As filed with the Securities and Exchange Commission on March 9, 2000
Registration No. 333-33662
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Amendment No. 1
Registration Statement
Under The
Securities Act of 1933
MOLECULAR DIAGNOSTICS & THERAPEUTICS, INC.
(Name of Small Business Issuer in its Charter)
Colorado
---------------------------------
(State or Other Jurisdiction
of Incorporation or Organization)
2835
----------------------------
(Primary Standard Industrial
Classification Code Number)
84-1191749
-------------------
(I.R.S. Employer
Identification No.)
1880 Industrial Circle, Suite B-3
Longmont, Colorado 80501
(303) 485-8500
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(Address and Telephone Number of Principal Executive Offices)
1880 Industrial Circle, Suite B-3
Longmont, Colorado 80501
-------------------------------------------
(Address and Principal Place of Business or
Intended Principal Place of Business)
Malcolm H. Benedict
2595 Canyon Blvd.,
Suite 160
Boulder, CO 80302
(303) 485-8500
---------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
Copy to:
Arnold R. Kaplan
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C.
1775 Sherman Street, Suite 2100
Denver, Colorado 80203
(303) 831-0909
Approximate Date of Proposed Sale to the Public:
As soon as practicable after this Registration Statement becomes effective.
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=====================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title Each Class of Securities Amount To Be Offering Aggregate Registration
To Be Registered Registered Price per share(1) Offering Price Fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 1,000,000 $10.00 $10,000,000 $2780
- ----------------------------------------------------------------------------------------------------------------------
Representative's Warrants to purchase 66,667 $.0001 $ 6.67 --
Common Stock
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value, 66,667 $10.00 $ 666,670 $ 185
issuable upon Exercise of
Representative's Warrants(1)
- ----------------------------------------------------------------------------------------------------------------------
Total.................................................$2965
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
MOLECULAR DIAGNOSTICS & THERAPEUTICS, INC.
CROSS-REFERENCE SHEET
(Between Items of Form SB-2 and Prospectus)
<TABLE>
<CAPTION>
Form SB--2 Item No. and Caption Prospectus Captions
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Front of Registration Front Cover Page; Plan of Distribution.
Statement and Outside Front
Cover of Prospectus.
- -------------------------------------------------------------------------------------------------------------------------
2. Inside Front and Outside Back Inside Front Cover Page;
Cover Pages of Prospectus. Available Information; Back Cover Page.
- -------------------------------------------------------------------------------------------------------------------------
3. Summary Information and Risk Prospectus Summary; The Company;
Factors. Risk Factors.
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4. Use of Proceeds. Use of Proceeds.
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5. Determination of Offering Price. Plan of Distribution.
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6. Dilution. Dilution.
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7. Selling Security Holders. Not Applicable.
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8. Plan of Distribution. Front Cover Page; Plan of Distribution.
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9. Legal Proceedings. Business.
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10. Directors, Executive Management; Principal Stockholders.
Officers, Promoters and
Control Persons.
- -------------------------------------------------------------------------------------------------------------------------
11. Security Ownership of Certain Beneficial Principal Stockholders.
Owners and Management.
- -------------------------------------------------------------------------------------------------------------------------
12. Description of Securities. Description of Capital Stock.
- -------------------------------------------------------------------------------------------------------------------------
13. Interest of Named Experts and Counsel. Experts.
- -------------------------------------------------------------------------------------------------------------------------
14. Disclosure of Commission Position on Indemnification.
Indemnification for Securities Act
Liabilities.
- -------------------------------------------------------------------------------------------------------------------------
15. Organization Within Last Five Not Applicable.
Years.
- -------------------------------------------------------------------------------------------------------------------------
16. Description of Business. Business.
- -------------------------------------------------------------------------------------------------------------------------
17. Management's Discussion and Analysis or Plan of Plan of Operation.
Operation.
- -------------------------------------------------------------------------------------------------------------------------
18. Description of Property. Business.
- -------------------------------------------------------------------------------------------------------------------------
19. Certain Relationships and Related Transactions. Certain Transactions.
- -------------------------------------------------------------------------------------------------------------------------
20. Market for Common Equity and Related Stockholder Front Cover Page; Capitalization; Dividends; Description
Matters. of Securities; Principal Shareholders.
- -------------------------------------------------------------------------------------------------------------------------
21. Executive Compensation. Management.
- -------------------------------------------------------------------------------------------------------------------------
22. Financial Statements. Selected Financial Data; Financial Statements.
- -------------------------------------------------------------------------------------------------------------------------
23. Changes in and Disagreements With Accountants Not Applicable.
on Accounting and Financial Disclosure.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
1,000,000 Shares
Molecular Diagnostics & Therapeutics, Inc.
Common Stock
1,000,000
The shares are being offered by the Selling Agents on a 200,000 share
minimum, 1,000,000 share maximum, best efforts basis at an offering price of $10
per share. The minimum must be reached by November 15, 2000, which period may be
extended for an additional 180 days at our option or funds will be returned
promptly without interest.
Prior to this offering, there has been no public market for the common
stock. We are applying for listing on The NASDAQ Small Cap Market.
Please see "Risk Factors" beginning on page 6 to read about certain
factors you should consider before buying shares of any common stock.
-------------------
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
--------------------
Total Total
Per Share Minimum Maximum
--------- ---------- ------------
Public offering price $ 10.00 $2,000,000 $ 10,000,000
Underwriting discount $ .80 $ 160,000 $ 800,000
Our Proceeds, before expenses $ 9.20 $1,840,000 $ 9,200,000
THREE ARROWS CAPITAL CORP. TRAVIS MORGAN SECURITIES, INC.
Prospectus dated May 15, 2000
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary, together with the more detailed
information concerning our company, including our financial statements and notes
to those financial statements, that appear elsewhere in this prospectus.
Our Company
We are a development stage company that was organized under the laws of
the State of Colorado on February 19, 1992. Since our inception, our efforts
have been devoted primarily to organizational activities, including obtaining
equity funding and preparing applications for federal and state licensing and
regulatory approvals which are required for us to commence our proposed
operations. We have had no revenues from operations since our inception. Our
auditors have issued their report, dated June 22, 1999, expressing their concern
that our lack of revenues and significant operating losses since our inception
raises a substantial doubt regarding our ability to continue as a going concern.
Our Business
We plan to manufacture, market and distribute a range of
radiopharmaceuticals, which are radioactive drugs used for diagnostic purposes,
and radiochemicals, which are radioactive substances, to the nuclear medicine
industry, an endeavor that represents the merger of medicine and biology. We
will employ new machines and techniques in a proprietary approach that produces
superior quality products while sharply lowering costs. Radiopharmaceuticals and
radiochemicals are used to identify and label radioactive elements in medical
diagnostics, biological research and commercial applications. According to the
Institute of Medicine, while the production methods of radiopharmaceuticals are
antiquated, the nuclear medicine industry is growing substantially, with an
estimated $7 to $10 billion dollars spent annually in the United States alone,
thirteen percent (13%) of which represents radiopharmaceuticals (Isotopes for
Medicine and Life Sciences, National Academy Press: 1995). We will employ an
Internet site for our marketing applications and to serve as one of the portals
for all levels of users.
Our Approach
Nuclear medicine is the field that administers radioactive drugs to
patients for the diagnosis of diseases such as heart disease and cancer. When
these radiopharmaceuticals are given to a patient, they are taken up within the
body according to their physical and chemical properties. These individual
radiopharmaceuticals are chosen based on their attraction for particular body
organs or other sites of clinical concern. Radiopharmaceuticals are different
from standard pharmaceuticals since they are not intended to change the body's
normal biological functions. Radioactive elements behave chemically and
pharmacologically in a manner similar to their non-radioactive counterparts. We
intend to acquire several unique and powerful new radioactive element production
machines called cyclotrons that will provide us with the capability to make less
expensive and purer radioactive elements than the competition. We will combine
our manufacturing approach with a computerized robotic system that:
o Reduces manufacturing labor costs;
o Enables a 24-hour production and quality control cycle;
o Reduces staff exposure to radiation;
o Eliminates expensive, repetitive errors;
o Guarantees consistent quality with every batch of
radiopharmaceuticals; and
o Permits local delivery with lower inventory wastage.
3
<PAGE>
Our system replaces lower amperage, single beam instruments using
manual procedures that have produced poorer quality and higher cost . We believe
that:
o Our technology and process will change the production methods
for radiopharmaceuticals;
o We have sharply superior technology compared to existing
manufacturers;
o We can manufacture with high gross margins;
o Our products will improve the quality of healthcare.
We are prepared to file the necessary applications required for
licensing and regulatory approval from the Colorado Department of Public Health
and Environment--State Laboratory and Radiation Services Division for the
handling of radioactive materials and with the Food and Drug Administration for
the operation of a nuclear medicine laboratory and for the production of iodine
radiochemical products. Under an agreement between the State of Colorado and
Nuclear Regulatory Commission, approval of our application by the State of
Colorado will provide us with all necessary approval by the Nuclear Regulatory
Commission. We have entered into a pre-contract agreement, dated March 11, 1998,
with EBCO Technologies, Inc. for the acquisition of the most powerful
radioactive element production machine, called a cyclotron, of its kind. Our
initial eight radiopharmaceuticals provide the highest market opportunity for
us. See "Business - Business Strategy."
Business Strategy
Our success will be dependent, in large part, upon our ability to
identify and adequately penetrate the market for our radiochemical and
radiopharmaceutical products. We plan to acquire a powerful cyclotron, designed
by our CEO and manufactured by EBCO Technologies, Inc. which, together with our
automated robotic system for the manufacture of our products, will provide us
with the most powerful radioactive element production cyclotron of its kind.
This instrument is capable of providing higher beam current and multiple (5)
beam lines. Increasing the beam current focuses higher energy that produces
higher purity radioactive atoms, called radioactive elements, with greater
commercial yields. Multiple beam lines increase the number of radioactive
elements produced at a given time.
We will also produce radiopharmaceutical products called technetium-99m
generators. Technetium-99m is used in certain diagnostic procedures.
The radioactive drug producing equipment, coupled with computerized
robotics, provide a fully automated and integrated system for the manufacture of
radioactive drugs. Computerized robotic manufacturing provides numerous
advantages to the system for the production by generating higher purity, higher
yield, and cost-effective radioactive drugs. Our system replaces instruments
using manual procedures for the production of radiopharmaceuticals. These
antiquated instruments, coupled with outdated procedures, produce poor and
inconsistent quality, low yield, and higher cost radiopharmaceuticals.
Recent Developments
We are currently negotiating for interim loan financing in an amount up
to $1,000,000 million dollars, which will be used to open and equip our
temporary facility and obtain the raw materials necessary to begin manufacturing
and marketing of sodium iodide 123, a radiopharmaceutical which is used to study
the thyroid gland. In this regard, we have received an oral commitment from
Oxford International, Inc. to loan us $500,000 for a period of one year. We are
presently negotiating the remaining terms of this loan, as well as negotiating
with other parties for an additional loan of $500,000. Furthermore, we have also
obtained a commitment from D.V.I. Financial Services, Inc. to finance the
acquisition of our first cyclotron from EBCO Technologies, Inc., in the amount
of $10 million, upon our having a net worth of at least $2.5 millions dollars
and fulfilling other conditions contained in the commitment. This equipment
financing will be in the form of an equipment lease.
4
<PAGE>
Our Offices
Our principal executive offices are located at 1880 Industrial Circle,
Suite B-3, Longmont, CO 80501, and our telephone number is (303) 485-8500; fax
(303) 485-7099. We expect to lease our temporary facility and construct our
permanent facility for our manufacturing operations in Longmont, Colorado;
however, we have not identified a specific site for our temporary facility at
this time. With respect to our permanent facility, we have entered into a
contract to purchase approximately 5.5 acres of land (with an option for an
additional 5 acres) in Weld County, Colorado, upon which we plan to construct
our permanent facility. That contract is subject to the fulfillment of several
conditions, and we cannot guarantee at this time that the purchase will be
completed. See "BUSINESS - Our Facilities."
We are a development stage company that was organized under the laws of
the State of Colorado on February 19, 1992.
The Offering
Shares offered by us....................... 1,000,000
Shares to be outstanding after this
offering, if all shares are purchased.... 9,654, 515
Use of Proceeds............................ Deposit on building;
Purchase of equipment for our
plant; Working capital and
general corporate purposes.
See "USE OF PROCEEDS."
SUMMARY FINANCIAL INFORMATION
The following summary financial and other data for each of the years
ended March 31, 1999 and 1998 have been derived from our audited financial
statements included elsewhere in this prospectus. The summary financial and
other data for each of the nine months ended December 31, 1999 and December 31,
1998 are derived from our unaudited financial statements which, in our opinion,
consist of normal recurring adjustments necessary for a fair presentation of
this information, have been prepared on the same basis as the audited financial
statements, and include all adjustments necessary to a fair presentation of this
information. We have not commenced operations at this time and have had no sales
as of this date. You should read "Plan of Operations" and our financial
statements and notes included elsewhere in this prospectus for a further
explanation of the financial data summarized here.
<TABLE>
<CAPTION>
Year Ended March 31, Nine Months Ended December 31,
-------------------- ------------------------------
1998 1999 1998 1999
---- ---- ---- ----
(unaudited) (unaudited)
Statement of Operations Data:
- ----------------------------
<S> <C> <C> <C> <C>
Revenues $0 $0 $0 $0
Gross profit (loss) -0- -0- -0- -0-
Income (loss) from operations (277,085) (751,817) (382,066) (508,777)
Net income (loss) - historical
Historical net income (loss) (0.04) (0.10) (0.05) (0.06)
Weighted average common shares
Outstanding(1) 6,763,943 7,608,692 7,518,516 8,346,570
</TABLE>
(1) After giving effect to a 3 for 2 reverse stock split completed in November,
1999
Balance Sheet Data: At March 31, 1999 At December 31, 1999
- ------------------ ----------------- --------------------
(unaudited)
Working capital (3,045) $ 26,652
Total assets 40,431 69,154
Total liabilities 9,940 17,742
Shareholders' equity 30,941 51,412
5
<PAGE>
RISK FACTORS
An investment in the shares of common stock offered this prospectus
involves a high degree of risk. In addition to the other information contained
in this prospectus, including the financial statements, notes thereto, the
following risk factors should be considered carefully by prospective investors,
who should be in a position to risk the loss of their entire investment.
Because we are a development stage company, we have no operating
history upon which you can base your investment decision.
Although we were incorporated in 1992, we are in the development stage
and have not sold any radiochemical or radiopharmaceutical products. We have no
operating history upon which you may evaluate our business and prospects. Our
prospects must be considered in light of risks, expenses, delays, problems and
difficulties frequently encountered by development stage companies.
If we do not receive licensing and regulatory approval, we will not be
able to commence operation.
We have not filed any application for licensing and have not received
any regulatory approval for our products or our operations. Until such time, if
ever, as we file necessary applications and receive necessary regulatory
approvals, we will not be able to commence operations.
If we require additional capital sooner than we anticipate, funds may
not be available on acceptable terms, or shareholders may experience dilution of
their investment.
Based on our current operating plan, we anticipate that the net
proceeds of this offering and cash provided by operations will allow us to meet
our cash requirements for at least 12 months. However, we may require additional
funding sooner than anticipated. In addition, unplanned acquisition and
development opportunities may arise, which could require us to raise additional
capital. If we raise additional capital through the sale of equity, including
preferred stock and/or convertible debt securities, the percentage ownership of
our then existing shareholders will be diluted. We cannot be certain that
additional financing will be available when we may need it. If adequate funds
are not available on acceptable terms, we may be unable to obtain necessary
federal and state licenses and regulatory approvals, fund our expansion, develop
or enhance our products, or respond to competitive pressures. This limitation
could have a material adverse effect on our business, financial condition and
results of operations.
Our current financial position is precarious and our auditors have a
"going-concern" issue.
Since December 31, 1999, our working capital position has continued to
deteriorate. At December 31, 1999, we had an accumulated deficit of $2,485,312.
We had a net loss for the nine months ended December 31, 1999 of $508,777. These
losses have resulted in significant liquidity problems for us. Our independent
auditors issued their report, dated June 22, 1999, for the year ended March 31,
1999, which indicates that our losses and liquidity problems have raised
substantial doubt about our ability to continue as a going concern. See
"Financial Statements for the Years Ended March 31, 1999 and 1998.
If our underwriters do not sell all of the shares we are offering, we
may not be able to fully implement our business plan.
This offering of our common stock is conducted on a "best efforts"
basis by Three Arrows Capital Corp. and Travis Morgan Securities, Inc. We are
required to sell a minimum of 200,000 shares within a six month time period
(which period may be extended for an additional 180 days, at our option) to
break escrow, and no funds will be released to us until such time as this sale
has been made. No underwriter, placement agent, or other person has contracted
with us to purchase or sell all or any of the shares. There is no assurance that
we will be capable of selling all or any of the shares. If less than all of the
shares offered are sold, we will not be able to rapidly realize the plans set
forth in the Business section of this prospectus and will rely instead on our
internal growth and/or bank or other financing for our expansion.
6
<PAGE>
Since this offering will be registered in a limited number of states,
not all potential buyers will be able to purchase shares and this may affect our
ability to sell all of the shares.
This offering will be qualified in a limited number of states, which
means that not all potential buyers of the shares will be able to do so without
separate registration, or an exemption from registration, which could affect our
ability to sell all of the shares offered or even to sell the minimum number of
shares within the offering period.
If we lose our key personnel or are unable to recruit additional
personnel, our business may suffer.
We are dependent on the efforts of our senior management and scientific
staff, including Malcolm Benedict, Dr. Donald Ludwig, and others. Currently, Mr.
Benedict and Dr. Ludwig are the only members of our management who have any
experience or expertise in radiochemical and radiopharmaceutical business. The
loss of either of these individuals could have a material adverse effect upon
us. We intend to apply for key man life insurance policies on the lives of Mr.
Benedict and Dr. Ludwig. The coverage under these policies may be inadequate to
compensate us for the loss of any of these individuals. Our future success will
depend in large part upon our ability to attract and retain skilled scientific,
management, operational and marketing personnel, as to which we can offer no
assurance.
Because we believe there are limited resources for the raw materials
that we require, we may not be able to sell sufficient amounts of our products
to become or remain profitable.
Enriched stable materials, which are used as targets, are bombarded
with protons to produce radioactive elements. The principal United States source
for enriched stable material is the Oak Ridge National Laboratory in Oak Ridge,
Tennessee, which relies on government funding for continuing production.
Although these radioactive elements are currently also available from Germany,
Russia, Israel, Canada, South Africa, China and other foreign sources, there can
be no assurance that there will continue to be an adequate supply of enriched
stable materials. This lack of supply could materially adversely impact our
ability to manufacture radiochemicals and radiopharmaceuticals, which in turn,
would have a material adverse effect upon our profitability. Although the energy
level and beam intensity of our system are expected to be sufficient to produce
most radiochemicals and radiopharmaceuticals from unenriched stable materials,
which are in abundant supply, the production process will require various
proprietary chemical separation techniques, and we cannot assure that these
techniques will be successful.
Since we are not seeking patent protection for our technological
innovations, competitors may be able to copy our methods.
We currently do not own any patents, though we may file patent
applications for some of our modifications and improvements, and to protect
others as trade secrets. We cannot assure, however, that patents on such
modifications and improvements will be issued or, if issued, that such patents
or modifications and improvements protected as trade secrets will provide
meaningful protection. We intend to proceed with or without patent protection,
since we believe that the disclosure requirements of federal patent laws provide
competitors with easy access to the secrets of rapid changing technology.
7
<PAGE>
If we divert the use of funds from this offering to other purposes, the
results may be less productive than those originally intended
Although we intend to apply net proceeds from the sale of the common
stock in the manner described under "Use of Proceeds," we have broad discretion
within such proposed uses as to the precise allocation of the net proceeds, the
timing of expenditures and all other aspects of the use thereof. If we divert
funds from the use originally intended in our business plan, such as developing
one radiopharmaceutical before another radiopharmaceutical, the result could be
that the radiopharmaceutical developed may fail to be productive or may be less
productive than the one we originally intended to develop first. Investors will
be required to rely upon the judgment of management as to the best allocation of
our assets.
Since members of our Medical and Scientific Advisory Board are employed
by other companies, there may be potential conflicts of interest.
To further assist in the development of our technologies, we have
established a Medical and Scientific Advisory Board comprised of individuals
with technical and scientific credentials who are expected to advise us on
technical and scientific issues. There can be no assurance that we will be
successful in maintaining such a group. We anticipate that the technical
advisors will review the technical progress of our products, engineering and
research and development. We may obtain technical advisors individually on a
consulting basis to perform work specifically for and at our direction. We do
not intend to retain individuals to serve as technical advisors whose primary
employers, or other third parties with whom such individuals have consulting
arrangements, are in competition with us; however, our technical advisors will
likely be employed on a full-time basis by academic or research institutions.
Accordingly, our technical advisors will be able to devote only a portion of
their time to our business and research activities and may have potential
conflicts of interest. See "Management - Medical and Scientific Advisory Board."
If third party payors fail to pay us, our revenues from our diagnostic
imaging center could suffer.
We anticipate that a large percentage of our revenues from our PET
diagnostic imaging center, a newer diagnostic procedure in nuclear medicine that
identifies abnormal cell areas in the body, will come from third-party payors.
We believe that our ability to operate our PET diagnostic imaging center at
levels sufficient to be profitable will be directly related to the coverage and
reimbursement policies of third party payors. If third party payors do not
provide adequate coverage and reimbursement levels, the revenues from this line
of business would be materially adversely affected.
8
<PAGE>
Investors in this offering will realize immediate and substantial
dilution and pay considerably more than early investors
Purchasers of the common stock in this offering will experience
immediate and substantial dilution in the net tangible book value of the shares
of common stock purchased by them in this offering of $9.04 per share or 90% per
share, assuming all shares offered by us are purchased. The current
shareholders, including our officers and directors, acquired their shares of
common stock for nominal consideration or for consideration substantially less
than the assumed initial public offering price. As a result, new investors will
bear substantially all of the risks inherent in an investment in us.
The price for the shares has been determined arbitrarily and without
regard to book value or a measurement of present value. In addition, there is no
public market for the common stock at the present time.
The initial public offering price of the common stock will be
determined arbitrarily by discussions between the Selling Agent and us. Factors
considered in such negotiations, in addition to prevailing market conditions,
will include the history and prospects for the industry in which we compete, an
assessment of our management, our prospects, our capital structure and certain
other factors as we deem relevant. Therefore, the initial public offering price
per share of the common stock will not necessarily bear any relationship to
established valuation criteria and, accordingly, may not be indicative of prices
that may prevail at any time or from time to time in the public market. Prior to
this offering, there has been no public market for the common stock, and we
cannot assure that an active trading market will develop after this offering or,
if developed, that the market will be sustained.
We do not anticipate paying cash dividends to shareholders in the
foreseenable future.
We have never paid cash dividends on our common stock, and do not
expect to pay cash dividends in the foreseeable future. Any profits realized
from our operations are expected to be reinvested in our further development.
A large number of shares may come on the market at a later time and
substantially depress the market price
Sales of common stock in the public market after this offering could
materially and adversely affect the market price of the common stock and might
make it more difficult for us to sell equity securities or equity related
securities in the future at a time and price that we deem appropriate. Upon the
completion of this offering, assuming all shares offered hereby are purchased,
we will have 9,654,515 shares of common stock outstanding. Of these shares, the
1,000,000 shares of common stock sold in this offering will be freely tradable
(unless held by our affiliates) without restriction. The remaining 8,654,515
shares currently outstanding are restricted securities within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The holders of
4,661,489 shares, constituting directors, executive officers, and certain
principal shareholders, have agreed for a period of 12 months after the date of
this prospectus not to sell, directly or indirectly, any shares owned by them
without the prior written consent of us and the Selling Agent.
9
<PAGE>
We and the Selling Agent jointly may, at any time without notice,
release all or any portion of the shares subject to such lock-up agreements.
Prior to the expiration of the 12-month lock-up period, 4,661,489 shares and,
upon expiration of the twelve month lockup period, all of the shares of common
stock held by existing shareholders will be eligible for immediate public resale
under Rule 144, subject to the volume limitations and other requirements of Rule
144.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our
current expectations, assumptions, estimates and projections about our systems
and our industry. These forward-looking statements involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, as more
fully described in the "Risk Factors" section and elsewhere in this prospectus.
We undertake no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.
USE OF PROCEEDS
The net proceeds to us from the sale of a minimum of 200,000 shares of
common stock and a maximum of 1,000,000 shares of common stock offered by us are
estimated to be, after deducting underwriting commissions, used approximately as
follows:
Minimum
<TABLE>
<CAPTION>
Approximate Percentage
Approximate Dollar Amount of Net Proceeds
------------------------- ----------------------
<S> <C> <C>
Sales, marketing and customer service $ 225,000 12%
Test and installation of equipment 125,000 7%
Expansion of production facilities 825,000 45%
Development for Proprietary Equipment 365,000 20%
Working capital and general purposes 300,000 16%
Total $ 1,840,000 100%
</TABLE>
Maximum
<TABLE>
<CAPTION>
Approximate Percentage
Approximate Dollar Amount of Net Proceeds
------------------------- ----------------------
<S> <C> <C>
Sales, marketing and customer service $ 400,000 4%
Test and installation of equipment 400,000 4%
Expansion of production facilities 6,000,000 65%
Development for Proprietary Equipment 1,600,000 17%
Working capital and general purposes 800,000 9%
Total $ 9,200,000 100%
</TABLE>
10
<PAGE>
The minimum amount will allow us to obtain the necessary licensing for
and open our temporary facility and begin production of Iodine-123
radiochemical, which should allow us to become a profitable operating company
and fund our operations for approximately 12 months. If less than the maximum
amount is raised, we will determine the proper allocation of the amount raised
to be used toward the acquisition and construction of our permanent facility,
equipping the same and commencing production of additional products, as
described in this prospectus, within the following ranges.
Sales, marketing and customer support. Represents anticipated costs
associated with marketing our systems to targeted markets (from $56,250 to
$100,000) and advertisers, including salaries for from two to four employees
that market our systems (from $112,500 to $200,000) and travel expenses with
respect to marketing (from $56,250 to $100,000).
Test and installation of equipment. Represents anticipated costs
associated with the development of our cyclotron (from $31,250 to $100,000),
robotic equipment (from $62,500 to $200,000) and PET Camera (from $31,250 to
$100,000).
Expansion of production facilities. Represents costs associated with
expanding our in-house capabilities, including proprietary equipment (from
$103,125 to $750,000), formulation equipment (from $103,125 to $750,000) and
radiation monitoring (from $125,000 to $900,000). Costs include additional
design (from $50,000 to $150,000), simulation (from $25,000 to $60,000), test
equipment (from $40,000 to $160,000) and the purchase of additional prototypes
(from $189,000 to $1,900,000). Includes salaries for from four to 20 production
employees (from $189,750 to $1,380,000).
Development for Proprietary Equipment. Represents costs associated with
protecting employees and the public from radiation exposure, including hiring
from one to five additional employees (from $54,750 to $240,000), design,
construction and testing of proprietary equipment (from $54,750 to $240,000), as
well as installation of radioactive monitoring systems (from $182,500 to
$800,000).
Working capital and general corporate purposes. Working capital may be
used, among other things, to pay offering expenses, salaries of our employees,
rent, trade payables, professional fees and other operating expenses. Please see
"MANAGEMENT."
The allocation of the net proceeds from this offering set forth above
represents our best estimate based upon all shares offered by us being purchased
and our currently proposed plans, as well as assumptions relating to our
operations and certain assumptions regarding general economic conditions. If any
of these factors change, we may find it necessary or advisable to reallocate
some of the proceeds within the above-described categories or to use portions
for other purposes.
We anticipate that the net proceeds of this offering, even on a minimum
basis, together with our projected revenues from our operations from our
temporary facility, will be sufficient to fund our operations and capital
requirements for at least 12 months following this offering. We cannot assure,
however, that such funds will not be expended earlier due to unanticipated
changes in economic conditions or other circumstances that we cannot foresee. If
our plans change or our assumptions change or prove to be inaccurate, we could
be required to seek additional financing sooner than currently anticipated. We
also expect that, when the opportunity arises, we may acquire or invest in
complementary businesses, products or technologies. We have no present
understandings, commitments or agreements with respect to any material
acquisition or investment.
Pending the use of proceeds in the manner mentioned above, the net
proceeds of this offering will be invested principally in short-term,
interest-bearing investment grade securities.
11
<PAGE>
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
We do not intend to declare or pay any dividends on our common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance the expansion of our business.
DILUTION
Purchasers of the common stock offered hereby will experience an
immediate and substantial dilution in the net tangible book value of their
common stock from the offering price. Our net tangible book value as of December
31, 1999 was $51,412 or $.006 per share of common stock. Net tangible book value
per share represents the amount of our tangible net worth divided by the total
number of shares of common stock outstanding as of December 31, 1999. After
giving effect to the sale of 1,000,000 shares of common stock by us in the
offering and the application of the net proceeds therefrom (assuming the maximum
offering is subscribed and after deduction of underwriting discounts and
commissions and estimated offering expenses payable), our pro forma net tangible
book value as of December 31, 1999 would have been $9,251,412 or $.958 per share
of common stock. This represents an immediate increase in net tangible book
value of $.952 per share to existing shareholders and an immediate dilution of
$9.042 per share to purchasers of shares in this offering. The following table
illustrates the per share dilution:
Offering price: $10.00
Net tangible book value per common share before the offering $ .006
Per share increase attributable to new investors $ .952
Pro forma net tangible book value per share after the offering $ .958
Dilution in net tangible book value per share to new investors $9.042
The offering price of the shares has been determined based on an
estimate by us of our earnings potential over the next five years and other
factors. See "RISK FACTORS" and "PLAN OF DISTRIBUTION." Management makes no
representations that we will generate such earnings, and there can be no
assurance as to when we will generate revenues and earnings, if ever. The
offering price is arbitrary and does not reflect our asset value, net worth,
present earnings, cash flow or any other established criteria of value. The
offering price of the shares may or may not be an indication of their present
value or the value of our Company or their future value or our future value.
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
1999 and as adjusted to give effect to the sale of 1,000,000 shares (assuming
the maximum number of shares offered hereby are sold) and the application of the
estimated net proceeds therefrom, assuming an offering price at $10.00 per share
for the common stock. No stock splits, stock dividends, or other forms of
recapitalization are planned at this time. See "Use of Proceeds."
<TABLE>
<CAPTION>
Amount Outstanding As of December 31, 1999
----------------------------------------------
Prior to Offering After Offering
----------------- --------------
<S> <C> <C>
Accounts Payable: $ 17,742 $ 17,742
Total Liabilities $ 17,742 $ 17,742
Shareholder's (deficit) Equity:
Preferred Stock, 5,000,000 authorized
No par value, 0 shares issued and
Outstanding on December 31, 1999 -0- -0-
Common stock, 45,000,000 authorized
No par value, 8,654,515 shares issued
and outstanding, on December 31, 1999. $2,683,279 $11,883,279
(after giving effect to stock split)
Total shareholders' equity $ 51,412 $ 9,251,412
</TABLE>
12
<PAGE>
The following table sets forth a comparison as of December 31, 1999 of
the number of shares of common stock acquired by current shareholders from us,
the total consideration paid for such shares of common stock and the average
price per share paid by such current shareholders and to be paid by the
prospective purchasers of the shares (based upon an offering price of $10.00).
<TABLE>
<CAPTION>
Shares Purchased Consideration
--------------------- -------------------------- Average Cash Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Existing shareholders* 8,654,515 89.6 $ 2,683,279 21.2 $ .31
New investors 1,000,000 10.4 $10,000,000 78.8 $10.00
--------- ------ ---------- -----
Total 9,654,515 100.0 $12,683,279 100.0 $ 1.31
</TABLE>
- -----------------------------
* - reflect 3 for 2 reverse split
SELECTED FINANCIAL DATA
The selected statements of operations data for the years ended March
31, 1998 and March 31, 1999 and for the nine- month periods ended December 31,
1998 and December 31, 1999 and the selected balance sheet data as of March 31,
1999 and December 31, 1999 have been derived from the audited and unaudited
financial statements included elsewhere in this prospectus. Results for the nine
months ended December 31, 1999 are not necessarily indicative of those for the
full fiscal year. The data presented below should be read in conjunction with
"Plan of Operation" and the financial statements and accompanying notes thereto
appearing elsewhere in the prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
---------------------- ----------------------
1998 1999 1998 1999
---- ---- ---- ----
Statement of Operations Data: (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 0 $ 0
Cost or revenues 0 0 0 0
Gross profit 0 0 0 0
Operating costs and expenses:
Selling, general and administrative 209,376 594,660 366,266 422,725
Research and development 67,600 157,157 15,800 86,052
Total operating costs and expenses 276,976 751,817 382,066 508,777
Income (loss) from operations (276,976) (751,817) (382,066) (508,777)
Interest income (expense), net (109) -0- -0- -0-
Net income (loss) - historical (277,085) (751,817) (382,066) (508,777)
Historical net income per share -
Weighted average common shares outstanding(1) 6,763,943 7,608,692 7,518,516 8,346,570
- basic (0.04) (0.10) (0.05) (0.06)
- diluted (0.04) (0.10) (0.05) (0.06)
</TABLE>
(1) After giving effect to a 3 for 2 reverse stock split completed in
November, 1999
13
<PAGE>
The adjusted balance sheet data as of December 31, 1999 reflects the
sale of 1,000,000 shares of common stock offered hereby after deducting the
underwriting commission and other offering expenses.
<TABLE>
<CAPTION>
As of March 31, 1999 December 31, 1999
-------------------- ----------------
Balance Sheet Data: (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 4,883 $44,394
Working capital $(3,045) $26,652
Total assets $40,431 $69,154
Total liabilities $ 9,940 $17,742
Total stockholders' equity $30,491 $51,412
</TABLE>
PLAN OF OPERATION
The following Plan of Operation should be read in conjunction with our
financial statements and notes thereto and the other financial information
included elsewhere in this prospectus. In addition to historical information,
this plan of operation and other parts of this prospectus contain
forward-looking information that involves risks and uncertainties. Our actual
results could differ materially from those anticipated by such forward-looking
information as a result of certain factors including, but not limited to, those
set forth under "Risk Factors" and elsewhere in this prospectus.
We are a development stage company and have not had any revenues from
operations; however, we believe our technological and production techniques will
allow us to become a significant domestic producer of radiochemicals and
radiopharmaceuticals for retail and commercial sale to the nuclear medicine
industry. Since our inception, our operations have been limited to developing
the concept for our cyclotron and related automatic robotic system, designing
facilities for its operations, identifying land, preparing license applications
and raising capital.
As was discussed in the Use of Proceeds section, if we sell only the
minimum number of shares offered, the net proceeds will enable us to open our
temporary facility and to begin manufacturing and marketing Iodine 123. If we
are unable to sell the minimum number of shares being offered, we will continue
to seek debt or equity financing through private sources in an amount sufficient
to open our temporary facility and then attempt to fulfill our business plan
from anticipated earnings.
We intend to finance the acquisition of the cyclotron, the production
facility and the majority of the robotic and manufacturing equipment. We expect
to pay interest on the construction loans and advances to the cyclotron
manufacturer during the course of construction. The following plan of operation
is based upon our selling the maximum number of shares being offered. If we sell
less than the maximum, we will determine the proper allocation of the proceeds
received in excess of the minimum net proceeds.
During the first quarter following funding, we will hire five
additional people, including a radio-chemist, a controller (CPA) and three
clerical people. We will begin filing the applications for the various licenses
that will be required. We will complete the acquisition of the land for the
permanent facility, including our manufacturing facility, corporate offices and
PET diagnostic imaging center. We will also lease a temporary facility and begin
constructing the robotic processes that will be employed with the cyclotron
production processes. EBCO Technologies, Inc. will begin constructing the
cyclotron and orders for related equipment will be placed. Construction will
commence upon the permit approval process acceptance. Cash expended will be as
follows:
General and administrative expenses $ 405,000
Acquisition of property and equipment $ 1,246,000
-----------
First quarter expenditures $ 1,651,000
===========
14
<PAGE>
During the second quarter following funding, construction will proceed
on the permanent facility. The manufacture of the cyclotron will also proceed.
Work on various applications will still be in process. Our computer system,
phone system and laboratory equipment will be ordered. Additional robotic
equipment will be purchased. We will begin the implementation of our marketing
department, including the hire of two additional personnel. Cash expended during
this quarter will be as follows:
General and administrative expenses $ 433,000
Acquisition of property and equipment $ 620,000
-----------
Second quarter expenditures $ 1,053,000
===========
During the third quarter following funding, we will hire four new
personnel to be used in human resources, accounting and clerical positions.
Construction of the permanent facility and the cyclotron will continue. We also
anticipate that our temporary facility will be licensed and will commence
operations. Work will also progress on the various applications. Final payments
will be made on the phone system, and computer system. Furniture and fixtures
for the permanent facility will be ordered. We will begin the development of
other production systems for additional products and begin the coordination of
the radiation monitoring system and its installation. Cash will be expended
during this quarter as follows:
General and administrative expenses $ 500,000
Acquisition of property and equipment $ 1,350,000
-----------
Third quarter expenditures $ 1,850,000
===========
In the fourth quarter following funding, the permanent facility will be
completed. The cyclotron and related production equipment will be installed. The
permanent facility will be occupied. The full level of general and
administration expenses of $323,000 per month will be reached in the twelfth
month. Ten technical personnel, including the cyclotron crew, will be hired.
Additional production equipment will be purchased. Cash outlays during this
quarter will be as follows:
General and administrative expenses $ 860,000
Acquisition of property and equipment $ 900,000
Financing and lease payments $ 815,000
-----------
Fourth quarter expenditures $ 2,575,000
===========
Production and sales are expected to begin during the thirteenth month
from our permanent facility; we anticipate sales of sodium iodide-123 from our
temporary facility beginning in the third quarter following funding; however, we
have not estimated a sales figure for these purposes. Throughout the
twelve-month period, excess funds will be invested in money market instruments.
Estimated interest income of $320,000 is expected.
Proceeds of offering $ 9,200,000
Interest income $ 320,000
------------
Funds available $ 9,520,000
Cash expended during first twelve months $ 7,129,000
------------
Balance available for further working capital
$ 2,391,000
============
15
<PAGE>
We anticipate that the balance available for further working capital,
together with revenues from sales of Iodide-123 from our temporary facility
beginning in the third quarter following funding, and revenues from sales of
Iodide-123 and other products from our permanent facility commencing in the
thirteenth month following funding, will sustain us until we become profitable;
however, if we have not become profitable by the time these funds have been
expended, we may have to seek capital from other sources, including debt and/or
equity financing to continue operations.
Our program for the balance of 2000 and the first half of 2001 is to
complete construction of its manufacturing facility. We will begin development
of our sodium iodine-123 radiochemical manufacturing and distribution program.
We will also pursue formal relationships with various distributors, universities
and medical institutions. Our PET diagnostic imaging center, which consists of
our second product, fluorine-18 FDG, a radiopharmaceutical, will be a service to
the medical community of the local and surrounding regions. This will be
accomplished by offering the local medical communities with the access to the
latest PET diagnostic imaging procedures, without the high costs associated with
the development with a PET diagnostic center. Following the completion of
construction, we intend to move our principal executive offices to our permanent
facility and to use that facility to assemble proprietary equipment and finalize
the installation and testing of the cyclotron components (targets).
We have allocated a portion of the net proceeds from this offering for
the development of proprietary equipment (See "Use of Proceeds") and also the
purchase of wholesale quantities of radiochemicals. We also intend, prior to
completion of the manufacturing facility, to enter into preliminary contracts
with distributors, universities and medical institutions throughout the United
States, and to pursue formal commitments with foreign sources, such as sources
in Europe, Russia and Israel, for the acquisition of enriched stable materials
necessary for the production of radiochemicals and radiopharmaceuticals;
however, there can be no assurance of obtaining these radioactive elements.
We have recently commenced a $25.0 million capital expansion
undertaking that includes $10.0 million in equity offered hereby, $10.0 million
in debt for the purchase of our first cyclotron and $5.0 million for the
construction of new production and administrative facilities. Although no
assurances can be given, we expect that the new cyclotron and facilities will
become operational before the middle of 2001. We intend to apply a portion of
the net proceeds of this offering toward the purchase of equipment to be
installed in calendar year 2000 and use the remainder for working capital and
other corporate purposes as appropriate. See "Use of Proceeds."
During the course of our development activities from February 2, 1992
through December 31, 1999, we have sustained operating losses, and have an
inadequate cash supply. From February 19, 1992 (inception) through December 31,
1999, we raised working capital through offerings of our no par value preferred
stock, which was expected to permit us to continue operations.
We intend to file a patent application with the U.S. Patent and
Trademark Office pertaining to the unique automation features of this process;
however, we cannot assure that such proposed patent application will be
successfully filed or approved, or result in the issuance of letters patent to
us. (See "Risk Factors - Since we are not seeking patent protection for our
technological innovations, competitors may be able to copy our methods.")
16
<PAGE>
Despite the above-described activities and our having raised gross
proceeds totaling $3,021,685 from a series of preferred stock offerings, we are
not yet in a position to commence our proposed business activities in the
manufacture, marketing and distribution of radiochemical and radiopharmaceutical
products. Since inception, we have received no revenue from operations and, for
the period from inception through December 31,1999, we realized an accumulated
net loss from operations aggregating $2,485,312. As of December 31, 1999, our
assets totaled $69,154; our liabilities are $17,742; and our total stockholders'
equity was $51,412. Of our total expenses of $2,485,312 as of December 31, 1999,
$645,585 thereof consisted of the rights to certain applications (including the
radioactive materials license and establishment license applications and
Investigational New Drug/New Drug Applications for sodium iodide I-123 capsules,
and fluorine-18 FDG), designs, processes, procedures, technology and
specifications (including the technology and specifications for the
technetium-99m generator system designed by Mr. Benedict), which are intangible
assets, accounted for in accordance with SFAS No. 2. SFAS No. 2 requires that
all research and development costs, except those done for others under contract
or certain government-related entities, are charged to expense.
We had working capital in the amount of $26,652 as of December 31,
1999. Our working capital is presently minimal or negative, and there can be no
assurance that our financial condition will improve. After this offering which,
if completed, will yield net proceeds of a maximum of approximately $9,200,000,
we nevertheless expect to continue to have minimal working capital or a working
capital deficit as a result of the continuing net loss anticipated from
operations until such time, if ever, as we are successful in obtaining the
requisite licensing and regulatory approvals and sufficient additional capital
to obtain the facilities, inventory and equipment and employ the requisite
personnel required in order to commence operations. To fully implement our
current business plan, we need to obtain additional debt capital to acquire the
facilities and the cyclotron. We expect to continue in operation, without an
infusion of capital, after the expiration of twelve months from the closing of
this offering. In order to obtain additional equity financing, management may be
required to dilute the interest of existing shareholders or forego a substantial
interest in its revenues, if any. We cannot assure that any such operating
capital required by us in order to fully implement our business plan will be
available to us in the foreseeable future, if ever. (See "Risk Factors - If we
require additional capital sooner than we anticipate, funds may not be available
on acceptable terms, or shareholders may experience dilution of their
investment.")
BUSINESS
General
Over the past three years our efforts have been focused upon
organizational activities, development of a business plan, development of plans
for our permanent facility and final development of plans for our cyclotron and
its components that will provide a higher beam current and multiple beam lines.
We have purchased land for our permanent facility, developed a web-site,
obtained funding from successful offerings A through I shares of preferred stock
(all of which shares have been converted to common stock) and are preparing the
radioactive materials and establishment license applications and Investigational
New Drug/New Drug Applications for certain proposed radiopharmaceutical
products, for filing with the Colorado Department of Public Health and
Environment--State Laboratory and Radiation Services Division and the FOOD AND
DRUG ADMINISTRATION. In addition to preparing these applications, Mr. Malcolm H.
Benedict, our CEO, has developed a technetium-99m generator system, which he
believes to be technologically feasible and patentable, for the purpose of
automating the radiochemical and radiopharmaceutical manufacturing process using
robotics technology.
17
<PAGE>
We plan to manufacture, market and distribute a range of
radiopharmaceuticals and radiochemicals to the nuclear medicine industry, an
endeavor that represents the merger of medicine and biology. We will employ new
machines and techniques in a proprietary approach that gives superior quality
products while sharply lowering costs. Radiopharmaceuticals and radiochemicals
are used to identify and label radioactive elements in medical diagnostics,
biological research and commercial applications. According to the Institute of
Medicine, while the production methods of radiopharmaceuticals are antiquated,
the nuclear medicine industry is growing substantially with an estimated $7 to
$10 billion dollars spent annually in the United States alone, thirteen percent
(13%) of which represents radiopharmaceuticals (Isotopes for Medicine and Life
Sciences, National Academy Press: 1995). We will employ an Internet site for our
marketing applications and to serve as one of the portals for all levels of
users.
Our Approach
Nuclear medicine is the field that administers radioactive drugs to
patients for the diagnosis of diseases such as heart disease and cancer. When
these radiopharmaceuticals are given to a patient, they are taken up within the
body according to their physical and chemical properties. These individual
radiopharmaceuticals are chosen based on their attraction for particular body
organs or other sites of clinical concern. Radiopharmaceuticals are different
from standard pharmaceuticals since they are not intended to change the body's
normal biological functions. Radioactive elements behave chemically and
pharmacologically in a manner similar to their non-radioactive counterparts. We
intend to acquire several unique and powerful new cyclotrons that will provide
us with the capability to make less expensive and purer radioactive elements
than the competition. We will combine our manufacturing approach with a
computerized robotic system that:
o Reduces manufacturing labor costs;
o Enables a 24-hour production and quality control cycle;
o Reduces staff exposure to radiation;
o Eliminates expensive repetitive errors;
o Guarantees consistent quality with every batch of
radiochemicals and radiopharmaceuticals; and;
o Permits local delivery with lower inventory and wastage.
Our system will replace older lower amperage, single beam instruments
using manual procedures that have produced poorer quality and higher cost than
our proposed system. We believe that:
o Our technology and process will change the production methods
for radiopharmaceuticals;
o We have sharply superior technology compared to existing
manufacturers;
o We can manufacture with high gross margins;
o Our products will improve the quality of healthcare.
18
<PAGE>
We are prepared to file the necessary applications required for
licensing and/or regulatory approval from the Colorado Department of Public
Health and Environment--State laboratory and Radiation Services Division, for
the handling of radioactive materials and with the Food and Drug Administration
for the operation of a nuclear medicine laboratory and for the production of
iodine radiopharmaceutical products. Under an agreement between the State of
Colorado and the Nuclear Regulatory Commission, approval of our application by
the State will provide us with all necessary approval by the Nuclear Regulatory
Commission.
Business Strategy
The acquisition of our powerful cyclotron, designed by our CEO and
manufactured by EBCO Technologies, Inc., will provide us with the most powerful
radioactive element production cyclotron of its kind. This instrument is capable
of providing higher beam current and multiple (5) beam lines. Increasing the
beam current focuses higher energy that then produces higher purity radioactive
elements with greater commercial yields. Multiple beam lines increase the number
of radioactive elements produced at a given time.
Construction and licensing of our facility and installation of our
first cyclotron will enable us to begin producing, subject to regulatory
approval, our first two radiochemical and radiopharmaceutical products, sodium
iodide 123 solutions and capsules and fluorine 18 FDG. At the same time we will
acquire and install a PET camera and establish our diagnostic imaging center to
serve the Rocky Mountain region. We will also produce technetium-99m generators.
Technetium-99m is used in certain diagnostic procedures such as brain liver,
lung or kidney scans.
The radioactive drug producing equipment, coupled with computerized
robotics, provide a fully automated and integrated system for the manufacture of
radioactive drugs. Computerized robotic manufacturing provides numerous
advantages to the system for the production of radioactive drugs by generating
higher purity, higher yield, and cost-effective radioactive drugs. Our system
replaces instruments using manual procedures for the production of
radiopharmaceuticals. These antiquated instruments, coupled with outdated
procedures, produce poor and inconsistent quality, low yield, and higher cost
radiopharmaceuticals.
We will manufacture the listed eight of the 34 radiochemicals and
radiopharmaceuticals (listed below) in our Nuclear Regulatory Commission
application. New drugs in research pipelines promise to accelerate applications
even more, and we expect to be in a significant position to supply increased
demand.
o Sodium Iodide-123 solution for thyroid studies
o Fluorine-18 FDG (Fluor-Deoxy-Glucose) used to test
metabolic function for PET (Positron Emission Tomography)
o Carbon-11 used to detect brain tumors
o Nitrogen-13 used for cardiac blood flow studies
o Oxygen-15 used in studying blood flow
o Palladium-103 primarily used as a therapeutic for treating
prostate cancer
o Gallium-67 used as therapeutic for skin cancer
o Technetium-99m (Sodium Pertechnetate) solution for diagnostic
procedures
We will employ an in-house direct mail and telephone strategy. We will
market and drop-ship directly to diagnostic centers and university hospitals. We
also have incorporated an aggressive approach to use of the internet in concert
with traditional forms of communication in our industry.
19
<PAGE>
Market Analysis
Overview
While radioactive elements are essential in medicine, these elements
also find wide parallel uses in research in chemistry, physics and geosciences
with additional needs existing in the commercial sector. The U.S. Department of
Energy (DOE) and its predecessors, the Atomic Energy Commission and the Energy
Research and Development Agency, have supported the development and application
of these elements in a technology transfer. One of every three hospitalized
patients in the United States undergoes a nuclear medicine procedure. More than
36,000 diagnostic medical procedures that employ radioactive elements are
performed daily in the United States and close to 100 million laboratory tests
that use radioactive materials are performed each year. Radiopharmaceuticals are
also used to deliver radiation therapy to a growing number of patients each year
(approximately 180,000 in 1998). (Source: National Academy Press, Division of
Health Sciences Policy).
Current Industry Status
The industry is governed by dated New Drug Applications and Drug Master
Files which, in order to change, would require the following:
*Designing new technologies for manufacturing;
*Developing new chemistries within some of these drugs;
*Developing new processing and operational procedures.
*Developing prototypes for each area;
*Streamlining distribution centers (nuclear pharmacies); and
*Revising Drug Master Files to reflect all new technologies and
operational procedures.
In order for industry to make the above changes, they must continue to
operate their old manufacturing facility according to their existing New Drug
Applications until a supplemental application for each new drug product is
submitted and approved. This could significantly increase the products' cost
since the estimated cost for a New Drug Application (Supplemental Application)
may exceed $1 million per drug application. The effect of these changes are
delays in availability for 9 months for minor changes and 4 years for major
changes, provided a completely new New Drug Application is not demanded by the
Food and Drug Administration. For these reasons, not many companies would
attempt a supplemental application. A change in the Current Good Manufacturing
Practices (cGMP's) requires intensive capitalization to deliver quality
diagnostic medicine.
The Nuclear Medicine Market
Nuclear medicine today in the United States is a multi-billion dollar
industry. One of every three hospitalized patients in the United States
undergoes a nuclear medicine procedure. Since 1994, the nuclear medicine
industry exceeded the growth rates of the general medical community. The market
has been estimated to have grown to $7 to $10 billion (Isotopes for Medicine and
the Life Sciences, National Academy Press; 1995). There are in excess of
110,000,000 target organ procedures that will be performed annually using
nuclear medicine throughout the United States (Isotopes for Medicine and the
Life Sciences). The growth of nuclear medicine is due to new methods of
diagnostic procedures. The increase in the average age of the general population
ensures that nuclear medicine will continue to play an expanded role in medical
diagnosis.
The radiopharmaceuticals of tomorrow depend on the investigation of
radioactive drugs and therapeutic drugs of today. The vast potential of
molecular nuclear medicine may not be realized with current limitations in the
supply of research radioactive elements. We believe with lower cost, higher
quality and effective distribution, the potential market is much greater than
presently exists.
20
<PAGE>
Within the industry, three major markets co-exist: the commercial
market, the medical market and the research market. Our product lines will cross
over into each of these special markets. The demand for different product lines,
however, will vary in each market. The commercial market consists of those
companies producing sealed sources or who produce commercial technetium-99m
generators distributed directly or indirectly to the medical market. The
research market is widespread and diverse throughout the United States. It
includes universities as well as private research facilities. The government
research activities are also included in this segment.
The medical market is the largest of these broad segments. It includes
all the nuclear medicine facilities in hospitals and clinics throughout the
country. These facilities provide both diagnostic and treatment programs. Over
8,000 physicians practice nuclear medicine in the U.S. The radiopharmaceutical
wholesale market accelerated rapidly due to the introduction of Thallium-201 and
the general growth of nuclear procedures. Thallium-201 sales increased because
of increased utilization of examinations of the heart by means of nuclear
medicine. Iodine-123 sales also increased dramatically to $14.7 million due to
the increase in the renal studies being done and sales of other products, such
as, indium oxide for blood cell labeling (according to the Society of Nuclear
Medicine).
As we try to estimate the future, it appears that most of the increase
in dollar volume will be in new product areas. The largest potential will be
derived from the introduction of our new, improved technetium-99m generators.
Thus, coupled with increased use of PET scans (diagnostic images) using
Fluorine-18 FDG in new product applications, this additional dollar volume
should result in an increased market for radiopharmaceuticals. Within each
market segment, the customer base is varied. Physicians and hospitals comprise
the principal customer base in the medical division. Universities, research
scientists and government facilities constitute the base in the research
division, with commercial manufacturers and distributors in the commercial
division. In each section the customer base and the direct purchasers of our
products have been identified. Specific marketing and sales programs have been
developed to serve every customer base within each section.
We estimate the current market of products and categories as follows:
===================================================================
Wholesale market (radiochemicals) $ 950,400,000
- -------------------------------------------------------------------
Research market $ 1,607,555,000
- -------------------------------------------------------------------
Retail market $ 8,553,600,000
- -------------------------------------------------------------------
Therapy $ 110,000,000
===================================================================
Sales and Distribution
We will capitalize on the expertise of Malcolm Benedict and Donald
Ludwig Ph.D., for the distribution of our products. Mr. Benedict and Dr. Ludwig
have many contacts throughout the nuclear medicine community. We expect to use
an established distribution program, plus an in-house direct mail and telephone
campaign. We will market and drop-ship directly to physicians, universities,
diagnostic centers, nuclear pharmacies and hospitals. Mr. Benedict has also
taken the required steps to ship product. Our shipping requirements will be in
compliance with all the regulatory agencies.
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Technology, Production and Products
Overview
Developments in therapeutic and diagnostic drugs have historically come
from the need to improve treatment regimens and provide more accurate diagnoses.
Specifically, improvements in radiopharmaceutical diagnostic drugs are required
to provide a clearer picture of the affected organ system to prevent
misdiagnosis. Diagnostic procedures that can provide more accurate diagnoses,
significantly reduce costs to the entire health care system: the patient, the
hospital, third party payors and the employer.
Technology
Our technology focuses on an integrated system that can produce high
quality, cost effective radiopharmaceuticals. Our technology includes
instruments for the production of radiochemicals with computerized robotics for
the manufacture of these radiochemicals.
Cyclotron. A cyclotron is an instrument used by physicists to
accelerate elementary particles to energies effective in causing chemical,
atomic, sub-atomic and nuclear reactions to occur. Historically, the cyclotron
was a large, heavy and expensive piece of equipment. Newer systems are medium
weight, efficient, automated and cost effective. Cyclotrons accelerate charged
particles in a circular pathway through accelerating gaps. The internal parts of
the cyclotron that accomplish this process are in the shape of the letter "D"
and are referred to as Dees. A charged particle, such as the proton, is
accelerated from one dee to the next dee by the means of a voltage increase
across the face of the dees. As the proton passes from one dee to the next dee,
its velocity or momentum increases. At a certain specific energy the protons,
which form the beam, are directed from the cyclotron to the target producing
radioactive products of interest. All radiopharmaceutical substances produced by
these methods are produced at specified energy levels in order to maximize
production and minimize impurities that reduce the product's safety and
efficacy. The cyclotron accomplishes the same function by directing the particle
beam through a series of accelerating nodes that are arranged in a spiral.
The production process for cyclotron produced radioactive elements is
similar to that associated with certain aspects of nuclear reactors in that
special stable material targets have to be prepared. Targets are bombarded by
the cyclotron using charged particles, which are appropriate for the particular
nuclear reaction. This is followed by a chemical separation process to prepare
the desired form of the radiochemical. However, there is a tremendous shortage
of cyclotron produced radiochemicals for domestic use. The Journal of Nuclear
Medicine, Vol. 34, Number 6, June 1993 stated, "that the Department of Energy
(DOE) indicates that the department recognizes that this is a very serious issue
and the department is making every effort that it can".
We believe that the cyclotron will be the primary production unit for
the next 10 to 25 years. Linear accelerators are machines for the future as
nuclear medicine expands. We believe the cyclotron, however, will not outgrow
its usefulness for producing radioactive elements at a low cost. Linear
accelerators are in the experimental state and have not been proven for
commercial production. The linear accelerator and cyclotron are both based on
the technology of accelerating charged particles to very high velocities, and
therefore high energies. The particle beam is then directed into "targets"
consisting of stable atoms. The high energies of the particles cause the
non-radioactive target material to become radioactive through nuclear changes.
Cyclotrons have the advantage of smaller size and may operate in a much smaller
space, thus being more advantageous to nuclear medicine industry applications.
We believe that cyclotrons also are less expensive to operate than linear
accelerators and therefore are more ideal for small to large volume operations.
Cyclotrons are being used in industrial applications as well as other various
uses such as cancer therapy, explosive and incendiary detection, nondestructive
materials testing and mineral content determination and analysis. These areas
are also very profitable and are continuing to expand.
The acquisition of a powerful cyclotron from EBCO Technologies, Inc.
will provide us with the most powerful radioactive element production cyclotron
of its kind. This instrument is capable of providing higher beam current and
multiple (5) beam lines. Increasing the beam current produces higher energy
targets that generate higher purity radioactive atoms with greater production
yields. Multiple beam lines increase the number of radioactive atoms produced at
a given time. We believe that no other company has this technology available to
them at this time.
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Technetium-99m Generator. The use of radiopharmaceutical products
called technetium-99m generators is advantageous because these products show the
function of major body organs. Technetium-99m is used because it provides good
resolution and efficiency with the nuclear medicine camera. The producers of
these generators replace the customer's product on a weekly and bi-weekly basis.
The capacity of the generator is selected so that it provides sufficient output
for one to two weeks. The larger users, such as the nuclear pharmacies, may
order one or more generators per week. E.I. du Pont deNemours and Company,
Amersham Pharmacia Biotech Ltd. and Mallinckrodt Inc. now produce generators for
the United States market. These companies produce generators in the 1 to 15
Curie range. Our generators will be in the 100 to 1,600 Curie range. We believe
that this is substantially higher in quality and quantity than anything
available in the market.
Our strategy will be to challenge this market by introducing a
permanent, proprietary rechargeable generator invented by our founder, Malcolm
H. Benedict. We believe such a generator will offer a purer and more
cost-effective product. These generators will also provide handling advantages
(such as reducing radiation exposure) over the industry's existing disposable
units. The new technetium-99m generators will be placed in nuclear pharmacies or
clinics in major metropolitan areas throughout the country. The role of these
entities will be to supply the product to hospitals and clinics, thus
eliminating the need for such facilities to own and operate their own
generators. We believe the instant availability of massive quantities of a purer
technetium-99m, through a local distribution network will offer an advantage to
the physicians and this will also represent a substantial cost savings to the
hospital and the patient. We believe that the greater availability of the drug
can also be expected to increase the use of radiopharmaceuticals, which will
increase our market share and sales volume.
Development and Manufacturing of Radioactive Elements
Radioactive elements are produced either in a nuclear reactor or
particle accelerator (one of two kinds of cyclotron). After target elements are
bombarded by a particle beam from a cyclotron or linear accelerator, the
resultant radioactive elements are processed into radiochemicals in specially
designed facilities. These radiochemicals are then processed into
radiopharmaceuticals for distribution and use in nuclear medicine laboratories
and clinics.
Radiopharmaceuticals are used in extremely small quantities to make the
drugs safe and effective for human use. The radiopharmaceuticals on the market
today are safe in that they reduce radiation exposure to the patient; however,
we believe that they could be greatly improved. Radiopharmaceuticals are
prepared in various forms, such as capsule, sterile solutions and single or
multiple dose vials for injection into the body. Most of the available
radiopharmaceuticals are used in the form provided by the manufacturer.
Technetium-99m can be utilized in combination with various other compounds or it
can be used in its more basic form, as technetium-99m, for brain and thyroid
scanning.
In order to develop radiopharmaceuticals, it is necessary:
* to establish a chemical similar to a body substance, which can be
represented by a specific radiopharmaceutical, that will demonstrate
dynamic function of an organ or gland.
* to determine the amount of time it takes to reach the organ or target
of interest in the body and to determine the effect on surrounding body
regions which might blur and confuse the evidence of the diagnosis. The
objective is to maximize the scan and make sure it does not compromise
the other qualities sought.
* for the radioactive material to have the minimum or lowest possible
physical useful life consistent with the practicality of the time
required for shipment. Generally, the shorter the useful life of the
radiopharmaceutical, the safer the drug is to administer to the
patient. Therefore, more diagnostic information can be recorded from
the patient in a shorter time period. The shorter useful life of the
radiopharmaceutical diminishes radiation exposure to the patient by
reducing the time that the body is exposed to the radioactive form of
the material. The object is to minimize the radiation dose to the
patient while getting a moving picture of the organ of interest.
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In addition, radiopharmaceuticals used in conjunction with
complementary procedures can assist in the diagnosis and tracking of a disease.
For example, the combination of two radiopharmaceuticals, "technetium-99m" and
"xenon 133" can be used to study lung perfusion. Lung perfusion demonstrates the
flow of blood through the lungs whereby the xenon 133 gas inhalation
demonstrates the viability of the air passages in the lung. This provides a very
accurate assessment of the function of the patient's lungs.
We plan to manufacture the following radiochemical and
radiopharmaceutical products in the first year of operation:
Sodium Iodine-123. Iodine is an essential element in the normal diet
and is extracted by the thyroid gland and converted into thyroxin and other
thyroid hormones. Sodium Iodine-123 has been used by physicians in order to
discriminate between the many types of thyroid dysfunction and disease. Sodium
Iodine-123 radiopharmaceutical has ideal chemical properties for studies of the
thyroid. Furthermore, many drugs and metabolically active compounds can be
labeled by the inclusion of sodium iodine-123 without loss of biochemical
activity. For example, sodium iodine-123 labeled amphetamines are used to
determine the regional cerebral blood flow in patients who have suffered, for
example, a stroke. The New York State research foundation was responsible for
the research and origin of Sodium Iodine-123 HIPDM. Our founder, Malcolm
Benedict, was responsible for the development and commercialization of Sodium
Iodine-123 HIPDM into a finished radiopharmaceutical. This product is also used
for strokes, Alzheimer's disease, epilepsy and brain imaging. Due to its low
toxicity, it is equally well tolerated by adults and children.
PET Products. These products, which are listed below, are produced
entirely by cyclotrons and must be processed as radiochemicals, formulated into
radiopharmaceuticals and administered to patients within a very short time.
These products have been generally produced in a research hospital environment
and are now used on site on a commercial basis.
o Fluorine-18 (FDG) has a useful life of 110 minutes and is a
radiochemical that can be incorporated into organic chemicals and
used as a radiopharmaceutical. It is also used to produce other
products for specific purposes that can be used for examination of
many different organs.
o Carbon-11 has a 20-minute useful life and can be incorporated in
many organic compounds to replace non-radioactive Carbon-12.
Sometimes, physicians prefer to use Carbon-11 Methionine in the
detection of disease with brain tumors that cannot be detected
with Fluorine-18 (FDG).
o Nitrogen-13 has a 10-minute useful life and can be incorporated
into numerous organic compounds. An application of this type of
study is to attach a radiopharmaceutical and physical process
continuously going on, in living organisms and cells. Nitrogen-13
is often used for cardiac blood flow studies.
o Oxygen-15 has a 2-minute useful life and is used in studying blood
flow of the brain and the heart by labeling ordinary water.
The PET camera produces images from the emitting of the
radiopharmaceutical administered to the patient. PET is the most accurate test
to reveal coronary artery disease or rule out its presence. The PET images can
show inadequate blood flow to the heart during stress, which goes undetected by
other non-invasive cardiac tests. We believe that at this time PET is considered
to be one of the best diagnostic methods to determine the viability of heart
tissue for blood flow studies. PET imaging can be used on the following cancers:
lung, colorectal, breast, adrenal and brain. PET can be used to determine the
location of tumor cells. Because tumor cells are more metabolically active than
normal cells, a PET scan easily detects them. PET scans can also determine
whether a tumor is benign or malignant, whether cancer treatment, such as
chemotherapy, has been effective. Clinical indications for imaging in neurology
include the evaluation of primary central nervous system tumors, epilepsy and
dementia.
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We plan to manufacture the following radiopharmaceutical products in
the second year of operation:
Gallium-67. This product tends to concentrate in tumors and abscesses.
The primary use of this radiopharmaceutical is the detection of cancer. It has
application in many specific tumors (lymphoma, melanoma, carcinoma, lung, and
hematoma) and a wide variety of tumors common in pediatric patients. Gallium-67
also is known to concentrate in sites of local or systemic inflammation and is
therefore valuable as a screening tool for infections of non-specific origin,
for which there are no other diagnostic or localizing techniques.
Technetium-99m. Technetium-99m is a common radiopharmaceutical used for
showing the function of major body organs and other tissues (brain, lung, legs,
bone, liver, and kidney). Technetium-99m, alone, or combined with other agents,
is used to determine brain blood flow (brain scan image), lung scans before and
after surgery, thrombosis in the peripheral vascular system, bone diseases and
tumors in various organs. Technetium-99m is delivered in bulk and requires a
specialist in nuclear medicine to be on duty in each of the medical facilities
or nuclear pharmacies.
Palladium-103. Palladium-103 is a form of small radioactive pellets
which are implanted in a patient's prostate under ultrasound guidance to destroy
a tumor. These small radioactive sources ("commonly called "seeds") are
permanently implanted, via needles, into the prostate gland, and are clinically
excellent therapy for the treatment of early-stage prostate cancer.
Intellectual Property
We do not have any issued patents or patents pending. We anticipate
filing patents for many of our robotic manufacturing procedures, radiochemical
targets and technetium-99m generator.
History
We are dependent upon the extensive expertise of Malcolm H. Benedict,
our founder, Chairman, President and Chief Executive Officer. In 1972, Mr.
Benedict founded Benedict Nuclear Pharmaceuticals, Inc., ("BNPI"). BNPI began
producing radiopharmaceuticals under the control of the Nuclear Regulatory
Commission and the State of Colorado Health Department, acting in place of the
Federal Food and Drug Administration, and later consented to make filings under
Food and Drug Administration procedures. Mr. Benedict has devoted his principal
efforts and resources to meeting the regulatory requirements necessary to
manufacture radioactive drugs. In August 1981, the Food and Drug Administration
granted BNPI an Investigational New Drug permit to manufacture and conduct
clinical trials on Iodine-123 capsules (Iodine-123). After reporting the
findings on the safety and effectiveness of these drugs, BNPI submitted a New
Drug Application for Iodine-123 capsules (Iodine-123). BNPI's New Drug
Application was awarded in May 1982. The application was completed in nine
months from the initial acceptance until final approval. Canada's Radiation
Safety Bureau issued BNPI a New Drug Application for its Iodine-123 capsules
within three months of filing the necessary documentation. Similarly, an
Investigational New Drug/New Drug Application was filed for Thallium-201. Mr.
Benedict left BNPI in 1991, and subsequently that firm was merged with several
other companies prior to its acquisition by Syncor, Inc.
Competition
We believe that six major corporations currently dominate the
radiochemical and radiopharmaceutical industry; however, brand name competition
is not a significant factor in marketing diagnostic drug products; the
improvement of the quality and purity of diagnostic drug products will be a more
significant factor. The six major manufacturers that we have identified are E.I.
du Pont deNemours and Company, Mallinckrodt Chemical Corporation,
Nycomed-Amersham International, MDS-Nordion, International Isotopes and
Theragenics. Our cyclotrons, which we expect to be manufactured by EBCO, Inc.,
will run at an energy level, which we believe far exceeds the cyclotron capacity
of our competitors.
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Fundamental Weaknesses of the Industry.
There are inherent weaknesses within this industry. These companies
began manufacturing radiopharmaceuticals from the products developed for
university-generated research. As a result, they were not committed to the
development of quality products at a low cost. Their entire business was based
on their ability to obtain Food and Drug Administration approvals on these drug
products as they were developed. For the most part, they operate today from the
New Drug Applications and Drug Master Files that were developed 15-20 years ago.
We believe our technological innovations and production techniques will
allow us to produce and market existing radiopharmaceuticals and radiochemicals
at a lower cost and to develop new radiochemical and radiopharmaceutical
products. These innovations we believe will provide impetus that will change the
nuclear pharmaceutical market and allow us to improve the industry through
quality, cost and distribution upgrades.
Currently, radioactive elements produced by a cyclotron accelerator are
manufactured in the United States by companies, primarily, we believe, for their
own radiopharmaceutical products. We believe that hospitals, medical
institutions and universities also produce certain short-lived radioactive
elements utilizing small cyclotron accelerators, principally for their own
radiopharmaceutical needs. These producing companies have substantially greater
capital and other resources than we do, and there can be no assurance that they
may not elect to produce radioactive elements for commercial sale. The U.S.
government also produces radioactive elements, primarily for research purposes,
in three national laboratories, Brookhaven National Laboratory, Los Alamos
National Laboratory and the Oak Ridge, Tennessee National Laboratory, and has
announced that it plans to modify the nuclear reactor at Sandia National
Laboratory in Albuquerque, New Mexico to produce certain radioactive elements.
In addition, there can be no assurance that a third party will not contract with
the U.S. government to acquire radioactive elements for commercial sale. Outside
the United States, MDS Nordion, Inc., a Canadian firm, and Mallinckrodt, N.V. at
Petten, a Netherlands firm, both of which have substantially greater capital and
other resources than we do, are major producers of cyclotron-produced and
accelerator-produced radioactive elements. MDS Nordion, Inc. currently supplies
a significant portion of the radioactive materials used in the diagnostic
nuclear medicine industry in the United States, and there can be no assurance
that we will be able to compete successfully with this firm.
Government Regulation
Regulation of Production and Radioactive Waste. The manufacture of
radiochemicals and radiopharmaceuticals is subject to extensive federal and
state regulation. Prior to commencing operations, we must obtain approval of our
facility from the various agencies which administer these regulations, and prior
to transporting medical use radiochemicals and radiopharmaceuticals across state
lines, we must obtain approval from the Food and Drug Administration. In
addition, the Department of Transportation regulates the quantity and method of
shipment of radioactive materials, and sets specifications with respect to the
class of shipping containers used. Our facilities will be subject to continual
inspection for compliance with state and federal regulations, which require that
we manufacture radiochemicals and maintain manufacturing, testing and quality
control records in a prescribed manner. See "Risk Factors--Government
Regulation." Since our facility will have to be approved by the State of
Colorado Department of Public Health - State Laboratory and Radiation Services
Division, which approves facilities under agreement with the Nuclear Regulatory
Commission, we believe it will not be subject to regulation by the Nuclear
Regulatory Commission or the Department of Energy. Food and Drug Administration
regulations provide that a radiopharmaceutical production facility may not be
used for any purpose other than the production of radiochemicals and
radiopharmaceuticals.
We will be required to file a Drug Master File with the Food and Drug
Administration for each radiopharmaceutical which we propose to produce. These
radiochemicals and/or radiopharmaceuticals can then be used by other
radiopharmaceutical companies for manufacturing their own proprietary
radiopharmaceuticals. These products will be covered by New Drug Applications
filed by the respective radiopharmaceutical companies, which companies will make
reference to our applicable Drug Master File.
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The production and processing of radioactive materials generate a
certain amount of low-level, solid radioactive waste. Pursuant to the Low Level
Radioactive Waste Policy Act of 1980, states are required to assure the safe
disposal of mildly radioactive materials. The handling, retention and disposal
of radioactive waste is regulated by various other agencies, which enforce
federal regulations promulgated by the Environmental Protection Agency and their
own regulations. We believe that radioactive waste that we produce will fall
into the category of low-level radioactive waste. Most of this waste will be in
the form of used laboratory expendables, such as latex gloves and absorbent
paper used to protect laboratory counter tops from direct exposure to spilled
materials, which waste will be compacted and disposed of through the usual
commercial channels used by universities, medical institutions and industrial
users of radioactive materials. Between scheduled waste pick-ups, compacted
materials containing longer-lived radioactive materials temporarily will be
retained on-site in a specially designed, low-level waste reduction facility,
which facility will reduce the amount of radioactive waste that must be removed
to a permanent radioactive waste disposal facility. The production of
radioactive elements at our facility will include the chemical separation of
radioactive materials. This may lead to the production of some mixed hazardous
waste, consisting of a mixture of low-level radioactive materials, water,
organic solvents and inorganic salts. We will hold such materials on-site for a
period of time until the radioactive materials decay to stable materials, at
which time the materials can be moved off-site for disposal by commercial waste
handlers. Liquid waste resulting from the processing of accelerator-produced
controlled products or from the washing down of hot cells or other
decontamination procedures will be contained in storage tanks at our facility.
It is anticipated that the capacity of the storage tanks will be sufficient to
permit the holding of radioactive wastes until decay to negligible levels has
taken place. In compliance with applicable state laws, we will maintain a
radiation safety committee, comprised of Malcolm Benedict and Dr. Donald A.
Ludwig. Our radiation safety officer will be appointed to oversee our radiation
safety procedures. The radiation protection officer will control and monitor our
compliance with state and federal regulations, and will conduct radiation audits
to comply with applicable regulatory requirements.
Although we intend to comply with all applicable regulations regarding
the manufacture and sale of radiochemicals and radiopharmaceuticals, such
regulations are subject to change and depend on administrative interpretations.
We cannot assure that future changes in regulations or interpretations made by
the Food and Drug Administration or other regulatory bodies, with possible
retroactive effect, will not have a material adverse effect on us. We also will
be subject to numerous federal, state and local laws relating to such matters as
safe working conditions, manufacturing practices, fire hazard control and
disposal of hazardous or potentially hazardous substances. We cannot assure that
we will not incur significant costs in complying with such laws and regulations
or that such laws or regulations will not have a material adverse effect upon
us.
Medical imaging centers must comply with regulations, promulgated in
most states by an agency of the state government under authority delegated by
the Nuclear Regulatory Commission, governing the possession and use of
radiopharmaceuticals for diagnostic medical procedures. In order to secure
approval, a medical imaging center must submit an acceptable site plan for its
camera, employ adequate radiation safety and quality procedures, and provide a
nuclear medicine physician or other qualified physician who meets certain
training and experience standards. Many states have "certificate of need"
regulations that require a hospital purchaser or user of expensive diagnostic
equipment, such as medical imaging cameras, to obtain regulatory approval prior
to purchasing the equipment. A primary purpose of those regulations is to
contain health care costs by restricting the number of similar units in a
particular locality. We cannot assure that such requirements or the delays that
may be occasioned thereby will not limit our ability to market and sell our
products.
Other Regulations. If we enter into agreements with suppliers to
acquire various controlled-items, neutron-produced research and therapeutic
radiochemicals or accelerator-produced radiochemicals for our distribution, we
will be subject to various regulations regarding the handling of radioactive
materials. Compliance with such regulations will be the responsibility of the
contracting supplier. Any radiopharmaceuticals developed under arrangements
between us and medical institutions and universities, including preclinical
animal studies, the filing of an Investigational New Drug application, human
clinical trials and the approval of a New Drug Application, will require prior
approval of the Food and Drug Administration, which has established mandatory
procedures and standards for the clinical testing, manufacture and marketing of
therapeutic and diagnostic products. Obtaining approval from the Food and Drug
Administration could be a time consuming and costly process.
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We also will be subject to regulation by the Environmental Protection
Agency, Occupational Safety and Health Administration and other agencies with
respect to the radioactive content of water and air discharges and the handling
and disposal of radioactive waste. We intend to comply with all such laws and
regulations and believe our facilities and operations will not create any
hazards to nearby residents, employees or visitors. See "Risk
Factors--Government Regulation".
Regulatory Approvals. We are prepared to file the necessary
applications required for licensing and/or regulatory approval from the Colorado
Department of Public Health and Environment - (State Laboratory and Radiation
Services Division) for the handling of radioactive materials and the Food and
Drug Administration for the operation of a nuclear medicine laboratory and for
the production of iodine radiochemical products. We believe these licenses will
be granted when the building and equipment are completed in our temporary and
permanent facilities and final inspection has taken place. We do not anticipate
any obstacles in our ability to obtain the required licenses.
Product Liability and Insurance.
The use of our radioactive elements in radiopharmaceuticals and in
clinical trials may expose us to potential product liability, which is inherent
in the testing, manufacture, marketing and sale of human diagnostic and
therapeutic products. In addition, the failure to effect timely delivery of
radioactive elements may cause a delay in a scheduled test or procedure or
result in the functional loss of radioactivity of the radioactive elements,
thereby exposing us to potential liability. We currently have no product
liability insurance. We intend to obtain product liability insurance prior to
commencing production of any radioactive elements and prior to the manufacture
and sale of any products, but there can be no assurance we will be able to
obtain or maintain such insurance on acceptable terms or that any insurance
obtained will provide adequate coverage. Claims or losses in excess of any
liability insurance coverage ultimately obtained by us could have a material
adverse effect on us.
Our Facilities
We currently lease office space at 1880 Industrial Circles, Suite B-3
in Longmont, Colorado and additional space in Boulder, Colorado. The office
space in Boulder, Colorado is subleased to an unrelated entity. Upon completion
of this offering, we anticipate temporarily leasing additional space in Longmont
to begin production and sale of sodium iodide-123. We will also purchase land
for and begin construction of our permanent facility. We have entered in to a
contract to purchase approximately 5.5 acres of land (with an option to purchase
an additional 5 acres) in Weld County, Colorado, approximately 6.7 miles east of
Longmont, Colorado and approximately 2.3 miles west of Interstate 25, Colorado's
major north-south throughway. We have deposited 102,000 shares of common stock
in an escrow account for that purchase and we anticipate, pending the
fulfillment of all conditions to the purchase, closing on the purchase in July,
2000; however, we cannot assure that we will be able to close on the purchase.
We will obtain insurance on our facilities for fire, theft and general
liability coverage during the period of any occupied or leased facility. The
dollar value of the property coverage shall not be less than eighty (80%) of the
replacement cost of the facility and equipment, unless otherwise covered in an
equal amount.
Employees
We currently have four full-time employees, consisting of three
executive officers and one administrative person. Once the permanent facility is
constructed, we intend to hire additional technical personnel to operate and
monitor the cyclotron and robotic manufacturing equipment and medical personnel
to operate the PET diagnostic imaging center. We believe our relationship with
our employees to be good. None of the employees is represented by a union and
there have been no work stoppages to date.
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Legal Proceedings
There are no legal proceedings to which we are a party.
MANAGEMENT
Directors and Executive Officers
Board of Directors and Executive Officers
The following are our directors and executive officers:
Name Age Position
- ---- --- ---------
Malcolm H. Benedict 62 President, CEO and Chairman of the Board
Donald A. Ludwig, Ph.D. 52 Director and Executive Vice President
Janet L. Davis 44 Director and Secretary
Vernon L. Morris, CPA 55 Chief Financial Officer
David D. Mc Nurlin 38 Vice President, Corporate Development
Malcolm H. Benedict has served as the President, Chief Executive
Officer and Chairman of the Board of Directors since the inception of Molecular
Diagnostics and Therapeutics, Inc., (formally Nu-Tec., L.T.D.), on February 19,
1992. From 1979 to 1991, Mr. Benedict served as the President, Chief Executive
Officer and Chairman of the Board of Directors of Golden Pharmaceuticals, Inc.,
Golden, Colorado ("Golden Pharmaceuticals", formerly known as "North American
Chemical Corporation," and "Benedict Nuclear Pharmaceuticals, Inc."), a publicly
held corporation that was engaged in the manufacturing and distribution of
radiopharmaceuticals, subsequently selling its product line to Syncor
Pharmaceuticals, Inc. During the approximate 19 years since Mr. Benedict's
founding of Golden Pharmaceuticals in 1972, Golden Pharmaceuticals developed
into a national drug company and received Food and Drug Administration approval
for the commercialization of two radiopharmaceutical products. Mr. Benedict has
extensive experience in nuclear medicine during the past 35 years. Mr. Benedict
is an active member of five well-known professional organizations, as well as
the Society of Nuclear Medicine.
Donald A. Ludwig is Executive Vice President and a Director. He has
held these positions for the past two years. Prior to assuming these duties, he
was the founder and Director of Physics for Medicine, a medical consulting
company from 1988 through 1998. His firm has been hired by hospitals,
institutions and corporations in medical physics, manufacturing, marketing and
distribution. A range of consumers have drawn on his business and medical
background and extensive experience of more than 25 years. Clients have ranged
from national to international organizations including International Isotopes,
Inc., MDS Nordion, E.I. du Pont deNemours and Company, The Malaysian Institute
for Nuclear Technology, National Laboratory of Germany and numerous
manufacturers of medical and radiation therapy devices. Among other tasks, he
was the Director of International Sales and Marketing for Positron Corporation,
a manufacturer of scanners for positron emission tomography. He holds advanced
degrees both in marketing and medical physics.
Janet L. Davis has served as the Secretary since 1996 and has served as
an interim director since December 1999. She was appointed to serve as an
interim director upon the resignation of J.D. Kish. From 1994 through 1997 she
was employed as the general manager of Chance Northern, LLC. In 1998 Ms. Davis
was employed by Cudd & Associates as a paralegal. Since the beginning of 1999,
Ms. Davis has been employed by Reinhart, Boerner, Van Deuren, Norris &
Rieselbach, P.C., most currently in the position of Paralegal in the Tax, Trusts
& Estates Department. Ms. Davis successfully completed an American Bar
Association-approved program in paralegal studies and has a Bachelor of Science
degree from Louisiana State University.
29
<PAGE>
Vernon L. Morris. Mr. Morris was appointed as our Chief Financial
Officer in January 2000. He is a Certified Public Accountant and has had his own
accounting practice in Boulder, Colorado for the past twelve years. Mr. Morris
received his degree in Physics from Colorado State University and his CPA
certificate in Colorado in 1972. Mr. Morris was employed with Brock Cordle and
Associates as chief audit partner and securities audit partner. Mr. Morris will
be responsible for all financial operations and controls, including budgeting,
financing, financial reports and taxes. Mr. Morris is a member of the American
Institute of Certified Public Accountants.
David D. McNurlin has served as our Vice President of Corporate
Development since January 1, 1998. His responsibilities include project
management, cost analysis and cost breakdown, budget forecasting and facility
development. Mr. McNurlin is currently in pursuit of this BSBA in Business
Administration. Mr. McNurlin has over 12 years project management experience and
over 8 years experience in computer information systems. During the years
1995-1998 Mr. McNurlin served as the president of his own computer
hardware-consulting firm. He consulted with various customers and small
businesses on the benefits of various hardware and software upgrades to their
computer systems or computer networks. During the years of 1998 to present, Mr.
McNurlin has served as System Administrator and converted our computer systems
to a LAN (local area network) with various software upgrades and is currently
supervising the development of our new facility.
All directors currently hold office until the next annual
meeting of shareholders and until their successors are duly elected and
qualified. Our executive officers serve at the discretion of the Board of
Directors and until their successors are duly elected and qualified.
Medical and Scientific Advisory Board
Michael J. Lawson, M.D. (Board Certified Nuclear Medicine & Internal
Medicine) is the Director of the Good Samaritan PET Center, Phoenix, Arizona.
Dr. Lawson has an extensive background in the field of nuclear medicine over the
past thirty years. He is a founding Member of the American Society of Nuclear
Cardiology. Dr. Lawson is an active member of more than six medical
organizations as well as having extensive publications. He is a graduate of the
University of Utah School of Medicine. Dr. Lawson has joined us as the Advisor
and Director of the PET Center.
Steven M. Larson, M.D. (Board Certified Nuclear Medicine & Internal
Medicine) is the Chief of Nuclear Medicine at Memorial Sloan Kettering Cancer
Institute, New York, New York. Dr. Larson, a graduate of the Washington School
of Medicine, has had an extensive background in the field of nuclear medicine
and internal medicine over the past thirty years. Dr. Larson is an active member
of several medical organizations as well as having extensive publications. Dr.
Larson has joined us as a medical advisor in diagnostic and therapeutic
medicine.
Karl Erdman, Ph.D. has worked as Chief Scientist on PET Medical
Cyclotron, Research Cyclotron, and Commercial Radioisotope Cyclotron Projects at
EBCO Technologies, Inc. since 1987. Dr. Erdman received his Ph.D. in Physics
from the University of British Columbia. Prior to joining Ebco, he worked as
Associate Director of TRIUMF, Canada's National Meson Facility located in
Vancouver, BC, and was involved as part of the team who built TRIUMF in 1972. He
is an internationally recognized expert in negative ion cyclotrons,
radio-frequency systems in Cyclotron Accelerators, charged particle beam line
design and operation, and cyclotron applications. Dr Erdman taught at the
Physics Department at the University of British Columbia. He has had many
accepted international articles published on physics. He has joined us as a
scientific advisor in cyclotron operations and controls.
30
<PAGE>
Richard R. Johnson, Ph.D. has worked as Program Manager on PET Medical
Cyclotron, Research Cyclotron, and Commercial Radioisotope Cyclotron Projects at
EBCO Technologies since 1996. Dr. Johnson received his Ph.D. in Physics from the
University of British Columbia. Prior to joining Ebco, he worked as Division
Head of TRIUMF, Canada's National Meson Facility located in Vancouver, BC, and
was involved as part of Administration, Technical and Applied Programs
responsible for medical applications. He has joined us as a scientific advisor
in cyclotron operations and manufacturing procedures.
Hermann Schweickert, Ph.D. is the head of the Cyclotron Laboratory at
the National Laboratory of Germany. Dr. Schweickert received his Ph.D. in
Physics from University of Heidelberg, Germany. He was responsible for the
design, construction and operation of two accelerators at the laboratory. He is
the head of the accelerator development group. He is a member the Institute of
Nuclear Physics and The Institute of Neutron Physics and Reactor Technology. Dr.
Schweickert is an expert for the International Atomic Energy Agency throughout
the world in the field of radioisotope production for medical applications. He
has published extensively in international physics journals. He has joined us as
a scientific advisor in cyclotron operations and targets.
Volker Bechtold, Ph.D. is the Deputy Director of the Cyclotron
Laboratory at the National Laboratory of Germany. Dr. Bechtold received his
Ph.D. in Physics of the University of Karlsrule, Germany. Previously, he was the
scientist responsible for the design, construction and operation of the 42 MeV
Cyclotron. He has worked as Director of Isotope Production and in the research
center of the National Laboratory developing many of the radiopharmaceuticals
for medical applications in Europe. Dr. Bechtold is an expert for the
International Atomic Agency (IAEA) throughout the world in the field of
radioisotope production for medical applications. He has published extensively
in international physics journals. He has joined us as a scientific advisor in
cyclotron operations, targets, (gas and solid), manufacturing and production of
radiochemicals and radiopharmaceuticals.
Robert L. Mundis, Certified Health Physicist is our radiation
protection officer. His responsibilities will include, but not be limited to,
the following: enforce compliance with all safety rules as contained in
radioactive materials license and as promulgated by the federal, state and local
governments; to inspect our facilities and records according to the provisions
of the radioactive license on a quarterly basis and issue reports. He has worked
as a Certified Health Physicist at the Los Alamos National Laboratory since
1991. Mr. Mundis received his BA in Mathematics from the University of Niagara.
He is a Technical Staff Member in the TA-53 Accelerator Health Physics Section
of the HS-1 Health Physics Operations Group at the Laboratory.
Ronald J. Callahan Ph.D. is the Nuclear Pharmacist at the Division of
Nuclear Medicine, Massachusetts General Hospital (Harvard Medical School). He
received his Ph.D. at the Massachusetts College of Pharmacy. He is an expert in
the field of pharmaceuticals and radiopharmaceuticals and on the Advisory Panel
of the United States Pharmacopeia & National Formulary. He has served on the
Board of Trustees of the Society of Nuclear Medicine. Dr. Callahan is a member
of numerous societies, of which one is the Radiopharmaceutical Science Council
of the Society of Nuclear Medicine.
The members of the Medical and Scientific Advisory Board are expected
to advise us on technical and scientific issues. We anticipate that the board of
advisors will review the technical progress of our products, engineering and
research and development, and will be compensated at a rate per meeting to be
determined by our Board of Directors, plus reasonable travel expenses in
connection with such meetings. The advisors will make recommendations to us
regarding product capability and specifications, engineering designs and
research and development objectives, and our future technical development. We do
not intend to retain individuals to serve as advisors whose primary employers,
or other third parties with whom such individuals have consulting arrangements,
are in competition with us. Advisors may be retained individually by us on a
consulting basis to perform work specifically for and at our direction. The
members of the Medical and Scientific Advisory Board have each received 5,000
shares of common stock for their participation on this board.
31
<PAGE>
Summary Compensation Table
The following table sets forth the compensation paid or accrued, for
the fiscal years ended March 31, 1999, 1998 and 1997 for our President and
Executive Vice President. Other than our President, we have no officer whose
salary and bonus were in excess of $100,000. There is no executive officer,
other than those listed on the following table, who was awarded, earned or paid
more than $100,000 for the fiscal year ended March 31, 1999, 1998 and 1997. We
do not have any option or other grants outstanding.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Bonus
Fiscal Year Salary Research and Cyclotron License
Name and Principal Position Ended Development and Design
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Malcolm H. Benedict, President 1999 $125,000 $120,000 $37,157
1998 $ 86,667 $ 67,600 -0-
1997 $ 50,000 $ 75,000 13,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Employment Agreements
We have entered into a Second Amended Employment Agreement with Mr.
Benedict. The Employment Agreement is for a term of three years, commencing
January 1, 1999 and provides that Mr. Benedict shall serve as our Chief
Executive Officer. Mr. Benedict agrees to devote his full working time,
attention and energy to our business. Pursuant to the agreement, Mr. Benedict is
entitled to a base salary of $125,000 per year, plus additional compensation for
new additions or changes to an original license application in an amount not
less than $40,000 per license application. The employment agreement also
provides that the employee is entitled to additional incentive compensation as
determined by the board of directors, from time to time, for the performance of
duties not customarily performed by a President and Chief Executive Officer of a
radiopharmaceutical company. In the Employment Agreement, Mr. Benedict agrees to
waive any compensation owed to him and which was not paid for calendar years
prior to 1999; provided, however, the board of directors may consider such
waiver in determining any additional incentive compensation. Mr. Benedict will
be entitled to six weeks' vacation per year, locally recognized holidays and
other benefits pursuant to plans approved by us offered to all employees. The
employment agreement may be terminated by Mr. Benedict upon 60 days' notice or
by us for cause. Furthermore, the Employment Agreement will be terminated upon
Mr. Benedict's death and may be terminated upon his disability, provided he
shall, in either case, be entitled to receive his salary for six months
following such termination. The employment agreement also contains
confidentiality provisions prohibiting Mr. Benedict from disclosing trade
secrets and other proprietary information.
We have entered into an Employment Agreement with Dr. Ludwig. The
Employment Agreement is for a term of five years, commencing April 1, 1998 and
provides that Dr. Ludwig shall serve as our Executive Vice President. Dr. Ludwig
agrees to devote his full working time, attention and energy to our business.
Pursuant to the agreement, Dr. Ludwig is entitled to a base salary of $100,000
per year, plus additional compensation for new additions or changes to an
original license application in an amount not less than $40,000 per license
application. The employment agreement also provides that Dr. Ludwig is entitled
to additional incentive compensation as determined by the board of directors,
from time to time, for the performance of duties not customarily performed by an
Executive Vice President of a radiopharmaceutical company. In the Employment
Agreement, Dr. Ludwig stipulates that, during the first two years of the
agreement, we may not be able to pay the full amount of the agreed salary and
agrees to accept a lesser amount without the expectation of being paid the
balance during any future year. The board of directors may consider such waiver
in determining any additional incentive compensation. Dr. Ludwig will be
entitled to six weeks' vacation per year, locally recognized holidays and other
benefits pursuant to plans approved by us offered to all employees. The
employment agreement may be terminated by Dr. Ludwig upon 60 days' notice or by
us for cause. Furthermore, the Employment Agreement will be terminated upon Dr.
Ludwig's death and may be terminated upon his disability, provided he shall, in
either case, be entitled to receive his salary for six months following such
termination. The employment agreement also contains confidentiality provisions
prohibiting Dr. Ludwig from disclosing trade secrets and other proprietary
information. For the period from April 11, 1998 to December 31, 1999, Dr. Ludwig
worked on a part-time basis and was paid approximately half of the salary stated
in the employment agreement.
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<PAGE>
Stock Option Plan
At the current time, we do not have a stock option plan that has been
approved by the shareholders.
Committees of the Board of Directors
We have not established any committees of the board of directors at
this time. We anticipate establishing committees for audit and executive
compensation during the second quarter of 2000, each of which are expected to be
headed by an outside director.
Director Compensation
We reimburse directors for reasonable travel expenses incurred in
connection with their activities on our behalf, but we do not pay directors any
fees for board participation.
In March 1999 we issued 66,667 shares (100,000 pre-split) of our common
stock to Dr. Ludwig as a bonus for his services as director. The shares were
valued at the time of issuance at $1.125 per share ($.75 per share - pre-split).
Indemnification of Directors and Officers
Our Bylaws eliminate the liability of an officer or director, or former
officer or director, for expenses actually and necessarily incurred in
connection with the defense of any action, suit or proceeding in which they are
made parties, except in relation to matters as to which they are adjudged to be
liable for negligence or misconduct in the performance of their duties. Our
Articles of Incorporation provide that the board of directors may indemnify our
officers, directors, employees or agents against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
an action, suit or proceeding if the director, officer, employee or agent acted
in good faith and in a manner he reasonably believed to be in our best interest
and, with respect to any criminal action or proceeding, he had no reasonable
cause to believe his action was unlawful. If any director, officer or
controlling person in connection with the securities being registered asserts a
claim for indemnification related to such liabilities, other than the payment by
us of expenses incurred or paid by our director, officer or controlling person
in the successful defense of any action, suit or proceeding, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the Securities
Act of 1933, as amended, and we will be governed by the final adjudication of
such issue.
33
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the
beneficial ownership of shares of common stock held by:
o each person or entity who is known by us to beneficially own
five percent or more of the common stock;
o each of our directors and executive officers; and
o all of our directors and executive officers of the Company as
a group.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned (3)
Name of Beneficial Owner (1) Number of Shares(2) Before Offering After Offering
- ---------------------------- ------------------- --------------- --------------
<S> <C> <C> <C>
Malcolm H. Benedict 3,119,000 36.00% 32.00%
Donald A. Ludwig 66,667 0.80% 0.70%
Janet L. Davis 6,667 0.08% 0.07%
Vernon L. Morris 75,000 0.90% 0.80%
David D. Mc Nurlin 59,489 0.70% 0.60%
All Directors and Executive
Officers as a group (five) persons 3,326,823 38.48% 33.54%
Jacqueline Rae Quinn (4) 821,333 9.50% 8.50%
First Trust Corporation (5) 513,333 5.90% 5.30%
Total of all Principal Shareholders 4,661,489 53.88% 47.34%
</TABLE>
(1) Unless otherwise indicated, the address for each named individual or
group is in care of Molecular Diagnostics and Therapeutics, Inc. at
1880 Industrial Circle, Suite B-3, Longmont, CO 80501.
(2) Reflects 3 for 2 reverse stock split.
(3) Unless otherwise indicated, we believe that all persons named in the
table have sole voting and investment power with respect to all shares
of common stock beneficially owned by them. None of the persons listed
owns any options or other rights to acquire additional shares of our
common stock.
(4) Jacqueline Rae Quinn is the beneficial owner of these shares, which
were acquired by James C. Quinn while he served as a director of
Molecular Diagnostics and Therapeutics, Inc. Mr. Quinn resigned as a
director of Molecular Diagnostics and Therapeutics, Inc., effective
July 7, 1999.
(5) These shares beneficially owned by Arthur W. Young, a former director.
CERTAIN TRANSACTIONS
Related party transactions
During the years ended March 31, 1999 and 1998, and for the period from
February 19, 1992 (inception) through March 31, 1999, we paid officers $157,157,
$67,600, and $559,533 (unaudited) respectively, for compensation that is
included in the accompanying financial statements as research and development
costs.
During the nine months ended December 31, 1999, we paid officers
$23,500 (unaudited) for compensation that was charged to research and
development costs. Additional expenses of $62,552 (unaudited) resulted in
research and development costs totaling $86,052 (unaudited) for the nine months
ended December 31, 1999.
During the year ended March 31, 1999, we issued 103,500 shares of no
par value common stock to employees for compensation valued by management at the
fair value of the common stock, or $.75 per share. These shares are "restricted
securities" and may be sold only in compliance with Rule 144 of the Securities
Act.
34
<PAGE>
We believe that these transactions were fair and reasonable to us and
were on terms no less favorable than could have been obtained from unaffiliated
third parties. Any such future transactions will be on terms no less favorable
to us than could be obtained from unaffiliated parties.
ARTICLES AND BYLAWS
Our Articles of Incorporation and Bylaws contain certain provisions
regarding the rights and privileges of shareholders, some of which may have the
effect of discouraging certain types of transactions that involve an actual or
threatened change of control, diminishing the opportunities for a shareholder to
participate in tender offers, including tender offers at a price above the then
current market value of the common stock or over a shareholder's cost basis in
the common stock, and inhibiting fluctuations in the market price of the common
stock that could result from takeover attempts. Such provisions could work to
the detriment of shareholders in the event that management has any interests
over and above those of the shareholders. These provisions of the Articles and
Bylaws are summarized below. Reference is made to the full text of the Articles
and Bylaws. The following summary is qualified in its entirety by such
reference.
Size of Board and Election of Directors. The Articles provide that the
number of Directors shall be fixed from time to time as provided in the Bylaws.
The Bylaws currently provide at least three persons to serve on the Board. The
Articles further provide that the Board may enact, alter, amend and repeal the
Bylaws by action taken in accordance with such Bylaws, not inconsistent with the
Articles or applicable law, including dividing the Board of Directors into three
classes. At the current time all directors are elected at each annual meeting of
shareholders.
DESCRIPTION OF SECURITIES
General
We are authorized to issue 45,000,000 shares of common stock, without
par value and 5,000,000 shares of preferred stock, without par value. As of the
date of this prospectus, we have outstanding 8,654,515 shares of common stock
owned by approximately 327 holders of record. In November, 1999, our
shareholders approved a three for two reverse stock split of the common stock.
There are no shares of preferred stock currently outstanding.
Common Stock
The holders of common stock are entitled to one vote for each share
held of record in the election of directors and in all other matters to be voted
on by the shareholders. There is no cumulative voting with respect to the
election of directors. As a result, the holders of more than 50% of the shares
voting for the election of directors can elect all of the directors. Holders of
common stock are entitled:
o To receive any dividends as may be declared by the Board of Directors
from funds legally available for such purpose; and
o In the event of our liquidation, dissolution, or winding up, to share
ratably in all assets remaining after payment of liabilities and after
provision has been made for each class of stock, if any, having
preference over the common stock. All of the outstanding shares of
common stock are, and the shares of common stock offered hereby will
be, upon issuance and sale, validly issued, fully paid, and
nonassessable. Holders of common stock have no preemptive right to
subscribe for or purchase additional shares of any class of our capital
stock.
35
<PAGE>
Preferred Stock
The Board of Directors has the authority, within the limitations and
restrictions stated in the Articles of Incorporation, to provide for the
issuance of 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 and the number of shares constituting any series or the designation
of such series. The issuance of preferred stock could have the effect of
decreasing the market price of the common stock and could adversely affect the
voting and other rights of the holders of common stock.
Transfer Agent and Registrar
We intend to act as our own Transfer Agent and Registrar for the common
stock initially and later to arrange for a stock transfer and trust company to
take this responsibility.
LIMITATIONS OF DIRECTORS' LIABILITY AND INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Our Bylaws provide that our directors will not be personally liable for
expenses actually and necessarily incurred by them in connection with the
defense of any action, suit or proceeding in which they, or any of them, are
made parties except in instances in which they are adjudged to be liable for
negligence or misconduct. Such limitations are designed to protect the directors
at the possible disadvantage of shareholders; however, management believes such
protection is necessary to induce talented individuals to serve on the board.
We have included provisions in our Articles of Incorporation providing
for indemnification of our directors, officers, employees and agents by us,
including the advancement of expenses incurred by a director, officer, employees
and agents in any suit in which any of these people are involved. We believe
that such actions will assist us in attracting and retaining qualified
individuals to serve as directors, officers, employees, or agents. Prospective
investors should be aware, however, that the costs associated with indemnifying
a director, officer, employees and agents could be significant and, if not
covered by insurance, could adversely affect our results of operations.
Furthermore, in situations where we have advanced litigation expenses to a
director, officer, employees and agents and the director, officer, employees and
agents is required to repay the expenses because it is ultimately determined
that he is not entitled to indemnification, the director, officer, employees or
agents may not have sufficient cash or assets to repay the expenses advanced.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and therefore
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by one of our directors,
officers or controlling persons in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
LIMITATIONS ON TRANSFER OF SHARES
There is currently no public market for our common stock, and there is
little likelihood that an active trading market will develop in the near future
as a result of this offering. The shares being offered by this prospectus have
been registered with the Securities and Exchange Commission pursuant to a
registration statement on Form SB-2 filed under the Securities Act, and as such,
the shares will become freely tradable under the federal securities laws. The
shares, however, will have been registered in only a limited number of states
and may not be sold or otherwise transferred to persons who are residents of any
state in which the shares have not been registered unless they are subsequently
registered or there exists an exemption from the applicable state's registration
requirements with respect to such sale or transfer.
36
<PAGE>
QUALIFIED SMALL BUSINESS ISSUER CAPITAL GAINS TAX EXCLUSION
In 1993, IRS Section 1202 was enacted to provide a 50-percent exclusion
of any gain from the sale of "qualified small business stock." For the shares to
qualify for the exclusion, several tests must be met. For instance, the shares
must be purchased directly from us, not in a later trading market, and the
shares must be held for at least five years. In addition, a "qualified small
business" must not have more than $50 million in assets at all times before the
issuance of the stock and immediately thereafter.
Further, at least 80 percent of the assets must be used in the "active
conduct of one or more qualified trades or businesses" throughout the holding
period. There are also limitations on the persons who may use the exclusion.
Prospective investors should consult their own tax advisers as to the
availability of the exclusion.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, we will have up to 9,654,515 shares
of common stock outstanding, of which the 1,000,000 being offered hereby will be
freely tradable without restriction or further registration under the Securities
Act, except for any shares purchased by an "affiliate", which will be subject to
the resale limitations of Rule 144 promulgated under the Securities Act.
All of the remaining 8,654,515 shares of common stock currently
outstanding are "restricted securities" or owned by "affiliates", as those terms
are defined in Rule 144, and may not be sold publicly unless they are registered
under the Securities Act or are sold pursuant to Rule 144 or another exemption
from registration. The 8,654,515 restricted shares will be eligible for sale
without registration under Rule 144, 365 days following the completion date of
this prospectus.
Lockup Agreement
All executive officers and directors and certain principal shareholders
(representing over 48% of the 9,654,515 outstanding shares of common stock) have
agreed for a period of 12 months following the qualification date of this
prospectus, without the underwriter's prior written consent, not to, sell or
otherwise dispose of any shares of common stock in any public market transaction
including pursuant to Rule 144.
Rule 144
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of us
or persons whose shares are aggregated with an affiliate who has owned
restricted shares of common stock beneficially for at least one year, is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
o 1% of the then outstanding shares of the issuer's common stock; or
o the average weekly trading volume during the four calendar weeks
preceding such sale, provided that certain public information about the
issuer, as required by Rule 144, is then available and the seller
complies with certain other requirements.
Rule 144(k)
A person who is not an affiliate, has not been an affiliate within
three months prior to sale, and has beneficially owned the restricted shares for
at least two years, is entitled to sell such shares under Rule 144(k) without
regard to any of the limitations described above.
37
<PAGE>
Minimal Prior Market
Prior to this offering, there has been no market for the common stock,
and we cannot predict the effect, if any, that market sales of shares of common
stock, or the availability of such shares for sale, will have on the market
prices of the common stock prevailing from time to time. Nevertheless, the
possibility that substantial amounts of common stock may be sold in the public
market may adversely affect prevailing market prices for the common stock and
could impair our ability to raise capital through the sale of our equity
securities.
PLAN OF DISTRIBUTION
We are offering to sell 200,000 shares (minimum) and up to 1,000,000
shares (maximum) of common stock at an offering price of $10.00 per share on a
best-efforts basis. We have agreed to pay to a broker-dealer, Three Arrows
Capital Corporation, 10101 Grosvenor Place #2016, Rockville, MD 20852 (301) 897
3889 (the "Selling Agent") a sales commission of 8 percent, or $.80 per share.
In addition, we have agreed to issue warrants to the broker-dealer to purchase
shares at the offering price, within the four years following the completion of
the offering, at the rate of one warrant for each fifteen shares sold, and paid
a fee of $10,000 for due diligence and consultation. Warrants to be received by
the Selling Agent are restricted from sale, transfer, assignment or
hypothecation for a period of two years from the effective date of the offering
except to officers or partners (not directors) of the Selling Agent and members
of the selling group and/or their officers or partners. Three Arrows Capital
Corp. is a registered broker-dealer with the NASD and is registered with the
states of New York, Maryland, Virginia and numerous other jurisdictions. We have
also agreed to indemnify the Selling Agent for any material misstatement in its
filing. We have no plans, proposals, arrangements, or understandings with the
Selling Agent, other than the warrant shares of our common stock, with regard to
future transactions. No other material relationships exist between the Selling
Agent and us or our management.
None of our officers, employees, or directors will be paid a commission
in connection with the sale of any shares, nor will any officer, employee or
director undertake the sale of the shares. Sale of the shares will only be
undertaken by the Selling Agent. None of the principal shareholders nor our
management nor the Selling Agent will buy shares in the offering. The shares
will be offered by the Selling Agent on our behalf primarily through direct
solicitations, media coverage, and posting of announcements.
We reserve the right to reject any subscription in its entirety or to
allocate shares among prospective investors. If any subscription is rejected,
funds received by us for such subscription will be returned with interest and
without deduction. We will enter into an escrow agreement with Norwest Bank,
Colorado, NA(the "Escrow Agent") pursuant to which the Escrow Agent will hold
all funds deposited with it by the Selling Agent until the minimum of $2,000,000
has been received. If the minimum has not been reached by November 15, 2000,
which period may be extended for an additional 180 days at our option, funds
will be returned to the subscribers promptly without interest. Subscribers will
be required to make certain representations and warranties in the subscription
agreement that should be carefully read before signing.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price per share of the common
stock will be determined arbitrarily by negotiation between us and the Selling
Agent and does not necessarily bear any relationship to our asset value, net
worth or other established criteria of value. The factors considered in such
negotiations, in addition to prevailing market conditions, include the history
and prospects of the industry in which we compete, and assessment of our
management, our prospects, our capital structure, the market for initial public
offerings and certain other factors as are deemed relevant.
Once the minimum has been reached, within five days of its receipt of
a subscription agreement from the Selling Agent confirming that an accompanying
check for the purchase price of shares has been received, we will send by first
class mail a written confirmation to notify the subscriber of the extent, if
any, to which subscription has been accepted by us. We reserve the right to
reject orders for the purchase of shares in whole or in part. Not more than
thirty days following the mailing of its written confirmation a subscriber's
common stock certificate will be mailed by first class mail.
38
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock
offered hereby will be passed upon for us by Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, P.C.
EXPERTS
The financial statements as of and for the years ended March 31, 1999
and 1998 have been audited by the firm of Cordovano and Harvey, P.C.,
independent auditors, as indicated in their report with respect thereto, and are
included herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed a registration statement on Form SB-2 under the
Securities and Exchange Commission in Washington, D.C. with respect to the
securities offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in the
registration statement and the exhibits and schedules thereto. For further
information with respect to us and the securities offered hereby, reference is
made to the registration statement and the exhibits and schedules thereto filed
as a part thereof. Statements contained in this prospectus as to the contents of
any contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. The registration statement, including all amendments, exhibits and
schedules thereto, may be inspected without charge at the office of the
Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, NW,
Washington, D.C. 20549 or by calling 1/800/SEC-0330. Copies of such material may
also be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, NW, Washington, D.C. 20549. In addition, the
Securities and Exchange Commission maintains a web site that contains reports,
proxy and information statements and other information regarding issues that
file electronically with the Commission. The address of the site is
http://www.sec.gov.
As a result of this offering, we will become subject to the information
and reporting requirements of the SEC and will be required to file periodic
reports, proxy statements and other information with the SEC. We intend to
furnish to our stockholders annual reports containing audited financial
statements and we may also issue quarterly reports containing unaudited interim
financial information for the first three quarters of each fiscal year.
39
<PAGE>
Item 22. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page
Independent auditors' report.................................................F-2
Balance sheets, March 31, 1999 and December 31, 1999 (unaudited).............F-3
Statements of operations, for the years ended March 31, 1999 and 1998,
February 19, 1992 (inception) through March 31, 1999 (unaudited), for
the nine months ended December 31, 1999 and 1998 (unaudited), and
from February 19, 1992 (inception) through December 31, 1999 (unaudited)..F-4
Statement of shareholders' equity, from February 19, 1992 (inception)
through December 31, 1999 (unaudited).....................................F-5
Statements of cash flows, for the years ended March 31, 1999 and 1998,
February 19, 1992 (inception) through March 31, 1999 (unaudited), for
the nine months ended December 31, 1999 and 1998 (unaudited), and
from February 19, 1992 (inception) through December 31, 1999 (unaudited)..F-9
Summary of significant accounting policies..................................F-10
Notes to financial statements...............................................F-14
F-1
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Shareholders
Molecular Diagnostics and Therapeutics, Inc.
(Formerly Nu-Tec., L.T.D.)
We have audited the accompanying balance sheet of Molecular Diagnostics and
Therapeutics, Inc. (formerly Nu-Tec., L.T.D.) (a development stage company) as
of March 31, 1999 and the related statements of operations, shareholders'
equity, and cash flows for the years ended March 31, 1999 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Molecular Diagnostics and
Therapeutics, Inc. as of March 31, 1999, and the results of its operations and
its cash flows for the years ended March 31, 1999 and 1998 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in the Summary of Significant
Accounting Policies, the Company has no revenues and has experienced significant
operating losses during the periods from February 19, 1992 (inception) through
March 31, 1999, which raises a substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in the Summary of Significant Accounting Policies. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Cordovano and Harvey, P.C.
Denver, Colorado
June 22, 1999
F-2
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC.
(Formerly Nu-Tec., L.T.D.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1999
--------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash..........................................................................................$.4,883 $.44,394
Prepaid expenses.............................................................................. 2,012 -
------- -------
TOTAL CURRENT ASSETS 6,895 44,394
FURNITURE AND EQUIPMENT, less accumulated depreciation
totaling $64,066 and $77,031 (unaudited), respectively (Note C)............................... 29,186 20,410
DEPOSITS........................................................................................... 4,350 4,350
------- -------
$40,431 $69,154
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................................................. $.9,940 $.17,742
TOTAL CURRENT LIABILITIES
COMMITMENTS (Note G).............................................................................. - -
SHAREHOLDERS' EQUITY (Note E)
Preferred stock, no par value, 5,000,000 shares authorized;
22,875 and -0- (unaudited) shares issued and outstanding,
respectively.............................................................................. 128,039 -
Common stock, no par value, 45,000,000 shares authorized;
8,008,206 (post-split) and 8,654,515 (post-split) (unaudited)
shares issued and outstanding, respectively...............................................1,965,392 2,683,279
Deferred offering costs...................................................................... (86,405) (146,555)
Deficit accumulated during the development stage............................................(1,976,535) (2,485,312)
------- -------
TOTAL SHAREHOLDERS' EQUITY 30,491 51,412
------- -------
$40,431 $69,154
======= =======
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-3
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC
(Formerly Nu-Tec., L.T.D.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
February 19, February 19,
1992 1992
Years Ended (Inception) Nine Months Ended (Inception)
March 31, Through December 31, Through
-------------------------- March 31, -------------------------- December 31,
1999 1998 1999 1999 1998 1999
----------- ----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
COSTS AND EXPENSES
Salaries and payroll taxes ........ $ 174,915 $ 97,745 $ 432,382 $ 177,874 $ 203,571 $ 610,256
Stock-based compensation
(Notes B&E):
Employee compensation .......... 77,625 -- 77,625 40,450 -- 118,075
Professional fees .............. 143,700 -- 143,700 16,850 -- 160,550
Directors' fees ................ -- -- - 26,250 -- 26,250
Research and development
costs (Note B) ..... 157,157 67,600 559,533 86,052 15,800 645,585
Web site, graphics and
computer services .... 43,425 -- 43,425 28,012 40,825 71,437
Rent .............................. 37,413 23,348 132,340 33,402 30,363 165,742
Professional fees ................. 44,796 25,670 101,208 18,347 38,742 119,555
Office ............................ 12,600 6,489 42,473 9,674 9,317 52,147
Postage ........................... 5,402 8,128 19,477 4,470 3,317 23,947
Telephone ......................... 7,832 5,979 40,002 14,525 4,507 54,527
Contract labor .................... 12,213 13,800 233,712 28,242 6,389 261,954
Repairs and maintenance ........... 340 2,286 9,184 1,135 -- 10,319
Depreciation ...................... 17,857 10,192 63,973 12,965 7,896 76,938
Other ............................. 16,542 15,739 77,264 10,529 21,339 87,793
----------- ----------- ----------- ----------- ----------- -----------
OPERATING LOSS ............ (751,817) (276,976) (1,976,298) (508,777) (382,066) (2,485,075)
INTEREST EXPENSE ....................... -- (109) (237) -- -- (237)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES .. (751,817) (277,085) (1,976,535) (508,777) (382,066) (2,485,312)
INCOME TAX BENEFIT
(EXPENSE) (Note D)
Current ........................... 324,429 119,924 777,269 211,271 141,880 988,540
Deferred .......................... (324,429) (119,924) (777,269) (211,271) (141,880) (988,540)
----------- ----------- ----------- ----------- ----------- -----------
NET LOSS ............. $ (751,817) $ (277,085) $(1,976,535) $ (508,777) $ (382,066) $(2,485,312)
=========== =========== =========== =========== =========== ===========
Basic loss per common share ............ $ (0.10) $ (0.04) $ (0.06) $ (0.05)
=========== =========== =========== ===========
Basic weighted average common
shares outstanding ................ 7,608,692 6,763,943 8,346,570 7,518,516
=========== =========== =========== ===========
Diluted loss per common share .......... $ (0.10) $ (0.04) $ (0.06) $ (0.05)
=========== =========== =========== ===========
Diluted weighted average common shares
shares outstanding ................. 7,608,692 6,763,943 8,346,570 7,518,516
=========== =========== =========== ===========
</TABLE>
See accompanying summary of significant accounting policies and
notes to financial statements.
F-4
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC
(Formerly Nu-Tec , L T D )
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
February 19, 1992 (inception) through December 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Deferred During the Total
----------------------- ------------------------- Offering Development Shareholders
Shares Amount Shares Amount Costs Stage Equity
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 19, 1992
(inception) ................ -- $ -- -- $ -- $ -- $ -- $ --
Sale of common stock, $0.0001
per share (Note B) ........ -- -- 5,250,000 578 -- -- 578
Issuance of convertible
preferred shares in
exchange for intellectual
property rights at
$0 0001 per share ........... 100,000 10 -- -- -- -- 10
Sale of common stock, $0 015
per share (Note E) ........ -- -- 400,000 6,000 -- -- 6,000
Shares issued for services,
valued at cost, $0 015
per share (Note E) ......... -- -- 120,000 1,800 -- -- 1,800
Conversion of convertible
preferred stock to
common stock at a rate
of 1 to 4 .................. (100,000) (10) 400,000 10 -- -- --
--------- --------- ---------- --------- -------- --------- --------
BALANCE, MARCH 31, 1992
(unaudited) ......... -- -- 6,170,000 8,388 -- -- 8,388
--------- --------- ---------- --------- -------- --------- --------
Sale of Class B convertible
preferred shares,
pursuant to a private
placement memorandum,
net of offering costs
totaling $50,289,
$5.00 per share ............ 29,000 94,711 -- -- -- -- 94,711
Net loss for the year ended
March 31, 1993 ............. -- -- -- -- (95,678) (95,678)
--------- --------- ---------- --------- -------- --------- --------
BALANCE, MARCH 31, 1993
(unaudited) .......... 29,000 94,711 6,170,000 8,388 -- (95,678) 7,421
--------- --------- ---------- --------- -------- --------- --------
Shares issued for services,
valued at cost,
$0.001 per share (Note B) .. -- -- 905,000 905 -- -- 905
Sale of Class B convertible
preferred shares,
pursuant to a private
placement memorandum,
net of offering costs
totaling $4,195,
$5.00 per share ............ 2,700 9,305 -- -- -- -- 9,305
Conversion of Class B
convertible preferred
stock to common stock
at a rate of 1 to 12,
respectively ............... (31,700) (104,016) 380,400 104,016 -- -- --
Shares issued for prizes,
$0.4166 per share .......... -- -- 8,500 3,540 -- -- 3,540
Sale of common stock,
$0.22 per share ............ -- -- 50,000 11,000 -- -- 11,000
Shares issued for services,
valued at cost $0.22
per share (Note E) ........... -- -- 200,000 44,000 -- -- 44,000
Net loss for the year ended
March 31, 1994 ................ -- -- -- -- -- (90,504) (90,504)
--------- --------- ---------- --------- -------- --------- --------
BALANCE, MARCH 31, 1994
(unaudited) ........... -- -- 7,713,900 171,849 -- (186,182) (14,333)
--------- --------- ---------- --------- -------- --------- --------
Sale of common stock,
$0.625 per share ........... -- -- 2,500 1,565 -- -- 1,565
Shares issued for prizes,
$0.4166 per share .......... -- -- 1,000 417 -- -- 417
</TABLE>
See accompanying summary of significant accounting
policies and notes to financial statements
F-5
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC
(Formerly Nu-Tec , L T D )
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
February 19, 1992 (inception) through December 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Deferred During the Total
----------------------- ------------------------- Offering Development Shareholders
Shares Amount Shares Amount Costs Stage Equity
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sale of Class A convertible
preferred shares,
pursuant to a private
placement memorandum,
net of offering costs
totaling $28,990,
$5 00 per share .......... 25,000 96,010 -- -- -- -- 96,010
Conversion of Class A
convertible preferred
stock to common stock at
a rate of 1 to 8,
respectively ............. (25,000) (96,010) 200,000 96,010 -- -- --
Sale of Class C convertible
preferred shares,
pursuant to a private
placement memorandum,
$5 00 per share .......... 6,000 30,000 -- -- -- -- 30,000
Net loss for the year ended
March 31, 1995 ........... -- -- -- -- -- (119,509) (119,509)
--------- --------- ---------- --------- -------- --------- --------
BALANCE, MARCH 31, 1995
(unaudited) .......... 6,000 30,000 7,917,400 269,841 -- (305,691) (5,850)
--------- --------- ---------- --------- -------- --------- --------
Sale of common stock,
$0 625 per share ......... -- -- 5,000 3,132 -- -- 3,132
Sale of Class C convertible
preferred shares,
pursuant to a private
placement memorandum,
net of offering costs
totaling $69,810,
$5 00 per share .......... 93,570 339,774 -- -- -- -- 339,774
Conversion of Class C
convertible
preferred stock to
common stock at a rate of
1 to 16, respectively .... (99,570) (369,774) 1,593,120 369,774 -- -- --
Sale of Class D convertible
preferred shares,
pursuant to a private
placement memorandum,
$5 00 per share .......... 18,100 108,600 -- -- -- -- 108,600
Conversion of Class D
convertible
preferred stock to
common stock at a rate of
1 to 12, respectively .... (11,600) (69,600) 139,200 69,600 -- -- --
Net loss for the year ended
March 31, 1996 ........... -- -- -- -- -- (430,541) (430,541)
--------- --------- ---------- --------- -------- --------- --------
BALANCE, MARCH 31, 1996
(unaudited) ......... 6,500 39,000 9,654,720 712,347 -- (736,232) 15,115
--------- --------- ---------- --------- -------- --------- --------
Sale of Class D convertible
preferred shares,
pursuant to a private
placement memorandum,
net of offering costs
totaling $100,571,
$5 00 per share .......... 22,400 90,841 -- -- -- -- 90,841
Conversion of Class D
convertible
preferred stock to
common stock at a rate of
1 to 12, respectively .... (28,900) (129,841) 346,800 129,841 -- -- --
Sale of Class E convertible
preferred shares,
pursuant to a private
placement memorandum,
$6 00 per share .......... 12,835 77,010 -- -- -- -- 77,010
Conversion of Class E
convertible
preferred stock to
common stock at a rate of
1 to 12, respectively .... (12,835) (77,010) 154,020 77,010 -- -- --
</TABLE>
See accompanying summary of significant accounting
policies and notes to financial statements
F-6
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC
(Formerly Nu-Tec , L T D )
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
February 19, 1992 (inception) through December 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Deferred During the Total
----------------------- ------------------------- Offering Development Shareholders
Shares Amount Shares Amount Costs Stage Equity
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares issued for services,
valued at cost,
$0 50 per share (Note E) .... -- -- 13,133 6,566 -- -- 6,566
Sale of common stock,
$0 50 per share ............. -- -- 4,832 2,416 -- -- 2,416
Net loss for the year ended
March 31, 1997 .............. -- -- -- -- -- (211,401) (211,401)
---------- ---------- ---------- ---------- ---------- ---------- -----------
BALANCE, MARCH 31, 1997 ... -- -- 10,173,505 928,180 -- (947,633) (19,453)
---------- ---------- ---------- ---------- ---------- ---------- -----------
Sale of Class F convertible
preferred shares,
pursuant to a private
placement memorandum,
$6 00 per share ............. 20,500 123,000 -- -- -- -- 123,000
Conversion of Class F
convertible preferred
stock to common stock at
a rate of 1 to 12,
respectively ................ (10,500) (63,000) 126,000 63,000 -- -- --
Sale of common stock, $0.50
per share ................... -- -- 500 250 -- -- 250
Repurchase of common stock,
subsequently cancelled ...... -- -- (8,000) (5,873) -- -- (5,873)
Sale of Class G convertible
preferred shares,
pursuant to a private
placement memorandum,
net of offering costs
totaling $49,125,
$6 00 per share ............. 67,351 354,981 -- -- -- -- 354,981
Net loss for the year ended
March 31, 1998 .............. -- -- -- -- -- (277,085) (277,085)
---------- ---------- ---------- ---------- ---------- ---------- -----------
BALANCE, MARCH 31, 1998 ... 77,351 414,981 10,292,005 985,557 -- (1,224,718) 175,820
---------- ---------- ---------- ---------- ---------- ---------- -----------
Sale of Class G convertible
preferred shares,
pursuant to a private
placement memorandum,
$6 00 per share ............ 1,000 6,000 -- -- -- -- 6,000
Conversion of Class F
convertible preferred
stock to common stock
at a rate of 1 to 12,
respectively .............. (10,000) (60,000) 120,000 60,000 -- -- --
Conversion of Class G
convertible preferred
stock to common stock
at a rate of 1 to 12,
respectively ................ (68,351) (360,981) 820,212 360,981 -- -- --
Sale of Class H convertible
preferred shares,
pursuant to a private
placement memorandum,
net of offering costs
totaling $26,215,
$6.00 per share ............... 60,499 336,779 -- -- -- -- 336,779
Shares issued for prizes,
$0.75 per share ............... -- -- 1,000 750 -- -- 750
Shares issued for stock-based
compensation, valued at cost
of stock offering , $.75 per
share (Note E) ................ . -- -- 295,100 221,325 -- -- 221,325
</TABLE>
See accompanying summary of significant accounting
policies and notes to financial statements
F-7
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC
(Formerly Nu-Tec , L T D )
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
February 19, 1992 (inception) through December 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Deferred During the Total
----------------------- ------------------------- Offering Development Shareholders
Shares Amount Shares Amount Costs Stage Equity
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Conversion of Class H
convertible preferred
stock to common stock
at a rate of 1 to 8,
respectively................ (60,499) (336,779) 483,992 336,779 - - -
Sale of Class I convertible
preferred shares,
pursuant to a private
placement memorandum,
net of offering costs
totaling $9,211,
$6.00 per share.............. 22,875 128,039 - - - - 128,039
Offering costs related to
proposed initial
public offering (Note E).... - - - - (86,405) - (86,405)
Net loss for the year ended
March 31, 1999.............. - - - - - (751,817) (751,817)
---------- ---------- ---------- ---------- ---------- ---------- -----------
BALANCE, MARCH 31, 1999 22,875 128,039 12,012,309 1,965,392 (86,405) (1,976,535) 30,491
---------- ---------- ---------- ---------- ---------- ---------- -----------
Shares issued for stock-based
compensation, valued at
cost of stock offering,
$.75 per share (Note E)
(unaudited)................ - - 111,400 83,550 - - 83,550
Sale of Class I convertible
preferred shares,
pursuant to a private
placement memorandum,
$6.00 per share (unaudited) 34,458 206,748 - - - - 206,748
Conversion of Class I
convertible preferred
stock to common stock
at a rate of 1 to 8,
respectively (unaudited) (57,333) (334,787) 458,664 334,787 - - -
Sale of common shares to
existing shareholders,
$.75 per share (unaudited) - - 399,400 299,550 - - 299,550
3 for 2 reverse split of
common stock (unaudited)
(Note E)................... - - (4,327,258) - - - -
Offering costs related to
proposed initial public
offering (unaudited)
(Note E).................... - - - - (60,150) - (60,150)
Net loss for the nine
months ended
December 31, 1999
(unaudited)................. - - - - - (508,777) (508,777)
---------- ---------- ---------- ---------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1999
(unaudited)............. - $ - 8,654,515 $2,683,279 $ (146,555) $ (2,485,312) $ 51,412
========== ========== ========== ========== ========== ========== ===========
</TABLE>
See accompanying summary of significant accounting policies
and notes to financial statements
F-8
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC.
(Formerly Nu-Tec., L.T.D.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
February 19, February 19,
1992 1992
For The Years Ended (Inception) Nine Months Ended (Inception)
March 31, Through December 31, Through
----------------------- March 31, ------------------------ December 31,
1999 1998 1999 1999 1998 1999
---------- ----------- ----------- ----------- ----------- ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................................... $ (751,817) $ (277,085) $(1,976,535) $ (508,777) $ (382,066) $(2,485,312)
Transactions not requiring cash:
Depreciation............................... 17,857 10,192 63,973 12,965 7,896 76,938
Stock-based compensation (Note E).......... 221,325 - 221,325 83,550 221,325 304,875
Common stock issued for services........... - - 52,366 - - 52,366
Common stock issued for prizes............. 750 - 4,707 - 750 4,707
Changes in current assets and current
liabilities:
Receivables and other current assets....... (3,805) 4,812 (6,362) 2,012 - (4,350)
Accounts payable and accrued expenses...... (15,597) 25,537 9,940 7,802 (23,282) 17,742
---------- --------- ----------- ---------- ---------- -----------
NET CASH (USED IN)
OPERATING ACTIVITIES (531,287) (236,544) (1,630,586) (402,448) (175,377) (2,033,034)
---------- --------- ----------- ---------- ---------- -----------
INVESTING ACTIVITIES
Payments for furniture and equipment.......... (13,978) (24,449) (93,252) (4,189) (12,625) (97,441)
---------- --------- ----------- ---------- ---------- -----------
NET CASH (USED IN)
INVESTING ACTIVITIES (13,978) (24,449) (93,252) (4,189) (12,625) (97,441)
FINANCING ACTIVITIES
Proceeds from the issuance of preferred and
common stock............................... 506,244 461,350 2,159,405 506,298 75,544 2,665,703
Payments for the repurchase of common stock - (5,873) (5,873) - - (5,873)
Payments for offering costs................... (121,831) (49,125) (424,811) (60,150) - (484,961)
---------- --------- ----------- ---------- ---------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 384,413 406,352 1,728,721 446,148 75,544 2,174,869
---------- --------- ----------- ---------- ---------- -----------
NET CHANGE IN CASH (160,852) 145,359 4,883 39,511 (112,459) 44,394
Cash at beginning of year..................... 165,735 20,376 - 4,883 165,735 -
---------- --------- ----------- ---------- ---------- -----------
CASH AT END OF YEAR $ 4,883 $ 165,735 $ 4,883 $ 44,394 $ 53,276 $ 44,394
========== ========= =========== ========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest........................ $ - $ 109 $ 237 $ - $ - $ 237
========== ========= =========== ========== ========== ===========
Cash paid for income taxes.................... $ - $ - $ - $ - $ - $ -
========== ========= =========== ========== ========== ===========
</TABLE>
See accompanying summary of significant accounting policies
and notes to financial statements
F-9
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC.
(Formerly Nu-Tec., L.T.D.)
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development stage company
Molecular Diagnostics and Therapeutics, Inc. (the "Company") is in the
development stage in accordance with Statement of Financial Accounting Standard
(SFAS) No. 7.
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash equivalents
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Furniture, equipment and depreciation
Furniture and equipment are recorded at cost. When capital assets are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts and the net difference, less any amount realized,
is reflected in the statement of operations.
Depreciation is calculated on the straight-line method over the useful lives of
the related assets.
Research and development costs
Costs to obtain certain intangible assets are accounted for in accordance with
SFAS No. 2, "Accounting for Research and Development Costs". Research and
development costs consist of the direct labor and expenses incurred in preparing
new drug applications and applying for Cyclotron and Radioactive Materials
Licenses. SFAS No. 2 requires that all research and development costs, except
those done for others under contract or certain government-related entities, be
charged to expense.
Income taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and the tax
basis of assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.
F-10
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC.
(Formerly Nu-Tec., L.T.D.)
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Web-site development costs
Web-site development costs are expensed when incurred.
Deferred offering costs
The Company incurred costs related to the offerings of its preferred stock and
common stock during the periods presented. All costs associated with the
Company's private stock offerings were deducted from proceeds received from
those offerings. Costs associated with the Company's planned public stock
offering will also be deducted from the gross proceeds at its conclusion.
However, should the offering not be successful, the deferred costs associated
with the public offering will be expensed at that time.
Earnings/(loss) per share
Effective December 31, 1997, Statement of Financial Accounting Standards No. 128
"Earnings Per Share" requires a dual presentation of earnings per share - basic
and diluted. Basic earnings per share has been computed on the weighted average
of common shares outstanding. Diluted earnings per share reflects the increase
in weighted average common shares outstanding that would result from the assumed
exercise of outstanding stock options and conversion of outstanding preferred
shares. For the years ended March 31, 1999 and 1998, 1,547,797 and 1,354,696
shares, respectively, were excluded from the diluted earnings per share
calculation, as these shares were anti-dilutive. Had these shares been included
in the calculation, diluted weighted average shares outstanding would have
increased to 12,960,835 and 11,500,611 for the years ended March 31, 1999 and
1998, respectively.
Fair value of financial instruments
The Company has determined, based on available market information and
appropriate valuation methodologies, that the fair value of its financial
instruments approximates carrying value. The carrying amounts of cash,
receivables, payables and other current liabilities approximate fair value due
to the short-term maturity of the instruments.
Stock-based compensation
During the period from February 19, 1992 (inception) through March 31, 1999, the
Company used shares of its no par value common stock to pay for various services
and for use as prizes. The Company also used shares of common stock to
compensate certain employees. During the same period, the Company granted stock
options to members of management. The Company accounted for these stock-based
compensation arrangements in a consistent manner, for all periods presented. For
shares of common stock issued to employees, consultants, and for prizes, the
Company valued the transaction at the historical fair value of the common stock
issued. The fair value of the common stock was adjusted to the most recent
historical price at which the Company offered its common stock for sale to
unrelated third party investors.
F-11
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC.
(Formerly Nu-Tec., L.T.D.)
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Stock-based compensation, continued
The Company applied the "intrinsic value method" as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in
determining compensation expense when accounting for stock option awards. The
intrinsic value method computes stock option expense at the excess of the strike
price of the option over the market price of the underlying share of common
stock, on the grant date.
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in October
1995 and was effective for fiscal years beginning after December 15, 1995. This
accounting standard encourages the use of the "fair value based method" in
accounting for compensation expense associated with stock option awards and
similar plans but permitted the continued use of the intrinsic value method. The
Company adopted SFAS No. 123 effective April 1, 1996; however, the Company has
elected to continue to determine the value of stock-based compensation
arrangements under the provisions of APB 25. No pro forma disclosures have been
included in the accompanying notes to the financial statements as there was no
pro forma effect to the Company's operations or earnings per share.
Recently issued accounting pronouncements
The Company has adopted the following new accounting pronouncements for the year
ended March 31, 1999. SFAS No. 130, "Reporting Comprehensive Income," requires
the reporting and display of total comprehensive income and its components in a
full set of general-purpose financial statements. SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," is based on the
"management" approach for reporting segments. The management approach designates
the internal organization that is used by management for making operating
decisions and assessing performance as the source of the Company's reportable
segments. SFAS No. 131 also requires disclosure about the Company's products,
the geographic areas in which it earns revenue and holds long-lived assets, and
its major customers. SFAS No. 132, "Employers' Disclosures about Pensions and
Other Post-retirement Benefits," which requires additional disclosures about
pension and other post-retirement benefit plans, but does not change the
measurement or recognition of those plans. SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," requires an entity to recognize
all derivatives on a balance sheet, measured at fair value. Statement of
Position ("SOP") 98-1, "Accounting for Costs of Computer Software Developed for
Internal Use," requires that entities capitalize certain internal-use software
costs once certain criteria are met. SOP 98-5, "Reporting on the Costs of
Start-Up Activities," provides among other things, guidance on the reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. There was no effect on the
financial statements presented from the adoption of the new pronouncements. The
Company will continue to review new accounting pronouncements over time to
determine if any additional disclosures are necessary based on evolving
circumstances.
F-12
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC.
(Formerly Nu-Tec., L.T.D.)
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications have been made to the presentation of the prior years'
financial statements to correspond to the current year. Total equity and net
loss are unchanged due to these reclassifications.
Basis of presentation
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements, the Company is a development stage company with no revenue
as of March 31, 1999 and has incurred a loss of 2,485,312 (unaudited) for the
period from February 19, 1992 (inception) through March 31, 1999. This factor,
among others, may indicate that the Company will be unable to continue as a
going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's continuation
as a going concern is dependent upon its ability to generate sufficient cash
flow to meet its obligations on a timely basis and ultimately to attain
profitability. The Company plans on raising $10 million through an initial
public offering that will be registered with the Securities and Exchange
Commission on Form SB-2 to fund the building, cyclotron and proposed operations.
The costs of implementing the business plan in excess of the initial public
offering proceeds are expected to be financed with debt. The Company is largely
dependent upon the proceeds anticipated to be received from the proposed initial
public offering and debt financings to carry out its proposed operations. The
Company's ability to continue as a going concern is dependent upon successful
completion of the offering and financings and ultimately, upon obtaining
government approval for its licenses and achieving profitable operations. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Unaudited financial information
The statements of operations, shareholders' equity and cash flows for the period
from February 19, 1992 (inception) through March 31, 1997 and for the nine
months ended December 31, 1999 and 1998, have been prepared by the Company
without audit. In the opinion of management, the accompanying unaudited
financial information contains all adjustments (consisting only of normal
recurring adjustments) necessary for the fair presentation of the Company's
results of operations and its cash flows for the period from February 19, 1992
(inception) through March 31, 1997 and for the nine months ended December 31,
1999 and 1998.
Name change
On November 9, 1999, the Company changed its name from Nu-Tec., L.T.D. to
Molecular Diagnostics and Therapeutics, Inc.
F-13
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC.
(Formerly Nu-Tec., L.T.D.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE A: BACKGROUND
The Company was incorporated under the laws of Colorado on February 19, 1992.
The principal activities since inception have included efforts towards the
preparation of four new drug applications, a radioactive materials license, a
cyclotron license, and the sale and issuance of shares of its preferred and
common stocks. Upon receipt of regulatory approval, the Company intends to
develop, manufacture and distribute radiochemical and radiopharmaceutical drug
products. Due to the nature of the products and the presence of radioactive
substances, the Company will be subject to regulation by a number of federal and
state agencies, including the Food and Drug Administration. Following is a
summary of the Company's new drug applications and licenses as well as its
current status:
Description Status
---------------------- ----------------------------------------
New Drug Applications:
----------------------
Iodine-123......................Application preparation in progress
Technetium-99m..................Initial Stage of application preparation
in progress
Flourine-18 (FDG)...............Application preparation in progress
Palladium-103...................Initial stage of application preparation
in progress
Licenses:
---------
Radioactive Materials Licens....Application preparation in progress
Cyclotron Operating License.....Application preparation in progress
NOTE B: RELATED PARTY TRANSACTIONS
During the years ended March 31, 1999 and 1998, and for the period from February
19, 1992 (inception) through March 31, 1999, the Company paid officers $157,157,
$67,600, and $559,533 (unaudited), respectively, for compensation that is
included in the accompanying financial statements as research and development
costs.
During the nine months ended December 31, 1999, the Company paid
officers $23,500 (unaudited) for compensation that was charged to research and
development costs. Additional expenses of $62,552 (unaudited) resulted in
research and development costs totalling $86,052 (unaudited) for the nine months
ended December 31, 1999.
During the year ended March 31, 1999, the Company issued 103,500 shares of no
par value common stock to employees for compensation valued by the Board of
Directors at the fair value of the common stock, or $.75 per share (see Note E).
The Board of Directors considered contemporaneous equity transactions and other
analysis to determine the fair value of the common stock. These shares are
"restricted securities" and may be sold only in compliance with Rule 144 of the
Securities Act of 1933, as amended (the "Act").
During the year ended March 31, 1994, the Company issued 905,000 (unaudited)
shares of its no par value common stock to an officer valued by the Board of
Directors at the fair value of the common stock, or $.001 per share. The Board
of Directors considered contemporaneous equity transactions and other analysis
to determine the fair value of the common stock. These shares are "restricted
securities" and may be sold only in compliance with Rule 144 of the Act.
F-14
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC.
(Formerly Nu-Tec., L.T.D.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE B: RELATED PARTY TRANSACTIONS, CONTINUED
During the period ended March 31, 1992, the Company issued 5,250,000 (unaudited)
shares of no par value common stock to an officer valued by the Board of
Directors at the fair value of the common stock, or $.0001 per share. The Board
of Directors considered contemporaneous equity transactions and other analysis
to determine the fair value of the common stock. These shares are "restricted
securities" and may be sold only in compliance with Rule 144 of the Act.
NOTE C: FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
March 31, December 31,
1999 1999
------------------ ------------------
(Unaudited)
Furniture........................... $.19,444 $ 19,444
Office and computer equipment....... 63,774 67,963
Computer software................... 10,034 10,034
------------------ ------------------
93,252 97,441
Less: accumulated depreciation...... (64,066) (77,031)
------------------ ------------------
$ 29,186 $ 20,410
================== ==================
NOTE D: INCOME TAXES
A reconciliation of the U.S. statutory federal income tax rate to the effective
rate is as follows:
<TABLE>
<CAPTION>
March 31,
--------------------------- December 31,
1999 1998 1998
----------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
U.S. federal statutory graduated rate....... 34.00% 33.61% 34.00%
State income tax rate,
net of federal benefit................... 3.14% 3.20% 3.14%
Offering costs.............................. 6.01% 6.47% 4.39%
Net operating loss for which no tax
benefit is currently available........... .-43.15% -43.28% -41.53%
------- ------- -------
0.00% 0.00% 0.00%
======= ======= =======
</TABLE>
At March 31, 1999, deferred taxes consisted of a net tax asset of $777,269 due
to operating loss carryforwards of $1,976,535, which was fully allowed for in
the valuation allowance of $777,269. The valuation allowance offsets the net
deferred tax asset for which there is no assurance of recovery. The change in
the valuation allowance for the years ended March 31, 1999 and 1998 was $324,429
and $119,924, respectively. Net operating loss carryforwards will expire through
2019.
F-15
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC.
(Formerly Nu-Tec., L.T.D.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE D: INCOME TAXES, CONTINUED
At December 31, 1999, deferred taxes consisted of a net tax asset totaling
$988,540 (unaudited) due to net operating loss carryforwards of $2,485,312
(unaudited). The valuation allowance offsets the net deferred tax asset for
which there is no assurance of recovery. The change in the valuation allowance
for the nine months ended December 31, 1999 was $211,271 (unaudited), which
increased the valuation allowance to $988,540 (unaudited).
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer impaired and the allowance is
no longer required.
NOTE E: SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION
The Company has established one class of common stock and has authorized
preferred shares to be designated by class as determined by the Board of
Directors.
The common shares each have voting rights, with no par value or preference
rights. The preferred shares have voting rights equal to the number of shares of
converted common stock and no par value.
On February 1, 1999, the Company commenced a private offering of 58,333 shares
of its Class I Convertible Preferred Stock at $6.00 per share pursuant to an
exemption under Rule 504 of Regulation D under the Securities Act of 1933, as
amended. Each preferred share is convertible by the Company on or before July
28, 1999, into eight common shares for no additional consideration and is
entitled to a preference of $6.00 per share upon liquidation of the Company.
Each issued and outstanding preferred share is entitled to eight votes based
upon the conversion ratio of eight common shares issuable upon the conversion of
each preferred share. As of March 31, 1999, there were 22,875 shares of
Convertible Preferred Stock outstanding that were convertible to 183,000 shares
of common stock. During the nine months ended December 31, 1999, the Company
sold 34,458 (unaudited) shares of convertible preferred stock in connection with
its Class "I" offering. The 34,458 (unaudited) shares were in addition to the
22,875 shares sold prior to March 31, 1999. On July 27, 1999, all 57,333
(unaudited) preferred shares were converted to 458,664 (unaudited) shares of
common stock.
During the year ended March 31, 1999, the Company incurred $121,831 in offering
costs related to its private placement offerings and proposed initial public
offering. $26,215 and $9,211 in offering costs were offset against the Company's
proceeds raised through its Class "H" and Class "I" offerings, respectively. The
remaining $86,405 was paid toward the Company's proposed public offering and is
included in the accompanying financial statements as deferred offering costs.
During the nine months ended December 31, 1999, the Company incurred an
additional $60,150 (unaudited) in offering costs related to its proposed initial
public offering.
The Company proposed to conduct a public offering to offer for sale 1,000,000
shares of its no par value common stock at $10.00 per share. The Company plans
to commence the offering during 2000.
F-16
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC.
(Formerly Nu-Tec., L.T.D.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE E: SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, CONTINUED
During the year ended March 31, 1999, the Company issued 41,600 shares for
services rendered. 27,900 shares were issued for professional fees related to
the preparation of Company's business plan; 10,000 shares were issued for legal
fees in connection with the Company's offering; and 3,700 shares were issued to
consultants for other professional services. These shares were valued by the
Board of Directors at the fair value of common stock, or $.75 per share. The
Board of Directors considered contemporaneous equity transactions and other
analysis to determine the fair value of the common stock. Stock-based
compensation expense of $31,200 was recognized in the accompanying financial
statements for the year ended March 31, 1999.
During the year ended March 31, 1999, the Company issued 253,500 shares of its
no par value common stock as compensation to officers, employees and
consultants. These shares were valued by the Board of Directors at the fair
value of common stock, or $.75 per share. Stock-based compensation expense of
$190,125 was recognized in the accompanying financial statements for the year
ended March 31, 1999.
During the year ended March 31, 1997, the Company issued 13,133 shares to a
consultant for services rendered. These shares were valued by the Board of
Directors at the fair value of common stock, or $.50 per share.
During the year ended March 31, 1994, the Company issued 200,000 (unaudited)
shares to a consultant for services rendered. These shares were valued by the
Board of Directors at the fair value of common stock, or $.22 per share.
During the year ended March 31, 1992, the Company issued 120,000 (unaudited)
shares of no par value common stock to consultants for services rendered. These
shares were valued by the Board of Directors at the fair value of common stock,
or $.015 per share. These shares are "restricted securities" and may be sold
only in compliance with Rule 144 of the Act.
During the period ended March 31, 1992, the Company issued 400,000 (unaudited)
shares of its common stock to an investor for $6,000 (unaudited), or $.015 per
share. These shares are "restricted securities" and may be sold only in
compliance with Rule 144 of the Act.
On September 30, 1999, the Board of Directors approved a 3 for 2 reverse split
of the Company's no par value common stock. The shareholders ratified the
reverse stock split on November 1, 1999.
During the nine months ended December 31, 1999, the Company sold 399,400
(unaudited) shares of its no par value common stock to certain shareholders of
record for proceeds of $299,550 ($.75 per share) (unaudited).
F-17
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC.
(Formerly Nu-Tec., L.T.D.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE E: SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, CONTINUED
During the nine months ended December 31, 1999, the Company issued 57,467
(unaudited) shares of common stock for services rendered. 35,000 (unaudited) of
the shares were issued to directors in lieu of fees and the remaining 22,467
(unaudited) shares were issued to consultants for other professional services.
These shares were valued by the Board of Directors at the price of the shares of
common stock sold in a stock offering ongoing at the time of issuance, or $.75
per share (unaudited). As a result, stock-based compensation expense of $43,100
(unaudited) was recognized in the accompanying financial statements for the nine
months ended December 31, 1999.
During the nine months ended December 31, 1999, the Company issued 53,933
(unaudited) shares of its no par value common stock as compensation. These
shares were valued by the Board of Directors at the fair value of common stock,
or $.75 per share (unaudited). As a result, stock-based compensation expense of
$40,450 (unaudited) was recognized in the accompanying financial statements for
the nine months ended December 31, 1999.
NOTE F: STOCK OPTION AGREEMENTS
On December 29, 1995, the Board of Directors adopted a Stock Option Plan, which
reserved 5,000,000 shares of the Company's common stock. On January 23, 1996,
the Company granted non-compensatory stock options for 1,122,183 shares of its
common stock to its president and other individuals. The options, which are
vested and exercisable as of the grant date, allow the optionees to purchase
475,000; 275,000; 172,183; 100,000; and 100,000 shares of common stock at $.35
per share. The Company's common stock is not traded in the public market and the
exercise price of $.35 per share on the grant date approximated management's
estimate of the fair value of the Company's common stock. The options expire on
January 23, 2001. As of March 31, 1999, no options had been exercised.
On September 30, 1999, the Board of Directors approved the termination of all
outstanding stock options.
NOTE G: COMMITMENTS
Office leases
The Company entered into an operating lease for office space located in Boulder,
Colorado on January 27, 1997. The lease commenced February 1, 1997 and expires
January 31, 2002. On October 22, 1998, the Company entered into a second
operating lease for office space located in Longmont, Colorado.
On October 14, 1999, the Company signed a tenant to a sublease agreement for the
office space located in Boulder, Colorado. The sublease commences on November 1,
1999 and ends on January 31, 2002.
F-18
<PAGE>
MOLECULAR DIAGNOSTICS AND THERAPEUTICS, INC.
(Formerly Nu-Tec., L.T.D.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE G: COMMITMENTS, CONTINUED
Future minimum lease payments under both office leases and receipts under the
sublease agreement for the years ended March 31 are as follows:
Minimum Sublease Net
Rental Rental Rental
Payments Income Payments
----------------- ------------------ -----------------
March 31, (Unaudited) (Unaudited) (Unaudited)
- ---------
2000............ $ 43,173 $ 7,561 $ 35,612
2001............ 44,021 18,797 25,224
2002............ 32,802 16,253 16,549
--------- ------- --------
$ 119,996 $42,611 $ 77,385
========= ======= ========
NOTE H: SUBSEQUENT EVENTS
During January and February 2000, the Company sold 172,796 (unaudited) shares of
its no par value common stock to certain shareholders of record for proceeds
totaling $194,399 ($1.125 per share) (unaudited).
On March 8, 2000, the Company entered into a contract to purchase land. The
Company agreed to issue 102,000 (unaudited) shares of its no par value common
stock as earnest money towards the total purchase price of $1,198,730
(unaudited). The balance of the purchase price is due on the closing date, which
is scheduled for July 17, 2000. The Company's obligation to purchase the land is
subject to receiving approval from Weld County, Colorado for the Company's site
plan and building plans on or before June 22, 2000.
F-19
<PAGE>
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Directors and Officers.
The Registrant's Amended and Restated Articles of Incorporation provide
that the Board of Directors of the Registrant may indemnify any person who was
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Registrant), by
reason of the fact that he is or was a director, officer, employee or agent of
the Registrant or is or was serving at the request of the Registrant as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney fees),
judgements, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in the best interests
of the Registrant and, with respect to any criminal action or proceeding, had no
reasonable cause to be believe his conduct was unlawful. The Board of Directors
may also indemnify any such person made a party to such actions and suits, by or
in the right of the Registrant to procure a judgement in its favor, against
expenses (including attorney fees) actually in connection with the defense or
settlement of such action or suit if he so acted, but no indemnification shall
be made in respect of any claim, issue or matter as to which such person has
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the registrant unless and only to the extent that the court
determines, in view of all of the circumstances of the case, such person is
fairly and reasonably entitled to such indemnification.
The Registrant's Bylaws provide that the Registrant shall indemnify any
and all of its directors or officers, or former directors or officers, or any
person who may have served at the Registrant's request as a director or officer
of another corporation in which the Registrant owns capital stock or of which it
is a creditor, against expenses actually and necessarily incurred by them in
connection with the defense of any action, suit or proceeding in which they, or
any of them, are made parties, or a party, by reason of being or having been
directors or officers or a director or officer of the Registrant, or of such
other corporation, except in relation to matters as to which any such director
or officer or former director or person shall be adjudged in such action, suit
or proceeding to be liable for negligence or misconduct in the performance of
duty.
The Colorado Business Corporation Act provides that a corporation may
indemnify a person made a party to a proceeding because the person is or was a
director against liability incurred in the proceeding if (a) the person
conducted himself or herself in good faith, (b) the person reasonably believed
(1) in the case of conduct in an official capacity with the corporation, that
his or her conduct was in the corporation's best interests; and (2) in all other
cases, that his or her conduct was at least not opposed to the corporation's
best interests and (c) in the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful. Such
indemnification is permitted in connection with a proceeding by or in the right
of the corporation only to the extent of reasonable expenses incurred in
connection with the proceeding. A corporation may not indemnify a director (a)
in connection with a proceeding by or in the right of the corporation in which
the director was adjudged liable to the corporation; or (b) in connection with
any other proceeding charging that the director derived an improper personal
benefit, whether or not involving action in an official capacity, in which
proceeding the director was adjudged liable on the basis that he or she derived
an improper personal benefit.
<PAGE>
The Colorado Business Corporation Act further provides that a
corporation, unless limited by its articles of incorporation, shall indemnify a
person who was wholly successful, on the merits or otherwise, in the defense of
any proceeding to which the person was a party because the person is or was a
director, against reasonable expenses incurred by him or her in connection with
the proceeding.
The Registrant has applied for directors' and officers' liability
insurance with an aggregate policy limit of $1,000,000.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses of this Offering, all of which will be paid by
Registrant, are as follows:
SEC Registration Fee $ 2,965
National Association of Securities Dealers, Inc. Fee 1,500
Nasdaq Listing Fee 6,000
Accounting Fees and Expenses 15,000
Registrant's Legal Fees and Expenses 145,000
Blue Sky Expenses and Counsel Fees 17,000
Printing and Engraving Fees 3,500
Transfer Agent and Registrar's Fees and Expenses 1,000
Miscellaneous Expenses 25,000
---------
Total $ 217,065
=========
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
From January 1996 through June 1996, the Registrant sold an aggregate
of 40,500 shares of its Class D Preferred Stock in a private placement to 27
investors for an aggregate consideration of $202,500 ($5.00 per share). The
offering was conducted in accordance with Rule 504 of Regulation D by means of a
confidential offering memorandum. Each share of Preferred stock was converted,
pursuant to its terms, into twelve shares of the Registrant's common stock in
June, 1996 at the option of the Registrant for no additional consideration.(2)
From July 1996 through January 1997, the Registrant sold an aggregate
of 12,835 shares of its Class E Preferred Stock in a private placement to 15
investors for an aggregate consideration of $77,010 ($6.00 per share). The
offering was conducted in accordance with Rule 504 of Regulation D by means of a
confidential offering memorandum. Each share of Preferred stock was converted,
pursuant to its terms, into twelve shares of the Registrant's common stock in
January, 1997 at the option of the Registrant for no additional
consideration.(2)
From February 1997, through August, 1997 the Registrant sold an
aggregate of 20,500 shares of its Class F Preferred Stock in a private placement
to 11 investors for an aggregate consideration of $123,000 ($6.00 per share).
The offering was conducted in accordance with Rule 504 of Regulation D by means
of a confidential offering memorandum. Each share of Preferred stock was
converted, pursuant to its terms, into twelve shares of the Registrant's common
stock in August, 1997 at the option of the Registrant for no additional
consideration.(2)
From August, 1997 through March, 1998 the Registrant sold an aggregate
of 68,351 shares of its Class G Preferred Stock in a private placement to 40
investors for an aggregate consideration of $410,106 ($6.00 per share). The
offering was conducted in accordance with Rule 504 of Regulation D by means of a
confidential offering memorandum. Each share of Preferred stock was converted,
pursuant to its terms, into twelve shares of the Registrant's common stock in
March, 1998 at the option of the Registrant for no additional consideration.(2)
In January, 1998 the Registrant issued 13,133 shares of its common
stock to an individual as a consulting fee for the review of the offering
documents. The shares were valued at the time of issuance at $.50 per share.
Such individual was provided with access to all material information regarding
an investment in the Registrant and was given the opportunity to ask questions
of and receive answers from the executive officers of the Registrant.
Accordingly, this issuance was exempt from registration under the Securities Act
pursuant to Section 4(2) thereunder.(1)
<PAGE>
From June 1998, through December 1998, the Registrant sold an aggregate
of 60,499 shares of its Class H Preferred Stock in a private placement to 39
investors for an aggregate consideration of $362,994 ($6.00 per share). The
offering was conducted in accordance with Rule 504 of Regulation D by means of a
confidential offering memorandum. Each share of Preferred stock was converted,
pursuant to its terms, into eight shares of the Registrant's common stock in
December, 1998 at the option of the Registrant for no additional
consideration.(2)
In August, 1998 the Registrant issued 600 shares of its common stock to
a shareholder as a consulting fee for the review of marketing documents. The
shares were valued at the time of issuance at $.75 per share. Such individual
was provided with access to all material information regarding an investment in
the Registrant and was given the opportunity to ask questions of and receive
answers from the executive officers of the Registrant. Accordingly, this
issuance was exempt from registration under the Securities Act pursuant to
Section 4(2) thereunder.(1)
In January, 1999 the Registrant issued 10,000 shares of its common
stock to an individual as compensation for the review and preparation of
offering documents. The shares were valued at the time of issuance at $.75 per
share. Such individual was provided with access to all material information
regarding an investment in the Registrant and was given the opportunity to ask
questions of and receive answers from the executive officers of the Registrant.
Accordingly, this issuance was exempt from registration under the Securities Act
pursuant to Section 4(2) thereunder.(1)
From February 1999 through July, 1999 the Registrant sold an aggregate
of 57,333 shares of its Class I Preferred Stock in a private placement to 29
investors for an aggregate consideration of $343,998 ($6.00 per share). The
offering was conducted in accordance with Rule 504 of Regulation D by means of a
confidential offering memorandum. Each share of Preferred stock was converted,
pursuant to its terms, into eight shares of the Registrant's common stock in
July, 1999 at the option of the Registrant for no additional consideration.(2)
In February, 1999 the Registrant issued 91,600 shares of its common
stock to an entity for services provided to the Registrant. The shares were
valued at the time of issuance at $.75 per share. A representative of such
entity was provided with access to all material information regarding an
investment in the Registrant and was given the opportunity to ask questions of
and receive answers from the executive officers of the Registrant. Accordingly,
this issuance was exempt from registration under the Securities Act pursuant to
Section 4(2) thereunder.(1)
<PAGE>
In March, 1999 the Registrant issued 1,000 shares of its common stock
to an individual as a consulting fee for the review of financial documents. The
shares were valued at the time of issuance at $.75 per share. Such individual
was provided with access to all material information regarding an investment in
the Registrant and was given the opportunity to ask questions of and receive
answers from the executive officers of the Registrant. Accordingly, this
issuance was exempt from registration under the Securities Act pursuant to
Section 4(2) thereunder.(1)
In March, 1999 the Registrant issued 3,500 shares of its common stock
to an employee of the Registrant as a bonus. The shares were valued at the time
of issuance at $.75 per share. Such employee was provided with access to all
material information regarding an investment in the Registrant and was given the
opportunity to ask questions of and receive answers from the executive officers
of the Registrant. Accordingly, this issuance was exempt from registration under
the Securities Act pursuant to Section 4(2) thereunder.(1)
In March, 1999 the Registrant issued 100,000 shares of its common stock
to a director of the Registrant for his services to the Registrant as director.
The shares were valued at the time of issuance at $.75 per share. The director
had access to all material information regarding an investment in the
Registrant. Accordingly, this issuance was exempt from registration under the
Securities Act pursuant to Section 4(2) thereunder.(1)
In March, 1999 the Registrant issued 86,300 shares of its common stock
to an officer of the Registrant for accrued services to the Registrant as an
officer. The shares were valued at the time of issuance at $.75 per share. The
officer had access to all material information regarding an investment in the
Registrant. Accordingly, this issuance was exempt from registration under the
Securities Act pursuant to Section 4(2) thereunder.(1)
In March, 1999 the Registrant issued 1,600 shares of its common stock
to an individual as a consulting fee for reviewing documents in connection with
the G preferred offering. The shares were valued at the time of issuance at $.75
per share. Such individual was provided with access to all material information
regarding an investment in the Registrant and was given the opportunity to ask
questions of and receive answers from the executive officers of the Registrant.
Accordingly, this issuance was exempt from registration under the Securities Act
pursuant to Section 4(2) thereunder.(1)
In April, 1999 the Registrant issued an aggregate of 35,000 shares of
its common stock to seven individuals (5,000 shares each) for their agreement to
serve on the Registrant's Scientific Advisory Board. The shares were valued at
the time of issuance at $.75 per share. Each of the individuals was provided
with access to all material information regarding an investment in the
Registrant and was given the opportunity to ask questions of and receive answers
from the executive officers of the Registrant. Accordingly, these issuances were
exempt from registration under the Securities Act pursuant to Section 4(2)
thereunder.(1)
<PAGE>
In May, 1999 the Registrant issued 6,667 shares of its common stock to
an individual for services provided to the Registrant. The shares were valued at
the time of issuance at $.75 per share. Such individual was provided with access
to all material information regarding an investment in the Registrant and was
given the opportunity to ask questions of and receive answers from the executive
officers of the Registrant. Accordingly, this issuance was exempt from
registration under the Securities Act pursuant to Section 4(2) thereunder.(1)
In July, 1999 the Registrant issued 800 shares of its common stock to
an individual as a consulting fee for reviewing documents in connection with H
preferred offering. The shares were valued at the time of issuance at $.75 per
share. Such individual was provided with access to all material information
regarding an investment in the Registrant and was given the opportunity to ask
questions of and receive answers from the executive officers of the Registrant.
Accordingly, this issuance was exempt from registration under the Securities Act
pursuant to Section 4(2) thereunder.(1)
In July, 1999 the Registrant issued 10,000 shares of its common stock
to the Registrant's corporate secretary for her services as secretary. The
shares were valued at the time of issuance at $.75 per share. She had access to
all material information regarding an investment in the Registrant. Accordingly,
this issuance was exempt from registration under the Securities Act pursuant to
Section 4(2) thereunder.(1)
In July, 1999 the Registrant issued 33,933 shares of its common stock
to an officer of the Registrant as employment compensation. The shares were
valued at the time of issuance at $.75 per share. The individual had access to
all material information regarding an investment in the Registrant. Accordingly,
the issuance was exempt from registration under the Securities Act pursuant to
Section 4(2) thereunder.(1)
In July, 1999 the Registrant issued 5,000 shares of its common stock to
an individual as a consulting fee for investor relations services. The shares
were valued at the time of issuance at $.75 per share. The individual was
provided with access to all material information regarding an investment in the
Registrant and was given the opportunity to ask questions of and receive answers
from the executive officers of the Registrant. Accordingly, the issuance was
exempt from registration under the Securities Act pursuant to Section 4(2)
thereunder.(1)
<PAGE>
In August, 1999 the Registrant sold an aggregate of 379,100 shares of
its common stock in a private placement to 14 investors for an aggregate
consideration of $284,325 ($.75 per share). Each of the purchasers was an
existing shareholder of the Registrant and an accredited investor, as defined in
Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), who was provided with access to all material
information regarding an investment in the Registrant and who was given the
opportunity to ask questions of and receive answers from the executive officers
of the Registrant. Accordingly, these issuances were exempt from registration
under the Securities Act pursuant to Section 4(2) thereunder.(1)
In September, 1999 the Registrant issued 20,000 shares of its common
stock to an officer of the Registrant as employment compensation. The shares
were valued at the time of issuance at $.75 per share. Such officer had access
to all material information regarding an investment in the Registrant.
Accordingly, this issuance was exempt from registration under the Securities Act
pursuant to Section 4(2) thereunder.(1)
On November 1, 1999 the Registrant's shareholders approved a three for
two reverse stock split. Prior to the split, the Registrant had 12,981,773
common shares outstanding and, following the split, there were 8,654,515 common
shares outstanding.
During January and February, 2000 the Registrant sold an aggregate of
172,796 shares of its common stock in a private placement to seven investors for
an aggregate consideration of $194,399 ($1.125 per share). Each of the
purchasers was an existing shareholder of the Registrant and an accredited
investor, as defined in Regulation D ("Regulation D") promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), who was provided with
access to all material information regarding an investment in the Registrant and
who was given the opportunity to ask questions of and receive answers from the
executive officers of the Registrant. Accordingly, these issuances were exempt
from registration under the Securities Act pursuant to Section 4(2)
thereunder.(1)
On March 8, 2000, the Registrant entered into a contract to purchase
land and, as part thereof, agreed to issue 102,000 shares of its common stock as
earnest money towards the total purchase price of $1,189,515 (unaudited). The
stock is being held by the seller's real estate agent pending the closing of the
sale. The purchaser is an accredited investor, as defined in Regulation D
("Regulation D") promulgated under the Securities Act of 1933, as amended (the
"Securities Act") and was provided with access to all material information
regarding an investment in the Registrant and was given the opportunity to ask
questions of and receive answers from the executive officers of the Registrant.
Accordingly, these issuances were exempt from registration under the Securities
Act pursuant to Section 4(2) thereunder.(1)
<PAGE>
During March, 2000 the Registrant sold an aggregate of 76,330 shares of
its common stock in a private placement to nine investors for an aggregate
consideration of $85,874 ($1.125 per share). Each of the purchasers was an
existing shareholder of the Registrant and an accredited investor, as defined in
Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), who was provided with access to all material
information regarding an investment in the Registrant and who was given the
opportunity to ask questions of and receive answers from the executive officers
of the Registrant. Accordingly, these issuances were exempt from registration
under the Securities Act pursuant to Section 4(2) thereunder.(1)
All stock certificates issued in connection with the foregoing
transactions were legended to reflect their restricted status.
- -------------------
(1) The sales and issuances of securities in these transactions were deemed
by the Company to be exempt from registration under the Act by virtue
of section 4(2) thereof as transactions not involving any public
offering. The recipients represented their intention to acquire the
securities for investment only and not with a view to the distribution
thereof. All shares issued to these persons contained legends
restricting transfer of the shares without compliance with applicable
securities laws. All recipients either received adequate information
regarding the Company or had access through employment or other
relationships to such information.
(2) The sales and issuances of securities in these transactions were deemed
by the Company to be exempt from registration under the Act by virtue
of Regulation D under the Act. The recipients represented and
acknowledged that:
(a) The investor was acquiring the shares for investment, for
his/her own account and not with a view to resale or
distribution;
(b) The investor's overall commitment to investments which are not
readily marketable was not disproportionate to the investor's
net worth, and the investment in the shares would not cause
such overall commitment to become excessive;
(c) The investor had sufficient knowledge and experience in
financial matters that he was capable of evaluating the merits
and risks of the investment, could bear the economic risk of
an investment for an indefinite period of time and could, at
the time of the investment, afford a substantial loss of his
investment;
(d) The investor had evaluated the merits and risks of investing
in the shares; and
(e) The investor agreed that the certificates representing the
shares and the common shares into which the shares were
convertible would contain and be endorsed with a legend
restricting the transfer of such shares unless such transfer
would not violate applicable state and federal securities
laws.
<PAGE>
Item 27. Exhibits
(a) Exhibits:
1. Underwriting and Selling Agreement, dated August 4, 1999 between the
Registrant and Three Arrows Capital Corp., including Letter Agreement,
dated August 3, 1999, between the Registrant and Three Arrows Capital
Corp.*
1.1 Escrow Agreement, dated May 15, 2000, by and among the Registrant, the
Underwriter, Norwest Bank Colorado, N.A.
3.1 Copy of Registrant's Amended and Restated Articles of Incorporation.*
3.1.1 Copy of Registrant's Articles of Amendment to the Articles of
Incorporation, as filed with the Colorado Secretary of State on October
30, 1992.*
3.1.2 Copy of Registrant's Articles of Amendment to the Articles of
Incorporation, as filed with the Colorado Secretary of State on
November 9, 1999.*
3.2 Copy of Registrant's Bylaws.*
4.1 Specimen Common Stock Certificate.*
4.2 Form of Subscription Agreement
5.1 Opinion by Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C., as
to legality of the shares of Common Stock offered by the Company.
10.1 Copy of Second Amendment to Employment Agreement, effective as of
January 1, 1999 between Registrant and Malcolm H. Benedict.*
10.2 Copy of Employment Agreement, effective as of April 1, 1998 between
Registrant and Donald A. Ludwig, Ph.D.*
10.3 Letter of Proposal, dated September 30, 1999, from DVI Financial
Services, Inc. to the Registrant.*
10.4 Pre-Contract Agreement, dated March 11, 1998 between the Registrant and
Ebco Technologies.*
10.5 Contract to Buy and Sell Real Estate, dated March 8, 2000, between the
Registrant and Horizon Investments, LLC.*
10.6 Agreement to Amend/Extend Contract, dated March 15,2000, between the
Registrant and Horizon Investments, LLC.*
23.1 Consent of Cordovano and Harvey, P.C.
23.2 Consent of Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C.,
(included in Exhibit 5.1).
27.1 Financial Data Schedule as of March 31, 1999.*
* Filed with the Commission on March 31, 2000 as part of Registrant's
Registration Statement on Form SB-2
<PAGE>
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file during any period in which offers or sales are
being made pursuant to Rule 415 under the Securities Act a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or
events which, individually or in the
aggregate, represent a fundamental change in
the information in the registration
statement. Notwithstanding the foregoing,
any increase or decrease in the total dollar
value of securities offered, if the total
dollar value of securities offered would not
exceed that which was registered) and any
deviation from the low or high end of the
estimated maximum offering range may be
reflected in the form of prospectus filed
with the Securities and Exchange Commission
(the "Commission") pursuant to Rule 424(b)
if, in the aggregate, the changes in volume
and price represent no more than a 20%
change in the maximum aggregate offering
price set forth in the "Calculation of
Registration Fee" table in the effective
registration statement;
(iii) To include any additional or changed
material information on the plan of
distribution.
(2) For determining liability under the Securities Act, to
treat each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
<PAGE>
Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act") may be permitted to directors,
officers and controlling persons of Registrant pursuant to the provisions of its
Amended and Restated Articles of Incorporation, as amended, its Bylaws, the
Colorado Business Corporation Act or otherwise, Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Registrant for expenses incurred or paid by a director,
officer or controlling person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the
Securities Act, to treat the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by
Registrant under Rule 424(b)(1), or (4), or 497(h) under the Securities
Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, to
treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement or amendment thereto to be signed on its behalf by the undersigned, in
the City of Longmont, State of Colorado, on the 8th day of May, 2000.
MOLECULAR DIAGNOSTICS & THERAPEUTICS, INC.
By: /s/ Malcolm H. Benedict
-----------------------------------------
Malcolm H. Benedict, Chairman of the
Board, Chief Executive Officer, President
and Treasurer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement or amendment thereto has been signed by the following
persons in the capacities and on the dates stated.
Signature Title Date
--------- ------- ----
/s/Malcolm H. Benedict Chairman of the Board, May 8, 2000
- ----------------------- Chief Executive Officer,
Malcolm H. Benedict President, Treasurer and Director
/s/Donald A. Ludwig Executive Vice President May 8, 2000
- ----------------------- and Director
Donald A. Ludwig
/s/Janet L. Davis Secretary and Director May 8, 2000
- -----------------------
Janet L. Davis
ESCROW AGREEMENT
This ESCROW AGREEMENT is made and entered into as of May 15, 2000, by
and among MOLECULAR DIAGNOSTICS & THERAPEUTICS, INC. ("Company"), THREE ARROWS
CAPITAL CORP. (the "Underwriter"), and NORWEST Bank COLORADO, NATIONAL
ASSOCIATION (the "Escrow Agent").
RECITALS
A. Company intends to effect a public offering (the "Offering") of
shares of Company's common stock (the "Shares") at a price of $10.00 per Share
pursuant to a prospectus and registration statement on Form SB-2 filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act") in which Offering the Underwriter has been engaged to act
as underwriter on a 200,000 share minimum, "all or none, best efforts"/1,000,000
share maximum "best efforts" basis.
B. Company and Underwriter have agreed that the minimum must be reached
by November 15, 2000, which period may be extended for an additional 180 days at
the option of the Company, or funds received will be returned to the subscribers
with interest.
C. Escrow Agent has agreed to serve as escrow agent on the terms and
conditions contained herein.
AGREEMENTS
In consideration of the recitals and mutual covenants and agreements
set forth herein, the parties hereby covenant and agree as follows:
1. Appointment. Company and Underwriter hereby appoint Escrow Agent as
escrow agent for the purpose of holding the Escrow Funds (as defined below).
Escrow Agent hereby accepts its appointment and agrees to act as escrow agent
under the terms and conditions contained in this Escrow Agreement.
2. Delivery of Funds. Company and Underwriter hereby agree that Company
and/or the Underwriter will deliver to Escrow Agent, promptly after the receipt
of any subscriptions for the Shares, the subscription funds (which shall be
equal to the gross offering price for the Shares subscribed) in the form of
personal, bank or cashier check payable to "Norwest Bank Colorado, National
Association, as Escrow Agent for Molecular Diagnostic & Therapeutics, Inc." or a
wire transfer of federal funds for the subscription funds (which shall be equal
to the gross offering price for the Shares subscribed), and to provide Escrow
Agent, in writing, with the name, address and Taxpayer Identification Number of
each subscriber and the number of Shares for which each subscriber has
subscribed. Escrow Agent agrees to place any subscription funds so received (the
"Escrow Funds") in an account maintained by Escrow Agent under the designation
"Escrow Account for Molecular Diagnostic & Therapeutics, Inc." (the "Escrow
Account").
<PAGE>
3. Escrow. Escrow Agent agrees to hold the Escrow Funds received by
Escrow Agent in accordance with Section 2 until the release of the Escrow Funds
pursuant to Section 4 hereof. Once all of the Escrow Funds have been disbursed
pursuant to this Escrow Agreement, Escrow Agent shall take all necessary action
to close the Escrow Account.
4. Release of the Escrow Funds. Escrow Agent shall not release any part
of the Escrow Funds to any party except as provided in this Section 4. Such
disbursements shall be made as soon as practicable after receipt by Escrow Agent
of a notice in the form of Exhibit A, Exhibit B, Exhibit C or Exhibit D hereto
(collectively, the "Disbursement Notices"), as applicable, but in no event will
Escrow Agent be required to make such disbursements more often than bi-weekly.
(a) Initial Disbursement. At any time after the Escrow Agent
has received Escrow Funds of $2,000,000 or more, if the Escrow Agent receives
written notice signed by both Company and Underwriter in the form of Exhibit A
hereto, the Escrow Agent will release the Escrow Funds on the date set forth in
and in accordance with such Disbursement Notice.
(b) Subsequent Disbursements. At any time after the initial
disbursement pursuant to Section 4(a) above, if the Escrow Agent receives
written notice signed by both Company and Underwriter in the form of Exhibit B
hereto, the Escrow Agent will release the Escrow Funds in accordance with such
Disbursement Notice.
(c) Termination of the Offering. At any time prior to the
initial disbursement pursuant to Section 4(a) above, but in no event later than
November 15, 2000, which date may be extended to a date 180 days thereafter, at
the option of the Company, if Company and Underwriter provide written notice to
Escrow Agent in the form of Exhibit C hereto, Escrow Agent will promptly return
to each subscriber the funds in the full amount of the subscriber's subscription
price at the address of the subscriber provided in accordance with Section 2 of
this Escrow Agreement, and thereafter close the Escrow Account.
2
<PAGE>
(d) Rejection of Subscription. At any time during the term of
this Agreement, if Company provides written notice to Escrow Agent in the form
of Exhibit D hereto, Escrow Agent will promptly return to the subscriber(s)
identified on Exhibit D the funds in the full amount of the subscriber's
subscription price at the address of the subscriber provided in accordance with
Section 2 of this Escrow Agreement.
(e) Notwithstanding any provision to the contrary set forth
herein, the Escrow Agent agrees it will not release any funds to the Company
pursuant to Section 4(a) unless and until it has received the written approval
of the securities administrators of the states listed on Exhibit E to release
said funds. If the Escrow Agent has not received such written approval by 2:00
p.m. on the business day immediately preceding the Closing Date specified in the
Disbursement Notice in the form of Exhibit A hereto, it will notify the Company
and the Underwriter by telephone that it cannot disburse the funds on the
Closing Date in accordance with the Disbursement Notice.
5. Escrow Agent. Escrow Agent shall be liable as a depository only and
shall not be responsible or accountable for the correctness of any information
set forth in any statements delivered to it, including, without limitation, any
Disbursement Notice, shall not be required in any event to verify the
correctness of any such statements and shall not be responsible for verifying
compliance by either Company or Underwriter with the Securities Act, the rules
and regulations thereunder or any other securities laws, rules or regulations,
or the terms of any Subscription Agreement or any agreement between Company and
Underwriter. Escrow Agent shall be entitled to rely, without any investigation
whatsoever, upon any communication received from the Company, the Underwriter or
any state securities administrator, and Escrow Agent shall be entitled to deem
the signatories of any Subscription Agreement or any communication submitted to
it hereunder as being those purported to be authorized to sign such
communication on behalf of such party and shall be entitled to rely on the
genuineness of the signatures of such signatories without inquiry and without
sustaining evidence of any kind. Escrow Agent shall have the right to consult
with counsel and shall be fully protected and shall not be liable with respect
to any action, taken or omitted by Escrow Agent in good faith and on advice of
counsel, and shall be fully protected and shall not be liable for any error of
judgments or for any act done or omitted by it in good faith, except for its own
gross negligence or willful misconduct, and Escrow Agent shall have no duties to
anyone except those signing this Escrow Agreement.
6. Indemnification. Escrow Agent shall be indemnified and held harmless
by Company from and against any taxes, assessments, liabilities, claims,
damages, actions, suits, costs and expenses (including attorney's fees) or other
charges suffered or incurred by Escrow Agent in connection with the performance
of its services hereunder, unless caused by Escrow Agent's gross negligence or
willful misconduct. Escrow Agent is hereby authorized by Company to deduct such
amount from any funds due to Company hereunder. The provisions of Sections 5 and
6 shall survive the termination of Escrow Agent's duties hereunder.
3
<PAGE>
7. No Control. It is agreed that, except as explicitly permitted by
this Escrow Agreement, Company and Underwriter shall have no right to receive,
manage, transfer or otherwise control, in any way, any amounts held in the
Escrow Account and at no time prior to actual payment from the Escrow Account
shall Company or Underwriter be considered to be in actual or constructive
receipt of any amounts held in the Escrow Account.
8. Miscellaneous.
(a) This Escrow Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof, and this Escrow
Agreement may not be modified or amended except by written instrument executed
by all the parties hereto. Company and Underwriter acknowledge that Escrow Agent
is neither a party to, nor bound by any provisions of, any Subscription
Agreement.
(b) This Escrow Agreement shall be binding upon the parties
hereto and their respective successors and assigns, and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
(c) This Escrow Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Colorado or any other jurisdiction) that would cause the application of the law
of any jurisdiction other than the State of Colorado.
(d) All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made upon receipt, if delivered personally, or on the third business day
following deposit in the U.S. mail if mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address).
4
<PAGE>
If to Company:
Molecular Diagnostic & Therapeutics, Inc.
1880 Industrial Circle, Suite B-3
Longmont, Colorado 80501
Attention: Malcolm H. Benedict, President
with a copy to:
Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, P.C.
1775 Sherman, Suite 2100
Denver, Colorado 80203
Attention: Arnold R. Kaplan, Esq.
If to Underwriter:
Three Arrows Capital Corp.
10101 Grosvenor Place #2016
Rockville, Maryland 20852
Attention: Ron Peterson
If to Escrow Agent:
Norwest Investment Management and Trust
Corporate Trust and Escrow Services
1740 Broadway
Denver, Colorado 80274-8693
9. Escrow Dispute. In the event of any disagreement between Company and
Underwriter or Company and subscribers resulting in adverse claims and demands
being made in connection with or for the Escrow Funds, Escrow Agent shall be
entitled, as its option, to hold the Escrow Fund until such time as a mutual
agreement has been reached among all the parties or until disbursement is
legally authorized by final judgment or decree of any court having jurisdiction
thereover, or to deposit the Escrow Funds with any court having jurisdiction
thereover pending the resolution of the disagreement.
10. Termination. This Escrow Agreement shall terminate and be of no
further force and effect on the earliest to occur of (a) receipt by Escrow Agent
of written notice of termination jointly executed (in counterparts if necessary)
by Company and Underwriters; or (b) the closing of the Escrow Account in
accordance with the provisions hereof.
5
<PAGE>
11. Resignation. Escrow Agent, acting at any time hereunder, may resign
at any time by giving 30 days' prior written notice of resignation to Company
and Underwriter, such resignation to be effective on the date specified on such
notice. Upon the effectiveness of such resignation, Escrow Agent shall transfer
the Escrow Funds to such succeeding Escrow Agent or to such persons as
Underwriter and Company designate in writing to Escrow Agent prior to the
effectiveness of the resignation. In the event no such designation has been
provided, Escrow Agent shall deposit the Escrow Fund with any court having
jurisdiction thereover. Prior to the effectiveness of the resignation of Escrow
Agent, Escrow Agent shall remain obligated to perform all duties required of it
under this Escrow Agreement.
12. Counterparts. This Escrow Agreement may be executed in two or more
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the day and year first above written.
COMPANY: MOLECULAR DIAGNOSTIC & THERAPEUTICS, INC.
By:______________________________
Its: ___________________________
UNDERWRITER: THREE ARROWS CAPITAL CORP.
By:______________________________
Its: ___________________________
ESCROW AGENT: NORWEST BANK COLORADO,
NATIONAL ASSOCIATION
By:______________________________
Its: ___________________________
6
<PAGE>
EXHIBIT A
Disbursement Notice
Initial Disbursement
(Date)
Norwest Investment management and Trust
Corporate Trust and Escrow Services
1740 Broadway
Denver, Colorado 80274-8693
Re: Escrow Account No. _____________
Dear _____________:
1. Reference is made to that certain Escrow Agreement dated as of March
__, 2000, by and among Molecular Diagnostic & Therapeutics, Inc. ("Company"),
Three Arrows Capital Corp. ("Underwriter"), and Norwest Bank Colorado, National
Association (the "Escrow Agreement"). All terms used but not defined herein
shall have the respective meanings given such terms in the Escrow Agreement.
2. All conditions to the purchase by the subscribers from Company and
the sale by Company to the subscribers of the Shares have been satisfied or
waived.
3. You are hereby directed to disburse on _________, 200_ (the "Closing
Date") the following amounts as indicated below:
To Underwriter:
[Amount]
[Form of disbursement]
[If by wire transfer:] (Name/Address of Receiving Bank)
(ABA # of Receiving Bank)
(Receiving Account Number)
(Receiving Account Name)
Re:
<PAGE>
To Company:
[Amount]
[Form of disbursement]
[If by wire transfer:] (Name/Address of Receiving Bank)
(ABA # of Receiving Bank)
(Receiving Account Number)
(Receiving Account Name)
Re:
IN WITNESS WHEREOF, the undersigned have executed this statement on the
date indicated above.
COMPANY: MOLECULAR DIAGNOSTIC & THERAPEUTICS, INC.
By:______________________________
Its: __________________________
UNDERWRITER: THREE ARROWS CAPITAL CORP.
By:______________________________
Its: __________________________
2
<PAGE>
EXHIBIT B
Disbursement Notice
Subsequent Disbursements
(Date)
Norwest Investment management and Trust
Corporate Trust and Escrow Services
1740 Broadway
Denver, Colorado 80274-8693
Re: Escrow Account No. _____________
Dear _____________:
1. Reference is made to that certain Escrow Agreement dated as of March
__, 2000, by and among Molecular Diagnostic & Therapeutics, Inc. ("Company"),
Three Arrows Capital Corp. ("Underwriter"), and Norwest Bank Colorado, National
Association (the "Escrow Agreement"). All terms used but not defined herein
shall have the respective meanings given such terms in the Escrow Agreement.
2. You are hereby directed to disburse the following amounts as
indicated below:
To Underwriter:
[Amount]
[Form of disbursement]
[If by wire transfer:] (Name/Address of Receiving Bank)
(ABA # of Receiving Bank)
(Receiving Account Number)
(Receiving Account Name)
Re:
<PAGE>
To Company:
[Amount]
[Form of disbursement]
[If by wire transfer:] (Name/Address of Receiving Bank)
(ABA # of Receiving Bank)
(Receiving Account Number)
(Receiving Account Name)
Re:
IN WITNESS WHEREOF, the undersigned has executed this statement on the
date indicated above.
COMPANY: MOLECULAR DIAGNOSTIC & THERAPEUTICS, INC.
By:______________________________
Its: ___________________________
UNDERWRITER: THREE ARROWS CAPITAL CORP.
By:______________________________
Its: ___________________________
2
<PAGE>
EXHIBIT C
Disbursement Notice
Termination Notice
(Date)
Norwest Investment management and Trust
Corporate Trust and Escrow Services
1740 Broadway
Denver, Colorado 80274-8693
Re: Escrow Account No. _____________
Dear _____________:
1. Reference is made to that certain Escrow Agreement dated as of March
__, 2000, by and among Molecular Diagnostic & Therapeutics, Inc. ("Company"),
Three Arrows Capital Corp. ("Underwriter"), and Norwest Bank Colorado, National
Association (the "Escrow Agreement"). All terms used but not defined herein
shall have the respective meanings given such terms in the Escrow Agreement.
2. Company and Underwriter have terminated the Offering prior to the
initial disbursement pursuant to Section 4(a) of the Escrow Agreement
3. You are hereby directed to disburse the Escrow Fund to the
subscribers in accordance with Section 4(c) of the Escrow Agreement.
IN WITNESS WHEREOF, the undersigned have executed this statement on the
date indicated above.
COMPANY: MOLECULAR DIAGNOSTIC & THERAPEUTICS, INC.
By:______________________________
Its: __________________________
UNDERWRITER: THREE ARROWS CAPITAL CORP.
By:______________________________
Its: __________________________
<PAGE>
EXHIBIT D
Disbursement Notice
Rejection of Subscription
(Date)
Norwest Investment management and Trust
Corporate Trust and Escrow Services
1740 Broadway
Denver, Colorado 80274-8693
Re: Escrow Account No. _____________
Dear _____________:
1. Reference is made to that certain Escrow Agreement dated as of March
__, 2000, by and among Molecular Diagnostic & Therapeutics, Inc. ("Company"),
Three Arrows Capital Corp. ("Underwriter"), and Norwest Bank Colorado, National
Association (the "Escrow Agreement"). All terms used but not defined herein
shall have the respective meanings given such terms in the Escrow Agreement.
2. Company has determined to reject the following subscription(s):
Name of Subscriber Amount of Subscription
3. A copy of the Company's notice of rejection to the subscriber is
attached hereto.
4. You are hereby directed to disburse the Escrow Fund to the
subscribers named above in
accordance with Section 4(d) of the Escrow Agreement.
IN WITNESS WHEREOF, the undersigned have executed this statement on the
date indicated above.
COMPANY: MOLECULAR DIAGNOSTIC & THERAPEUTICS, INC.
By:______________________________
Its: _________________________
SUBSCRIPTION AGREEMENT
1. Subscription. Subject to the terms and conditions hereof the
undersigned, intending to be legally bound, irrevocably subscribes for and
agrees to purchase that number of shares of common stock ("Shares") of Molecular
Diagnostics and Therapeutics, Inc., a Colorado corporation (the "Company"), set
forth on the signature page hereof, for the price stated thereon. This
subscription is made in connection with an offering by the Company of up to
1,000,000 shares of its common stock sold pursuant to a registration statement
on Form SB-2 under the Securities Act of 1933, as amended (the "Ac"). This
Offering will continue until the Company has sold a maximum of 1,000,000 shares
totaling $10,000,000 or the termination date of May 15, 2001 whichever occurs
first. If the minimum is not achieved by the termination date, subscriber's
funds will be promptly returned without interest or deduction.
2. Representations and Warranties of Investor. The undersigned
represents and warrants to the Company that:
2.1 Warning. The undersigned acknowledges and understands that
(a) the Shares are being offered in reliance on an offering pursuant to a Form
SB-2 Registration Statement under the Act; (b) there is presently little public
market for the Shares, and an active market may not develop after the Offering;
and (c) the undersigned may not be able to liquidate his or her investment in
the event of an emergency.
2.2 Warning. The undersigned understand that no federal or
state agency has made any findings or determination as to the fairness of an
investment in, or any recommendation or endorsement of, the Shares.
3. Irrevocability. The undersigned hereby acknowledges and agrees that,
except as otherwise provided by the laws of the State of Colorado, this
subscription is irrevocable and the undersigned is not entitled to cancel or
withdraw it.
4. Joint and Several Undertaking; Entities. If more than one person is
signing this Agreement, each representation, warranty and undertaking herein
shall be the joint and several representation, warranty and undertaking of each
such person. If the undersigned is a partnership, corporation, trust or other
entity, the undersigned further represents and warrants that (a) the individual
executing this Agreement has full power and authority to execute and deliver
this Agreement on behalf of the undersigned; (b) the undersigned has full right
and power to perform its obligations pursuant to the provisions hereof; and (c)
the undersigned was not formed for the specific purpose of acquiring Shares.
<PAGE>
5. Survival. Each representation and warranty contained herein and all
information furnished by the undersigned to the Company is true, correct and
complete in all respects as of the date hereof, and the same will be true,
correct and complete as of the date on which this subscription is accepted by
the Company, as if made on such date. The undersigned undertakes to notify the
Company immediately of any change in any representation, warranty, or other
information set forth herein. The undersigned agrees to indemnify and hold
harmless the Underwriter and the Company, its officers, directors, and employees
from and against any and all loss, damage or liability due to or arising out of
a breach of any such representation or warranty of the undersigned.
6. Non-assignment. This Agreement shall not be assignable by the
undersigned without the prior written consent of the Company.
7. Acceptance by the Company. The Company reserves the right to accept
or reject any subscription in whole or in part in its sole and absolute
discretion. No subscription will be effective until accepted by the Company. If
the Company decides to reject a subscription, it will do so in writing within a
reasonable time after having received it.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado.
Within five days of its receipt of a subscription agreement from the
Underwriter, confirming that an accompanying check for the purchase price of
Shares has been received, following escrow, the Company will send by first-class
mail a written confirmation to notify the subscriber of the extent, if any, to
which subscription has been accepted by the Company. The Company reserves the
right to reject orders for the purchases of Shares in whole or in part. Not more
than thirty days following the mailing of its written confirmation, and upon
achieving the minimum number of total shares to be sold, a subscriber's Common
Stock certificate will be mailed by first-class mail. The Company shall not use
the proceeds paid by an investor until such time as the minimum number of shares
has been sold nor until the Common Stock certificate evidencing such investment
has been mailed.
Funds will be deposited to an escrow account established in the
Company's name at Norwest Investment Management and Trust, Corporate Trust and
Escrow Services, 1740 Broadway, Denver, CO 80274-8693.
<PAGE>
Molecular Diagnostics and Therapeutics, Inc., Subscription Agreement
Signature Page
The undersigned, by executing this Signature Page, agrees to all of the
terms, conditions, warranties and representations in the accompanying
Subscription Agreement, and subscribes for the number of shares of the Company's
Common Stock set forth below at a price of $10.00 per share.
Number of Shares Subscribed for: ___________________
Total Purchase Price: $___________________
A check in the full amount of the purchase price, payable to "Molecular
Diagnostics and Therapeutics, Inc. Escrow Account" accompanies this executed
Subscription Agreement.
Form of Ownership:
__Individual __Partnership
__Joint Tenants With Rights of __Trust
survivorship (both sign) __Limited Liability Company, LLC
__Tenants in Common (all sign) __Corporation
INDIVIDUALS
_________________________ _____________________________ ___________
Signature of Subscriber Print Name Date
______________________________________________________________________________
Mailing Address
_________________________________ _______________________________________
Telephone Number Social Security Number
_________________________ _____________________________ ___________
Signature of Subscriber Print Name Date
______________________________________________________________________________
Mailing Address
_________________________________ _______________________________________
Telephone Number Social Security Number
<PAGE>
CORPORATIONS, TRUSTS, PARTNERSHIP, LLCs
______________________________________________________________________________
Name of Corporation, Trust, Partnership or LLC
By: ________________________________________ _____________________________
Signature of Authorized Representative Print Name
________________________________________ _____________________________
Capacity of Authorized Representative Date
______________________________________________________________________________
Mailing Address
**********************
Accepted as to Shares on .
------------ ------------------------
Molecular Diagnostics and Therapeutics, Inc.
By:_________________________________________
Its:__________________________________
Please make your check payable to: Molecular Diagnostics and Therapeutics, Inc.
Escrow Account.
Mail to: Norwest Investment Management and Trust
Corporate Trust and Escrow Services
1740 Broadway
Denver, CO 80274-8693
Are you an officer or director of a publicly held company? _______
Are you over 21 years of age? ______
Name of address of employer ________________________________________________
____________________________________________________________________________
Occupation_______________________________
Individual income $______________ with spouse $_________
Net Worth $___________________
Investment objective: conservative ____ speculative ____ income____
May 15, 2000
Molecular Diagnostics and Therapeutics, Inc.
1880 Industrial Circle, Suite B-3
Longmont, Colorado 80501
Ladies and Gentlemen:
We have acted as counsel to Molecular Diagnostics and Therapeutics,
Inc. (the "Company") in connection with its filing of a registration statement
on Form SB-2 (File No. 333-33662) (the "Registration Statement") covering up to
1,000,000 shares of the Company's authorized and unissued common stock, no par
value (the "Company IPO Shares"). As such counsel, we have examined original
copies, or copies certified to our satisfaction, of certain corporate records,
agreements and other instruments, certificates of public officials and such
other documents as we deemed necessary as a basis for the opinion hereinafter
set forth. On the basis of the foregoing, we are of the opinion that the Company
IPO Shares have been validly authorized and, when sold in accordance with the
terms set forth in the Registration Statement, will be legally issued, fully
paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting part of the Registration Statement.
Yours very truly,
REINHART, BOERNER, VAN DEUREN
NORRIS & RIESELBACH, P.C.
BY /s/ Arnold R. Kaplan
------------------------------
Arnold R. Kaplan
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Molecular Diagnostics &
Therapeutics, Inc. on form SB-2 of our report dated June 22, 1999, appearing in
the Prospectus, which is part of this Registration Statement, and of our report
dated June 22, 1999 relating to the financial statement schedules appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ Cordovano and Harvey, P.C.
- -------------------------------
Cordovano and Harvey, P.C.
Denver, Colorado
May 8, 2000
