely be considered a drug. The
Public Health Service Act (the PHS Act ) regulates
biological products , which are defined as a "virus,
therapeutic serum, toxin, antitoxin, vaccine, blood, blood
component or derivative, allergenic product, or analogous
product, or arsphenamine or derivative of arsphenamine (or
any other trivalent organic arsenic compound), applicable to
the prevention, treatment, or cure of a disease or condition
of human beings." As a blood product, AuTolo-Gel TM would
- ------------------
(11) 21 CFR Ch 1. Part 607, Section 607.65(b).
<PAGE>
also be considered a biological product. While biological
products are subject to regulation under both the FDC Act
and the PHS Act, they are required to be licensed under the
PHS Act instead of being treated as a new drug under the FDC
Act. Furthermore, the PHS Act only requires a license for
any biological product that is transported across state
lines (from one state to another).
Generally speaking, the FDA requires testing of a new
'drug' in accordance with regulatory requirements in the
laboratory and, as appropriate, in clinical settings to
establish product performance before marketing. After
marketing has commenced, FDA clearance must be obtained
before making certain types of product changes. While
AuTolo-Gel TM is most likely a biological drug subject to
the FDA's regulation, management believes that since it is
prepared on site and not shipped across state lines that the
FDA will not require any form of premarket approval or
licensing of AuTolo-Gel TM. This is because AuTolo-GelTM,
as a biological drug, is subject to licensure under the PHS
Act, which only requires licensure if the product is
transported across state lines. AuTolo-Gel TM will be made
under the supervision of a physician at the location of the
patient and applied topically to the patient at the same
location.
Although AuTolo-Gel TM may not be subject to premarket
approval or licensing, AuTolo-Gel TM may still be subject to
FDA regulation. The FDA could take enforcement action
against the Company or an AuTolo-Gel TM user alleging that
the product is unsafe or that claims made for the product
are false or misleading. The FDA might also seek to have
a physician or hospital that is using AuTolo-Gel TM
register with the FDA as a drug or blood manufacturing
facility. There is no assurance that the FDA will
agree with management of the Company that AuTolo-Gel TM
is not subject to premarket approval or licensing or that
the FDA will not subsequently change its position and
seek to regulate AuTolo-Gel TM more extensively.
<PAGE>
In the event the FDA takes a position that AuTolo-Gel
TM is subject to licensing and regulation under either the
FDC Act or the PHS Act, such a position could have an
adverse effect on the Company and its business. Although
management believes that it can comply with expected FDA
regulation, increased FDA regulation, including premarket
approval or licensing, the costs of compliance, delays in
getting AuTolo-Gel TM introduced into the market or delays
in licensing activities for the AuTolo-Cure TM system
could have an adverse effect on the Company.
REIMBURSEMENT
Separate reimbursement by Medicare, Medicaid and third
party payors (insurance carriers, etc) for some or all of
the patient costs of AuTolo-Gel TM has not been obtained as
of the date of this filing. As with any new medical
product, device, process or procedure, efficacy and
advantages of use must be shown to secure reimbursement from
Medicare, Medicaid and third party insurance payors. The
Company has formulated a strategic reimbursement plan in
compliance with current reimbursement and payment guidelines
and treatment codes. Additionally, the Company is
developing data on the cost of treatment and savings using
AuTolo-Gel TM in an effort to approach Medicare, Medicaid
and third party insurance payors and develop separate
reimbursement for the process. At this time, it is believed
that third party payers will be the first to reimburse the
product. Although the Company is developing the data
necessary to seek separate reimbursement for the AuTolo-Gel
TM treatment under Medicare and Medicaid guidelines, no
assurance can be given as to when, and if, reimbursement
for Medicare or Medicaid patients will ultimately be
obtained.
Management believes that the need for AuTolo-Gel TM
exists and the advantages of patient use are being shown in
the Company's initial tests. The Company believes that the
cost-effectiveness of AuTolo-Gel TM compared to traditional,
reimbursable products and procedures currently reimbursed
will be a catalyst for payers to approve AuTolo-Gel TM for
reimbursement approval. However, failure to obtain approval
for reimbursement would adversely affect the Company and its
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Prior to the Merger, the company had no products or
services and was not conducting any viable enterprise. By
virtue of the Merger, the Company acquired the business
conducted by Old AWT to develop, market and sell the
proprietary AuTolo-Cure system. Since the formation of Old
<PAGE>
AWT, the Company has been engaged in extensive research and
testing of AuTolo-Gel and the development of the AuTolo-Cure
system. The Company's current activities include:
1. Research and clinical testing of AuTolo-Gel.
2. Development of clinical results and case studies.
3. Development of licensing agreements.
4. Patent and trademark applications.
5. Negotiation of licensing agreements.
6. Raising working capital.
7. Negotiation of strategic alliance with Global Marketing
Partners.
8. Development of marketing plan and distribution methods.
9. Recruiting key management and sales representatives.
10. Development of reimbursement strategies, discussions with
third party payors.
11. Testing of sequestration equipment, development of
AuTolo-Cure treatment packs and packaging, negotiation
of equipment leasing arrangement.
For a complete understanding of the foregoing
activities, the Management Discussion and Analysis should be
read in conjunction with Part I. Item 1. Description of the
Business and Part F/S - Financial Statements to this Form
10-SB.
RESULTS OF OPERATIONS
The Company is a development stage company and had
only limited operations through September 30, 1999. Our
primary activities during this start-up phase were hiring
a management team and corresponding staff and development
of the licensing strategy for the AuTolo-Cure System. We
generated only minimal revenues from inception through
September 30, 1999, however, we completed our first sale
of 2 licenses just prior to September 30, 1999 and
will recognize the $90,000 of revenues generated from the
sale over the three year lifetime of the licenses.
<PAGE>
During the period from inception through September 30,
1999 we incurred compensation expense of approximately
$747,000. Compensation expense consisted primarily of
$557,000 of expense attributed to options we granted to
three members of management with exercise prices for the
underlying common stock below fair market value. The
remaining $190,000 was for expenses paid to our employees.
We expect compensation expense to grow as we add additional
employees to help our administrative, marketing and support
efforts as we continue to grow the business.
During the period from inception through September 30,
1999 we incurred consulting expenses of approximately
$929,000. We granted the options and warrants described
in the "Summary of Testing" discussion above and in Item 7
below to Bennett and BMI to conduct clinical trials. Those
options and warrants were granted with exercise prices
below the fair market value of the underlying common stock,
which resulted in our recording consulting expense for the
difference, which amounted to approximately $873,000 through
September 30, 1999. The remainder of the above consulting
expenses we incurred were related to our start-up activites.
The clinical trials noted above were completed by
December 31, 1999 and we do not expect to incur additional
expenses for clinical trials after December 31, 1999
unless required to by regulatory agencies.
During the period from inception through September 30,
1999 we incurred legal expenses of approximately $69,000.
These legal fees related to start-up activites, costs
associated with our patent and trademark applications and
certain royalty and consulting agreements we were
negotiating during this period.
For the remainder of 1999 and the first two
quarters of 2000, the Company expects to incur additional
costs for the testing and development of the AuTolo-Cure
system, clincal testing, legal and professional fees for
licensing, reimbursement and patent and trademark services
and to expand the promotion and marketing of AuTolo-Gel
and the AuTolo-Cure system. Management believes that the
working capital provided by February, 2000 and March, 2000
private placements described in the Liquidity and Capital
Resources section below and the revenues generated from
the initial licensing fees and sales of the AuTolo-Cure
treatment packs will be sufficent to meet the operating
needs of the Company for the next twelve months. For a more
complete description of the Company's plan of operation for
the next twelve months, see the "MARKETING PLAN"
discussion under Part I above.
<PAGE>
The Company does not anticipate any significant purchases
or sales of plant or significant equipment. The Company
currently leases the sequestration machines provided to
licensees of the AuTolo-Cure system. In the event the
Company is no longer able to obtain leasing agreements and
is required to purchase the machines, the Company could see
an increased need for working capital to fund the acquisition
of such machines. However, since the acquisition of the
machines is tied to the granting and execution of licenses,
Management believes that the initial licensing fees
collected in connection with the execution of the license
creating the need to purchase the machine will provide an
adequate source of financing for the acquisition of the
machines, if leasing is not an alternative.
The Company currently has nine employees and anticipates
adding eight to ten employees, including a chief financial
officer and one additional office/administrative assistant.
The remaining personnel to be added would be site
implementation personnel hired to install and train a
licensee's personnel in the use of the AuTolo-Cure system at
the licensee's location. The timing of the hiring of such
site personnel will be based upon licensing activities and
on an as needed basis. The working capital to fund the cost
of the site implementation teams will be provided from the
intial licensing fees paid by the licensee and is a
variable cost to the Company.
Because of the potential response to the AuTolo-Cure
system and the timing of the awarding of the Patents, these
events could significantly increase demands on the Company's
resources and personnel. While most of the expenses in
connnection with the AuTolo-Cure system and sale of the
treatment packs are variable costs based on demand, the
Company could require significant additional working capital
if the response is as anticipated and specifically if
Patents are issued and third party reimbursement is obtained
for the AuTolo-Gel treatment.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of the date of this Form 10-SB, the Company has not
generated positive cash flow from its operations. This is
due primarily to the start-up nature of its operations,
investment in development and clinical testing of Autolo-Gel
and the building of a corporate infrastructure to support
its future operations. Funding to date has ben in the form
of private placements of common stock and debt financing
from the Company's shareholders. In November, 1999, the
Company converted certain of its existing shareholder loans
to shares of Series A 5% Preferred Stock.
Through a private placement, the Company has received a
commitment to provide $1,200,000 of working capital during
the period beginning January 1, 2000 and ending December 31,
2000. The working capital is to be raised through
subscriptions to the Company's common stock at the rate of
$300,000 per calendar quarter or as otherwise agreed by the
Company's Board of Directors. The Company has engaged SPH
Investments, Inc. ("SPH") as an investment advisor to
arrange the private placement of common stock to
accredited investors only (as that term is defined in
Rule 501 of the Securities Act of 1933, as amended),
pursuant to an exemption provided by Rule 506 of the
Securities Act of 1933, resulting in gross proceeds to the
Company of up to $1,200,000 (the Private Placement ). The
Company will offer a minimum of 250,000 shares of the
Company's common stock for $3.00 per share, aggregating
$750,000 in gross proceeds, during the First Quarter,
2000. An additional 150,000 shares of the Company's
common stock will be offered for $3.00 per share in the
First or Second Quarter, 2000, aggregating $450,000 in
gross proceeds. The Company agreed to pay SPH a placement
fee equal to 6% of the gross proceeds to the Company
from the Private Placement. The Company acknowledges that
SPH is not a registered broker-dealer with the Securities
and Exchange Commission (the "SEC" ) and is not a member
of the National Association of Securities Dealers, Inc.
("NASD"). In arranging for the Private Placement, SPH will
engage one or more qualified broker-dealers that are
registered with the SEC and are members of the NASD to act
as the placement agents for such offering (collectively, the
"Placement Agents"). On February 4, 2000, the first
250,000 shares involved in the Private Placement were
sold to one investor, with the Company realizing $750,000
in gross proceeds. LCP Capital Corportation, a licensed
broker/dealer in New York, New York, was engaged by SPH in
connection with the private placement and was paid by SPH
out of the investment banking fees paid by the Company to
SPH.
The issuance of the additional common stock in the private
placement will be nondilutive to those stockholders of
the Company holding Series B Convertible Preferred Stock.
Shareholders other than Series B Preferred Stockholders
will be diluted as this equity is raised, but such dilution
is not believed to be substantial.
<PAGE>
Subsequent to the February, 2000 issuance of the first
250,000 shares involved in the Private Placement, the
Company elected not to pursue subscriptions for the
remaining 150,000 shares under the terms of the engagement
with SPH. In lieu of raising $450,000 at $3.00 per share,
on February 29, 2000, the Company elected to pursue a
private placement of common stock at $10.00 per share. The
offering was made solely to accredited investors (as that
term is defined in Rule 501 of the Securities Act of 1933,
as amended), pursuant to an exemption provided by Rule 506
of the Securities Act of 1933, as amended. The offering
resulted in gross proceeds to the Company of $7,585,000.
In connection with the private placement, the Company paid
investment advisory fees equal to eight percent (8%) of the
proceeds, or $606,800. Additionally, warrants representing
the right to purchase 26,500 shares at $10.00 per share are
to be issued to the Kreigsman Group, the same representing
ten percent (10%) of the shares sold in the private
placement through the efforts of Kreigsman, under the terms
of its agreement with the Company.
Management believes that the working capital provided
by the February, 2000 and the March, 2000 private placements
and the revenues generated from the inital licensing fees
and sales of the AuTolo-Cure treatment packs shall be
sufficent to meet the operating needs of the Company through
the next twelve months. However, the need to raise
additional working capital could require the company to
delay, curtail or terminate some of its development and
clinical testing, sales and marketing efforts and could
otherwise have an adverse impact on its operations. Any
additional equity financing required in such an event may
involve significant dilution to the Company's shareholders.
ITEM 3. DESCRIPTION OF PROPERTIES.
The Company owns no materially important physical
properties. It leases offices in the United States at 1523
Bowman Road, Suite A, Little Rock, Arkansas 72211.
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(A) Names, addresses and name and title of person
holding authority to vote shares of the known
beneficial owners of more than five percent (5%)
of the Company's common voting shares, Series
A Prefereed shares and Series B Preferred shares
as of November 10, 1999 were:
Name and Address of Amount and Percent of Class
Title of Class Beneficial Owner Nature of Beneficial Ownership(5)
- -------------- ------------------- ---------- --------------------
Common Quasar Investments, LLC 5,050,000 (1)(2) 49.6%
1523 Bowman Road, Suite A
Little Rock, Arkansas 72201
Jim D. Swink, Jr., Member
Reprsentative
Common BDR Consulting, Inc. 5,050,000 (2)(3) 49.6%
1523 Bowman Road, Suite A
Little Rock, Arkansas 72201
Jim D. Swink, Jr., President
Common Charles E. Worden 525,000 5.2%
7201 Hwy. 300
Little Rock, AR 72223
Common Keith Bennett, MD
301 Bel Aire
Hot Springs, Arkansas 71901 635,000 (4) 6.2%
Series A
Preferred Rozel International Holdings 575,000 35.38%
Road Town
Tortolla British Virgin Islands
Howard P. Chaffe, Director
Series A
Preferred FAC Enterprises 125,000 7.69%
4960 S. Virginia #300
Reno, NV 89502
Howard Appel, President
Series A
Preferred Millworth Investments 225,000 13.85%
4960 S. Virginia #300
Reno, NV 89502
Howard Appel, President
Series A
Preferred Bel-CAL Properties 250,000 15.38%
9665 Wilshire Blvd Suite M-19
Beverly Hills, CA 90212
William Belzberg, President
<PAGE>
Series A
Preferred SPH Equites 100,000 6.15%
648 Post Road
Wakefield, RI 02879
Stephen P. Harrington,
President
Series B
Preferred Quasar Investments, LLC 5,050,000 (1)(2) 82.4%
1523 Bowman Road, Suite A
Little Rock, Arkansas 72201
Jim D. Swink, Jr., President
Series B
Preferred BDR Consulting, Inc. 5,050,000 (2)(3) 82.4%
1523 Bowman Road, Suite A
Little Rock, Arkansas 72201
Jim D. Swink, Jr., President
Series B Charles E. Worden 525,000 8.8%
Preferred 7201 Hwy. 300
Little Rock, AR 72223
Series B
Perferred Keith Bennett, MD
301 Bel Aire
Hot Springs, Arkansas 71901 500,000 (4) 6.9%
(1) Quasar Investments, LLC ("Quasar") owns directly
2,550,000 common voting shares and 2,550,000 voting
shares of Series B preferred stock of the Company.
Quasar is an Arkansas limited liability company
managed by BDR Consulting, Inc.
(2) Quasar Investments, LLC is a party to a Voting
Agreement dated effective November 4, 1999, and has
voting control of 5,050,000 common voting shares of the
Company in the nomination and election of directors and
decisions regarding the merger, consolidation,
liquidation, reorganization of substantially all of the
Company's assets. BDR Consulting, Inc., as the managing
member of Quasar would exercise the voting rights
with respect to the shares covered by the Voting
Agreement as manager. Jim D. Swink, Jr. would actually
exercise the voting rights in his capacity as President
of BDR Consulting, Inc.
The parties to the Voting Agreement in addition to
Quasar Investments, LLC and the individual persons
having voting control of the shares owned by such
<PAGE>
entities are as follows: BDR Consulting, Inc. (Jim D.
Swink, Jr.), F&G Investment Partnership (Alec Farmer,
Partner), KA B Investments, Inc. (Earnest Bartlett,
President), GWR Trust (Greg Stephens, Trustee), SPH
Investments, Inc. (Stephen Harrington, President),
SPH Equities, Inc. (Stephen Harrington, President),
Cranbourne Investments, Inc. (Harold E. Chaffe,
President), Discretionary Investment Trust (Richard
Zona, Trustee) and Gatkin Investments (S. E. Edwards,
President).
(3) BDR Consulting, Inc. owns directly 119,986 common
voting shares and 119,986 voting shares of Series B
preferred stock of the Company and is the managing
member of Quasar would exercise the voting rights
with respect to the 5,050,000 shares covered by the
Voting Agreement.
(4) Dr. Bennett and Bennett Medical, LLC have been granted
warrants to acquire 250,000 common voting shares and
250,000 voting shares of Series B Preferred stock. The
exercise of each warrant grants Bennett the additional
option to acquire one share of common voting stock
and one share of Series B Preferred stock for each
share acquired as a result of the exercise of the
warrant, up to 250,000 common voting shares and
250,000 voting shares of Series B Preferred stock.
Additionaly, Dr. Bennett has been granted the option
to acquire an additional 135,000 common voting shares
of the Company.
(5) Determined on a fully diluted basis.
<PAGE>
(B) The common voting shares of the Company beneficially
owned by each Director and Executive Officer of the
Company as of November 10, 1999, are set forth below:
Amount and
Nature of
Name and Address of Beneficial
Title and Class Beneficial Owner Ownership Percent of Class(4)
- ----------------- ------------------ ----------- ----------------
Common Dennis G. Hendren 422,969 (1) 4.1%
Common William L.Brown 350,000 (2) 3.4%
Common W. Michael Chunn 150,000 (3) 1.5%
Series B Prefereed Dennis G. Hendren 422,969 (1) 5.4%
Series B Preferred William L. Brown 350,000 (2) 4.7%
Series B Preferred W. Michael Chunn 150,000 (3) 2.0%
(1) Mr. Hendren owns directly 172,969 common voting shares
and 172,969 Series B Preferred shares of the Company.
Mr. Hendren has been granted nonqualified stock
options to acquire 250,000 common voting shares of
the Company which are subject to certain vesting and
other restrictions on exercise.
(2) Mr. Brown has been granted nonqualified stock options
to acquire 350,000 common voting shares 350,000 Series
B Preferred Shares of the Company which are subject
to certain vesting and other restrictions on exercise.
(3) Mr. Chunn has been granted nonqualified stock options
to acquire 150,000 common voting shares 150,000 Series
B Preferred shares of the Company which are subject
to certain vesting and other restrictions on exercise.
(4) Determined on a fully diluted basis.
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND
CONTROL PERSONS.
Mr. Dennis G. Hendren
_____________________
President and CEO, Director
Mr. Hendren, age 52, joined the Company from Curative
Health Services, Inc., a publicly traded company, where he
was employed for eight years, having last served as Vice
President of Processing Operations. Some of his
responsibilities included; staffing, training, operations
and budgetary duties. Previously, Mr. Hendren served as
technical director for two major community blood banks. He
has extensive experience in FDA registration and licensure,
as well as technical aspects of wound care and resulting
product formulation. Mr. Hendren graduated with a BS in
Biology from Emporia State Teachers College. He is a
registered Medical Technologist with a Specialist in Blood
Banking. Mr. Hendren brings a wealth of experience in wound
care management from a corporate perspective to the Company
and will be responsible for overseeing every aspect of the
Company.
Mr. William L. Brown
____________________
Chief Operating Officer, Secretary and Director
Mr. Brown, age 47, joined the Company from Curative Health
Services, where he served as program director for wound
care operations in Arkansas. His duties included;
marketing, physician management, wound care center
operation, hospital protocol and product application. Prior
to this, Mr. Brown served as Administrative Director of
Respiratory Medicine, Sleep Disorders and Hyperbaric
Medicine at Washington Regional Medical Center,
Fayetteville, Arkansas. Mr. Brown holds a BS in Biological
Science from Missouri Southern University and is registered
with the National Board for Respiratory Care. Currently,
Mr. Brown's Master of Health Science thesis is being
reviewed for approval at the University of Arkansas. As COO
of the Company, Mr. Brown will oversee all operational
aspects of the Company including: personnel policy, product
implementation and production, sales and marketing
development, and internal affairs.
<PAGE>
Mr. W. Michael Chunn
____________________
Vice President/Marketing and Operations, Director
Mr. Chunn, age 52, comes to the Company from Conway Regional
Medical Center, where he most recently served as Assistant
Clinical Director. Duties included: Directing transfusion
services, scheduling for clinical activities and
laboratories, continuing education and safety
administration. Prior to 1993, Mr. Chunn served twenty
years with the American Red Cross, including thirteen years
an Administrator. Mr. Chunn's tenure included most aspects
of the Red Cross operation such as budgeting, forecasting,
and blood services marketing management. Mr. Chunn received
a BS-Medical Technology from Middle Tennessee State
University and is a graduate of many continuing education
courses. Mr. Chunn's responsibilities include budget
preparation, marketing, strategic partnership planning, and
internal tech-support.
There is no stated term in the Company's bylaws for the term
of office and each officer shall serve in such capacity
until his successor is duly appointed by the Company's Board
of Directors.
Mr. Charles G. Worden
_____________________
Inventor of the AuTolo-Cure TM System
Mr. Worden, age 64, is the inventor of AuTolo-Gel. TM and
the founder of Autologous Wound Therapy, Inc. A senior
laboratory scientist with over 40 years in the medical
field, Mr. Worden has worked as President/C.E.O. of Arkansas
Reference Laboratory, Inc. as well as President/C.E.O. of
Worden & Associates, Inc. a medical computer software
company. A microbiologist and clinical chemist, Mr. Worden
was the chief bacteriologist for the USDA research station
located in the Little Rock, Arkansas, working in immunology
and vaccine production. A Medical Technologist, Mr. Worden
has worked extensively in the Blood Banking field, first as
the Chief Technologist for the American Red Cross Blood
Bank, and has many years teaching Medical, Nursing and
Technology students through the University of Arkansas
Medical Science campus. Mr. Worden holds a Bachelor
of Science, Bacteriology from the University of Arkansas,
Fayetteville. Mr. Worden also has thirty hours of post-
graduate study in Microbiology, and is a Medical
Technologist registered with the American Society of Clinical
Pathologists. In 1983, Mr. Worden filed personal
bankruptcy. Mr. Worden does not intend to maintain an
active role in the day to day management and operations
of the Company; however, he will provide consultation
as needed.
<PAGE>
Mr. Jim D. Swink, Jr.
_____________________
Controlling Person
Mr. Swink, age 36, served as a director of Old AWT.
Mr. Swink is the President and sole stockholder of BDR,
Consulting Inc., a company providing consulting services to
emerging companies, including the Company. On behalf of BDR
Consulting, Inc. Mr. Swink has negotiated agreements for the
testing of the AuTolo-Cure System, consulting agreement
with Bennett Medical, Inc. Sigma Health Care, recruited
management for the Company, negotiated leasing arrangements
for the equipment needs of the company a nd assisted in
the raising of equity on behalf of Old AWT and in the
negotiation of the merger of Old AWT and the Company. Mr.
Swink intends to continue providing services to the Company
under the terms of the Consulting Agreement in effect
with BDR Consulting. BDR Consulting, Inc. owns a
controlling interest in Quasar Investments, L.L.C.,
which owns 29% of the common stock of the Company.
Mr. Swink serves as the manager of Quasar Investments,
L.L.C. Since 1994, Mr. Swink has been engaged in consulting.
Mr. Swink filed personal bankruptcy in 1996, which case
has been settled and discharged.
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
As a development stage company, the Company has previously
paid any of its management reduced salaries based on
availability of cash flow. The following is a summary of
salaries paid to the current executives:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Salary Bonus Other Restricted Securities LTIP All other
Name and $(1) $ Annual Stock underlying Payouts compensation
Position Compensation Awards stock
$ (2) options
/SARs (#)
- -----------------------------------------------------------------------------------------------------
Dennis G. 1999 $37,251 $0 $0 185,625 250,000 $0 $0
Hendren 1998 $0 $0 $0 -0- -0- $0 $0
President 1997 $0 $0 $0 -0- -0- $0 $0
& CEO
William L. 1999 $36,000 $0 $0 259,875 350,000 $0 $0
Brown 1998 $0 $0 $0 -0- -0- $0 $0
Vice 1997 $0 $0 $0 -0- -0- $0 $0
President,
COO &
Secretary
W. Michael 1999 $56,293 $0 $0 111,375 150,000 $0 $0
Chunn 1998 $0 $0 $0 -0- -0- $0 $0
Vice 1997 $0 $0 $0 -0- -0- $0 $0
President
Charles 1999 $31,251 $0 $0 -0- -0- $0 $0
Worden 1998 $0 $0 $0 -0- -0- $0 $0
1997 $0 $0 $0 -0- -0- $0 $0
Darla 1999 $17,520 $0 $0 -0- -0- $0 $0
Bradley 1998 $0 $0 $0 -0- -0- $0 $0
1997 $0 $0 $0 -0- -0- $0 $0
</TABLE>
<PAGE>
(1) All employees joined the Company in 1999 and salary
reflects year to date compensation through October 31,
1999.
(2) Other annual compensation is less than ten percent
(10%) of base salary.
- --------------------
Stock Option Plan
Effective June 7, 1999, Old AWT adopted a Nonqualified Stock
Option Plan ( Stock Option Plan ), which was approved by the
Old AWT shareholders on the same date. The Company assumed
the Stock Option Plan in the Merger. Pursuant to the terms
of the Stock Option Plan shares of the common stock of the
Company have set aside for options which may be issued to
management and others, as determined by the Board of
Directors. The Company intends to grant stock options to
some or all of the management of the Company pursuant to
this Plan. The terms of options granted and the exercise
price of such options is subject to the discretion of the
Board of Directors. As of the date of this filing, the
following options have been issued pursuant to the Stock
Option Plan:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Name Number of Percent of Exercise FMV at Expiration
Securities total of base Date of Date
underlying options / price Grant
options / SARs
SARs granted to ($/sh) (1) ($/sh) (2)
granted employees
in fiscal
(#)(1) year
--------------------------------------------------------------------
Dennis G. 250,000 33.33% $0.02 2.00 December
Hendren 31, 2008
President
& CEO
William L. 350,000 46.67% $0.02 2.00 December
Brown 31, 2008
V. P., COO
&
Secretary
W. Michael 150,000 33.33% $0.02 2.00 December
Chunn 31, 2008
Vice
President
<PAGE>
(1) Options were granted under Old AWT's Stock Option Plan
and the number of securities underlying options,
exercise price per share and grant date market price
have been adjusted to reflect the conversion ratio of
the underlying Old AWT common stock into common stock
of the Company as a result of the Merger.
(2) The options granted above are fully vested on the first
anniversary of the option holder's employment by the
Company. In addition to the expiration date,
unexercised options which have vested terminate
immediately upon the termination of employment by reason
other than death, disability or normal or early
retirement. In the event of the death or disablilty of
the holder, any options remaining unexercised 180 days
following termination of employment by reason of death
or disablity shall be terminated.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company is a party to a Royalty Agreement with
Charles E. Worden, dated April 27, 1999, as amended October
29, 1999, pursuant to which the Company, in consideration
for the assignment by Worden to the Company of certain
Intellectual Property Rights, the Company has agreed to pay
Worden a royalty equal to five percent (5%) of the gross
profit derived by the Company from the sale or use of the
Intellectual Property Rights, not to exceed $1,000,000 in
any four consecutive quarters. The Company also has a
consulting arrangement with Mr. Worden under the Royalty
Agreement which would provide for a maximum payment $50,000
per year until such time as the royalties exceed $150,000
during any four consecutive calendar quarters. To date, no
amounts have been paid to Worden under the agreement.
BDR Consulting, Inc., which owns a controlling interest
in Quasar Investments, L.L.C., the majority shareholder
of the Company, has a consulting agreement with the Company
dated October 29, 1999 ("Consulting Agreement") pursuant to
which BDR Consulting, Inc. is to provide financing and
business related consulting to the Company, for which BDR
Consulting, Inc. is entitled to receive compensation
based on the annualized gross revenues of the Company.
The initial monthly fee is $6,000 per month on annual
revenues of $0 to 7.5 Million; $10,000 per month
if annualized revenues are over $7.5 Million to
$14 Million; $15,000 per month if annualized revenues are
over $14 Million to $25 Million; and $20,000 per month if
annualized revenues are in excess of $25 Million. The
consulting fees shall be based on the rolling twelve month
<PAGE>
aggregate gross revenues of the Company measured as of the
close of the month immediately prior to the month for which
the payment is due is being calculated. As of the date of
this filing, BDR Consulting, Inc. has been paid
approximately $25,000 for services by BDR Consulting, Inc.
to the Company.
Jim D. Swink, Jr., is the sole shareholder and
controlling person of BDR Consulting, Inc.
In 1999, we entered into an agreement with Keith
Bennett, M.D. ("Bennett") and Bennett Medical, LLC ("BMI")
whereby Bennett and BMI agreed to test the AuTolo-Cure TM
system on 75 cases on behalf of the Company. The Company
was obligated to provide operational and technical support
in connection with the technology. As compensation for
the trials, Bennett and BMI retained all professional
fees associated with the trials and received a warrant to
purchase up to 5,000 shares of the Company's common stock,
upon completion of the trials. The warrant may be exercised
at any time after January 1, 2000 and is exercisable through
September 22, 2004. The exercise price of the warrant is
$.01 per share of underlying common stock. Upon exercise
of the warrant, BMI will be entitled to participate in the
Non-Qualified Stock Option Plan on a one-for-one basis
with the number of shares exercised under the warrant.
BMI will also act as a sales agent for the lease of
equipment, licensing fees, sale of disposable supplies and
training services for the Company. The agreement calls
for BMI to receive a commission of twenty five percent
(25%) of the gross profit from these sales and licenses
to customers designated in their sales territory and to
receive a commission of five percent of the gross profit
for sales and licenses to certain designated customers.
On October 29, 1999, the Company and BMI amended the
commission agreement whereby BMI waived the five percent
commission on the gross profit of sales and licenses
to certain designated customers in exchange for an option
to purchase 135,000 shares of Informatix Holdings, Inc. at
an exercise price of $1.00 per share. The
options are fully vested and may be exercised at any time
by BMI. As of September 30, 1999 BMI had completed the
75 trials under the agreement. We recorded compensation
expense for the difference between the fair market value
of the common stock and the exercise price which amounted
to approximately $872,850 through September 30, 1999 based
on the difference in value between the exercise price
of the warrant and option versus the fair market value
of the common stock as determined by an independent
valuation company.
In October, 1999, Dennis Hendren, an officer and
director of the Company, forgave loans he made to the
Company in May, 1999, totaling $25,000 in exchange for
3,000 shares of Old AWT common stock which was pledged as
security for the repayment of the loan and transferred from
Charles Worden, the founder of Old AWT.
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES:
This summary contains a description of all of the
material terms of the Company's capital stock. However, it
does not describe every term of the capital stock contained
in the Company's amended and restated certificate of
incorporation. The Company refers you to the provisions of
Delaware corporate law and the Company's amended and
restated certificate of incorporation and amended and
restated bylaws, which are attached hereto as exhibits.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The Company's amended and restated certificate of
incorporation authorizes the Company to issue 50,000,000
shares of capital stock, of which 40,000,000 shares are
common stock having a par value of $0.0001 per share and
10,000,000 shares are preferred stock having a par value of
$0.0001 per share. The rights and preferences of the
preferred stock are to be established by the Board of
Directors in one or more certificate(s) of designation.
As of November 10, 1999, after giving effect to a 1:2
reverse stock split with respect to the Company's common
stock, there were 8,769,276 shares of common stock
issued and outstanding held by approximately 260
shareholders. Additionally, on such date, there were
1,625,000 shares of Series A 5% Cumulative Preferred
Stock (the "Series A Preferred Stock") issued and
outstanding held by approximately 18 shareholders and
6,000,000 shares of Series B Convertible Preferred Stock
(the "Series B Preferred Stock") issued and outstanding
held by approximately 35 shareholders.
Common Stock Voting Rights
Holders of common stock are entitled to one (1) vote per
share on all matters to be voted upon by the stockholders.
The holders of common stock are not entitled to cumulative
voting rights with respect to the election of directors.
Dividend Rights
Subject to preferences that may be applicable to any then
outstanding shares of preferred stock, holders of common
stock are entitled to receive ratably such dividends as may
be declared by the board out of funds legally available.
Liquidation Rights
In the event of the Company's liquidation, dissolution or
winding up, holders of the common stock are entitled to
share ratably in all assets remaining after payment of
<PAGE>
liabilities and the liquidation preference of any then
outstanding preferred stock. Holders of common stock have no
preemptive, conversion or other rights to subscribe for
additional securities of the Company. No redemption or
sinking fund provisions apply to the common stock. All
outstanding shares of common stock are validly issued, fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further
action by the stockholders, to issue up to 10,000,000 shares
of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights,
terms of redemption, liquidation preferences, sinking fund
terms and the number of shares constituting any series or
the designation of such series. The issuance of preferred
stock could adversely affect the voting power of holders of
common stock and could decrease the likelihood that such
holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring
or preventing a change of control of the Company.
Accordingly, the issuance of shares of preferred stock may
discourage offers for the Company's common stock or may
otherwise adversely affect the market price of the common
stock. As of the date of this Registration Statement, there
are two series of preferred stock outstanding with the
following rights, preferences and privileges:
Voting Rights
Holders of the Company's Series A and Series B
Preferred Stock are entitled to 1 vote per share on all
matters to be voted upon by the stockholders.
Dividend Rights
Subject to preferences that may be applicable to any
other outstanding shares of another series of preferred
stock, holders of Series A Preferred Stock are entitled
to a five percent (5%) dividend on its stated
liquidation preference of $1.00 per share in preference
to the holders of common stock and Series B Preferred
Stock. Such dividends are paid as may be declared by
the Board out of funds legally available therefor and
are cumulative. The Series B Preferred Stock has no
dividend preference.
<PAGE>
Liquidation Rights
In the event of the Company's liquidation, dissolution
or winding up, holders of Series A Preferred Stock are
entitled to a liquidation preference of $1.00 per share
in all assets remaining after payment of liabilities.
Holders of the Series B Preferred Stock are entitled to
a liquidation preference of $.0001 per share after the
payment of liabilities and the liquidation preference
of any other then outstanding Series A Preferred
Stock.
Mandatory Redemption
The Company is required to redeem the Series A
Preferred Stock and pay all accumulated but unpaid
dividends on the earlier of the seventh anniversary of
the date of issuance or forty-five days following the
end of the fiscal quarter of the Company as of which
the Company has had aggregate gross revenues for a four
consecutive fiscal quarter period of not less than $50
million.
Conversion Rights
The Series A Preferred Stock has no conversion rights.
The Series B Preferred Stock is subject to mandatory
conversion into shares of common stock upon the
Company's issuance of additional shares in exchange for
cash with the aggregate proceeds to the Company of up
to $1,200,000. For each share of stock issued in such
financing, each share of Series B Preferred Stock shall
automatically be converted into three shares of common
stock. In the event the $1,200,000 has not been raised
by December 31, 2000, then each remaining issued and
outstanding share of Series B Preferred Stock shall be
converted into common stock. The conversion ratio
shall be determined based on the shortfall in raising
the $1,200,000 and determined by converting 7.5 shares
of Series B Preferred Stock into one share of common
stock for each $1.00 of such shortfall.
WARRANTS AND OPTIONS
In October, 1999, Old AWT issued a warrant to purchase
5,000 shares of Old AWT common stock in connection with
a services agreement between the Company and Dr. Keith
Bennett and Bennett Medical, Inc. subject to anti- dilution
provisions (the "Warrant"). The Warrant is exercisable for
<PAGE>
nominal consideration until October, 2004. The Company
assumed the obligations of Old AWT under the Warrant and the
Warrant represents the right to acquire 250,000 shares of
common stock and 250,000 shares of Series B Preferred Stock
in the Company. In October, 1999, the Company amended the
services agreement and inconsideration of the other party's
release of the right to a five percent commission on certain
sales by the Company, the Company agreed to issue an option
to acquire 135,000 shares of the Company's common stock.
On January 12, 2000, we entered into a three year
consulting agreement with The Kriegsman Group ("Kriegsman").
The agreement calls for Kriegsman to assist the Company in
recruiting members for its Board of Directors, Advisory Board
and senior executives to complete the management team and
help the Company raise equity capital through private
placements, to arrange and negotiate possible strategic
alliances, license agreements with major companies and
joint ventures, and to seek out and approach investment
banks to help fund the development of the Company. In
consideration for these services, Kriegsman will receive a
one-time start-up fee of $25,000 and a consulting fee of
$5,000 per month, over the life of the agreement, for
every $3 million raised through equity placements,
strategic alliances, joint ventures or license agreements
up to a maximum of $25,000 per month. The monthly
consulting fee will commence once Kriegsman has raised the
first $3 million. The agreement also grants options to
Kriegsman to purchase 150,000 shares of common stock of the
Company. The options have a term of five years and an
exercise price of $4.00 per share. The common stock
underlying these options also has been granted registration
rights in the Company's next registration statement filed
after the exercise of the same. The Company also granted
options to purchase up to a maximum of 450,000 shares of
common stock with a term of five years and an exercise
price of $4.00, based on Kriegsman meeting certain
performance criteria. The agreement also calls for
Kriegsman to receive a fee of 8%of the proceeds raised from
any equity or debt placement initiated by Kriegsman. The
Company has also agreed to issue Kriegsman warrants
representing the right to purchase 10% of the number of
shares issued in the equity placement (or shares in which
the debt is convertible into). The warrants will have a
term of five years and an exercise price equal to the
per share price of any equity raise or the conversion
price of common stock for any convertible debt offerings.
REGISTRATION RIGHTS
There are no outstanding registration rights covering
the Company's capital stock other than the incidental
registration rights granted to the former president and CEO
of the Company in an agreement dated May 31, 1999 and
Kriegsman under the Consulting Agreement dated January 12,
2000. Under the terms of the Registration Rights Agreement,
the former CEO and Kriegsman are given the right to
require inclusion of his shares in any registration
statement prepared by the Company using Form S-1,S-2 or
S-3. The Company is under no obligation to file any
such registration statement and the rights of the former
CEO and Kriegsman are further subject to restriction
on the number of shares that may be registered based upon
the opinion of the managing underwriter in such offering.
<PAGE>
ANTI-TAKEOVER PROVISIONS
Although management is not presently aware of any
takeover attempts, the Company's Certificate of
Incorporation defers to provisions in the Delaware General
Corporations Law (the "DGCL"), which may be deemed to be
"anti-takeover"in nature in that such provisions may deter,
discourage or make more difficult the assumption of control
of the Company by another entity or person.
Delaware Anti-Takeover Law
The Company is subject to Section 203 of the DGCL
(Section 203) which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a
period of three years following the date that such
stockholder became an interested stockholder, unless: (i)
prior to such date, the board of directors of the
corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding
<PAGE>
those shares owned by persons who are directors and also
officers and by employee stock plans in which employee
participants do not have the right to determine
confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer; or (iii) at or
subsequent to such date, the business combination is
approved by the board of directors and authorized at an
annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66-2/3%
of the outstanding voting stock which is not owned by the
<PAGE>
interested stockholder. Section 203 defines business
combinations to include: (i) any merger or consolidation
involving the corporation and the interested stockholder,
(ii) any sale, transfer, pledge or other disposition
involving the interested stockholder of 10% or more of the
assets of the corporation, (iii) subject to certain
exceptions, any transaction which results in the issuance or
transfer by the corporation of any stock of the corporation
to the interested stockholder, (iv)any transaction involving
the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested
stockholder, or (v) the receipt by the interested
stockholder of the benefits of any loans, advances,
guarantees, pledges, or other financial benefits provided by
or through the corporation. In general, Section 203 defines
an interested stockholder as any entity or person
beneficially owned 15% or more of the outstanding voting
stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock,
the Series A Preferred Stock and Series B Preferred Stock is
StockTrans, Inc., whose address is 7 East Lancaster
Avenue, Ardmore, PA 19003.
PART II.
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock previously traded on the
OTC Bulletin Board under the symbol "AWTX". Pursuant to
NASD Rule 6530 (the "Eligibility Rule"), the Company's
common stock was delisted from the OTC Bulletin Board on
December 15, 1999. The Eligibility Rule requires companies
listed on the OTC Bulletin Board to make current filings
pursuant to Sections 13 or 15(d) of the Securities Exchange
Act of 1934, as amended. The Company is submitting this
registration statement to the SEC in order to comply with
the Eligibility Rule, among other reasons. The Company
intends to apply for its common stock to be re-listed on the
OTC Bulletin Board once this registration statement is
declared effective and the Eligibility Rule has been
satisfied. Prior to the Merger the common stock traded
under the symbol "IFXH" and prior to July 1, 1998 under
the symbol "MENW". The range of high and low bids for The
Company's common stock for each full quarter since there
has been a market for such stock is as follows:
Quarter Ending High Low
______________ ____ ___
03-31-97 0.3100 0.0300(1)
06-30-97 0.2500 0.0900
<PAGE>
09-30-97 0.1600 0.0900
12-31-97 0.0300 0.0010
03-31-98 0.0170 0.0010
06-30-98 0.0625 0.2500
09-30-98 3.2500 3.2500 (2)
12-31-98 3.7500 1.1250
03-31-99 4.9688 1.1250
06-30-99 6.0000 3.1250
09-30-99 4.0000 1.5000
12-31-99 8.3750 1.6250
(1) Quoted as MENW
(2) Quoted as IFXH
On March 20, 2000, the last reported sales price for
the Company's common stock was $20.75 per share. Based on
the information available to the Company, the average daily
volume of the Company's common stock has been approximately
103,868 shares since December 15, 1999.
There were approximately 292 holders of the Company's common
voting stock as of March 6, 2000.
DIVIDENDS
The Company has had no operating income to date and has
never paid any cash dividends on its common stock. The
Board presently intends to retain all earnings for use in
the Company's business. Any future determination as to
payment of dividends will depend upon the financial
condition and results of operations of the Company and such
other factors as are deemed relevant by the Board.
ITEM 2. LEGAL PROCEEDINGS.
There are, to the best knowledge of the Company, no
legal proceedings pending against the Company or any of the
Intellectual Property Rights in which it claims an interest,
that will adversely affect the financial condition of the
Company or the ability to carry on the business of the
Company.
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Through a Private Placement conducted March 1
through March 10, 2000, the Company sold 785,500 shares
of common stock to thirty accredited investors at a purchase
price of $10.00 per share for total gross proceeds of Seven
Million Five Hundred and Eighty Five Thousand Dollars
($7,585,000.00) to provide working capital for the company
and the remaining $450,000 balance of the $1,200,000 in
equity described in "LIQUIDITY AND CAPITAL RESOURCES"
discussion above. Sales were made in reliance on the
exemption from registration as provided in Section 4(2) of
the Securities Act of 1933, as amended. As a result of the
issuance of the 45,000 shares of common stock to the new
investors to raise the remaining $450,000 balance, pursuant
to the conversion rights granted in favor of the Series B
Preferred Stockholders described in "PREFERRED STOCK"
discussion above, an additional 135,000 shares of common
stock shall be automatically issued pro rata amoung the
Series B Preferred stockholders in exchange for the
surrender and cancellation of 45,000 shares of Series B
Preferred Stock. In connection with the private placement,
the Company paid investment advisory fees equal to eight
percent (8%) of the proceeds, or $606,800. Additionally,
warrants representing the right to purchase 26,500 shares
at $10.00 per share are to be issued to the Kreigsman Group,
the same representing ten percent (10%) of the shares
sold in the private placement through the efforts of
Kreigsman, under the terms of its agreement with the
Company.
On February 4, 2000, the Company sold 250,000 shares of
common stock to one accredited investor for Seven Hundred
Fifty Thousand Dollars ($750,000.00) to provided working
capital for the Company and as part of the raising of the
$1,200,000 in equity described in "LIQUIDITY AND CAPITAL
RESOURCES" discussion above. Sales were made in reliance
on the exemption from registration as provided in Section
4(2) of the 1933 Securities Act, as amended. As a result
of the issuance of the 250,000 shares of common stock to
the new investor, pursuant to the conversion rights granted
in favor of the Series B Preferred Stockholders described
in "PREFERRED STOCK" discussion above, and additonal
750,000 shares of common stock shall be automatically
issued pro rata among the Series B Preferred stockholders
in exchange for the surrender and cancellation of 250,000
shares of Series B Preferred Stock.
In November, 1999, pursuant to the Merger, the Company
issued 6,000,000 shares of common stock and 6,000,000 shares
of Series B Convertible Preferred Stock to Old AWT's
stockholders in exchange for the cancellation of the Old AWT
common stock surrendered in the transaction. Additionally,
the Company assumed certain obligations of Old AWT under the
Stock Option Plan with respect to the issuance of 750,000
shares of common stock and 750,000 shares of Series B
Convertible Preferred Stock and warrants representing an
additional 250,000 shares of common stock and 250,000 shares
of Series B Convertible Preferred Stock and an option to
purchase 135,000 shares of common stock. The total number
of shares of common stock and Series B Preferred Stock
committed to be issued in connection with the Merger shall
not exceed 7,500,000 shares of common stock and 7,500,000
shares of Series B Preferred Stock. The Company also
issued 400,000 shares of common stock to SPH Equities, Inc.
as payment of investment banking fees associated with the
Merger. An independent valuation company valued the
investment banking shares at $3.92 per share. The total
value of $1,568,000 was expensed on completion of the
Merger. An independent valuation company valued the
investment banking shares at $3.92 per share. The total
value of $1,568,000 was expensed on completion of the
Merger.
In November, 1999, the Company issued 1,625,000 shares
of its Series A 5% Cumulative Preferred Stock to certain
stockholders in consideration for the cancellation of
shareholder loans, accrued interest and investment
banking fees made to the Company in the aggregate amount
of approximately One Million Six Hundred Twenty-Five
<PAGE>
Thousand and 00/100 Dollars ($1,625,000.00). The
shares were issued to the shareholders in reliance on the
exemption from registration under the 1933 Securities Act
provided by Section 4(2).
In November, 1999, the Company sold 166,667 shares of
common stock to four (4) shareholders for Five Hundred
Thousand and 00/100 Dollars ($500,000.00) ($3.00) per share
to provide working capital for The Company. Sales were made
in reliance on the exemption from registration as provided
in Section 4(2) of the 1933 Securities Act, as amended.
In October, 1999, Dennis Hendren, an office and director
of the Company, exchanged loans he made to the Company in
May, 1999, totaling $25,000 with Charles Worden, the founder
of Old AWT, in exchange for 3,000 shares of Old AWT common
stock transferred from Charles Worden which was pledged as
security for the repayment of the loan.
<PAGE>
In October, 1999, Old AWT issued 50,000 shares of Old
AWT common stock valued at $5,000,000 ($100.00 per share)
(now representing 2,500,000 shares of Company common
stock and 2,500,000 shares of Series B Preferred Stock)
to BDR Investment Partnership in exchange of its
contribution of certain contractual rights to the Company.
The contractual rights consisted of partnership's
right to receive ten percent (10%) of the gross
revenues of the Company and any other monies raised on
behalf of the Company, regardless of whether in the form
of equity or debt, through the efforts of BDR Consulting,
Inc. By virtue of the exchange, the Company shall retain
the ten percent otherwise payable under the canceled
agreement. The shares were issued in reliance on the
exemption from registration as provided in Section
4(2) of the 1933 Securities Act, as amended.
In October, 1999, Old AWT completed a private
placement of Old AWT common stock. In the offering
5,000 shares of Old AWT common stock at $100.00 per share
(now representing 250,000 shares of Company common stock
and 250,000 shares of Series B Preferred Stock after
taking into account the recaptialization and subsequent
reverse stock split) were sold to twelve accredited
investors for Five Hundred Thousand Dollars ($500,000.00)
to provide working capital for Old AWT. Sales were made
in reliance on the exemption from registration as provided
in Section 4 (2) of the 1933 Securities Act, as amended
and Regulation D.
On August 5, 1999, the Company issued 7,500 shares
of its common stock valued at $49,875 ($6.65 per share) to
Linzy Limited in payment for consulting services in
reliance on the exemption from registration as provided
in Section 4(2) of the Securities Act.
On April 27, 1999, The Company issued 25,000 shares
of its common stock valued at $236,013 ($9.44 per share)
to Bel-Cal Holdings Ltd. in partial consideration for
consulting services in reliance on the exemption from
registration as provided in Section 4(2) of the Securities
Act.
On March 11, 1999, the Company issued 510,000 shares
of common stock to the former President and CEO of the
Company, Robert deRose, of which 10,000 shares were
issued pursuant to his employment agreement at a value
of $16,600 ($1.66 per share) and 500,000 were issued in
consideration of a note payable to Informatix Holdings,
Inc. On August 1, 1999, the terms of the note were
restated to reduce by 450,000 to 50,000 the number of
shares issuable to Mr. deRose. The three-year note has
a principal amount of $83,000 at an annual interest
rate of 5.48%. Under a pledge agreement, the 50,000
shares are being held by the Company until the note is
satisfied in full. The 10,000 shares issued pursuant
to the employment agreement are exempt from registration
in reliance upon Rule 701 promulgated under the Securities
Act. The shares in connection with the note are exempt
from registration as provided in Section 4(2) of the
Securities Act.
<PAGE>
In May, 1998, the Company issued 1,512,500 shares
of common stock to former shareholders of Informatix, Inc.
in connection with a share exchange transaction whereby
the Company acquired 1,512,500 shares of the outstanding
common stock of Informatix, Inc. A portion of the
transaction was subsequently rescinded and 272,905 shares
of the Company's common stock were returned to the
Company. After the recission there were 1,239,595
shares still held by the former Informatix stockholders.
The share exchange was exempt from registration in
reliance on Rule 506 of Regulation D promulgated under
the Securities Act of 1933.
On May 6, 1998, the Company authorized a reverse stock
split of one share of its common stock for each five
shares of outstanding common stock (1:5) which became
effective in June, 1998.
On April 20, 1998 the Company issued 100,000
shares of common stock two overseas investors for an
aggregate purchase price of $700,000 in a private placement
pursuant to Rule 506 of Regulation D promulgated
under the Securities Act of 1933. In connection with
the offering, the Company was obligated to pay $100,000
in investment banking fees.
In March and April, 1998, the Company issued
600,000 shares of common stock to eighteen shareholders
pursuant to Rule 504 promulgated under the Securities Act
for an aggregate of $150,000. The subscription note was
satisfied by Executive Business Services providing
consulting services on behalf of the Company.
On February 23, 1998, the Company issued 10,000
shares of common stock to Executive Business Service in
exchange for a subscription note receivable in the
principal amount of $15,000, payable on demand and bearing
an interest rate of 12%, pursuant to Rule 504 promulgated
under the Securities Act. The subscription note was
satisfied by Executive Business Services providing
consulting services on behalf of the Company.
On January 30, 1998, the Company authorized a reverse
stock split of one share of its common stock for each two
thousand share block of outstanding common stock (1:2,000).
Any share certificate which was reduced below 200 shares as
a result of the reverse stock split was adjusted to 200
share of post split common stock. The subscription note was
satisfied by Executive Business Services providing consulting
services on behalf of the Company.
<PAGE>
On January 20, 1998, the Company issued 750 shares
of common stock to Executive Business Services in
exchange for a promissory note in the principal amount of
$15,000 pursuant to Rule 504 promulgated under the
Securities Act. The subscription note was satisfied by
Executive Business Services providing consulting services on
behalf of the Company.
Unless otherwise noted, the share numbers above have
been adjusted to reflect the reverse stock splits
effective November 8, 1999, May, 1999 and January 30, 1998
respectively, for the Company and for June, 1999 for Old
AWT.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Bylaws of the Company provide that any officer or
director of the Company who was or is a party or is
threatened to be made a party to or is involved in any
action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of service as an
officer or director of The Company, shall be indemnified and
held harmless to the full extent permissible under the
<PAGE>
Delaware General Corporation Law against all expenses,
liability and loss (including attorneys fees, judgments,
fines and amounts paid or to be paid in settlement)
reasonably incurred or suffered by him in connection
therewith. The expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding
must be paid by the Company as they are incurred and in
advance of the final disposition of the action, suit or
proceeding upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction
that he is not entitled to be indemnified by the Company.
The right of indemnification is a contract right enforceable
by any means desired by the director or officer and is not
exclusive of any other right such person may have or
hereafter acquire.
PART F/S.
INDEX TO FINANCIAL STATEMENTS
AuTologous Wound Therapy, Inc. (A Development Stage Entity)
Independent Auditor's Report
Balance Sheets as of December 31, 1998 (audited) and September 30, 1999
(unaudited)
Statement of Operations for the period ended December 31, 1998 (audited),
September 30, 1999 (unaudited) and December 11, 1998 (Date of Inception)
through September 30, 1999 (unaudited)
Statements of Stockholders' Deficit for the year ended December 31, 1998
(audited) and September 30, 1999 (unaudited)
Statements of Cash Flow for the year ended December 31, 1998 (audited)
and September 30, 1999 (unaudited)
Notes to Financial Statements
Unaudited Pro Forma Condensed Consolidated Combined Balance Sheet as of
November 4, 1999 (unaudited)
Notes to Unaudited Pro Forma Condensed Consolidated Combined Balance
Sheet (Unaudited)
Informatix Holdings, Inc. (A Development Stage Entity)
Independent Auditor's Report
Balance Sheet as of December 31, 1998 (audited) and September 30,
1999 (unaudited)
Statement of Operations for the period year ended December 31,
1998 (audited) and September 30, 1999 (unaudited)
Statement of Stockholders Deficit for the year ended December
31, 1998 (audited) and September 30, 1999 (unaudited)
Statement of Cash Flow for the year ended December 31, 1998
(audited) and September 30, 1999 (unaudited)
Notes to Financial Statements
<PAGE>
PART III.
ITEM 1. Index to Exhibits
2. Charter and Bylaws
2.1 Certificate of Incorporation *
2.2 Certificate of Amendment to Certificate of
Incorporation *
2.3 Bylaws *
3. Instruments defining the rights of security holders *
3.1 Corrected Certificate of Designations of the
Relative Rights and Preferences of the Series
A 5% Cumulative Preferred Stock and the Series
B Convertible Preferred Stock
5. Voting Agreement *
5.1 Voting Agreement
6. Material Contracts
6.1 Royalty Agreement with Charles Worden *
6.2 First Amendment to Royalty Agreement with
Charles Worden *
6.3 Consulting Agreement with BDR, Inc. *
6.4 Plan and Agreement of Merger and Reorganization *
* Previously Submitted
PURSUANT TO THE REQUIREMENTS OF SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS CAUSED THIS
AMENDED REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
AUTOLOGOUS WOUND THERAPY, INC.
By: /s/ Dennis G. Hendren
__________________________
Dennis G. Hendren, President
DATE: March 22, 2000
<PAGE>
AUTOLOGOUS WOUND THERAPY, INC.
(A Development Stage Entity)
Financial Statements and
Independent Auditor's Report
For the Period December 11, 1998 (Date of
Inception) through December 31, 1998
and for the Nine Months Ended
September 30, 1999 (Unaudited)
<PAGE>
AuTologous Wound Therapy Inc
(A Development Stage Entity)
INDEX TO THE FINANCIAL STATEMENTS
_________________________________
Page
AuTologous Wound Therapy, Inc. ______
Independent Auditors' Report F2
Balance Sheets as of December 31, 1998 (audited) and
September 30, 1999 (unaudited) F3
Statement of Operations for the period December 11,
1998 (date of inception) through December 31, 1998
(audited), for the nine months ended September 30,
1999 (unaudited) and the period December 11, 1998
(date of inception) through September 30, 1999
(unaudited) F4
Statement of Changes in Stockholders' Deficit for the
period December 11, 1998 (date of inception) through
December 31, 1998 (audited), for the nine months
ended September 30, 1999 (unaudited) and the period
December 11, 1998 (date of inception) through
September 30, 1999 (unaudited) F5
<PAGE>
Statements of Cash Flows for the period December
11, 1998 (date of inception) through December 31,
1998 (audited), for the nine months ended September
30, 1999 (unaudited) and the period December 11,
1998 (date of inception) through September 30, 1999
(unaudited) F6
Notes to Financial Statements F7
Unaudited Pro Forma Condensed Consolidated Combined
Balance Sheet (unaudited) P2
Notes to Unaudited Pro Forma Condensed Consolidated
Combined Balance Sheet (unaudited) P3
Informatix Holdings, Inc.
Independent Auditor's Report F18
Balance Sheets as of December 31, 1998 (audited)
and September 30,1999 (unaudited) F19
Statements of Operations for the year ended December
31, 1998 (audited) and for the nine months ended
September 30, 1999 (unaudited) F20
Statements of Changes in Stockholder's Deficit for
the year ended December 31, 1998 (audited) and
for the nine months ended September 30, 1999
(unaudited) F21
Statements of Cash Flows for the year ended December
31, 1998 (audited) and for the nine months ended
September 30, 1999 (unaudited) F22
Notes to Financial Statements F23
F-1
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Stockholders and Board of Directors
AuTologous Wound Therapy, Inc.
Little Rock, Arkansas
We have audited the accompanying balance sheet of AuTologous
Wound Therapy, Inc. (a development stage entity) as of
December 31, 1998, and the related statements of operations,
changes in stockholders deficit and cash flows for the
period December 11, 1998 (date of inception) through
December 31, 1998. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of AuTologous Wound Therapy, Inc. as of December
31, 1998, and the results of its operations, changes in
stockholders deficit and cash flows for the period December
11, 1998 (date of inception) through December 31, 1998 in
conformity with generally accepted accounting principles.
L J SOLDINGER ASSOCIATES
Arlington Heights, Illinois
December 6, 1999
F-2
<PAGE>
AuTologous Wound Therapy, Inc.
(A Development Stage Entity)
Balance Sheets
ASSETS
______
December 31, September 30
1998 1999
--------- -----------
(Unaudited)
Current Assets
Cash $ 92 $ 128,063
Accounts receivable - 90,000
Employee receivable - 970
Note receivable - stockholder and related
party - 5,500
Prepaid expenses 4,448 8,658
------- -------
Total Current Assets 4,540 233,191
------- -------
Property and Equipment, Net - 57,677
Other Assets - 17,342
------- -------
$ 4,540 $ 308,210
========= ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
_____________________________________
Current Liabilities
Notes payable - stockholders and related
parties $ - $ 190,375
Advances - stockholder and related party 20,728 -
Current portion of long-term debt - 15,558
Accounts payable 3,074 68,798
Accrued expenses - 26,000
Deferred revenue - 30,000
------- ---------
Total Current Liabilities 23,802 330,731
------- ---------
Long-Term Liabilities
Long-term debt, net of current portion - 28,945
Deferred revenue - 60,000
-------- --------
Total Long-Term Liabilities - 88,945
-------- --------
Total Liabilities 23,802 419,676
-------- --------
<PAGE>
Stockholders' Deficit
Common stock; $.10 par value; At December
31, 1998 authorized - 1,000,000 shares;
issued and outstanding - 100,000
shares; At September 30, 1999
authorized 1,000,000 shares;
issued, issuable and outstanding
- 68,875 shares 10,000 6,887
Additional paid-in capital (9,900) 2,683,675
Stock subscription note receivable - (5,000)
Deferred compensation - (928,125)
Deficit accumulated in the development
stage (19,362) (1,868,903)
--------- -----------
Total Stockholders' Deficit (19,262) (111,466)
--------- ----------
$4,540 $308,210
========= ==========
The accompanying notes are an integral part
of the financial statements.
F-3
<PAGE>
AuTologous Wound Therapy, Inc.
(A Development Stage Entity)
Statements of Operations
December 11, December 11,
1998 1998
(Date of (Date of
Inception) Nine Months Inception)
through Ended through
December 31, September 30, September 30,
1998 1999 1999
------------ ------------ -----------
(Unaudited) (Unaudited)
Revenues $ - $ 1,100 $ 1,100
------------ ---------- ----------
Operating Expenses
Salaries and Wages - 746,952 746,952
Consulting Expense 3,000 928,581 931,581
Legal 14,180 54,882 69,062
General and Administrative 2,182 118,387 120,569
Expenses ------------ ----------- ----------
Total Operating Expenses 19,362 1,848,802 1,868,164
------------ ----------- ----------
Loss from Operations (19,362) (1,847,702) (1,867,064)
------------- ----------- -----------
Other (Income) Expense
Interest expense - 2,641 2,641
Interest income - (802) (802)
------------- ------------ ----------
Total Other Expense, Net - 1,839 1,839
------------- ------------ ----------
Net Loss $ (19,362) $(1,849,541) $(1,868,903)
============= ============ ============
Basic and Diluted Loss
Per Common Share $ (.19) $ (22.25)
============= ============
Weighted Average Shares
Outstanding 100,000 83,125
============= ============
The accompanying notes are an integral part
of the financial statements.
F-4
<PAGE>
AuTologous Wound Therapy Inc
(A Development Stage Entity)
Statement of Changes in Stockholders' Deficit
Deficit
Accumulated
Additional During the
Common Stock Paid-In Subscription Deferred Development
Shares Amount Capital Receivable Compensation Stage
------ ----- ------- ----------- ---------- ---------
Balances,
December 11,
1998 (Date
of Inception) - $ - $ - $ - $ - $ -
Common stock
issued for
Cash,
12/11/98;
$.001 per
share * 100,000 10,000 (9,900) - - -
Net loss - - - - - (19,362)
------- ------- -------- --------- -------- --------
Balances,
December 31,
1998 100,000 10,000 (9,900) - - (19,362)
Share
retirement
for employee
stock option
plan (20,000) (2,000) 2,000 - - -
Share
retirement
for marketing
option (5,000) (500) 500 - - -
Share
retirement
for private
placement
raise (10,000) (1,000) 1,000 - - -
Common stock
issued in
connection
with
private
placement
offering, net
of offering
costs, 3rd
quarter,
1999, $100
per share 3,875 387 332,225 (5,000) - -
<PAGE>
Warrant issued
under consulting
agreement
9/22/99; 5,000
shares; $84.21
per share based
on independent
valuation - - 421,050 - - -
Options issued
under consulting
agreement
9/22/99; 5,000
shares; $90.36
per share based
on independent
valuation - - 451,800 - - -
Options issued
under the Stock
Option Plan
9/1/99; 15,000
shares; $99.00
per share based
on the difference
between FMV of
common stock less
exercise price at
option - - 1,485,000 - (928,125) -
Net loss - - - - - (1,849,541)
------ ----- ---------- ------------ ----------- ----------
Balances,
September 30,
1999
(Unaudited) 68,875 $6,887 $2,683,675 $ (5,000) $(928,125) $(1,868,903)
======= ====== ========== ========== ========== ==========
* Per share amount reflects the 1,000:1 common stock split on June 8, 1999.
The original capitalization of the Company was 100 shares, $1.00 par value
stock for $100.00
The accompanying notes are an integral part
of the financial statements.
F-5
<PAGE>
AuTologous Wound Therapy, Inc.
(A Development Stage Entity)
Statements of Cash Flows
Nine Months
December 11, 1998 Ended December 11, 1998
(Inception) through September 30, (Inception) through
December 31, 1998 1999 September 30, 1999
----------------- ------------- ----------------
(Unaudited) (Unaudited)
Cash Flows from
Operating Activities
Net loss $(19,362) $(1,849,541) $(1,868,903)
Adjustments to
reconcile net loss
to net cash
provided by (used in)
operating activities
Depreciation and
amortization - 3,978 3,978
Consulting expense
recorded for
issuance of warrants
and options under
service agreement - 872,850 872,850
Compensation expense
recorded for issuance
of stock options under
stock option plan -
employees and officer - 556,875 556,875
Compensation expense
recorded for the
assumption of debt of
of an officer - related
party - 67,000 67,000
Increases in assets and
liabilites
Accounts receivable - (90,000) (90,000)
Prepaid expenses (4,448) (21,552) (26,000)
Accounts payable 23,802 7,861 31,663
Accrued expenses - 26,000 26,000
Deferred revenue - 90,000 90,000
------- -------- ---------
Total Adjustments 19,354 1,513,012 1,532,366
------- --------- ---------
<PAGE>
Net Cash Used in
Operating Activites (8) (336,529) (336,537)
------- ---------- ----------
Cash Flows from Investing
Activities
Advances to stockholders -
related parties - (5,500) (5,500)
Advances to employees - (970) (970)
------- ---------- ----------
Net Cash Used in
Investing
Activities - (6,470) (6,470)
-------- ---------- ----------
Cash Flows from Financing
Activities
Repayments on long-term
debt - (7,092) (7,092)
Proceeds from notes payable -
stockholders, net of
repayments - 123,375 123,375
Proceeds from sale of common
stock, net of offering costs
paid 100 354,687 354,787
------- --------- ---------
Net Cash Provided
by Financing
Activities 100 470,970 471,070
------- --------- ---------
Net Increase in Cash 92 127,971 128,063
Cash, Beginning of Period - 92 -
-------- -------- --------
Cash, End of Period $ 92 $128,063 $128,063
======== ======== ========
Cash Paid for Interest $ - $ 2,641 $ 2,641
======== ======== ========
Cash Paid for Income
Taxes $ - $ - $ -
======== ======== =========
The accompanying notes are an integral part
of the financial statements.
F-6
<PAGE>
AuTologous Wound Therapy, Inc.
(A Development Stage Entity)
Notes to Financial Statements
Information for September 30, 1999 and the Nine
Months ended September 30, 1999 is Unaudited
NOTE 1 - DESCRIPTION OF THE BUSINESS
AuTologous Wound Therapy, Inc. (the Company ) was
incorporated under the laws of the state of Arkansas on
December 11, 1998. The Company, a development stage
entity, is in the business of providing proprietary,
turnkey solutions to the chronic wound care field through
its AuTolo-CureTM system developed by the founder of the
Company.
In November 1999, the Company merged with and into
Informatix Holdings, Inc. ( Informatix ), a company
incorporated under the laws of the state of Delaware,
with Informatix as the surviving legal entity.
Informatix was a public shell company, defined as an
inactive, publicly-quoted company with nominal assets and
liabilities. In connection with the merger, Informatix
exchanged 50 shares of Informatix common stock and 50
shares of Informatix series B convertible preferred stock
in exchange for each issued and outstanding share of
common stock of the Company after adjusting for a one-
for-two reverse common stock split on November 8, 1999.
(see Note 14).
The financial statements of Informatix Holdings, Inc. are
not included in this presentation because the financial
statements of the accounting acquirer became those of the
surviving entitiy.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
_______________________
The Company's financial statements are prepared on the accrual
basis of accounting in accordance with generally accepted
accounting principles, and have been presented on a going
concern basis which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of
business.
<PAGE>
Interim Information
___________________
The interim financial data as of September 30, 1999 and for the
nine months then ended is unaudited. The information reflects
all adjustments, consisting only of normal recurring
adjustments that, in the opinion of management, are necessary
to fairly present the financial position and results of
operations of the Company for the periods indicated. Results
of operations for the interim periods are not necessarily
indicative of the results of operations for a full fiscal year.
Development Stage Enterprise
____________________________
The Company is a Development Stage Enterprise, as defined in
Statement of Financial Accounting Standards No. 7 ("SFAS No.
7") Accounting and Reporting for Development Stage
Enterprises. Under SFAS No. 7, certain additional financial
information is required to be included in the financial
statements for the period from inception of the Company to the
current balance sheet date. Since the inception of the
Company, management has been in the process of raising capital
through stock offerings and its merger with Informatix
Holdings, Inc., hiring personnel, obtaining customers and
developing and marketing the Company's product line.
Use of Estimates
________________
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and the accompanying notes. Actual
results could differ from those estimates.
F-7
<PAGE>
AuTologous Wound Therapy, Inc.
(A Development Stage Entity)
Notes to Financial Statements
Information for September 30, 1999 and the Nine
Months ended September 30, 1999 is Unaudited
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Per Share
______________
Loss per share is calculated in accordance with Statement of
Financial Accounting Standard No. 128 "Earnings Per Share".
Basic loss per share is computed based upon the weighted
average number of shares of common stock outstanding for the
period and excludes any potential dilution. Diluted earnings
per share reflect potential dilution from the exercise of
conversion of securities into common stock. Options and
warrants to purchase common stock are not included in the
computation of diluted loss per share because the effect of
these instruments would be anti-dilutive for the loss periods
presented.
Segment Information
___________________
The Company operates as a provider of health delivery systems
in the chronic wound field.
Fair Value of Financial Instruments
___________________________________
The carrying value of accounts receivable, accounts payable and
accrued expenses approximates the fair market value due to the
relatively short maturity of these instruments.
Cash Equivalents
________________
For purposes of the statements of cash flows, the Company
considers all highly-liquid instruments purchased with a maturity
of three months or less to be cash equivalents.
<PAGE>
Concentration of Credit Risk
____________________________
The Company provides credit in the normal course of business and
performs ongoing credit evaluations of its customers.
During the periods presented in these financial statements, the
Company maintained cash balances in a money market fund at a
financial brokerage firm. These funds are not covered under the
Federal Deposit Insurance Corporation ( FDIC ). At September 30,
1999, the amount of funds in accounts not covered under FDIC
insurance was $116,650. Management does not believe that a
significant risk existed by maintaining balances in the money
market account.
Revenue and Expense Recognition
_______________________________
Revenue from the sale of disposable supplies are recognized
when these supplies are shipped to the customer. The Company
also recognizes revenue for certification and for billing
services at the time such services are performed. Revenue
from licensing agreements entered into with hospitals,
clinics and wound care facilities for the licensing of
technology is recognized ratably upon the Company's
completion of the following four tasks i.) delivery of the
technology, ii.) training of the site staff in its use, iii.)
minimal ongoing technical support and iv.) supplying the
equipment under the terms of the license agreement. The
Company will defer revenue in an amount equivalent to the
cost of the ongoing technical support and the cost of
providing the equipment and the gross profit related to each
cost. The remainder of the revenue will be recognized in the
initial period upon delivery of the technology and the
training of the site staff.
The Company will use sales and marketing agents on its behalf
to place licenses with doctors, hospitals and clinics and
expects to pay commissions on the sale of each license and
for the sale of the disposable supplies. The commission
agreements call for the commissions to be payable when the
Company receives payment from the licensee. The Company will
record prepaid commission expense for commission paid in
connection with the original license and will expense the
full amount of the commission upon delivery of the technology
and the training of the site staff. The Company will
immediately expense all commissions paid in connection with
disposable supplies.
Property and Equipment
______________________
Property and equipment are recorded at cost. Property and
equipment are depreciated using the straight-line method over
their estimated useful lives of five years.
<PAGE>
Income Taxes
____________
The Company accounts for its income taxes under Statement of
Financial Accounting Standard No. 109, Accounting for Income
Taxes. Income taxes are recorded in the period in which the
related transactions have been recognized in the financial
statements, net of the valuation allowances which have been
recorded against deferred tax assets. Deferred tax assets
and/or liabilities are recorded for the expected future tax
consequences of temporary differences between the tax basis and
financial reporting basis of assets and liabilities.
F-8
<PAGE>
AuTologous Wound Therapy, Inc.
(A Development Stage Entity)
Notes to Financial Statements
Information for September 30, 1999 and the Nine
Months ended September 30, 1999 is Unaudited
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Compensatory Stock-Based Arrangements
_____________________________________
The Company has adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123
Accounting for Stock-Based Compensation ("SFAS 123".) As
permitted under SFAS 123, the Company has continued to
following Accounting Principles Board No. 25 Accounting for
Stock-Based Compensation ( APB 25") in accounting for its
stock-based compensation. SFAS 123 recognizes compensation
expense using the fair market value of stock options,
warrants and common stock issuances as of the grant date.
APB 25 recognizes the intrinsic value of the instruments
issued by the Company as of the measurement date, which is
generally the date at which both the number of shares that an
individual is entitled to receive and the purchase price are
know.
Stock Splits
____________
On June 8, 1999, the Company's Board of Directors approved a
one thousand-for-one common stock split. Stockholders of
record on June 8, 1999 received one thousand shares of common
stock for each share held on that date. All share numbers in
these financial statements and notes presented herein have been
adjusted to reflect the one thousand-for-one common stock
split. While not changing stockholders' deficit in the
aggregate, the common stock split did change the allocation of
capital between par value and additional paid-in capital.
<PAGE>
NOTE 3 - NOTE RECEIVABLE - STOCKHOLDER AND RELATED PARTY
In July 1999, the Company loaned $5,500 to BDR Consulting, Inc.
The loan is due and payable on July 1, 2000 and bears interest
at the rate of 7.5 percent per annum.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31, September 30,
1998 1999
(Unaudited)
Medical equipment $ - $10,060
Medical equipment under capital lease - 51,595
------- --------
Subtotal Property & Equipment - 61,655
Accumulated depreciation - (3,978)
------- --------
Total $ - $57,677
======== =======
NOTE 5 - NOTES PAYABLE - STOCKHOLDERS AND RELATED PARTIES
During 1999, the Company was advanced funds by stockholders of
the Company to meet working capital requirements. The
advances are payable on demand with interest at rates,
originally, ranging from .05% to 1% per annum. Certain of the
advances were guaranteed by the founder of the Company pledging
his stock in the Company to secure repayment. In July 1999,
the Company and stockholders agreed to waive the interest
payable. Management has not discounted the below market rate
loans due to their immateriality.
F-9
<PAGE>
AuTologous Wound Therapy, Inc.
(A Development Stage Entity)
Notes to Financial Statements
Information for September 30, 1999 and the Nine
Months ended September 30, 1999 is Unaudited
NOTE 6 - LONG-TERM DEBT
During 1999, the Company entered into agreements to lease
medical equipment in the amount of $51,595. As of September
30, 1999 the Company was obligated on these leases in the
amount of $44,503. These borrowings bear interest at rates
ranging from approximately 14% to 16% per annum and are payable
in equal monthly installments of $1,765, consisting of
principal and interest payments, and mature between February
and May 2002. The equipment has been pledged as collateral for
the lease.
The following is a schedule by year of future minimum lease
payments required under the capital leases together with the
present value of the net minimum lease payments as of September
30, 1999:
(Unaudited)
------------
2000 $ 21,176
2001 21,176
2002 11,443
------------
Total minimum lease payments 53,795
Less amount representing
interest (9,292)
------------
Present value of net
minimum lease payments 44,503
Less amount due within one
year (15,558)
------------
Noncurrent portion $ 28,945
============
<PAGE>
NOTE 7 - DEFERRED REVENUE
The Company entered into an agreement on September 23, 1999 to
license two AuTolo-CureTM systems, each for a period of 36
months with total payments due of $45,000 per system. The
Company will recognize the revenue from these licenses when
it has delivered the tehcnology and completed the training of
the onsite staff.
NOTE 8 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
timing differences between the carrying amounts of assets and
<PAGE>
liabilities reflected on the financial statements and the
amounts used for income tax purposes. The tax effects of
temporary differences and net operating loss carryforwards that
give rise to significant portions of the deferred tax assets
recognized at December 31, 1998 are presented below:
Deferred tax assets :
Federal and state deferred tax
benefit arising from net
operating loss carryforwards $ 3,600
-------
3,600
Less valuation allowance (3,600)
-------
Total deferred tax assets $ -
=======
F-10
<PAGE>
AuTologous Wound Therapy, Inc.
(A Development Stage Entity)
Notes to Financial Statements
Information for September 30, 1999 and the Nine
Months ended September 30, 1999 is Unaudited
NOTE 8 - INCOME TAXES (Continued)
Income tax benefit consists of the following at December 31,
1998:
Current
Federal $ -
State -
Deferred
Federal -
State -
Tax benefit of net operating
loss carryforward 3,600
-------
3,600
Less valuation allowance (3,600)
-------
Total $ -
-------
<PAGE>
The Company has a loss carryforward of approximately $19,362 as
of December 31, 1998 that may be offset against future taxable
income. The carryforward will expire in 2018.
The following table presents the principal reasons for the
difference between the Company's effective tax rates and the
United States federal statutory income tax rate of 15% at
December 31, 1998:
U.S. federal statutory income tax rate 15%
Federal income tax benefit at
statutory rate $ 2,904
State and local income tax benefits,
net of effect of federal benefit 696
Valuation allowance for deferred
income tax benefit (3,600)
--------
Income Tax Expense $ 0
========
Effective Income Tax Rate 0%
========
NOTE 9 - CAPITAL STOCK ACTIVITY
On December 11, 1998, the Company issued 100,000 shares of
common stock, with a par value $1.00, for a purchase price of
$100.
On March 8, 1999, the sole shareholder of the Company returned
5,000 shares of common stock to the Company to be reserved for
issuance under a consulting and marketing agreement with Sigma
Health Care Consulting (see Note 13).
On April 29, 1999, the Company and its sole shareholder entered
into an agreement with Quasar Investments, LLC where the sole
shareholder returned 10,000 shares of common stock to the
Company to be held for a private placement offering through the
efforts of Quasar Investments, LLC.
On June 8, 1999, the Company amended its Articles of
Incorporation changing the par value of its common stock to
$.01 per share and authorizing the issuance of up to 1,000,000
shares of common stock.
F-11
<PAGE>
AuTologous Wound Therapy, Inc.
(A Development Stage Entity)
Notes to Financial Statements
Information for September 30, 1999 and the Nine
Months ended September 30, 1999 is Unaudited
NOTE 9 - CAPITAL STOCK ACTIVITY (Continued)
On June 8 , 1999, a shareholder of the Company returned 20,000
shares of common stock to the Company to be reserved for
issuance under the Non-Qualified Stock Option Plan.
In September 1999, the Company was in the process of completing
a private placement offering of 5,000 shares of common stock
for an aggregate purchase price of $500,000, under exemptions
of the Securities and Exchange Act of 1933. At September 30,
1999, the Company had issued 3,875 shares, raised $382,500 and
had a subscription receivable in the amount of $5,000. Costs
related to offering amounted to $54,887.
During 1998, the Company adopted the provisions of Statement
Financial Accounting Standards No. 123 Accounting for
Stock-Based Compensation ("SFAS 123"). As permitted under
SFAS 123, the Company has continued to follow Accounting
Principles Board No. 25 Accounting for Stock-Based
Compensation ("APB 25") in accounting for its stock-based
compensation. SFAS 123 recognizes compensation expense
using the fair market value of stock options, warrants and
common stock issuances as of the grant date. APB 25
recognizes the intrinsic value of the instruments issued by
the Company as of the measurement date, which is generally
the date at which both the number of shares that an
individual is entitled to receive and the purchase price are
known. Had compensation expense for the period ended
December 31, 1998 and the nine months ended September 30,
1999 been determined under the fair value provisions of SFAS
123, the Company's net loss and net loss per share would
have differed as follows:
<PAGE>
December 11, 1998 Nine Months Ended
(Date of Inception) through September 30, 1999
December 31, 1998 (unaudited)
--------------------- ----------------
Net Loss Per Share Net Loss Per Share
-------- --------- -------- ---------
As Reported Under
APB 25 $(19,362) $(0.19) $(1,849,541) $(22.25)
========= ======= ============ ========
Pro Forma Under
SFAS 123 $(19,362) $(0.19) $(1,674,791) $(20.15)
========= ======= ============ ========
These pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options
is amortized to expense over the vesting period and
additional options may be issued in future years. The
weighted average fair values of options at their grant date
during 1999, where exercise price equals the market price on
the grant date, was $0. The weighted average fair value of
options at their grant date during 1999, where the exercise
price exceeds the market price on the grant date, was $0.
The estimated fair value of each option granted is
calculated using the Black-Scholes option pricing model.
The following summarizes the weighted average of the
assumptions used in the model.
1998 1999
---- ----
Risk free rate (3 month
treasury bill) - 4.72%
Expected years until
exercise - 9.33
Expected stock volatility - 200.00%
Dividend yield - 0%
Loss Per Share
______________
The Company adopted SFAS 128 in 1998, and has followed the
guidance of SFAS 128 in the presentation of earnings per
share for all periods presented in the financial statements.
Options and warrants to purchase common stock are not
included in the computation of diluted loss per share
because the effect of these instruments would be anti-
dilutive for the loss periods presented.
The common shares potentially issuable arising from these
instruments, which were outstanding during the periods
presented in the financial statements, are as follows:
F-12
<PAGE>
NOTE 9 - CAPITAL STOCK ACTIVITY (Continued)
Exercise December 31, September 30,
Price 1998 1999
------- ---------- ----------
Options $0.01 to $1.00 - 20,000
Warrants $0.01 - 5,000
--------- --------
- 25,000
========== ========
NOTE 10 - NON-QUALIFIED STOCK OPTION PLAN
On June 8, 1999, the Company adopted a Non-Qualified Stock
Option Plan (the "NSO Plan") which provides for the granting of
options to employees, officers, directors and consultants of
the Company. The number of shares which can be purchased under
this plan is limited to 20,000 shares, adjustable for changes
in the capital structure of the Company. The exercise prices
of the options granted under the NSO Plan are to be determined
by the Board of Directors or other NSO Plan administrators on
the date the option is granted. The expiration date for an
option granted shall be determined at the discretion of the
board of directors and shall not expire later than ten years
after date of grant. Any options which have not been exercised
prior to termination of services will be deemed canceled
immediately as a result of resignation or dismissal and after
180 days subsequent to death or disability. The Company will
incur compensation expense to the extent that the market value
of the stock at the date of grant to employees exceeds the
amount the grantee is required to pay for the options (see
Notes 11 and 12). As of September 30, 1999, the Company had
issued 15,000 options under the plan.
NOTE 11 - SUPPLEMENTAL CASH FLOW DISCLOSURES - NON CASH
TRANSACTIONS
Accounts payable at September 30, 1999 included $10,060 related
to the purchase of property and equipment.
In 1999 the Company entered into capital leases to acquire
property and equipment in the amount of $51,595.
<PAGE>
At September 30, 1999, offering costs of $27,074 were unpaid
and included in accounts payable.
Proceeds from stock sales are reflected net of a stock
subscription receivable amounting to $5,000.
The Company incurred $1,485,000 of compensation expense in
connection with the issuance of options to employees under the
Company's stock option plan. The exercise prices were 1% of
the fair market value of the underlying common stock and
therefore the Company has recorded the issuances of these
options in the same manner as if common stock had been granted.
As of September 30, 1999, $556,875 of the $1,485,000 had been
expensed as compensation for services rendered, and the
remaining $928,125 had been recorded as deferred compensation
and will be ratably expensed over the period ending December
31, 2000 as services are rendered by the employees (see Note
12).
NOTE 12 - RELATED PARTY TRANSACTIONS - NOT DESCRIBED ELSEWHERE
BDR Consulting, Inc. is the managing member of, and significant
investor in, Quasar Investments, LLC which owns a controlling
interest in the Company. BDR Consulting, Inc., through a
voting trust agreement, is entitled to vote on matters relating
to election of Directors, merger, sale and liquidation of the
Company on behalf of Quasar Investments, LLC. As of September
30, 1999, Quasar Investments, LLC owned 74% of the outstanding
stock of the Company.
BDR Consulting, Inc. is also affiliated with BDR Investment
Partnership through common ownership. The principal in both
entities provided consulting services to the Company amounting
to $25,000 for the period ending September 30, 1999.
F-13
<PAGE>
AuTologous Wound Therapy, Inc.
(A Development Stage Entity)
Notes to Financial Statements
Information for September 30, 1999 and the Nine
Months ended September 30, 1999 is Unaudited
NOTE 12 - RELATED PARTY TRANSACTIONS - NOT DISCLOSED ELSEWHERE
(Continued)
On February 23, 1999, the Company and BDR Consulting, Inc.
("BDR") entered into a consulting agreement. The agreement
called for BDR to provide contacts, potential investors,
expertise in marketing, general business and certain legal
services required by the Company. Initially, the Company was
to pay a consulting fee of ten percent of the gross value of
any contracts entered into with a party introduced by BDR. On
October 28, 1999, BDR assigned its rights to the consulting
fees to BDR Investment Partnership (see Note 14).
On October 29, 1999, the Company and BDR entered into a
subsequent consulting agreement, providing that BDR would
receive compensation based on the annualized gross revenue of
<PAGE>
the Company. The amended agreement specified a graduated
monthly fee as follows: $6,000 per month on annual revenues of
$0 to $7.5 million; $10,000 per month if annualized revenues
are $7.5 million to $14 million; $15,000 per month if
annualized revenues are $14 million to $25 million; and $20,000
per month if annualized gross revenues are in excess of $25
million. The consulting fees is to be based on the rolling
twelve month aggregate gross revenues of the Company measured
as of the close of the month immediately prior to the month for
which payment due is being calculated. The amended agreement
has a term of five years from the date of amendment.
Th founder and sole stockholder of the Company, the Company
and Quasar Investments, LLC entered into an agreement, on April
27, 1999, which was subsequently amended October 21, 1999,
which amended an earlier option agreement between the founder
and Quasar Investments, LLC. Under the amended agreement,
the Company is to pay the founder a royalty of five percent
of the gross profit derived from the sale, license or
other exploitation of the intellectual property of the
Company, payable thirty days after the end of each quarter, in
exchange for the founder delivering fifty-one percent of the
issued and outstanding common stock of the Company, held by the
founder to Quasar Investments, LLC. and the assignment of
certain intellectual property rights to the Company. The
royalty would be limited to $1,000,000 in the aggregate
during any four consecutive quarters. The agreement
also calls for the stockholder to be paid a consulting
fee of $50,000 per year should royalty fees exceed $150,000
per year.
On June 8, 1999, the principal stockholders and the Company
entered into an agreement whereby those stockholders would be
required to give the Company the right of first refusal to
purchase the stock if any of those stockholders desired to sell
their stock to anyone but the stockholders involved (see Note
14).
On September 1, 1999 the Company granted options to purchase
5,000 shares of the Company's common stock to the President
and Director of the Company, 7,000 shares of the Company's
common stock to the Chief Operating Officer and Director of the
Company and 3,000 shares to the VP of Marketing and a Director
of the Company. The exercise price for each issuance was $1.00
per share which represented 1% of the fair market value of the
stock at that date (see Note 10).
NOTE 13 - COMMITMENTS AND CONTINGENCIES
<PAGE>
On February 13, 1999, the Company filed a patent application
with the United States Patent and Trademark Office for an
Improved Enriched Platelet Wound Healant, which encompasses the
AuTolo-Cure system.
On March 8, 1999, and subsequently amended on January 13, 2000,
the Company and Sigma Health Care Consulting, Inc. ("Sigma")
entered into a consulting agreement whereby Sigma would use
its contacts to sell licenses of the AuTolo-CureTM System.
The amended agreement calls for Sigma to receive a one-time
payment of $3,000 for its efforts to place systems, a
commmission of approximately 22% of the license fee received by
the Company for every license Sigma is able to sell in the
future and an option to purchase 50,000 shares of the Company's
common stock for an exercise price of $4 per share with a term
of five years (the number of shares and the per share amount
reflect the recapitalization and subsequent reverse stock split
affected by the Company in connection with its merger with
Informtix) (see Note 14).
F-14
<PAGE>
AuTologous Wound Therapy, Inc.
(A Development Stage Entity)
Notes to Financial Statements
Information for September 30, 1999 and the Nine
Months ended September 30, 1999 is Unaudited
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
On September 22, 1999 the Company, Keith Bennett, M.D.
("Bennett") and Bennett Medical, LLC ("BMI") entered into a
service agreement whereby Bennett and BMI agreed to test the
AuTolo-CureTM system on 75 cases on behalf of the Company. The
Company is obligated to provide operational and technical
support in connection with the technology. As compensation for
the trials, Bennett and BMI are to retain all professional fees
associated with the trials and to receive a warrant to purchase
up to 5,000 shares of the Company's common stock, upon
completion of the trials. The warrant may be exercised at any
time after January 1, 2000 and is exercisable through September
22, 2004. The exercise price of the warrant is $.01 per share
of underlying common stock. Upon exercise of the warrant, BMI
will be entitled to participate in the Non-Qualified Stock
Option Plan (see Note 10) on a one-for-one basis with the
number of shares exercised under the warrant (up to 5,000
shares). The options have a term of five years and an exercise
price of $1 per share. BMI will also act as a sales agent
for the lease of equipment, licensing fees, sale of
disposable supplies and training services for the Company. The
agreement calls for BMI to receive a commission of twenty five
percent of the gross profit from these sales and licenses to
customers designated in their sales territory and to receive
a commission of five percent of the gross profit for sales and
licenses to certain designated customers. On October 29, 1999,
the Company and BMI amended the commission agreement whereby
BMI waived the five percent commission on the gross profit
of sales and licenses to certain designated customers in
exchange for an option to purchase 135,000 shares of Informatix
Holdings, Inc. (see Note 14) at an exercise price of $1.00 per
share. The number of shares and the per share amount for the
option to purchase 135,000 shares of Informatix Holdings, Inc.
reflect the recapitalization and subsequent reverse stock split
affected by the Company in connection with its merger with
Informatix (see note 14). As of September 30, 1999 BMI had
completed the 75 trials under the agreement. The Company
recorded consulting expense in the amount of $872,850 for the
difference in price between the exercise price of the warrant
and option versus the fair market value of the common stock
of $84.21 and $90.36 for the warrants and options,
respectively, as determined by an independent valuation
company.
On September 23, 1999, the Company and Little Rock Foot Clinic
("LRFC") entered into an agreement whereby the Company would
pay a commission equal to five percent of the gross profit
earned on any sales, licenses or training that LRFC is directly
responsible for providing to the Company. The Company licensed
one machine to LRFC for an unlimited period, at no charge, in
return for being the first commercial operation to utilize the
process. The Company intends on rescinding the commission
agreement in return for providing stock options to LRFC.
<PAGE>
NOTE 14 - SUBSEQUENT EVENTS
On October 29, 1999, the Company and BDR Investment Partnership
amended the February 23, 1999 consulting agreement whereby the
Company issued 50,000 shares of common stock to BDR Investment
Partnership in exchange for cancellation of the agreement.
This resulted in the Company recording deferred consulting fees
of $5,000,000, which will be amortized over the five year term
of the agreement. The deferred fees are not recorded in these
financial statements.
On November 4, 1999, the Company consummated a plan of merger
and reorganization with Informatix Holdings, Inc.
("Informatix"), a Delaware corporation, with Informatix as the
surviving legal entity. The merger will be accounted for as a
recapitalization and the financial statements of the Company
will become those of the surviving entity as adjusted for the
merger. After the merger, Informatix changed its name to
AuTologous Wound Therapy, Inc. The merger calls for the
exchange of each share of the Company's common stock for 50
shares of Informatix common stock, par value $.0001 and 50
shares of Informatix series B convertible preferred stock, par
value $.0001 after adjusting for a one-for-two reverse common
stock split on November 8, 1999. Each warrant and option share
of the Company was exchanged for a similar option or warrant to
acquire 50 shares of Informatix common stock and 50 shares of
Informatix series B convertible preferred stock. In conjunction
with the merger, the Company rescinded the right of first
refusal agreement of sale of shares of the Company's common
stock between certain stockholders. These financial statements
do not reflect the recapitalization. The merger also calls
for Informatix to raise at a minimum gross proceeds of
$1,200,000 from the sale of its common stock within one year of
the merger in one or more private placements. In connnection
with the merger, 400,000 shares of common stock were issued as
payment for investment banking fees. The holders of Series B
preferred stock shall not be entitled to any dividends. Each
share of Series B preferred stock shall have one vote to vote
on all matters voted by holders of the common stock of the
Company.
The Series B preferred stock is subject to mandatory
conversion, whereby if the Company raises gross proceeds of
$1,200,000 or more from the sale of its common stock within
one year of the issuance of the Series B preferred stock,
then for every share of common stock issued by the Company
in the raise of the $1,200,000 the Company will convert 1
share of Series B preferred stock into three (3) shares
of common stock of the Company. If the Company fails to
raise up to $1,200,000, then the Company will automatically
convert 1 share of Series B preferred stock into 7.5
shares of common stock of the Company for every one (1) dollar
of shortfall from the $1,200,000.
In October 1999, the President of the Company exchanged loans
to the Company he made in May 1999, with the founder of
the company totaling $25,000 for three percent of the
outstanding stock of the Company from the founder of the
Company which was pledged as security for repayment of the note
at the time the loan was made.
The Company executed a new 60 month lease for office space in
Little Rock, Arkansas, commencing December 1, 1999. Monthly
payments under the lease are $3,000.
F-15
<PAGE>
NOTE 15 - EVENTS UNAUDITED SUBSEQUENT TO THE DATE OF THE
AUTDITORS REPORT
On December 9, 1999, the Company obtained a line of credit
from First State Bank. The loan agreement provides for a
maximum aggregate borrowing limit of $75,000 with advances
made against, and secured by, machines purchased for use in
the AuTolo-Cure System. The line is due on demand, bears an
interest rate of 8% per annum and matures on January 8, 2001
if no demand has been made before then.
On January 12, 2000, the Company and The Kriegsman Group
("Kriegsman') entered into a three year consulting
agreement, whereby Kriegsman would assist the Company in
recruiting members for its Board of Directors, Advisory
Board and senior executives to complete the management team.
The agreement also calls for Kriegsman to help the Company
raise equity capital through private placements, to arrange
and negotiate possible strategic alliances, license
agreements with major companies and joint ventures, and to
seek out and approach investment banks to help fund the
development of the Company. In consideration for these
services, Kriegsman will receive a non-refundable consulting
fee of $25,000 and a consulting fee of $5,000 per month, over
the life of the agreement, for every $3 million raised
through equity placements, strategic alliances, joint
ventures or license agreements up to a maximum of $25,000
per month.
The monthly consulting fee will commence once Kriegsman has
raised the first $3 million. The agreement also grants
options to Kriegsman to purchase 150,000 shares of common
stock of the Company. The options have a term of five years
and an exercise price of $4.00 per share (the number of
shares and the per share amount reflect the recapitalization
and subsequent reverse stock split affected by the Company
in connection with its merger with Informatix) (see Note
14). The common stock underlying these options also has
been granted registration rights in the Company's next
registration statement. The Company also granted additional
options to purchase up to a maximum of 450,000 shares of
common stock with a term of five years and an exercise
price of $4.00, based on Kriegsman meeting certain
performance criteria. Kriegsman will be entitled to options
to purchase 150,000 shares of common stock for placement of
a senior executive, options to purchase 125,000 shares
of common stock for placement of two members on the board
of directors of the Company and options to purchase 125,000
shares of common
<PAGE>
stock for every $1 million dollars raised by Kriegsman over
$3 million. The above options have a one time extension,
whereby if the Food and Drug Administration requires the
Company to go through regulatory approval, Kriegsman will be
granted a three year extension to the term of his options.
The agreement also calls for Kriegsman to receive a fee of
8% of the proceeds raised from any equity or debt placement
initiated by Kriegsman, The Company has also agreed to issue
Kriegsman warrants representing the right to purchase 10%
of the number of shares issued in the equity placement (or
shares in which the debt is convertible into). The warrants
will have a term of five years and an exercise price equal
to the per share price of any equity raise or the conversion
price of common stock for any convertible debt offerings. In
the event Kriegsman arranges for the merger, sale or
acquisition of the Company, then all remaining outstanding
options shall immediately vest and Kriegsman will be paid a
success fee on the closing of the transaction equal to six
percent of the value of the consideration received in such
transaction by the Company or its Stockholders.
The Company shall have the right to terminate the agreement on
the eleventh (11th) month aniversary date of the execution of
the Agreement (or at any time thereafter) upon dilivering
written notice of such termination to Kriegsman of the
effective date of such termination, in the event tha Kriegsman
has not accomplished the following performance objectives.
(a) Raising a minimum of two million dollars ($2,000,000)
in equity capital or proceeds from joint ventures,
strategic alliances or licensing transactions arranged
for the Company by Kriegsman
(b) Initiated research coverage of the Company by
Kreigsman with a "buy" recommendation
(c) Recruited at least two (2) members that accepted
appointment to AWT's Board of Directors
Upon the Company's election to terminate this agreement, any
remaining unissued options shall not be issued and any rights
thereto immediately forfeited without any further action on
behalf of the Company. Consulting payments, options, warrants
and any other fees earned, due and payable under the agreement
shall be paid for the services of Kriegsman occurring on or
before the effective date of the termination of the agreement.
On January 24, 2000, the Company entered into two
development rights agreements. The five year agreements
give exclusive marketing and sales territories to two
companies to market and sell licenses for the AuTolo-Cure
System. The agreement specifies the companies will receive
a commission equal to 29% of the sales price for each
license they place. The agreement also requires the
companies to sell a minimum number of licenses. Failure to
sell the minimum number of licenses gives the Company the
right to terminate the agreement.
In February, 2000 the Company completed a private offering to
one accredited investor. The private placement offering was
for 250,000 shares of the Company's common stock at $3.00 per
share (the number of shares and the per share amount reflect
the recapitalization and subsequent reverse common stock
split affected by the Company in connection with its merger
with Informatix. In connection with the private
placement offering, the Company paid an investment banking
fee of 10% of the gross proceeds.
In March 2000, the Company completed a private placement
offering of its common stock. The Company sold approximately
758,500 shares of its common stock at $10.00 per share,
raising gross proceeds of approximately $7,585,000. The
Kriegsman Group raised approximately $2,650,000 of those
proceeds and was paid a commission of 8% and issued warrants
for 26,500 shares of the Company's common stock, as per its
agreement with the Company. This offering also completed the
$1,200,000 raise as agreed to in the pla n of merger and
reorganization with Informatix through the issuance of
295,000 shares to outside investors, and therefore, the
Company will convert 295,000 shares of the Series B preferred
stock into 885,000 shares of common stock of the Company.
Through March, 2000, the Company issued options and warrants
to purchase 407,550 shares of the Company's common stock to
employees and consultants. These options and warrants have
exercise prices ranging from $2.50 to $5.00 per share. The
options and warrants all carry terms of five years from the
date of issuance.
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED BALANCE SHEET
The following unaudited pro forma condensed consolidated
combined balance sheet is based on the historical balance
sheets of AuTologous Wound Therapy, Inc. as of September 30,
1999 and of Informatix Holdings, Inc. as of November 4,
1999. The two entities merged on November 4, 1999 with
Informatix Holdings, Inc. being the legal survivor. This
merger has been treated as a recapitalization of AuTologous
Wound Therapy, Inc. Therefore at the date of the merger the
financial statements of AuTologous Wound Therapy, Inc.
become those of Informatix Holdings, Inc.
Specifically, the following unaudited pro forma condensed
consolidated combined balance sheet presents the
recapitalization of AuTologous Wound Therapy, Inc. as if the
merger had been consummated as of September 30, 1999 but
uses the historical numbers of Informatix Holdings, Inc. as
of November 4, 1999, the actual date of the merger. The
information presented is derived from, should be read in
conjunction with, and is qualified in its entirety by
reference to, the separate historical financial statements
and the notes thereto appearing elsewhere in this Form 10SB
or incorporated elsewhere in this Form 10SB by reference. The
unaudited pro forma condensed combined financial data has
been included for comparative purposes only and does not
purport to be indicative of the financial position which
actually would have been obtained if the merger had been
effected at September 30, 1999.
P-1
<PAGE>
AUTOLOGOUS WOUND THERAPY, INC
Pro Forma Condensed Consolidated Combined Balance Sheet
AuTologous Informatix
Wound Holdings Recapital-
Therapy, Inc. Inc. ization Pro Forma
(September 30, (November 4,
1999) 1999)
----------- --------- --------- ---------
ASSETS
______
Current Assets
Cash $128,063 $288,878 - $416,941
Accounts receivable 90,000 - - 90,000
Employee receivable 970 - - 970
Interest receivable - 25,802 - 25,802
Note receivable - 110,000 - 110,000
Note receivable -
stockholder and
related party 5,500 - - 5,500
Prepaid expenses 8,658 - - 8,658
------- -------- ------- --------
Total Current Assets 233,191 424,680 - 657,871
Property and Equipment,
Net 57,677 - - 57,677
Other Assets 17,342 - - 17,342
------- ------- -------- --------
$308,210 $412,680 - $732,890
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
______________________________________________
Current Liabilities
Notes payable -
stockholders and
related parties $190,375 $ - $ - $190,375
Notes payable -
stockholders - 77,500 - 77,500
Current portion of
long-term debt 15,558 - - 15,558
Accounts payable 68,798 - - 68,798
Accrued expenses 26,000 59,064 - 85,064
Deferred revenue 30,000 - - 30,000
------- ------- ------ ------
Total Current
Liabilites 330,731 136,564 - 467,295
------- ------- ------- -------
Long-Term Liabilities
Long-term debt, net of
current portion 28,945 - - 28,945
Deferred revenue 60,000 - - 60,000
-------- ------- ------- -------
Total Long-Term
Liabilites 88,945 - - 88,945
-------- ------- -------- -------
<PAGE>
Preferred stock series A,
mandatory redeemable, 5%
cummulative - 1,625,000 - 1,625,000
Stockholders' Equity (Deficit)
Common stock: AuTologous 6,887 - (6,887) -
Common stock: Informatix - 442 163 605
Preferred stock series B - - 600 600
Additional paid-in
capital 2,683,675 2,108,452 (1,706,154) 3,085,973
Subscription receivable (5,000) (165,500) - (170,500)
Deferred compensation (928,125) - - (928,125)
Deficit accumulated in the
development stage (1,868,903) (3,280,278) 1,712,278 (3,436,903)
----------- ---------- --------- ---------
Total Stockholders
Equity (Deficit) (111,466) (1,336,884) - (1,448,350)
----------- ---------- --------- ---------
$308,210 $424,680 $ - $732,890
=========== ========== ========== ========
The accompanying notes are an integral part of this unaudited
pro forma condensed consolidated combined balance sheet.
P-2
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
COMBINED BALANCE SHEET (UNAUDITED)
(1) The unaudited pro forma information presents the
recapitalization of AuTologous Wound Therapy, Inc. as
if the merger with Informatix Holdings, Inc. had been
consummated as of September 30, 1999, but uses the
historical numbers of Informatix Holdings, Inc. as of
November 4, 1999, the actual date of the merger.
(2) The recapitalization is reflected with the issuance of
stock by AuTologous Wound Therapy, Inc., represented by
the outstanding shares of Informatix Holdings, Inc., in
exchange for the assets and liabilities of Informatix
Holdings, Inc.
(3) This presentation assumes the issuance of approximately
3,443,750 shares of Informatix Holdings, Inc. common
stock and an equal number of Informatix Series B
convertible preferred stock to the stockholders of
AuTologous Wound Therapy, Inc. in return for all of the
outstanding shares of AuTologous Wound Therapy, Inc.
In connection with the recapitalization, the par value
of the common stock has been changed to that of
Informatix Holdings, Inc. ; $.0001.
(4) There were no intercompany balances during the periods
presented. All intercompany transactions have been
eliminated.
(5) The presentation includes merger expense related to
400,000 shares of stock issued for investment banking
service in the amount of $1,568,000.
P-3
<PAGE>
INFORMATIX HOLDINGS, INC.
(A Development Stage Entity)
Financial Statements and
Independent Auditors Report
For the Year Ended December 31, 1998 and the
Nine Months Ended September 30, 1999 (Unaudited)
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Stockholders and Board of Directors
Informatix Holdings, Inc.
Philadelphia, Pennsylvania
We have audited the accompanying balance sheet of Informatix
Holdings, Inc. (a development stage entity) as of December
31, 1998, and the related statements of operations, changes
in stockholders' deficit and cash flows for the year ended
December 31, 1998. These financial statements are the
responsibility of the company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Informatix Holdings, Inc. as of December 31,
1998, and the results of its operations, changes in
stockholders' deficit and cash flows for the year ended
December 31, 1998 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As more fully discussed in Note 3 to the financial
statements, the company's dependence on outside financing and
its failed attempt at a business combination raise
substantial doubt about the company's ability to continue as
a going concern. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty
F-17
<PAGE>
L J SOLDINGER ASSOCIATES
Arlington Heights, Illinois
July 26, 1999 (except for Note 2 - Stock Splits, for which the date
is November 8, 1999)
F-19
<PAGE>
Informatix Holdings, Inc
(A Development Stage Entity)
Balance Sheets
ASSETS
______
December September
1998 1999
(Unaudited)
-------- ---------
Current Assets
Cash $7,590 $2,208
Notes receivable - 375,000
Note receivable - stockholder 170,000 -
Interest receivable 13,034 23,255
Prepaid expenses 2,000 -
------- -------
Total Current Assets $192,624 $400,463
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
_____________________________________
Current Liabilities
Notes payable - stockholders $1,482,600 $1,876,500
Accrued interest payable 174,507 296,345
Note payable 125,000 -
Accrued expenses 135,815 188,787
Accrued offering costs 100,000 100,000
-------- --------
Total Current Liabilities 2,017,922 2,461,632
========= =========
<PAGE>
Stockholders' Deficit
Preferred stock; $.0001 par value;
authorized - 1,000,000 shares;
issued - none - -
Common stock; $.0001 par value;
authorized - 49,000,000
shares; issued, issuable and
outstanding 2,013,208 and
2,045,708 shares as of December
31, 1998 and September 30, 1999,
respectively 202 205
Additional paid-in capital 950,575 1,263,255
Stock subscription note receivable
- related party (83,000) (83,000)
Accumulated deficit (2,693,075) (3,241,629)
--------- ---------
Total Stockholders' Deficit (1,825,298) (2,061,169)
----------- -----------
Total Liabilities and
Stockholders' Deficit $ 192,624 $ 400,463
========== ==========
The accompanying notes are an integral part
of the financial statements.
F-18
<PAGE>
Informatix Holdings, Inc
(A Development Stage Entity)
Statements of Operations
Year Ended Nine Months Ended
December 31, September 30
1998 1999
---------- --------------
(Unaudited)
Net Revenue $ - $ -
Operating Expenses
General and administrative 345,912 189,637
Assumed obligation expense 1,670,160 -
Bad debt expense 609,300 -
---------- ---------
Loss from Operations (2,625,372) (189,637)
----------- ---------
Other Income (Expense)
Interest expense (10,257) (368,538)
Interest income 13,483 10,221
---------- ---------
Total Other Income, Net 3,226 (358,317)
---------- ----------
Loss Before Income Taxes (2,622,146) (547,954)
<PAGE>
Income Taxes - 600
---------- ---------
Net Loss $(2,622,146) $(548,554)
============ ==========
Basic and Diluted Loss Per
Common Share $ (1.85) $ (.27)
============ ==========
Weighted Average Shares
Outstanding 1,419,992 2,031,504
=========== ==========
The accompanying notes are an integral part
of the financial statements.
F-20
<PAGE>
Informatix Holdings, Inc
(A Development Stage Entity)
Statements of Changes in Stockholders' Deficit
Deficit
Accumulated
Common Stock Additonal in the
------------ Paid-In Subscription Development
Shares Amount Capital Receivable Stage
------ ------ ------- ---------- ----------
Balances, January 1,
1998 2,863 $ - $ 70,929 $ $ (70,929)
Common stock issued for
consulting services
1/20/98; $10 per share 750 1 14,999 - -
Common stock issued for
consulting services
2/23/98; $0.75 per share 10,000 1 14,999 - -
Common stock issued for
cash 3/98-4/98; $0.125
per share 600,000 60 149,940 - -
Common stock issued for
cash 4/20/98; $3.50
per share 100,000 10 699,990 - -
Offering costs (100,000) - -
Common stock issued
under share
exchanges, net 1,239,595 124 124 - -
Common stock issued to
CEO pursuant to
employment agreement
8/1/98; $0.83 per share 10,000 1 16,599 - -
Common stock issued to
CEO in exchange for
note receivable
8/1/98; $0.83 per share 50,000 5 82,995 (83,000) -
<PAGE>
Net loss - - - - (2,622,146)
--------- ---- ------- ------- -----------
Balances, December 31,
1998 2,013,208 $202 $950,575 $(83,000) $(2,693,075)
Common stock issued as
loan inducement
3/31/99; $4.72 per share 25,000 $ 2 236,011 - -
Common stock issued for
consulting services
8/5/99; $3.27 per share 7,500 1 49,874 - -
Forgiveness of debt-related
party - - 26,795 - -
Net Loss - - - - (548,554)
-------- ---- ------- ------- ----------
Balances, September 30,
1999 (unaudited) 2,045,708 $ 205 $1,263,255 $(83,000) $(3,241,629)
========= ==== ========= ======== ===========
The accompanying notes are an integral part
of the financial statements.
F-21
<PAGE>
Informatix Holdings, Inc
(A Development Stage Entity)
Statement of Cash Flows
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
(Unaudited)
---------- -----------
Cash Flows from Operating Activities
Net loss $(2,622,146) $(548,554)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activites
Common stock issued for services 54,691 49,875
Reserve for bad debts 609,300 -
Assumed obligation expense 1,670,160 -
Amortization of debt discount
for stock issued as loan
inducement - 236,013
Changes in assets and liabilites
(Increase) decrease in
Interest receivable (13,034) (10,221)
Prepaid expenses (2,000) 2,000
Increase in
Accrued expenses 82,319 174,810
--------- ---------
Total Adjustments 2,401,436 452,477
--------- ---------
Net Cash Used in Operating
Activites (220,710) (96,077)
---------- ----------
Cash Flows from Investing Activities
Note receivable advances (609,300) (65,705)
Collection of note receivable 100,705
Note receivable advances - (170,000) -
Collection of note receivable - 170,000
Stockholder --------- ---------
Net Cash (Used in)
Investing Activities (779,300) 205,000
---------- ---------
Cash Flows from Financing Activities
Proceeds from note payable 125,000 -
Repayment of note payable - (125,000)
Proceeds from notes payable -
stockholders 32,600 837,500
Proceeds from sale of common stock 850,000 -
Repayment of notes payable -
stockholder - (826,805)
--------- ----------
Net Cash (Used in)
Provided by Financing
Activities 1,007,600 (114,305)
--------- ----------
Net Increase in Cash 7,590 (5,382)
Cash, Beginning of Period - 7,590
--------- ---------
Cash, End of Period $7,590 $2,208
========= =========
Cash Paid for Interest $ - $ -
========= =========
Cash Paid for income taxes $ - $ 600
========= =========
The accompanying notes are an integral part
of the financial statements.
F-22
<PAGE>
Informatix Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Period
Ended September 30, 1999 is Unaudited)
NOTE 1 - DESCRIPTION OF THE BUSINESS
Informatix Holdings, Inc. (the Company") was incorporated
under the laws of the state of Nevada on June 10, 1987 and
reincorporated in the state of Delaware on April 29, 1998.
The Company had been previously named Music and Entertainment
Network, Inc., Blue Grizzly Truck, Inc., Sable Palm Airways,
Inc., and U.S. Retail, Inc. From 1996 to January 13, 1998,
the Company was inactive and had its corporate charter
revoked by the Secretary of State of Nevada. On January 14,
1998, all of the company's outstanding filing fees, licenses
and penalties were paid and the company's charter was
reinstated.
The Company is intended to serve as a public shell company,
defined as an inactive, publicly-quoted company with nominal
assets and liabilities. It is intended that such a public
shell will be attractive to privately-held companies
interested in becoming publicly traded by means of a business
combination with the Company rather than by offering their
own securities to the public. Currently, the Company does
not engage in any business of any kind.
In May 1998, the Company entered into share exchange
agreements with the stockholders of Informatix, Inc.
("Informatix"). In accordance with the exchange agreements,
the Company issued shares of its common stock in exchange for
all of the outstanding shares of the common stock of
Informatix. As a result of these exchanges, the former
stockholders of Informatix obtained a majority interest in
the Company. At the time of the exchanges, Informatix was in
the business of providing medical transcription services
through its offices located in India. Subsequently, certain
disputes arose between the Company and certain former
stockholders of Informatix. Additionally, Informatix
incurred operating losses. In April 1999, the Company and
certain former stockholders of Informatix entered into an
agreement to rescind a number of the share exchange
agreements, and the Company then divested itself of all of
its ownership of Informatix. Consequently, in accordance
with Accounting Principles Board No. 20 Accounting Changes ,
these financial statements only present the financial
position and results of operations of the Company and not
those of Informatix.
<PAGE>
In order to commence a business activity, the Company will
need to consummate a business combination, start a business
or enter into a joint business venture. It is likely that
the Company will also need to raise additional capital. No
assurance can be given that the Company will be able to enter
into or complete any of the aforementioned activities or be
profitable in the future even if one or more of these
activities are successfully completed.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
_______________________
The company's financial statements are prepared on the
accrual basis of accounting in accordance with generally
accepted accounting principles, and have been presented on a
going concern basis which contemplates the realization of
assets and the satisfaction of liabilities in the normal
course of business. The company's dependence on outside
financing and its failed attempt at a business combination
raise substantial doubt about the company's ability to
continue as a going concern. The financial statements do
not include any adjustments that might result from the
outcome of this uncertainty.
F-23
<PAGE>
Informatix Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Period
Ended September 30, 1999 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Development Stage Enterprise
____________________________
The Company is a Development Stage Enterprise, as defined in
Statement of Financial Accounting Standards No. 7 ("SFAS No.
7") Accounting and Reporting for Development Stage
Enterprises. Under SFAS No. 7, certain additional financial
information is required to be included in the financial
statements which would normally be presented from the
inception of the Company to the current balance sheet date.
However, Footnote 7 of SFAS No. 7 provides that dormant
enterprises that commence development stage activities should
disclose the required cumulative financial information from
the inception of the development stage. Informatix Holdings,
Inc. started development stage activities in 1998 by raising
capital through a private placement offering in order to
actively pursue a merger with Informatix as well as pursue
other potential business combinations.
<PAGE>
Use of Estimates
________________
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
Loss Per Share
______________
Loss per share is calculated in accordance with Statement of
Financial Accounting Standard No. 128 Earnings Per Share.
Basic loss per share is computed based upon the weighted
average number of shares of common stock outstanding for the
period and excludes any potential dilution. Diluted earnings
per share reflect potential dilution from the exercise of
conversion of securities into common stock. There were no
dilutive securities issued or outstanding as of December 31,
1998.
Segment Information
___________________
The Company does not have an industry segment.
Fair Value of Financial Instruments
___________________________________
The carrying value of notes receivable, interest receivable,
accrued expenses, notes payable and accrued offering costs
approximates the fair market value due to the relatively
short maturity of these instruments.
Income Taxes
____________
The Company accounts for its income taxes under Statement of
Financial Accounting Standard No. 109, Accounting for Income
Taxes. Income taxes are recorded in the period in which
the related transactions have been recognized in the
financial statements, net of the valuation allowances which
have been recorded against deferred tax assets. Deferred tax
assets and/or liabilities are recorded for the expected
future tax consequences of temporary differences between the
tax basis and financial reporting basis of assets and
liabilities. At December 31, 1998, deferred tax assets,
relating primarily to the benefits of operating loss
carryforwards, allowance for doubtful accounts, and an
accrual of guaranteed obligations have been offset by a
valuation reserve because future utilization of these assets
cannot be determined.
F-24
<PAGE>
Informatix Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Period
Ended September 30, 1999 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Compensatory Stock-Based Arrangements
_____________________________________
Management has elected to utilize the guidelines of
Accounting Principles Board Opinion No. 25 to account for the
value of stock-based compensation arrangements that have been
entered into by the Company in exchange for services
performed by employees and independent contractors.
Stock Splits
____________
On January 30, 1998, the company's Board of Directors
approved a one-for-two thousand reverse common stock split.
Stockholders of record on January 30, 1998 received one share
of common stock for each two thousand shares held on that
date. Stockholders whose holdings were reduced below 200
shares by the reverse split received additional shares in
order to increase their ownership of the company's common
stock to a minimum of 200 shares. On May 6, 1998, the
company's Board of Directors approved a one-for-five reverse
common stock split. Stockholders of record on May 6, 1998
received one share of common stock for each five shares held
on that date. All share numbers in these financial
statements and notes thereto presented have been adjusted to
reflect the one-for-two thousand and one-for-five common
stock reverse splits. While not changing stockholders'
deficit in the aggregate, the reverse common stock splits did
change the allocation of capital between par value and
additional paid-in capital.
On November 8, 1999 the Company authorized a one-for-two
reverse stock split. All share numbers and per share amounts
in these financial statements have been adjusted to reflect
this reverse stock split.
Interim Financial Information
_____________________________
The interim financial data as of September 30, 1999 and for
the nine months ended September 30, 1999 is unaudited. The
information reflects all adjustments, consisting only of
normal recurring adjustments that, in the opinion of
management, are necessary to fairly present the financial
position and results of operations of the Company for the
<PAGE>
period indicated. Results of operations for the interim
period are not necessarily indicative of the results of
operations for a full fiscal year.
NOTE 3 - CONTINGENCY - GOING CONCERN
At December 31, 1998 the Company had no business operations,
had significant liabilities and an accumulated deficit.
company's management expects to obtain additional financing
from future private offerings and to utilize the proceeds of
its future offerings to facilitate a business combination,
pay certain obligations, invest in other companies and fund
development stage cash requirements. There can be no
assurance that the Company will obtain such additional
financing or complete a business combination. The failure
of the Company to raise additional financing would require
the Company to adjust its current course of action or may
require the Company to cease operations and liquidate. As a
result of the foregoing, there is substantial doubt about the
company's ability to continue as a going concern. These
financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
F-25
<PAGE>
Informatix Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Period
Ended September 30, 1999 is Unaudited)
NOTE 4 - RESCINDED MERGER
In May 1998, the Company entered into share exchange
agreements with all of the thirty-seven stockholders of
Informatix, and exchanged 1,512,500 shares of the company's
common stock for all of the 1,512,500 shares of outstanding
common stock of Informatix. Certain stockholders of
Informatix, just prior to the share exchange, also owned
approximately 30% of the outstanding common stock of the
Company. Due to a number of contentious issues that arose
subsequent to the share exchanges and because of substantial
losses incurred by Informatix, the Company entered into a
recission agreement in April 1999 with five of the former
stockholders of Informatix. In accordance with the recission
agreement, the Company divested itself of the 1,512,500
shares of common stock of Informatix that it held in exchange
for 272,905 shares of the company's common stock, which had
been previously received by the five stockholders through the
share exchanges. 1,239,595 shares of the company's common
stock that were issued in connection with the share exchange
agreements were not rescinded. Because of these shares
remaining outstanding, the remaining former stockholders of
Informatix hold a majority interest in the Company.
During 1998, the Company advanced Informatix total funds of
$609,300. As of December 31, 1998, Informatix did not have
the ability to repay the advances and the company's
management believes that any future recovery is doubtful;
therefore, the company's management has recorded a valuation
allowance at December 31, 1998 and a corresponding bad debt
expense in 1998 amounting to $609,300.
During the year, Informatix became obligated to several of
its stockholders, who were also stockholders of the Company,
for notes payable aggregating $1,450,000. These notes had
been guaranteed by the Company. The notes are payable on
demand and bear interest at 10% per annum. During 1999 the
Company was assigned and assumed these notes, along with
accrued interest thereon of $174,507 and attorneys fees of
$45,653. As of December 31, 1998, the Company had recorded
the notes payable along with corresponding entry to assumed
obligation expense of $1,670,160. As of December 31, 1998
the notes were in default.
NOTE 5 - NOTES RECEIVABLE - STOCKHOLDERS
The Company advanced funds to and received advances from
certain stockholders during 1998. At December 31, 1998 the
<PAGE>
Company was owed $170,000 from one stockholder. The note
receivable is due on demand and bears interest at 10% per
annum.
NOTE 6 - NOTES PAYABLE - STOCKHOLDERS
As of December 31, 1998, in addition to the $1,450,000 of
notes payable assumed (see Note 4), the Company owed $32,600
to three stockholders. These notes bear interest at 10% per
annum and are payable on demand.
NOTE 7 - NOTE PAYABLE
During 1998, the Company received advances from and made
partial repayments to an unrelated investor. At December 31,
1998, the Company owed $125,000 to the investor. The note
bears interest at a rate of 10% per annum and is payable on
demand.
F-26
<PAGE>
Informatix Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Period
Ended September 30, 1999 is Unaudited)
NOTE 8 - INCOME TAXES
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities reflected on the financial statements and the
amounts used for income tax purposes. The tax effects of
temporary differences and net operating loss carryforwards
that give rise to significant portions of the deferred tax
assets recognized at December 31, 1998 are presented below:
Deferred tax assets:
Federal and state deferred tax
net operating loss $ 115,000
Reserves and allowances 268,000
Accrued expenses 777,000
---------
Total deferred tax asset 1,160,000
Deferred tax liability:
Interest receivable (6,000)
----------
<PAGE>
1,154,000
---------
Less valuation allowance (1,154,000)
Net deferred tax asset $ -
==========
The Company has a loss carryforward of approximately $337,000
that may be offset against future taxable income. The loss
carryforward will expire in 2018. Due to a change in
ownership of the Company after the reinstatement, net
operating loss carryforwards generated prior to the
reinstatement of approximately $71,000 became unavailable to
the Company under the Internal Revenue Code.
The following table presents the principal reasons for the
difference between the company's effective tax rates and the
United States federal statutory income tax rate of 34%:
Income tax benefit at statutory rate $ 891,000
State income tax benefit 263,000
Valuation allowance for deferred (1,154,000)
-----------
Income tax benefit $ -
===========
Effective income tax rate 0%
===========
F-27
<PAGE>
Informatix Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Period
Ended September 30, 1999 is Unaudited)
NOTE 8 - INCOME TAXES (Continued)
Recognition of the benefits of the deferred tax assets will
require that the Company generate future taxable income.
There can be no assurance that the Company will generate any
earnings in future years. Therefore, the Company has
established a valuation allowance for deferred tax assets of
$1,154,000 as of December 31, 1998.
NOTE 9 - CAPITAL STOCK ACTIVITY
On January 20, 1998 and February 23, 1998, the Company
issued the equivalent of 750 shares and 10,000 shares of its
common stock, respectively, in return for two subscription
notes receivable amounting to $15,000 each, bearing interest
at the rate of 12% per annum and due within ninety days of
issuance. The stockholder provided consulting services to
the Company in full satisfaction of both subscription note
obligations.
On January 30, 1998, the Company authorized a reverse stock
split of one share of its common stock for each two thousand
share block of outstanding common stock (1:2000). Any share
certificate which was reduced below 200 shares as a result of
the reverse stock split was adjusted to 200 shares of post
split common stock.
In March and April 1998, the company'sold the equivalent of
600,000 shares of its common stock to eighteen investors at
an aggregate purchase price of $150,000.
On April 20, 1998, the Company sold the equivalent of 100,000
shares of its common stock to two investors at an aggregate
purchase price of $700,000. In connection with the offering,
the Company was obligated to pay $100,000 in investment
banking fees. The entire $100,000 remained payable at
December 31, 1998.
On May 6, 1998, the Company authorized a reverse stock split
of one share of its common stock for five shares of
outstanding common stock (1:5) which became effective in June
1998.
In May 1998, the Company issued 1,512,500 shares of the
company's common stock in exchange for 1,512,500 shares of
Informatix common stock. A portion of this transaction was
subsequently rescinded and 272,905 shares of the company's
common stock were returned to the Company. Common stock was
<PAGE>
increased by $124, which represented the par value of the
remaining 1,239,595 shares still held by Informatix
stockholders (see Note 4).
On August 1, 1998, the Company issued 10,000 shares of its
common stock valued at $1.66 per share under an employment
agreement with its Chief Executive Officer ("CEO"). Also
under an amendment to the employment agreement, the CEO
agreed to purchase 50,000 shares of the company's common
stock for $83,000 and executed a three-year subscription note
receivable bearing an interest rate of the Applicable Federal
Rate (5.48%). Under a pledge agreement, the 50,000 shares
are being held by the Company until the note is satisfied.
The CEO retains all other rights as a stockholder.
NOTE 10 - EMPLOYEE STOCK COMPENSATION
On August 1,1998, the Company and its CEO entered into an
employment agreement which provides for an annual salary at
specified amounts and the granting of shares of the company's
common stock. In 1998 the number of bonus shares of common
stock granted under the employment agreement amounted to
10,000 shares. The Company also agreed to reimburse the CEO
for the total tax liability incurred in connection with the
stock grant.
F-28
<PAGE>
Informatix Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Period
Ended September 30, 1999 is Unaudited)
NOTE 10 - EMPLOYEE STOCK COMPENSATION (Continued)
The Company incurred compensation expense equivalent to the
agreed upon value of the stock at the date of grant and the
expected cost to the Company for its reimbursement of the
CEO s tax liability payable on the stock award. The
employment agreement also provided the CEO with the ability
to purchase 50,000 shares of the company's common stock at
$1.66 per share with a stock subscription note receivable.
No compensation expense has been recorded in the accompanying
financial statements for the issuance of this stock to the
CEO.
NOTE 11 - SUPPLEMENTAL CASH FLOW DISCLOSURES
Non-cash transactions include two stock subscription notes
receivable, each for $15,000, dated January 20 and February
<PAGE>
23, 1998, which were satisfied by the performance of
consulting services on behalf of the Company.
Included in accrued expenses was $100,000 of investment
banking fees in connection with the April 20, 1998 506
offering which reduced the amount of additional paid-in
capital.
On August 1, 1998, the Company issued 10,000 shares of stock
and recorded compensation expense for $16,600 and the related
tax liabilities of $7,843 in connection with the employment
agreement of the CEO. Also in connection with the employment
agreement, the Company issued 50,000 shares of common stock
in return for a subscription note receivable of $83,000.
NOTE 12 - SUBSEQUENT EVENTS
In March 1999, the Company entered into a letter of intent to
purchase 100% of the outstanding common stock of Video Net
Corporation in exchange for the company's series A preferred
stock, having a conversion feature into a maximum of
3,700,000 and a minimum of 500,000 shares of the company's
common stock. The conversion feature was determined based
upon Video Net Corporation meeting certain performance
measurements.
On April 27, 1999 the Company granted 25,000 shares of common
stock to a stockholder of the Company as partial
consideration for a $300,000 loan that the stockholder made
to the Company. Funds from the $300,000 loan were advanced
directly to Video Net Corporation.
As of July 26, 1999, management does not believe that the
Video Net Corporation acquisition will be consummated.
On May 3, 1999 the Company and the CEO entered into a letter
agreement, whereby the CEO terminated his employment
agreement and waived all rights to his base compensation
starting from the date of the commencement of the employment
agreement which became effective on March 31, 1999. Under
the letter agreement, the CEO retained his position as CEO
and Chairman of the Board until the earlier of a either a
public offering of the company's common stock on a national
exchange or his removal by the Board of Directors. The CEO
was also granted certain demand registration rights for his
shares of common stock.
NOTE 13 - EVENTS UNAUDITED SUBSEQUENT TO THE DATE OF THE
INDEPENDENT AUDITORS REPORT
In August 1999, the Company issued 7,500 shares of common
stock to Linzy Limited for consulting services rendered. The
Company recorded consulting expense in the amount of $49,875
for the stock issued.
F-29
<PAGE>
Informatix Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Period
Ended September 30, 1999 is Unaudited)
NOTE 13 - EVENTS UNAUDITED SUBSEQUENT TO THE DATE OF THE
INDEPENDENT AUDITORS REPORT (Continued)
In September 1999, the Company was unable to pay its
obligations under advances made by a company affiliated with
its CEO in the amount of $26,795 and as of September 30, 1999
was released from this debt obligtion. The Company has
recorded the debt forgiveness as a capital contribution.
During the nine months ended September 30, 1999, the $170,000
loan receivable from a shareholder was collected and then
that shareholder advanced the Company $258,000. Those
advances were repaid in October 1999.
During the nine months ended September 30, 1999, the Company
repaid $150,000 of the advance a shareholder made on behalf
of the Company to Video Net and the remaining $150,000 was
repaid in October 1999.
In October 1999, the net amount advanced to Video Net was
assumed by a shareholder of the Company.
In October and November 1999, as part of its plans to merge
with AuTologous Wound Therapy, Inc., the Company completed a
private placement offering. The Company raised $500,000 from
four accredited investors in exchange for 166,667 shares of
its common stock.
On November 2, 1999, the Company converted the principal and
accrued interest of the notes payable assumed with the merger
recission with Informatix, Inc. in the amount of $1,525,000
and the $100,000 of offering costs payable associated with
the 1998 506 offering into 1,625,000 shares of Series A
preferred stock. The Series A preferred stock has a par value
of $.0001 per share, a liquidation value of $1.00 per share
and pays a 5% cumulative dividend on the liquidation value.
The Series A preferred stock has a mandatory redemption
feature, whereby at the earlier of seven years after issuance
or the Company meeting certain performance criteria, the
Company is obligated to redeem the shares, in cash, at the
<PAGE>
liquidation value plus all accrued and unpaid dividends. The
Company may, in its sole discretion, pay the dividends in
cash or in common stock of the Company. Each share of Series
A preferred stock has one vote in all matters voted on by
holders' of the common stock of the Company.
On November 4, 1999, the Company consummated a plan of merger
and reorganization with AuTologous Wound Therapy, Inc.
("AuTologous"), an Arkansas corporation, with the Company as
the surviving legal entity. AuTologous, a development stage
entity, is in the business of providing proprietary, turnkey
solutions to the chronic wound care field through its AuTolo-
Cure system developed by the founder of the company. The
merger will be accounted for as a recapitalization and the
financial statements of AuTologous will become those of the
surviving entity as adjusted for the merger. After the
merger, the Company changed its name to AuTologous Wound
Therapy, Inc. The merger calls for the exchange of each
share of AuTologous common stock for 50 shares of the
company's common stock, par value $.0001 and 50 shares of the
company's series B convertible preferred stock, par value
$.0001. The merger also calls for the Company to raise at a
minimum gross proceeds of $1,200,000 from the sale of its
common stock within one year of the merger in one or more
private placements. The Company issued 400,000 shares of its
common stock as payment for investment banking fees in
connection with the merger. The holders' of Series B preferred
stock shall not be entitled to any dividends. Each share of
Series B preferred stock has one vote in all matters voted on
by holders' of the common stock of the Company. The Series B
preferred stock is subject to mandatory conversion, whereby
if the Company raises gross proceeds of $1,200,000 or more
from the sale of its common stock within one year of the
issuance of the Series B preferred stock, then for every
share of common stock issued by the Company in the raise of
the $1,200,000 the Company will convert one share of Series B
preferred stock into three (3) shares of common stock of the
Company. If the Company fails to raise up to $1,200,000, then
the Company will automatically convert one share of Series B
preferred stock into 7.5 shares of common stock of the
Company for every one dollar of shortfall from the
$1,200,000.
F-30
<PAGE>
Informatix Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Period
Ended September 30, 1999 is Unaudited)
NOTE 13 - EVENTS UNAUDITED SUBSEQUENT TO THE DATE OF THE
INDEPENDENT AUDITORS REPORT (Continued)
In August, 1999, the merger discussions between the Company
and Video Net were terminated.
On November 8, 1999 the Company authorized a one-for-two
reverse stock split. All share numbers and per share amounts
in these financial statements have been adjusted to reflect
this reverse stock split.
The Company executed a new 60 month lease for office space in
Little Rock, Arkansas, commencing December 1, 1999. Monthly
payments under the lease are $3,000.
On December 9, 1999, the Company obtained a line of credit
from First State Bank. The loan agreement provides for a
maximum aggregate borrowing limit of $75,000 with advances
made against, and secured by, machines purchased for use in
the AuTolo-Cure System. The line is due on demand, bears an
interest rate of 8% per annum and matures on January 8, 2001
if no demand has been made before then.
On January 12, 2000, the Company and The Kriegsman Group
("Kriegsman") entered into a three year consulting agreement,
whereby Kriegsman would assist the Company in recruiting
members for its Board of Directors, Advisory Board and
senior executives to complete the management team. The
agreement also calls for Kriegsman to help the Company raise
equity capital through private placements, to arrange and
negotiate possible strategic alliances, license agreements
with major companies and joint ventures, and to seek out and
approach investment banks to help fund the development of the
Company. In consideration for these services, Kriegsman will
receive an initial non-refundable consulting fee of $25,000
and a consulting fee of $5,000 per month, over the life of
the agreement, for every $3 million raised through equity
placements, strategic alliances, joint ventures or license
agreements up to a maximum of $25,000 per month. The monthly
consulting fee will commence once Kriegsman has raised the
first $3 million. The agreement also grants options to
Kriegsman to purchase 150,000 shares of common stock of the
Company. The options have a term of five years and an
exercise price of $4.00 per share (the number of shares and
the per share amount reflect the recapitalization and
subsequent reverse stock split affected by the Company in
connection with its merger with AuTologous). The common
stock underlying these options also has been granted
registration rights in the company's next registration
statement. The Company also granted additional options to
purchase up to a maximum of 450,000 shares of common stock
and an exercise price of $4.00, based on Kriegsman meeting
certain performance criteria. Kriegsman will be entitled to
<PAGE>
options to purchase 150,000 shares of common stock for
placement of a senior executive, options to purchase 125,000
shares of common stock for placement of two members on the
board of directors of the Company and options to purchase
125,000 shares of common stock for every $1 million dollars
raised by Kriegsman over $3 million. The above options vest
immediately upon issuance, permit cashless exercise to the
extent of the option price, are exercisable for a five year
term following the date of issuance and have a one time
extension, whereby if the Food and Drug Administration
requires the Company to go through regulatory approval,
Kriegsman will be granted a three year extension to the term
of his options. The agreement also calls for Kriegsman to
receive a fee of 8% of the proceeds raised from any equity or
debt placement initiated by Kriegsman. The Company has also
agreed to issue Kriegsman warrants representing the rights to
purchase 10% of the shares issued in the equity placement (or
shares in which the debt is convertible into). The warrants
will have a term of five years and an exercise price equal to
the per share price of any equity raise or the conversion
price of common stock for any convertible debt offerings. In
the event Kriegsman arranges for the merger, sale or
acquisition of the Company, then all remaining outstanding
options shall immediately vest and Kriegsman will be paid a
success fee on the closing of the transaction equal to six
percent of the value of the consideration received in such
transaction by the Company or its Stockholders.
F-31
<PAGE>
Informatix Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Period
Ended September 30, 1999 is Unaudited)
NOTE 13 - EVENTS UNAUDITED SUBSEQUENT TO THE DATE OF THE
INDEPENDENT AUDITORS REPORT (Continued.)
The Company shall have the right to terminate the agreement
on the eleventh (11th) month anniversary date of the
execution of the Agreement (or at any time thereafter) upon
delivering written notice of such termination to Kriegsman
of the effective date of such termination, in the event that
Kriegsman has not accomplished the following performance
objectives:
(a) Raising a minimum of two million dollars
($2,000,000.00) in equity capital or proceeds from
joint ventures, strategic alliances or licensing
transactions arranged for the Company by Kriegsman
(b) Initiated research coverage of the Company by
Kriegsman with a buy recommendation and
(c) Recruited at least two (2) members that accepted
appointment to AWT s Board of Directors
Upon the company's election to terminate this agreement, any
remaining unissued options shall not be issued and any rights
thereto immediately forfeited without any further action on
behalf of the Company. Consulting payments, options,
warrants and any other fees earned, due and payable under the
agreement shall be paid for the services of Kriegman
occurring on or before the effective date of the termination
of the agreement.
On January 24, 2000, the Company entered into two development
rights agreements. The five year agreements give exclusive
marketing and sales territories to two companies to market
and sell licenses for the AuTolo-Cure System. The agreement
specifies the companies will receive a commission equal to
29% of the sales price for each license they place. The
agreement also requires the companies to sell a minimum
number of licenses. Failure to sell the minimum number of
licenses gives the Company the right to terminate the
agreement.
<PAGE>
In February, 2000, the Company completed a private placement
offering to one accredited investor. The private placement
offering was for 250,000 shares of the company's common stock
at $3.00 per share (the number of shares and the per share
amount reflect the November 1999 recapitalization and
subsequent reverse common stock split affected by the Company
in connection with its merger with AuTologous). The shares
of common stock included in the offering are restricted
securities as defined under rule 144 of the Securities Act of
1933. In connection with the private placement offering, the
Company paid an investment banking fee of 10% of the gross
proceeds.
On March 8, 1999 and subsequently amended on January 13,
2000, AuTologous and Sigma Health Care Consulting, Inc.
("Sigma") entered into a consulting agreement whereby Sigma
would use its contacts to sell licenses of the AuTolo-Cure
System. The amended agreement calls for Sigma to receive a
one-time payment of $3,000 for its efforts to place systems,
a commission of approximately 22% of the license fee received
by the Company for every license Sigma is able to sell in the
future and an option to purchase 50,000 shares of the
company's common stock for an exercise price
of $4 per share with a term of five years.
In March 2000, the Company completed a private placement
offering of its common stock. The Company sold approximately
758,500 shares of the company's common stock, as per its
agreement with the Company. This offering also completed the
$1,200,000 raise as agreed to in the plan of merger and
reorganization with Informatix through the issuance of
295,000 shares to outside investors, and therefore, the
Company will convert 885,000 shares of the Series B preferred
stock into 885,000 shares of common stock of the Company.
F-32
<PAGE>
