<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
FORM 10-SB
GENERAL FORM OF REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
PROTALEX, INC.
(Name of Small Business Issuer in its charter)
NEW MEXICO
(State or other jurisdiction of incorporation or organization)
91-2003490
(I.R.S. Employer Identification No.)
P.O. BOX 30952
ALBUQUERQUE, NEW MEXICO 87190
(Address of principal executive offices) (Zip Code)
(505) 260-1726
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class to be Name of each exchange on which
so registered each class is to be registered
<S> <C>
NONE NONE
------------------------- ------------------------------
------------------------- ------------------------------
</TABLE>
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
<PAGE>
DESCRIPTION OF BUSINESS
OVERVIEW
Protalex, Inc. (the "Company") is a development stage company engaged
in the development and marketing of a new class of organic chemical molecules,
called "bioregulators," for the treatment of rheumatoid arthritis and other
forms of arthritis.
Bioregulator therapy for human disease is a new concept based upon
discoveries made by Dr. Paul Mann, an officer, director and shareholder of the
Company. During the past year, Dr. Mann's research has been focused upon
defining and testing the most effective formulation of a bioregulator molecule
for use in therapy. The Company intends to bring this unique biotechnology to
commercial realization by developing and marketing an entirely new category of
extraordinarily safe and therapeutically active drugs.
The Company will initially focus on developing bioregulators for the
treatment of rheumatoid arthritis. Research and development efforts are well
underway, and pre-clinical trials began in January 2000. The pre-clinical
trials will be conducted by Dr. Arthur Bankhurst, Professor of Internal
Medicine and Microbiology and Director of the Division of Rheumatology at the
University of New Mexico, and a director and shareholder of the Company. Upon
successful completion of the pre-clinical trials in approximately six months,
the Company will file an Investigational New Drug Application with the Food
and Drug Administration ("FDA"), and will begin planning clinical trials. The
Company believes that an existing, FDA-approved treatment for rheumatoid
arthritis utilizes principles of bioregulation, which should enable the
Company to expedite the FDA process by limiting the size and scope of the
clinical trials.
ABOUT BIOREGULATION
The Company's discoveries and its proprietary products represent the
first application of bioregulator technology to the treatment of disease. Since
the 1960's, however, certain natural and synthetic molecules have been known to
influence cell proliferation and differentiation in laboratory experiments.
(Proliferation consists simply of an increase in cell number, while
differentiation implies the ability to accomplish some function especially to
respond to or initiate some change in the cell's environment.)
Both proliferation and differentiation can be influenced by external
stimuli, most of which are in the form of chemical "messages." Under normal
circumstances, equilibrium is maintained within and among cells by the continual
exchange of such messages. Cells may begin to function or proliferate abnormally
under three circumstances: when they receive an erroneous signal from their
environment, when their reception or processing of external messages is
impaired, or when they receive abnormal genetic signals from within. Widespread
abnormalities of cellular differentiation cause diseases of many kinds, while
uncontrolled cellular proliferation causes cancer. The Company's bioregulators
are compounds with the ability to act upon cells at a primitive level of
function, "resetting" their internal mechanisms to allow resumption of normal
behavior.
Some naturally occurring bioregulators have the property of stimulating
cellular proliferation at certain concentrations, while promoting cellular
differentiation at other concentrations. In the latter role, they can bring
about increased production of antibodies in one cell line, or slow the growth of
a tumor in another, apparently by helping restore normal function within cells
and promoting cell-to-cell signaling. Bioregulators seem to act upon a wide
variety of tissue types, suggesting that they affect simple activities common to
all cells.
Bioregulators represent a completely new approach to the treatment of
disease. For example, rheumatoid arthritis is one of the "autoimmune" diseases,
in which cells of the immune system erroneously identify other body tissues as
"foreign". These immune cells then produce substances that attack other body
tissues, such as the lining of the joints. Current therapy for rheumatoid
arthritis is aimed at either suppressing the symptoms caused by this attack,
2
<PAGE>
or inactivating the substances produced by the immune cells. In contrast, the
Company's bioregulators act upon the immune cells themselves, restoring normal
cellular function. In this way, bioregulator treatment not only relieves
symptoms of the disease, but also may promote reversal of the tissue damage that
already has taken place.
The Company's research has defined the concept of bioregulators and has
produced proprietary compounds particularly suitable for therapeutic
administration. The most active of these show intense cellular activity in
miniscule doses. Clinical effectiveness in such a low dosage range is expected
to yield exceptional safety and freedom from side effects.
EXPERIMENTS AND STUDIES
The best demonstrations of the ability of bioregulators to affect cell
differentiation lie in the field of immunology, where immune responses can be
modified by the appropriate concentration of a bioregulator. Cell proliferation
also can be normalized by bioregulators in experiments dealing with natural
cellular aging and tumor growth. Examples of each of these processes, derived
from Dr. Mann's own research, are outlined below.
EXPERIMENTS IN TEST TUBES
ANTIBODY PRODUCTION IN HUMAN CELLS. The Company's proprietary
bioregulators induce an immune response in human white blood cells when these
cells are exposed to a number of different foreign substances. The number of
antibody-producing cells can be amplified as much as 100 to 1000 times.
STUDIES OF CELL AGING. The life span of cells in test tubes
can be extended by nearly 100% through the action of several known
bioregulators. When normal cell death from aging finally does begin, it affects
all of the cells simultaneously, in contrast to the usual gradual decline in the
number of surviving cells.
EXPERIMENTS IN LABORATORY ANIMALS
NUDE MICE. A mouse strain lacking in one form of immunity,
nude mice are highly susceptible to infection and early death. This situation
mimics a genetic disease in humans called DiGeorge syndrome. Administration of
certain known bioregulator compounds can partially reverse this deficit, almost
doubling the life expectancy of these mice. The same effect can be obtained in
mice whose thymus gland has been surgically removed in early life.
NUDE RATS WITH IMPLANTED CANCER. Another rodent strain with
immune deficiency, the nude rat, often is used in experiments involving
transplantation of tumors from another animal species. Such transplants are
rejected by animals with normal immune systems, but persist in the nude rat
because of its inability to mount a rejection response. Administration of a
known bioregulator in tumor-bearing nude rats results in regression of the
cancer in about two-thirds of the animals.
DOGS WITH IMPLANTED CANCER. As part of another study, a
specific type of malignant brain tumor was transplanted into the brains of dogs.
This type of tumor normally progresses rapidly with irreversible neurological
signs appearing between 2 and 3 weeks after transplantation. A bioregulator
compound was injected 3 times a week for 3 weeks following transplantation.
Complete tumor regression was seen in 100% of the treated animals.
NATURALLY OCCURRING DISEASE
DOGS AND CATS WITH SPONTANEOUS TUMORS. Data is now being
collated on several dozen domestic dogs and cats that have been given the
bioregulator treatment outlined above for spontaneously occurring tumors of
various types. Anecdotal reports have been received from veterinarians all over
the country, indicating success with bioregulator treatment, but a controlled
study with a consistent protocol is needed to validate this mode of therapy.
Such a study is now being planned.
3
<PAGE>
MARKETS
Human autoimmune diseases provide the first and most obvious target for
bioregulator therapy. In these disorders, the immune system misidentifies the
body's own tissues as "foreign," prompting an inappropriate and prolonged immune
response that can damage tissues and organs throughout the body. Bioregulator
treatment can be expected to restore normal immune homeostasis, with the result
that the disease is not merely ameliorated, but permanently cured.
Rheumatoid arthritis will be the first autoimmune disease targeted and
will be the primary and immediate focus of the Company. Rheumatoid arthritis is
a serious autoimmune disorder that causes the body's immune system to mistakenly
produce antibodies that attack the lining of the joints, resulting in
inflammation and pain. Rheumatoid arthritis can lead to joint deformity or
destruction, organ damage, disability and premature death. According to the
latest nationwide statistics, published in ARTHRITIS AND RHEUMATISM in May,
1998, rheumatoid arthritis affects approximately 2.1 million people in the
United States. Contrary to common perception, more than half of those affected
by rheumatoid arthritis are under age 65. (Source: The Arthritis Foundation,
May, 1998.)
Currently, no uniformly effective treatment for rheumatoid arthritis
exists. Current treatments are costly, and in most cases must be continued for
decades. In contrast, the Company believes that bioregulator therapy will be
much more cost effective and can be administered by weekly injections over the
course of a few months.
The Company's decision to concentrate its efforts on rheumatoid
arthritis, as opposed to other autoimmune diseases or cancers, is based upon
three main considerations:
- Evidence from Dr. Mann's laboratory indicates that
bioregulators strongly influence the immune system in ways
that should produce beneficial effects in patients with
rheumatoid arthritis;
- The Company believes that an existing, FDA-approved treatment
for rheumatoid arthritis actually utilizes principles of
bioregulation; and
- At this stage in the Company's development, the Company
believes it is most appropriate to concentrate its efforts and
resources on developing a treatment for a single,
well-defined, and serious disease for which adequate therapy
currently is not available.
The Company anticipates that its products will initially be used to
treat patients with severe cases of rheumatoid arthritis, and particularly those
individuals for whom other treatments have failed. Additionally, the Company
believes that its experience with this class of patients will prove the efficacy
and safety of its products, and will encourage the use of its products in less
severely affected individuals in earlier stages of the disease.
COMPETITION
In strictest terms, the Company has no direct competition in its field,
since no other firms have brought to market any therapeutic agents based upon
biomodulator or bioregulator technology. However, the Company's products will
compete with other pharmaceutical agents intended to treat rheumatoid arthritis.
A number of pharmaceutical agents are currently being used, with varying degrees
of success, to control the symptoms of rheumatoid arthritis and slow its
progress. Available treatment options include:
- Drugs that relieve pain and minimize inflammation, ranging
from simple aspirin to the recently introduced COX-2
inhibitors;
- Drugs that suppress the immune system and act on cancer,
including azathioprine and methotrexate;
4
<PAGE>
- Drugs that block the body's production of an enzyme which
plays a role in creating inflammation, currently represented
by Immunex Corporation's Enbrel(R);
- "Immunoadsorption therapy," now in limited use in Europe and
the United States, entailing weekly sessions during which a
patient's blood is separated and passed through a molecular
filter in order to remove immune complexes from the blood; and
- The injection into the bloodstream of fine particles of gold
suspended in fluid, a time-honored treatment but one with
extreme variability of effect and an unknown mechanism of
action.
In all, at least a dozen large and small pharmaceutical companies are
active in this market, with Immunex Corporation and Monsanto Company dominating
the market as a result of their respective products, Enbrel(R) and Celebrex(R).
Despite intense media attention and enormous sales, the long-term efficacy of
these products remains to be evaluated.
OPERATIONS
The Company is currently engaged in developing the corporate base for
commercialization of its bioregulator products, as well as planning production
and marketing strategies. The Company's business operations are housed in an
office in Albuquerque. The Company currently has no manufacturing facilities and
may have to rely on others to manufacture compounds for the Company's use in
research and development, pre-clinical trials, and clinical trials.
Alex, L.L.C., a New Mexico limited liability company and the Company's
majority shareholder ("Alex"), continues to support ongoing research aimed at
clarifying the biologic functions of bioregulators, and along with the Company,
establishing their safety and efficacy in treating induced arthritis in animals,
and determining appropriate dosage and treatment protocols. Alex's research
activities are being carried out in leased laboratory space at the University of
New Mexico. The bioregulator technology that the Company intends to develop and
bring to market is currently licensed from Alex. See "Patents, Trademarks and
Proprietary Technology."
BUSINESS AND MARKETING STRATEGY
Following the filing of this registration statement, the Company
intends to initiate a private placement of stock to raise funds for completion
of animal research, initiation of Phase I and Phase II human studies, and
production and marketing of the Company's products on a commercial scale.
The Company expects that upon FDA approval, its bioregulator products
will be competitive throughout the global market. Therefore, the Company intends
to enter into collaborative arrangements with larger strategic partners to
market and sell the Company's products in the United States and in foreign
markets. The Company expects that these partners will be responsible for funding
or reimbursing all or a portion of the costs of pre-clinical and clinical trials
required to obtain regulatory approval. In return for such payments, the Company
will grant these partners exclusive or semi-exclusive rights to market certain
of its products in particular geographical regions.
GOVERNMENT REGULATION
The Company's ongoing research and development activities, and its
future manufacturing and marketing activities, are subject to extensive
regulation by numerous governmental authorities, both in the United States and
in other countries. In the United States, the FDA regulates the approval of the
Company's products under the authority of the Federal Food, Drug and Cosmetics
Act.
5
<PAGE>
In order to obtain FDA approval of the Company's new drugs, extensive
pre-clinical and clinical tests must be conducted and a rigorous clearance
process must be completed. Satisfaction of the FDA's safety and efficacy
requirements may take several years and require the expenditure of substantial
resources.
The FDA approval process entails several steps. Initially, the Company
must conduct pre-clinical trials. During pre-clinical trials, the Company must
evaluate the safety and efficacy of its products through laboratory testing. At
this stage the FDA will require, at a minimum, that the Company (i) prepare a
detailed report containing information about the drug; (ii) determine the
toxicity of the drug in at least two species of animals; and (iii) conduct
short-term toxicity studies ranging from two weeks to three months, depending on
the proposed clinical trials.
Upon successful completion of pre-clinical trials, the Company must
submit an Investigational New Drug Application ("IND") to the FDA before it can
begin human clinical trials. The purpose of the IND is to detail pre-clinical
research data, and provide documentation sufficient to allow the FDA to conclude
that it is reasonable to proceed with human trials of a drug.
Clinical studies are typically conducted in three sequential phases,
although these phases may overlap. In Phase I trials, a drug is tested for
safety in one or more doses in a small number of patients or volunteers. In
Phase II trials, efficacy and safety are tested in up to several hundred
patients. Phase III trials involve additional safety, dosage and efficacy
testing in an expanded patient population at multiple test sites.
The results of the pre-clinical and clinical trials are submitted to
the FDA in the form of a New Drug Application ("NDA"). The approval of an NDA
may take substantial time and effort. In addition, upon approval of an NDA the
FDA may require post marketing testing and surveillance of the approved product,
or place other conditions on their approvals.
In 1997, the FDA's Modernization Act (the "Act") was passed. The Act
expanded earlier laws passed to shorten the drug approval process and developed
guidelines regarding the testing and approval process for products intended to
treat serious or life-threatening illnesses. More specifically, the Act created
a fast-track process which facilitates and expedites the review and testing of
new drugs that are intended to treat serious or life threatening diseases, while
preserving appropriate guarantees for safety and effectiveness. The passage of
the Act reflects the recognition that both patients and physicians are willing
to accept greater risks and side effects from products that treat serious
diseases. The fast-track procedures apply to products intended to treat AIDS,
some cancers and other life threatening illnesses. In most cases, a drug is
usually given a fast-track designation at a relatively early stage in its
development.
Sales of new drugs outside the United States are subject to foreign
regulatory requirements that differ from country to country. Foreign regulatory
approval of a product must generally be obtained before that product may be
marketed in those countries. However, the FDA approval process is among the most
restrictive in the world and typically takes a longer time to complete than
foreign regulatory approval.
Research and development efforts for the Company's first product for
the treatment of rheumatoid arthritis are well underway, and pre-clinical
trials began in January 2000. Upon completion of these studies, the Company
will apply to the FDA to secure its approval for limited safety testing of
the Company's product in humans. Following the successful completion of
safety trials, the Company will conduct a full-scale study of efficacy in
patients with advanced and intractable rheumatoid arthritis. This full-scale
study will be conducted by Dr. Arthur Bankhurst, Professor of Internal
Medicine and Microbiology and Director of the Division of Rheumatology at the
University of New Mexico, and should be completed in approximately two years.
Dr. Bankhurst is a director and shareholder of the Company. Once the trials
are finished, an application for FDA authorization to produce and market the
product will be filed, with final approval estimated to take an additional
six months.
PATENTS, TRADEMARKS, AND PROPRIETARY TECHNOLOGY
6
<PAGE>
The bioregulator technology which the Company intends to develop and
bring to market is currently licensed by the Company from Alex, LLC, a New
Mexico limited liability company and the Company's majority shareholder.
("Alex"). Alex's Managing Members, each of whom holds a 50% membership interest
in Alex, are John Doherty, the Company's President, and Dr. Paul Mann, the
Company's Treasurer and Secretary. Mr. Doherty and Dr. Mann are also members of
the Company's Board of Directors. The license agreement between the Company and
Alex is described in "Certain Relationships and Related Transactions."
The Company's success will depend on its ability to maintain its trade
secrets and proprietary technology in the United States and in other countries,
and on Alex's ability to obtain patents for the bioregulator technology which it
licenses to the Company. Alex is currently seeking patents for proteins for use
as medications for human autoimmune disease. Patent protection will also be
sought for the derivatives of proteins which can also be found in other
bioregulators. Alex expects to submit its initial patent for proteins before the
end of May, 2000, and the additional patents shortly thereafter. In addition to
patent protection, Alex intends to seek trademark protection for the term
"bioregulator." Alex believes that this will assist in differentiating this new
field of science from current biomodulator theory.
RISKS RELATED TO THE COMPANY'S BUSINESS
THIS REGISTRATION STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS
WHICH MAY DIFFER FROM THE COMPANY'S ACTUAL FUTURE RESULTS. This registration
statement contains forward-looking statements that involve substantial risks
and uncertainties. These statements are identified by forward-looking words
such as "may," "will," "expect," "anticipate," "believe," "estimate," and
"continue" or similar words. Statements that contain these words should be
read carefully because they discuss the Company's future expectations,
contain projections of the Company's future results of operations or of the
Company's financial condition, and state other "forward-looking" information.
The Company believes it is important to communicate its expectations.
However, there may be events in the future that the Company is not able to
accurately predict or over which the Company has no control. The risk factors
listed in this section, as well as any other cautionary language appearing in
this registration statement, provide examples of risks, uncertainties and
events that may cause the Company's actual results to differ materially from
the expectations described in the Company's forward-looking statements. The
occurrence of the events described in these risk factors and elsewhere in
this registration statement could have an adverse effect on the Company's
business, results of operations and financial condition.
THE COMPANY MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN IF IT
DOES NOT ATTRACT INVESTMENT CAPITAL OR GENERATE OPERATING REVENUE. The
Company is a development stage enterprise and does not have operating
revenue, nor does it anticipate generating operating revenue in the
foreseeable future. The ability of the Company to continue as a going concern
is dependent initially on its ability to raise sufficient investment capital
to fund all necessary operations and product development activities.
Thereafter, in order to generate operating revenue the Company must develop
products that gain regulatory approval and market acceptance. There can be no
assurance that the Company will be able to raise sufficient investment
capital or successfully develop and market its products.
THE COMPANY HAS A HISTORY OF LOSSES SINCE ITS MERGER WITH ENERDYNE,
AND WILL CONTINUE TO INCUR LOSSES UNTIL ITS SALES GENERATE SUFFICIENT
REVENUES. Since Enerdyne Corporation's acquisition of Protalex, Inc. (which
is more fully described in "Corporate History"), the Company has incurred
significant losses. The Company expects to continue to incur net losses until
sales of its biomodulator products generate sufficient revenues to fund its
continuing operations.
THE COMPANY IS UNCERTAIN WHETHER ITS BIOREGULATOR PRODUCTS CAN BE
DEVELOPED SUCCESSFULLY, AND IT MAY HAVE TO INCUR ADDITIONAL EXPENSES IF IT
EXPERIENCES PROBLEMS IN DEVELOPMENT. The Company does not
know whether bioregulator products can be successfully developed for
administration as human medications. Further laboratory research followed by
extensive animal testing will be needed before beginning clinical trials. The
Company's failure to demonstrate the safety and/or efficacy of its bioregulator
product, either at the preclinical or human trial stage, would necessitate
potentially expensive and time-consuming additional research.
THE COMPANY'S BIOREGULATOR PRODUCT IS LIMITED TO A SINGLE DISEASE,
WHICH MEANS THE COMPANY'S PROSPECTS MAY BE LIMITED IF ITS PRODUCT DOES NOT
SUCCESSFULLY TREAT THE DISEASE. The Company is focused on the treatment of
one disease, rheumatoid arthritis. If the results from the Company's animal
studies and/or the human clinical trials related to that disease are
inconclusive or show results no better than a substance with no medical
effect, the Company would
7
<PAGE>
not have a commercially viable product. In this case, a great deal of additional
research would be required, and it is unlikely that the Company would be able to
attract further capital.
THE COMPANY'S BIOREGULATOR PRODUCTS MAY NOT BE ACCEPTED BY THE
MEDICAL COMMUNITY, WHICH WOULD RESULT IN POOR PRODUCT SALES. The Company's
bioregulator product may be safe and effective for its intended use, but may
not show sufficient superiority to other treatments currently in use to gain
a significant share of the market. Additionally, the novelty of this form of
treatment or its mode of administration may make bioregulator therapy less
appealing than existing treatments to prescribing physicians or to their
patients. Inadequate medical acceptance would result in poor product sales
and decreased profitability, and could impair the Company's ability to
continue to operate.
THE COMPANY IS UNCERTAIN WHETHER ITS EXISTING BIOREGULATOR PRODUCTS
CAN BE EXTENDED TO TREAT DISEASES OTHER THAN RHEUMATOID ARTHRITIS. While the
Company will initially focus on the treatment of rheumatoid arthritis, its
long-term plans call for the extension of bioregulator therapy to other types
of human disease, such as cancer. The development of new bioregulator
products (or expanding the indications for existing products to the treatment
of new diseases) will be subject to many of the same hazards and risks
discussed in this "Risk Factors" section.
THE COMPANY IS EXPOSED TO SIGNIFICANT COSTS AND RISKS RELATED TO
THE REGULATORY APPROVAL OF BIOREGULATOR PRODUCTS, AND IS AT A COMPETITIVE
DISADVANTAGE DUE TO ITS NEED TO COMPLETE THE REGULATORY PROCESS. Before the
Company's products can be manufactured, marketed and sold to the public, the
requirements of the FDA and similar governmental agencies in foreign
countries must be met. The approval process typically entails considerable
time and expense, and may delay marketing of the Company's products for a
considerable period. The Company cannot predict when regulatory applications
might be submitted, nor when final regulatory approval will be obtained.
Also, the FDA could approve only certain uses of the Company's products or
subject its products to additional testing or surveillance programs. Failure
to obtain timely FDA approval will require the Company to spend more
resources on additional applications, and would delay the generation of
income from sales of the Company's products. In addition, the FDA approval
process presents a competitive advantage to some of the Company's competitors
who have already received FDA approval for their products.
THE COMPANY DEPENDS ON REIMBURSEMENT FROM THIRD PARTIES, WHO MAY
DECREASE OR ELIMINATE THE AMOUNT OF REIMBURSEMENT PAID TO THE COMPANY. In
today's medical economy, reimbursement for all types of medical care depends
substantially on third party payors, including government authorities (e.g.,
the Medicare program), private health insurers and other organizations, such
as health maintenance organizations ("HMOs"). Managed healthcare is
increasing in the United States, the number of HMOs is growing, and
legislative proposals are being introduced to reform healthcare or reduce
government medical insurance programs. As a part of their cost-control
efforts, such entities may establish fiscal policies decreasing or
eliminating the amount of reimbursement for the Company's products, making it
difficult for the Company to sell its products at a sufficient profit to
remain in business.
THE COMPANY MAY NOT BE ABLE TO MANUFACTURE ITS BIOREGULATOR
PRODUCTS IN COMMERCIAL QUANTITIES AND MAY HAVE TO INCUR SIGNIFICANT COSTS
TO MEET ITS MANUFACTURING REQUIREMENTS. Currently, the Company does not
possess the facilities or equipment to manufacture its products. The Company
intends to contract with a third party or parties to manufacture its products
for commercial distribution. However, the Company does not know whether such
third party or parties will be able to successfully manufacture sufficient
quantities of the Company's products for these purposes. Therefore, the
Company may have to invest substantial sums to construct facilities
sufficient to meet its long-term manufacturing requirements. See
"Operations."
THE COMPANY MAY NOT BE ABLE TO PROTECT OR MAINTAIN THE SECURITY OF
ITS PATENTS OR OTHER PROPRIETARY INFORMATION. The Company licenses its
bioregulator technology from Alex, L.L.C., and Alex intends to apply for,
prosecute and maintain patents for this technology. Conceivably, Alex may be
unsuccessful in obtaining patents and in avoiding infringements of patents
granted to others. Even if patents are granted to Alex, the enforceability of
patents issued to biotechnology and pharmaceutical firms is often highly
uncertain, and existing law may not protect Alex's patents. Without patent
protection, it is unlikely that the Company could successfully market its
bioregulator products. Lacking a proprietary advantage, the Company would be
unable to prevent marketing of its biomodulator products by more
well-established competitors who would be able to dominate the market. In
addition, the Company could incur substantial costs in defending any patent
litigation brought against it or in asserting its patent rights, including
those licensed to it by Alex, in a suit against another party. See "Patents,
Trademarks and Proprietary Technology."
8
<PAGE>
The Company relies on trade secrets, know-how and continuing
technological advancement to develop and maintain its competitive position. The
Company requires that each of its employees enter into a confidentiality
agreement that contains provisions prohibiting the disclosure of confidential
information to anyone outside the Company. However, these confidentiality
agreements may not be honored and the Company may be unable to protect its
rights to its unpatented trade secrets. Dissemination of this proprietary
information might allow others to develop bioregulator products that would
compete with those of the Company, diminishing the Company's sales and market
share.
THE COMPANY'S BUSINESS COULD BE HARMED BY NEW RESEARCH EFFORTS AND
PRODUCT DEVELOPMENT BY THE COMPANY'S COMPETITORS, MOST OF WHOM HAVE GREATER
RESOURCES THAN THE COMPANY. The Company is engaged in a sector of the economy
characterized by extensive research efforts and rapid technological
development. New drug discoveries are to be expected, including those
directed at the disease the Company has targeted. A number of the Company's
competitors have substantially more capital, research and development,
regulatory, manufacturing, marketing, human and other resources and
experience than the Company. Such competitors may develop products that are
more effective or less costly than any of the Company's current or future
products and also may produce and market their products more successfully
than the Company. Large-scale successful competition would reduce the
Company's market share and profitability, and might jeopardize the Company's
ability to stay in business. See "Competition."
THE COMPANY IS EXPOSED TO SIGNIFICANT LIABILITY ASSOCIATED WITH ITS
BIOREGULATOR PRODUCTS, AND MAY NOT BE ABLE TO SECURE INSURANCE TO COVER THESE
RISKS ON ACCEPTABLE TERMS, IF AT ALL. While the Company believes that its
bioregulator product will be safe compared to other drugs, the Company still
may incur significant product liability exposure. When the Company develops a
product suitable for human administration, it intends to secure adequate
product liability coverage. However, insurers may not offer the Company
product liability insurance, may raise the price of such insurance or may
limit the coverage of such insurance. In addition, the Company may not be
able to maintain such insurance in the future on acceptable terms and such
insurance may not provide the Company with adequate coverage against
potential liabilities either for clinical trials or commercial sales.
Successful product liability claims in excess of the Company's insurance
would affect the Company's ability to continue to operate as a going concern.
THE COMPANY IS EXPOSED TO SIGNIFICANT ENVIRONMENTAL RISKS BECAUSE
ITS BIOREGULATOR RESEARCH AND DEVELOPMENT ACTIVITIES INVOLVE HAZARDOUS AND
RADIOACTIVE MATERIALS. The Company's research and development activities
involve the controlled use of hazardous materials, chemicals and radioactive
compounds. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and certain waste products. Although the Company believes that
its planned safety procedures for the handling and disposal of such materials
comply with the standards prescribed by such laws and regulations, it cannot
eliminate the risk of accidental contamination or injury from these
materials. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the Company's
resources. The Company may be required to incur significant costs to comply
with environmental laws and regulations in the future. Current or future
environmental laws or regulations may materially adversely affect the
Company's operations, business or assets.
THE COMPANY'S LOSS OF KEY PERSONNEL, OR ANY FAILURE TO ATTRACT AND
MAINTAIN ADDITIONAL PERSONNEL, COULD AFFECT THE COMPANY'S ABILITY TO DEVELOP
ITS BUSINESS. The success of the Company's operations during the foreseeable
future will depend largely upon the continued services of the following
individuals: John Doherty, the Company's President, Dr. Paul Mann, the
Company's Treasurer and Secretary, and Dr. Jon Aase, the Company's Vice
President. The loss of the services of Mr. Doherty, Dr. Mann or Dr. Aase
could have a material adverse impact on the Company, including inability to
raise adequate investment capital and/or delay or failure in developing the
bioregulator product. Mr. Doherty, Dr. Mann and Dr. Aase have not entered
into employment agreements with the Company. See "Management."
The Company's success will also depend in part on its ability to
manage, attract and retain qualified technical, management and sales personnel.
The Company's operations and future growth could be adversely affected if the
Company were unable to hire appropriate personnel or if its revenues fail to
increase at a rate sufficient to absorb the resulting increase in expenses. See
"Employees."
9
<PAGE>
BECAUSE TWO OF THE COMPANY'S EXISTING STOCKHOLDERS TOGETHER OWN
69.44% OF THE COMPANY'S STOCK, THE VOTING POWER OF THE COMPANY'S OTHER
STOCKHOLDERS IS LIMITED. As of February 1, 2000, each of Mr. Doherty and Dr.
Mann beneficially owned approximately 34.72% of the outstanding shares of the
Company's common stock through Alex, LLC, a New Mexico limited liability
company which is the Company's majority shareholder ("Alex"). Alex's Managing
Members, each of whom holds a 50% membership interest in Alex, are Mr.
Doherty and Dr. Mann. Accordingly, Mr. Doherty and Dr. Mann collectively have
the ability to control the election of all of the members of the Company's
Board of Directors and the outcome of corporate actions requiring majority
shareholder approval. Even as to corporate actions in which super-majority
approval may be required, such as certain fundamental corporate transactions,
Mr. Doherty and Dr. Mann will collectively control the outcome of such
actions.
THE COMPANY'S COMMON STOCK HAS NO PRIOR TRADING MARKET, SUCH A
MARKET MAY NEVER DEVELOP, AND THE MARKET PRICE OF THE COMPANY'S COMMON STOCK
IS LIKELY TO BE VOLATILE. There has been no significant public market for the
Company's common stock, and there can be no assurance that an actual trading
market will ever develop or be maintained for the Company's common stock. The
market price of the shares of the Company's common stock may be highly
volatile. Factors such as fluctuation in the Company's operating results, the
introduction of new products or services by the Company or its competitors,
and general market conditions may have a significant effect on the market
price of the Company's common stock. See "Market for Common Equity and Other
Shareholder Matters."
THE COMPANY WILL REQUIRE ADDITIONAL FUNDING TO MAINTAIN AND EXPAND
ITS BUSINESS, AND THIS FUNDING MAY NOT BE AVAILABLE ON FAVORABLE TERMS, IF AT
ALL. The Company believes that its available cash and investment income will
be sufficient to meet its operating expenses and capital expenditures through
the next eight months. The Company does not know whether additional financing
will be available when needed, or if it is available, if it will be available
on acceptable terms. Insufficient funds may prevent the Company from
implementing its business strategy or may require the Company to delay, scale
back or eliminate certain components of its business plan.
EMPLOYEES
The Company currently has one full-time employee and two part-time
employees. The Company's employees are non-union and none are represented by an
organized labor union. The Company believes its relationship with its employees
is very good and it has never experienced an employee related work stoppage. The
Company will need to hire and retain highly-qualified experienced technical,
management and sales personnel in order to execute its business plan, carry out
product development and secure advantages over its competitors. No assurances
can be given that the Company will be able to locate and hire such personnel, or
that, if hired, the Company will continue to be able to pay the higher salaries
necessary to retain such skilled employees.
CORPORATE HISTORY
The Company was originally formed as a New Mexico corporation in April
1958 under the name Ideal Homes, Inc. ("Ideal"). Ideal was organized for the
purpose of acquiring and developing real estate in the New Mexico area. In March
1968, Ideal changed its name to Enerdyne Corporation ("Enerdyne"). Enerdyne
engaged in the business of acquiring real estate properties, exploring such
properties for oil, gas and uranium ore deposits, and entering into mining
leases for the development of such properties. Enerdyne's shares of common stock
were publicly traded under the trading symbol "ENDY."
In September 1999, Protalex, Inc., a New Mexico corporation
("Protalex"), acquired a majority of the issued and outstanding shares of common
stock of Enerdyne from Don Hanosh, pursuant to a Stock Purchase Agreement
between Protalex, Enerdyne and Mr. Hanosh. Under the Stock Purchase Agreement,
in consideration for Mr. Hanosh's shares of common stock, Protalex executed a
Promissory Note in the amount of $368,546.00 in favor of Mr. Hanosh.
In November 1999, Protalex merged with and into Enerdyne pursuant to a
Merger Agreement and Plan of Reorganization (the "Merger Agreement"), and
Enerdyne changed its name to Protalex, Inc., thereby creating the Company. Under
the Merger Agreement, each share of Protalex common stock outstanding
immediately prior to the effective date of the merger was converted into 822
shares of the Company's common stock. After the merger, Protalex's former
shareholders held approximately 92.28% of the shares of common stock of the
Company, and Enerdyne's former shareholders held approximately 7.72% of the
shares of common stock of the Company.
10
<PAGE>
ADDITIONAL INFORMATION
The Company intends to provide an annual report to its security
holders, and to make quarterly reports available for inspection by its security
holders. The annual report will include audited financial statements.
Once this registration statement becomes effective (which
automatically occurs sixty days after the date it is filed), the Company will
be subject to the informational requirements of the Securities Exchange Act
of 1934 (the "Exchange Act") which will require the Company to file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Such reports, proxy statements and other information
may be inspected at public reference facilities of the SEC at Judiciary
Plaza, 450 Fifth Street N.W., Washington D.C. 20549; Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; 7 World Trade
Center, New York, New York, 10048; and 5670 Wilshire Boulevard, Los Angeles,
California 90036. Copies of such material can be obtained from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street N.W.,
Washington, D.C. 20549 at prescribed rates, or by visiting the SEC's Internet
website at www.sec.gov.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
WITH THE EXCEPTION OF HISTORICAL MATTERS, THE MATTERS DISCUSSED HEREIN
ARE FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. FORWARD
LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS CONCERNING
ANTICIPATED TRENDS IN REVENUES AND NET INCOME, THE DATE OF INTRODUCTION OR
COMPLETION OF THE COMPANY'S PRODUCTS, PROJECTIONS CONCERNING OPERATIONS AND
AVAILABLE CASH FLOW. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. THE FOLLOWING
DISCUSSION OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD
BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND THE RELATED
NOTES THERETO APPEARING ELSEWHERE HEREIN.
OVERVIEW
The Company is a development stage enterprise engaged in the
development and marketing of organic chemical molecules for the treatment of
arthritis. The Company's business is a continuation of the business of Protalex,
Inc., a New Mexico corporation incorporated on September 17, 1999 ("Protalex").
During the period from Protalex's inception until October 31, 1999, Protalex
acquired a majority interest in Enerdyne Corporation, a New Mexico corporation
("Enerdyne"), a publicly traded company. On November 15, 1999, Protalex merged
with and into Enerdyne, thereby creating the Company. These transactions
position the Company as a publicly held entity with full ability to raise
capital from all sources public and private. Consistent with its development
stage status, Protalex had no operating revenue from its inception through the
date of its merger with Enerdyne, nor does the Company expect to have operating
revenues in the foreseeable future.
PLAN OF OPERATION
The principal fiscal goal in the Company's plan of operation is to seek
private and public investment capital to fund operations and development
activities necessary to bring its bioregulator products to market. The Company
believes that it possesses sufficient funding for eight months of operations at
present levels. The Company will seek to raise additional funds during the next
six months to maintain its current activities and to begin human clinical
trials. Efforts are currently ongoing with private fundraising. A private
placement of Company stock in the amount of $5,000,000 is planned for early next
year. Concurrently with seeking investment capital, the Company is developing
its corporate commercialization base and planning marketing and production
strategies.
The Company's primary asset is its perpetual, exclusive license
agreement with Alex, LLC, a New Mexico limited liability company ("Alex"), for
commercial rights to bioregulator technology that the Company intends to utilize
to produce and market its bioregulator products in the future. The Company
expects to work closely with Alex over the next few years. Alex will perform
pure research activities and the Company will perform all development and
marketing activities for potential bioregulator products. The Company's current
activities include conducting pre-clinical trials and studies in connection with
an identified potential bioregulator product and associated research activities.
There had been no reimbursement costs to Alex for research as of October 31,
1999.
A full discussion of the scientific theory behind bioregulator
technology and its potential product applications, the research, development and
FDA approval process that the Company faces, and the current status of Alex's
research activities may be found elsewhere in this registration statement.
Please review this material as an important source to evaluate the Company's
prospects in light of the risks, expenses and difficulties frequently
encountered by companies in the earliest stage of development. The Company's
ability to realize future operating revenue is dependent on the Company
successfully producing a product that provides significant benefits in humans
with appropriately low side effects and completing all trials, procedures and
protocols necessary to gain ultimate FDA approval for sale of a product to the
public. Even if the Company gains FDA approval, the product may not be
successful in the marketplace. The Company estimates that it will take 2 to 3
years to bring a product to market and business conditions may change during
that time. Alex expects to gain patent protection on its intellectual technology
but has no patents currently.
12
<PAGE>
LIQUIDITY AND OPERATIONS
In the short term, the Company intends to raise additional capital
through the private placement of its common stock. Looking to the longer
term, the Company will endeavor to raise private capital in the amount of
approximately $5 million. The Company believes that a $5 million investment
in the Company would be available at the present time only on terms that
would dilute the ownership interest of its current shareholders to an
unacceptable level. For this reason, the Company intends to raise between
$250,000 and $350,000 in April 2000 through a private placement offering of
its common stock to accredited investors only (although the Company has not
signed any binding commitments or agreements pertaining to such an offering).
The funds raised in this offering would be used to complete the first phase
of the Company's animal trials, and potentially pursue additional patent
protection for the Company's technology. After the closing of the April 2000
offering, the Company believes it will be in a position to obtain a larger
amount of funding on more favorable terms to the Company's shareholders
(although no assurance can be given that such funding will be available on
favorable terms, if at all).
For the immediate future, financial obligations will consist solely
of development stage cost outlays. In addition to monies owed to Alex for
granting the technology license to the Company, the Company now has three
employees who are full or part-time laboratory technicians. Pre-clinical
animal trials will commence around the first of the year requiring
significant capital. The Company also expects to incur travel and promotion
expenses and professional fees as part of raising investment capital. The
Company has an educational website under construction and will have modest
outlays for computer equipment and infrastructure during the coming year. The
cost of trials and studies necessary to bring the Company's potential
products to market are significant and will require the majority of raised
capital during the development period. Prior to its merger with Enerdyne,
Protalex successfully raised private capital in amounts sufficient to fund
the Company's projected operations for approximately six to nine months.
Sufficient capital and liquidity to finance the continued operations of the
Company are dependent on the raising of adequate investment capital over both
the short and long-term. If funding is insufficient at any time in the
future, the Company may be unable to continue its operations, its development
efforts or its ability to continue scientific research through Alex.
Protalex incurred a loss from its inception to its merger with
Enerdyne. Thereafter, the Company has incurred losses and expects to incur
significant cumulative losses over the next two to three years. There is no
comparison of results of operations to prior periods as Protalex commenced its
operations as of September 17, 1999.
IMPACT OF THE YEAR 2000
The "Year 2000" problem is a result of computer programs being unable
to differentiate between the year 2000 and 1900 because certain computers were
programmed using two digits rather than four digits to define the applicable
year. This could result in a system failure or miscalculations with respect to
current programs. Equipment utilized by the Company has been recently purchased
and the dealers from whom the computers were purchased were asked if the
computer equipment is "Y2K" compliant. The dealers have assured the Company that
the computers are compliant. In addition, the Company has consulted with an
independent computer programmer regarding the status of its computers and
equipment that utilizes date sensitive computer chips and has been advised that
all computers and equipment is in compliance. In reliance upon these
representations, the Company has determined that its computers and date
sensitive equipment are "Y2K" compliant. In addition, the Company has contacted
its key third party suppliers, service providers, distributors, wholesalers and
other entities with which it has business relationships and inquired whether
there are any "Y2K" issues that could affect delivery or any aspect of the
delivery process or other relationship, and has been assured that the parties
are in compliance.
13
<PAGE>
DESCRIPTION OF PROPERTY
The Company's office is located at 1518 Cornell Drive N.E.,
Albuquerque, New Mexico 87106. The Company is permitted to use this office free
of charge pursuant to an oral agreement with its President, Mr. John Doherty,
who leases the property on which the Company's office is located. The Company
intends to move to a larger facility once it secures additional financing.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of February 1, 2000, (i) by each
person who is known by the Company to own beneficially more than 5% of its
common stock, (ii) by each of the Company's directors, and (iii) by all of the
Company's officers and directors as a group. Except as provided below, each
person's address is c/o Protalex, Inc., P.O. Box 30952, Albuquerque, New Mexico
87190.
<TABLE>
<CAPTION>
- --------------------------------------------- -------------------------- ---------------------------
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Owner Percentage of Class(1)
<S> <C> <C>
John E. Doherty(2) 3,312,660 34.72%
Paul L. Mann, Ph.D.(2) 3,312,660 34.72%
Jon M. Aase, M.D. 276,192 2.89%
Arthur D. Bankhurst, M.D. 276,192 2.89%
James K. Strattman 451,278 4.73%
All Executive Officers and Directors
(5 persons) 7,628,982 79.95%
</TABLE>
- ----------------
(1) Based on a total of 9,541,991 outstanding shares of the Company's
common stock.
(2) Figures shown for Mr. Doherty and Dr. Mann reflect their respective 50%
ownership of Alex, LLC, a New Mexico limited liability company, which
holds 6,625,320 shares of the Company's common stock.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information with respect to the
Company's directors and executive officers.
<TABLE>
<CAPTION>
- ------------------------------------- --------- ---------------------------------
Name Age Position
<S> <C> <C>
John E. Doherty 45 President and Director
Paul L. Mann, Ph.D. 54 Treasurer, Secretary and Director
Jon M. Aase, M.D. 63 Vice President and Director
Arthur D. Bankhurst, M.D. 62 Director
James K. Strattman 40 Director
</TABLE>
14
<PAGE>
JOHN E. DOHERTY. Mr. Doherty has served as President and a director of the
Company since November 1999, and previously served as a director of Enerdyne
since August 1999. From October to November 1999, Mr. Doherty was President and
a director of Protalex. From 1976 to 1994, Mr. Doherty was a vice president and
principal of Doherty & Co., an investment banking firm. During this time he was
involved in the early and later stage financing of companies such as Thoratec
Laboratories, SeraCare, Inc., Excalibur Technologies, and Cypress Biosciences,
Inc. Mr. Doherty attended Tufts University in Boston, Massachusetts. From 1994
to the present, Mr. Doherty has been a private investor and over the last year
and a half was involved with the early stage development of Protalex.
PAUL L. MANN, PH.D. Dr. Mann has served as Treasurer, Secretary and a director
of the Company since November 1999, and previously served as a director of
Enerdyne since August 1999. From October to November 1999, Dr. Mann was
Treasurer, Secretary and a director of Protalex. Dr. Mann is the inventor of
bioregulator therapy. After earning his bachelors and masters degrees at the
University of Victory in New Zealand, he pursued his Ph.D. at Queens University
in Canada and as an Inserm Fellow at the Centre Haeyem/Pasteur Institute in
Paris. He engaged in further research at the National Institute of Health in
Bethesda, Maryland and at John Hopkins University School of Medicine. In 1981,
he joined the faculty at the University of New Mexico School of Medicine in
Albuquerque, where he now holds the rank of Associate Professor in the College
of Pharmacy and in the Department of Family Practice. His research into the
biology and function of bioregulator compounds spans 20 years, resulting in more
than 2 dozen publications.
JON M. AASE, M.D. Dr. Aase has served as Vice President and a director of the
Company since November 1999, and previously served as a director of Enerdyne
since August 1999. Dr. Aase graduated from Pomona College in Claremont,
California and received his medical degree from Yale University in New Haven,
Connecticut. After a pediatric internship at the University of Minnesota and
residency at the University of Washington, he spent two years studying the
native population of Alaska as a fellow of the National Institute of Child
Health and Human Development. He then returned to Seattle for a two-year
fellowship in dysmorphology (the study of birth defects) with Dr. David W.
Smith. In 1974, Dr. Aase joined the faculty of the University of New Mexico
School of Medicine, where he served as chief of the dysmorphology division for
16 years. His bibliography contains more than 40 published articles and a
textbook, DIAGNOSTIC DYSMORPHOLOGY (Plenum, New York, 1990). Dr. Aase is now a
Clinical Professor of Pediatrics at the University of New Mexico. Dr. Aase is
the brother-in-law of Mr. Doherty.
ARTHUR D. BANKHURST, M.D. Dr. Bankhurst has served as a director of the Company
since November 1999, and previously served as a director of Enerdyne since
August 1999. Dr. Bankhurst earned his bachelors degree in biochemistry from the
Massachusetts Institute of Technology, and his M.D. from Case Western Reserve
University. He served as a research fellow at the Hall Institute of Medical
Research in Melbourne, Australia and as a senior research fellow at the WHO
Research Unit in Geneva, Switzerland. He joined the faculty of the University of
New Mexico in 1971, and now holds a joint professorship in internal medicine and
microbiology. Dr. Bankhurst's professional accomplishments in the fields of
arthritis and immunology are reflected in his being named Senior Investigator
for the Arthritis Foundation from 1974-1979, as well as serving as associate
editor of several prestigious medical journals. These journals include THE
JOURNAL OF IMMUNOLOGY (1984-1987), DIAGNOSTIC Immunology (1984-1988), and
CLINICAL IMMUNOLOGY AND IMMUNOPATHOLOGY (1988-present). With more than 140
publications to his credit, Dr. Bankhurst has a national reputation as an
investigator, and has participated in a number of multi-center trials of
anti-arthritis drugs.
JAMES K. STRATTMAN. Mr. Strattman has served as a director of the Company since
November 1999, and previously served as a director of Enerdyne since August
1999. Mr. Strattman is currently employed at Excalibur Technologies Corporation,
a publicly traded software company. He has held several senior executive
positions, including Director of Engineering and Director of Business
Development. During the last ten years, Mr. Strattman has provided venture
capital investments to several public companies through private placements.
15
<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE OFFICER COMPENSATION
The Company did not pay any of its executive officers, including its
Chief Executive Officer, any compensation during the fiscal year ended December
31, 1999.
EMPLOYMENT AGREEMENTS
The Company does not have employment agreements with any of its
executive officers.
DIRECTOR COMPENSATION
The Company does not compensate its directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Alex, LLC, a New Mexico limited liability company ("Alex"), holds
approximately 69.44% of the Company's outstanding common stock. Alex's Managing
Members, each of whom holds a 50% membership interest in Alex are John Doherty,
the Company's President, and Dr. Paul Mann, the Company's Treasurer and
Secretary. Mr. Doherty and Dr. Mann are also members of the Company's Board of
Directors.
The bioregulator technology which the Company intends to develop and
bring to market is currently licensed by the Company from Alex pursuant to a
Technology License Agreement. Under the Technology License Agreement, the
Company has the right to use the bioregulator technology to research, design,
develop, market and sell products which incorporate the bioregulator technology
and which are used for the therapeutic treatment of rheumatoid arthritis and
other forms of arthritis. In exchange for this right, the Company is required to
pay Alex a $20,000 non-refundable license fee. In addition, at the Company's
formation it issued to Alex 10,000 shares of its common stock, at an aggregate
value of $300, as partial payment for the license. The Company is not obligated
to pay Alex any royalties or other compensation based on the sale or
distribution of the Company's bioregulator products. The Technology License
Agreement also provides that if Alex is issued a patent for the bioregulator
technology it licenses to the Company, the Company will be allowed to continue
using the patented bioregulator technology, either by way of an amendment to the
Technology License Agreement or an agreement by Alex not to enforce its patent
rights against the Company.
In September 1999, Alex advanced $20,000 to the Company's counsel in
connection with the acquisition of Protalex by Enerdyne and the preparation of
this registration statement. The Company intends to repay this sum, along with
the $20,000 fee owed under the Technology License Agreement, within 120 days
after this registration statement is filed.
The Company leases an office facility under an oral agreement with Mr.
Doherty, pursuant to which Mr. Doherty does not charge the Company rent. See
"Description of Property."
The Company is a party to a Promissory Note in the amount of
$368,546.00, originally executed by Protalex pursuant to a Stock Purchase
Agreement between Protalex, Enerdyne and Don Hanosh. See "Corporate History."
The payments due under the Promissory Note are personally guaranteed by Mr.
Doherty and by James Strattman, a director of the Company.
16
<PAGE>
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings.
MARKET FOR COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
The Company's common stock is currently traded on the National
Quotation Bureau, LLC "Pink Sheets" under the symbol "ENDY." The common stock of
Enerdyne was traded on the OTC Bulletin Board, also under the symbol "ENDY." The
following table sets forth, for the fiscal periods indicated, the high and low
closing bid prices for the common stock of Enerdyne, as reported on the OTC
Bulletin Board. The quotations for the common stock traded on the OTC Bulletin
Board may reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
--------------------- --------------------
High Low
<S> <C> <C>
FISCAL YEAR 1997
FIRST QUARTER 0.125 0.125
SECOND QUARTER 0.125 0.125
THIRD QUARTER(1) N/A N/A
FOURTH QUARTER 0.125 0.125
FISCAL YEAR 1998
FIRST QUARTER(1) N/A N/A
SECOND QUARTER 0.125 0.125
THIRD QUARTER(1) N/A N/A
FOURTH QUARTER 0.125 0.125
FISCAL YEAR 1999
FIRST QUARTER 0.125 0.125
SECOND QUARTER(1) N/A N/A
THIRD QUARTER(1) N/A N/A
FOURTH QUARTER 0.125 0.125
</TABLE>
- -------------------
(1) No trading activity occurred for the common stock of Enerdyne during
the third quarter of fiscal year 1997, the first and third quarters of
fiscal year 1998, and the second and third quarters of fiscal year
1999.
As of February 1, 2000, the Company had 9,541,991 shares of common
stock outstanding, which were held by 354 shareholders of record. The
transfer agent for the Company's common stock is Standard Registrar &
Transfer Agency, P.O. Box 1411, Albuquerque, NM 87191. The Company's market
maker is Carr Securities, 1 Penn Plaza, Suite 4720, New York, NY 10019.
Pursuant to NASD Rule 6530 (the "Eligibility Rule"), the Company's
common stock was delisted from the OTC Bulletin Board on November 18, 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.
17
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its common
stock. The Company currently anticipates that it will retain all future earnings
for use in the operation and expansion of its business and does not anticipate
paying any cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
In November 1999, the Company issued a total of 8,289,048 shares of its
common stock to Protalex, Inc., a New Mexico corporation ("Protalex"), in
connection with its acquisition of Protalex pursuant to a Merger Agreement and
Plan of Reorganization. The Company issued these shares in reliance upon the
exemption from registration in Section 4(2) of the Securities Act of 1933, as
amended.
From November 1999 to January 2000, the Company sold a total of
459,444 shares of common stock, at a purchase price of $0.36 per share, to
six individual investors in a private placement transaction in reliance on
Rule 506 of SEC Regulation D. Each of the investors represented to the
Company that he or she was an "accredited investor," as defined in Regulation
D. The proceeds received by the Company from this offering were $165,400.
In January 2000, in reliance on Section 4(2) of the Securities Act
of 1933, as amended, the Company issued 100,000 shares of its common stock to
Dougherty and Hedrich, Attorneys at Law, in exchange for legal services
rendered with a value of $36,000.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 40,000,000 shares of common stock,
of which 9,541,991 shares were outstanding as of February 1, 2000. Holders of
common stock are entitled to dividends, pro rata, when, as and if declared by
the Board of Directors out of funds available therefor. Holders of common stock
are entitled to cast one vote for each share held at all shareholder meetings
for all purposes, including the election of directors. The holders of more than
one-half of the common stock issued and outstanding and entitled to vote,
present in person or by proxy, constitute a quorum at all meetings of
shareholders, but in no event shall a quorum consist of less than one-third of
the shares entitled to vote at such meetings. The vote of the holders of a
majority of common stock present at such a meeting will decide any question
brought before such meeting, except for certain actions which pursuant to the
New Mexico Business Corporations Act require the vote of a greater percentage of
the outstanding common stock. Upon liquidation or dissolution, the holder of
each outstanding share of common stock will be entitled to share equally in the
assets of the Company legally available for distribution to such shareholder
after payment of all liabilities. Under the Company's Articles of Incorporation,
holders of the Company's common stock are denied any preemptive, subscription,
redemption rights or registration rights.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New Mexico Business Corporations Act provides for indemnification
of a corporation's officers and directors for liabilities that they may incur in
such capacities. In general, a corporation has the power to indemnify any person
made a party to any proceeding by reason of the fact that the person is or was
an officer or directors if (i) the person acted in good faith, (ii) the person
reasonably believed, in the case of conduct in his official capacity with the
corporation, that his conduct was in the corporation's best interests, and in
all other cases, that his conduct was at least not opposed to the corporation's
best interests, and (iii) in the case of any criminal proceeding, the person had
no reasonable cause to believe his conduct was unlawful. However, the Company's
Articles of Incorporation and Bylaws do not provide for indemnification of the
Company's officers and directors.
Insofar as indemnification for liabilities arising under the Securities
Act may be available to directors, officers or persons controlling the Company
pursuant to the foregoing provision, the Company has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
18
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has not had any changes in or disagreements with its
accountants since inception.
19
<PAGE>
PART III
INDEX TO EXHIBITS
<TABLE>
<S> <C>
2.1* Stock Purchase Agreement among Protalex, Inc., Don Hanosh and Enerdyne
Corporation
2.2* Merger Agreement and Plan of Reorganization between Protalex, Inc. and
Enerdyne Corporation
3.1* Articles of Incorporation, as amended
3.2* Bylaws, as amended
10.1* Promissory Note in favor of Don Hanosh
10.2* Continuing and Unconditional Guaranty executed by John E. Doherty
10.3* Continuing and Unconditional Guaranty executed by James K. Strattman
10.4* Technology License Agreement
10.5* Form of Confidential Disclosure Agreement
27* Financial Data Schedule
</TABLE>
* Previously filed
20
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
PROTALEX, INC.
Date: February 18, 2000 By: /s/ John E. Doherty
-----------------------------
John E. Doherty, President
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ John E. Doherty
- ------------------------------------ President and Director February 18, 2000
John E. Doherty
/s/ Paul L. Mann, Ph.D
- ------------------------------------ Treasurer, Secretary and
Paul L. Mann, Ph.D Director February 18, 2000
/s/ Jon M. Aase, M.D.
- ------------------------------------ Vice President and Director February 18, 2000
Jon M. Aase, M.D.
/s/ Arthur D. Bankhurst, M.D.
- ------------------------------------ Director February 18, 2000
Arthur D. Bankhurst, M.D.
/s/ James K. Strattman
- ------------------------------------ Director February 18, 2000
James K. Strattman
</TABLE>
21
