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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark one)
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
or
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended ____________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number ___________________________________
NEURO-BIOTECH CORPORATION
(Exact Name of Registrant as Specified in its Charter)
ONTARIO, CANADA
(Jurisdiction of Incorporation or Organization)
1020 ROUTE DE L'EGLISE, SUITE 600, SAINTE-FOY, QUEBEC, G1V 3V9
(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section
12(b) of the Act:
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act:
COMMON SHARES, WITHOUT PAR VALUE
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:
NONE
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the date of this registration:
26,006,533 COMMON SHARES, WITHOUT PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) for the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
NOT APPLICABLE
Indicate by check mark which financial statement item the registrant has elected
to follow.
ITEM 17 X ITEM 18___
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(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) for the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
NOT APPLICABLE
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ITEM 1. DESCRIPTION OF BUSINESS..................................................................................1
ITEM 2. DESCRIPTION OF PROPERTY.................................................................................25
ITEM 3. LEGAL PROCEEDINGS.......................................................................................26
ITEM 4. CONTROL OF REGISTRANT...................................................................................26
ITEM 5. NATURE OF TRADING MARKET................................................................................27
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS......................................27
ITEM 7. TAXATION................................................................................................29
ITEM 8. SELECTED FINANCIAL DATA.................................................................................34
ITEM 9. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS....................35
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................................40
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT....................................................................40
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS..................................................................42
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES..........................................43
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS..........................................................44
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED..............................................................46
ITEM 15. DEFAULTS UPON SENIOR SECURITIES.........................................................................46
ITEM 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES AND USE OF PROCEEDS................46
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ITEM 17. FINANCIAL STATEMENTS....................................................................................46
ITEM 18. FINANCIAL STATEMENTS....................................................................................46
ITEM 19 FINANCIAL STATEMENTS AND EXHIBITS.......................................................................47
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CURRENCY AND EXCHANGE RATES
All dollar amounts set forth in this Registration Statement are in Canadian
dollars, except where otherwise indicated. The following table sets forth (i)
the rates of exchange for the Canadian dollar, expressed in U.S. dollars, in
effect at the end of each of the fiscal year periods indicated; (ii) the average
exchange rates based on the last day of each month during such periods; and
(iii) the high and low exchange rate during such periods, in each case based on
the noon buying rate in New York City for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York.
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1999(1) 1998(2) 1997(2)
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End of period 1.4720 1.5333 1.4305
High for period 1.5530 1.5685 1.4305
Low for period 1.4512 1.4198 1.3470
Average for period 1.4920 1.4835 1.3846
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On July 28, 2000, the noon buying rate in New York City for cable transfers in
Canadian dollars as certified for customs purposes by the Federal Reserve Bank
of New York (the "Exchange Rate") was $1.4776 = $1.00 Canadian.
(1) Fiscal year ending November 30. During 1999, the Company changed its fiscal
year end from December 31 to November 30 to coincide with the fiscal year end of
its operating subsidiary, Neuro-Biotech Inc.
(2) Fiscal year ending December 31.
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FORWARD LOOKING STATEMENTS
This Registration Statement contains forward-looking statements which involve
risks and uncertainties. When used in this filing, the words "may," "will,"
"expect," "anticipate," "believe," "continue," "estimate," "project," "intend,"
and similar expressions are intended to identify forward-looking statements
regarding events, conditions and financial trends which may affect the Company's
future plans of operations, business strategy, operating results and financial
position. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events. Such
statements are not guarantees of future performance and are subject to risks and
uncertainties and actual results may differ materially from those included
within the forward-looking statements as a result of certain factors, including
those set forth in the Risk Factors section beginning on page 17 and elsewhere
in this Registration Statement.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Neuro-Biotech Corporation ("Neuro-Biotech" or the "Company," which terms include
the Company's subsidiaries) is a Canadian biotechnology company engaged
primarily in the research, development and commercialization of non-invasive, in
vitro diagnostic kits for use in the early detection and prevention of
stress-related and neuroscience-based diseases. The kits are designed for use by
physicians during routine examinations as a screening device for determining
at-risk patients and as a follow-up after initial drug therapy. The kits require
only a finger-prick blood sample to identify abnormal blood readings that were
previously undetectable.
In 1999, SymPath-TM- became the Company's first diagnostic kit to receive
Canadian, United States and international patent recognition, and it is
currently Neuro-Biotech's only diagnostic kit in commercial production.
Neuro-Biotech has obtained a Medical Device License from the Health Protection
Branch ("HPB") Division of Health Canada which authorizes the Company to
manufacture and distribute SymPath-TM- within Canada and the countries that
recognize HPB regulations. The Company is in the process of filing applications
with the United States Food and Drug Administration ("FDA").
Neuro-Biotech believes that SymPath-TM- is the only quantitative, reliable
diagnostic test available to biochemically and clinically measure an
individual's stress level. SymPath-TM- allows physicians to use a simple blood
sample to diagnose such stress-related diseases as hypertension, anxiety,
depression, burn-out, panic syndrome and chronic fatigue syndrome. In December
1999, the Company entered into its largest contract for the distribution of
SymPath-TM-. The agreement calls for the distribution of 575,000 SymPath-TM-
kits throughout the Middle East, and is expected to generate revenues of
approximately $3.4 million. An initial order of 75,000 kits was shipped in
February 2000. The Company plans on using SymPath-TM- revenues to fund the
commercialization of two additional diagnostic kits in fiscal year 2001. These
two kits, NB-S297 and NB-S397, are based on the same technological platform as
SymPath-TM- and, subject to approval of regulatory authorities, will be targeted
for the global market. The Company also hopes to research and develop
prescription and natural drugs for use in the treatment of stress-related and
neuroscience-based diseases, to utilize its laboratory facilities to offer
worldwide clinical services, and to develop a diagnostic clinical reference
library. Capital restraints have recently curtailed these activities.
The scientific basis for Neuro-Biotech's products is applied neuroscience
enzymology. The Company has expertise in understanding the neurochemical
interactions between the nervous system, the endocrine system and the immune
system. Following a stressful event, these three systems work together to
protect the body by releasing various chemicals through the
hypothalamo-pituitary adreno-sympathetic ("HPAS") axis. These chemicals help the
body restore homeostasis, or normal human functioning, thus enabling the body to
maintain or restore initial physiologic and biochemical balances after a
stressful event. Neuro-Biotech has characterized and quantified a specific
selection of these chemicals and has developed diagnostic
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methods to detect them in the blood. The Company's diagnostic kits are designed
to provide a quick and accurate tool to quantifiably measure stress and its
effects by identifying abnormal blood readings and measuring specific
neurochemical levels.
CORPORATE BACKGROUND
The Company was created through articles of amalgamation filed pursuant to the
provisions of the Business Corporations Act (Ontario) 1990, on September 21,
1995, upon the amalgamation of two predecessor companies, Winteroad Resources
Limited and PenStar Wirecom, Ltd.
On December 10, 1997, the Company became the subject of a reverse takeover by
two Canadian companies, Neuro-Biotech Inc. ("NBI") and 1246895 Ontario Inc., and
changed its name to Neuro-Biotech Corporation. On April 27, 1998,
Neuro-Biotech's common shares began trading on the Canadian Dealing Network
under the symbol, "NBIO."
The executive offices of the Company are located at 1020 Route de l'Eglise,
Suite 600, Sainte-Foy, Quebec, G1V 3V9.
NEURO-BIOTECH INC.
NBI is the Company's operating subsidiary. NBI was founded to capitalize upon
the technological base that had been established by its founder, Dr. Andree G.
Roberge. Dr. Roberge conducted research at Laval University for over 20 years,
focusing on stress mechanisms, with particular emphasis on the relationship
between the brain and the whole body. During that period, Dr. Roberge, using a
series of therapeutic molecules, developed kits that could aid in increasing the
health and well-being of individuals suffering from stress-related and
neuroscience-based diseases.
In 1979, Dr. Roberge was invited by the National Research Council of Canada to
participate in a study on the mechanisms related to stress after cold exposure.
Soon after this study, Dr. Roberge focused on the mechanisms involving the HPAS
axis. This research provided the scientific foundation for Neuro-Biotech.
In 1982, Dr. Roberge developed a neurochemical experimental model for neurologic
diseases, including Alzheimer's and Schizophrenia. By 1985, Dr. Roberge had
characterized a bio-indicator and started to develop a new diagnostic tool to
measure stress levels. This breakthrough served as the basis for Neuro-Biotech's
first diagnostic kit, SymPath-TM-. In 1986, pre-clinical studies began for the
Company's first three diagnostics kits.
In 1988, Logilab Inc. ("Logilab") was formed to concretely develop and
commercialize the results of the research done by Dr. Roberge at Laval
University. Logilab was incorporated under Part 1A of the Companies Act (Quebec)
by articles of incorporation dated November 22, 1988. By articles of amendment
dated July 23, 1996, Logilab changed its corporate name to Neuro-Biotech Inc.
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In 1997, NBI acquired the intellectual property related to its diagnostic kit
technology platform from Laval University for the amount of $3,000,000 payable
in the form of a royalty at a rate of 3.5% of the Company's gross sales
revenues, with no specified due date.
SCIENTIFIC BACKGROUND
Within the body, there are a number of systems designed to maintain homeostasis,
or normal human functioning. These systems include: (1) the nervous system; (2)
the endocrine system; and (3) the immune system. These systems work in concert
to help the body adapt to changes, both physically and mentally, and to external
stressors. Stressors from our environment are recognized and integrated within
the brain. During this process, the brain transmits messages on how to react to
specific areas of the body through chemicals known as neurotransmitters.
These neurotransmitters instigate a cascade of metabolic events that give rise
to behaviors appropriate to stressful situations. Depending on the type of
stress experienced, different metabolic reactions will result. For example, the
reaction to joy within the body is not the same as the reaction to anger or
distress. However, one mechanism is common to most neuroanatomical reactions to
stress. Most stressful situations will induce stimulation of the HPAS axis.
The HPAS axis is one example of the capacity of humans to integrate information,
manage it and develop physiological, biochemical and endocrine responses capable
of maintaining a state of equilibrium. The HPAS axis is a central figure in the
body's ability to maintain a process known as homeostasis, which enables the
organism to maintain or restore the initial physiological and biochemical
environment following a stressful event.
In humans, environmental and psychological stress can have widespread effects on
an organism's balance and health. The metabolic events instigated by the HPAS
axis may result, through a stimulation or an inhibition, in a change in the
circulating level of catecholamines (noradrenaline and adrenaline) as well as
other chemicals such as cortisol and aldosterone, each of which has metabolic
effects on specific systems within the body, such as the cardiovascular system,
the immune system or the endocrine system.
The functioning of the HPAS axis involves use of the central nervous system
which is closely related to the endocrine and immune systems. The three systems
form an indissociable trio that allows a dynamic equilibrium to be maintained.
If the equilibrium is not maintained, induced neuro-endocrine or neuro-immune
diseases will occur.
For over 20 years, Dr. Roberge has been studying the relationship between the
brain and these peripheral systems as well as the communication pathways that
manage these relationships. The Company's specific expertise is in neuroscience
applied enzymology dedicated to understanding the relationship between the
neurostransmitter families within the brain and their influence on the
peripheral systems through the HPAS axis. It is through this HPAS axis that the
brain is able to manage the mechanisms related to stressful situations and to
maintain homeostasis responsible for the resistance of the organism to its
psycho-social environment.
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As a result of their research, Neuro-Biotech scientists have developed a
technological platform to research, develop and design new diagnostic kits based
on functional proteins as bio-indicators quantitatively measured in a
finger-prick human blood sample. Through this technological platform,
Neuro-Biotech researchers have been able to develop diagnostic kits that isolate
a specific bio-indicator that measures the activity of the HPAS axis.
PLAN OF OPERATION
Capital constraints have severely limited the Company's plan of operation for
fiscal year 2000. Neuro-Biotech has significantly reduced its research and
development activities and is currently focusing its efforts on identifying
strategic partners and negotiating marketing arrangements for the expanded
distribution of SymPath-TM-. The Company is also in the process of filing
applications for pre-market approval with the FDA to manufacture, sell and
distribute SymPath-TM- in the United States. Neuro-Biotech expects to receive
such approval in the current fiscal year.
Neuro-Biotech's current year strategy is to continue to establish alliances and
royalty arrangements with leading manufacturers and distributors of diagnostic
kits so that Neuro-Biotech can capitalize on established and proven distribution
networks and global market strategies. Management believes that this strategy
will expedite the time to market its products while providing Neuro-Biotech with
added credibility in the marketplace.
The Company will rely significantly on its current-year SymPath-TM- revenues to
fund the commercialization of two additional diagnostic kits, NB-S297 and
NB-S397, in fiscal year 2001. The following chart summarizes the Company's
anticipated development and commercialization schedule for SymPath-TM-, NB-S297
and NB-S397, based on its expectation of available resources and scientific
progress.
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PROOF OF IN VITRO IN VIVO CLINICAL HPB ON FDA
PRINCIPLE STUDIES STUDIES STUDIES LICENSING MARKET LICENSING
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SymPath-TM- X X X X X X 2000
NB-S297 X X X 2000 2000 2001 2000
NB-S397 X X X 2000 2001 2001 2001
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The actual commercialization of SymPath-TM-, NB-S297 and NB-S397 may be longer
than illustrated if the Company does not receive adequate funding.
Neuro-Biotech believes that the combined revenues from the sales of SymPath-TM-,
NB-S297 and NB-S397, together with available tax credits, government grants and
anticipated financing activities, will allow the Company to research and develop
other diagnostic kits as well as a prescription and natural drugs for
therapeutic use and nutraceutical applications. The Company also plans on
developing a number of clinical laboratory services, including enzymatic
analysis, both for use in in-house clinical studies and with the intention of
commercializing such services based on the market penetration of its diagnostic
kits.
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PRODUCTS AND SERVICES
All products and services under development by Neuro-Biotech are intended to
detect or prevent stress-related or neuroscience-based diseases.
Neuroscience-based diseases, broadly defined, include diseases with involvement
of the central and peripheral nervous system.
In this respect, some targeted neuroscience-based diseases are listed below:
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DISEASES OF THE DISEASES OF THE DISEASES OF THE
DISEASES OF THE CENTRAL NERVOUS SYSTEM NEURO-IMMUNE NEURO-ENDOCRINE NEURO-CARDIOVASCULAR
SYSTEM SYSTEM SYSTEM
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- Neuro- - Schizophrenia - AIDS - Addison's - Hypertension
Degenerative Disease
Diseases - Burn Out - Arthritis - Hypotension
- Cushing's
- Alzheimer's - Panic - Cancer Syndrome
Disease Syndrome
- Parkinson's - Chronic
Disease Fatigue
- Psycho-
Affective
Disorders
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Neuro-Biotech's products and services are organized into three main business
units: Diagnostic Products Division, Therapeutic Products Division and Clinical
Research Laboratory Services, as illustrated below:
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PRODUCT LINES
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CLINICAL
DIAGNOSTIC THERAPEUTIC RESEARCH
PRODUCTS PRODUCTS LABORATORY
SERVICES
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IN VITRO DRUGS TO BE ENZYMATIC
DIAGNOSTIC KITS PRESCRIBED FOR ANALYSIS
TARGETED DISEASES SPECIALIZED IN
NEUROSCIENCES
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DIAGNOSTIC PRODUCTS DIVISION
The Diagnostic Products Division is dedicated to the development of
non-invasive, in vitro diagnostic kits that isolate a specific bio-indicator
that measures the activity of the HPAS axis. To date, the Company has begun
marketing outside of the United States one kit, SymPath-TM-. The Company expects
to complete the research and development of two additional kits, NB-S297 and
NB-S397, in fiscal year 2000.
SYMPATH-TM-
In 1999, the Company's first diagnostic product, SymPath-TM-, was licensed and
authorized for commercialization by the Medical Devices Bureau of the HPB. In
addition, SymPath-TM- received United States and international patents.
Currently, SymPath-TM- is being distributed in the Middle East pursuant to an
exclusive distribution agreement with Tutimpex Trading, Inc., through their
agency, Royal Pharma, a distributor of healthcare products based in Egypt.
In SymPath-TM-, Neuro-Biotech has developed a simple non-invasive blood test
that quantifiably measures sympathetic nervous system activity. The Company
believes that SymPath-TM- can play a significant role in prevention, early
diagnosis and therapeutic follow-up of stress-related conditions that are
highly prevalent and costly throughout the world.
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SymPath-TM- allows physicians and other health practitioners to use a clinical
index that measures the amount of dopamine beta hydroxylase ("DBH") present in
the human bloodstream. DBH is an enzyme that converts dopamine to noradrenaline
("NA") in nerve endings of the sympathetic nervous system ("SNS"). Electrical
and chemical stimulation of the SNS triggers the secretion of DBH along with
several chemical messengers including neurotransmitters such as NA. DBH levels
persist in the blood after nerve stimulation making it a reliable indicator of
NA secretion and SNS activity.
Neuro-Biotech believes that the value of SymPath-TM- lies in its ability to
directly and routinely measure the activity of the SNS and the HPAS axis as a
first clinical index of a disturbed activity and as a follow-up after initial
drug therapy. By monitoring the activity of the SNS with SymPath-TM-,
practitioners are able to establish an individual's ability to react to stress
by measuring their variance from normal DBH levels and their capacity to return
to initial levels after drug therapy.
Individuals that are unable to return to homeostasis within the body, and
therefore have an elevated DBH reading, are at risk of developing a number of
stress-related or stress-induced diseases including, but not limited to,
depression, chronic fatigue, essential hypertension, ulcers and multiple
sclerosis. Individuals with an abnormally low DBH reading may suffer from a
neurological impairment that may prohibit normal activation of the SNS.
As a tool used during a routine physical exam, SymPath-TM- gives the caregiver a
preventive tool for use in asymptomatic patients and provides a tangible
measurement for individuals that may be denying the impact of stress on their
physical health. In addition, the test is designed to provide individuals with a
quantitative goal to gauge the effectiveness of lifestyle modifications and a
stress management technique to be used repetitively in clinical follow-ups.
The Company believes that the benefits of SymPath-TM- include the following:
- Assists in the early identification of asymptomatic individuals with
limited ability to physically manage stress;
- Assists in immediately identifying the root-cause of stress-related
symptoms, and thus serves to reduce the number of physician visits and
diagnostic tests that a patient must endure;
- Useful in annual physicals for individuals at greater risk of
stress-related illnesses;
- Quantitative measure with clinical history could increase motivation
level for lifestyle modifications, especially for individuals denying
the impact that stress has on their health;
- Useful for small subset of patients that complain of chest pain but
investigations have not found any medical or cardiac cause;
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- Useful for patients with hypertension or angina where stress
aggravates symptoms;
- Helps identify "white coat hypertensives" (potentially twenty percent
(20%) of patients treated for hypertension have an elevated blood
pressure due to the presence of a physician or being in a medical
environment);
- Potential to be used in the early detection of Familial Mediterranean
Fever, a genetically inherited disease affecting millions of people
living in the Middle East; and
- Quantitative measures provide very useful research tools.
NB-S297
In NB-S297, Neuro-Biotech believes it has developed a sensitive and direct
clinical tool that allows physicians and other health practitioners to identify
abnormal HPAS axis functioning. NB-S297 requires a simple blood test to measure
DBH levels in conjunction with iso-caproic acid ("ICA") , a chemical compound
released through the action of the adrenocorticotrophic hormone ("ACTH"), thus
providing insight into the functioning of the HPAS axis within the body.
This in vitro diagnostic kit makes it possible to recognize HPAS axis
dysfunction, including situations of excessive adrenal activity such as is found
in patients with Cushing's Syndrome which involves the over secretion of
cortisol and aldosterone, as well as insufficient adrenal activity such as is
found in patients with Addison's Disease where an abnormally low level of
cortisol is released by the adrenals. The Company expects to complete clinical
studies of NB-S297 in the current fiscal year and begin commercialization of
NB-S297 in fiscal year 2001.
NB-S397
In NB-S397, Neuro-Biotech has developed a technique that allows practitioners
and specialists to have a clinical diagnostic tool that monitors the
relationship between the three peptide forms of DBH, specifically identified and
characterized in regards to their involvement in neurodegenerative diseases such
as Alzheimer's and psycho-affective illnesses such as Schizophrenia.
NB-S397 is intended to distinguish between various neuro-genomic illnesses such
as Alzheimer's and Schizophrenia in respect to mental and pyscho-affective
disturbances as well as in regards to the evolution of the symptoms in patients.
In monitoring the relationship between the three peptides related to the DBH
enzyme, Neuro-Biotech believes it has initiated a new approach to clinically and
quantitatively identify each peptide related to DBH present in the blood in
order to specifically distinguish the physio-pathological response of patients
suffering from these diseases. As with NB-S297, the Company expects to complete
clinical studies of NB-S397 in the current year and begin commercialization in
fiscal year 2001.
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Neuro-Biotech has also begun to research and develop several other diagnostic
kits; however, the Company has curtailed such research and development due to
its current capital restraints.
THERAPEUTIC PRODUCTS DIVISION
Through its Therapeutic Products Division, the Company believes that is has
identified unique, natural-based compounds that can be used to treat targeted
stress-related and neuroscience-based diseases. While the Company has suspended
the validation of these compounds due to its current capital restraints,
Neuro-Biotech believes that these compounds, in the form of prescription drugs
and nutraceuticals, will be the first of their kind aimed at treating specific
diseases and conditions. To date, the Company has targeted a portfolio of 50
plants for the central nervous system, 95 plants for the immune systems, 40
plants for the endocrine system and 80 plants for the cardiovascular system.
CLINICAL RESEARCH LABORATORY SERVICES DIVISION
Neuro-Biotech's laboratory equipment is state-of-the-art. In addition to
performing the usual clinical biochemical analyses offered by medical
laboratories, the Clinical Research Laboratory Services Division performs
enzymatic analyses related to neuroscience. These enzymatic analyses are blood
tests that are not currently available in public and private clinical
laboratories. Currently, the Company utilizes this division solely to perform
its own clinical studies and mini-trials. The Company has future plans to offer
worldwide clinical services based on the Company's market penetration of its
products and to create a diagnostic clinical reference library.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are devoted to the development of
diagnostic kits, therapeutics and clinical laboratory services. Total research
and development expense for 1999 and 1998 was $1,149,885 and $1,143,741,
respectively. The research and development plans for fiscal year 2000 call for
approximately $2.5 million in research and development costs. The Company plans
on using SymPath-TM- revenues to fund this increase.
PATENTS AND PROPRIETARY INFORMATION
Neuro-Biotech pursues a policy of seeking patent protection for valuable
patentable subject matter of its proprietary technology. The Company believes
that patent and trade secret protection is important in its business, and that
its success will depend, in part, on its ability to obtain strong patents, to
maintain trade secret protection and to operate without infringing the
proprietary rights of others.
The commercial success of products incorporating Neuro-Biotech's technologies
may depend, in part, upon the Company's ability to obtain strong patent
protection. Although Neuro-Biotech's patents, pending patent applications, and
patents obtained in the future covering the Company's technologies may be of
importance to future operations, there can be no assurance that any additional
patents will be issued or that any patents, now or hereafter issued, will be of
commercial benefit.
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In 1999, the Company obtained a Medical Device License from the HPB for the
commercialization of SymPath-TM- as well as a United States patent and an
International PCT Registration recognized in 68 countries.
There has been, and the Company believes that there may be in the future,
significant litigation in the industry regarding patent and other intellectual
property rights and that, if the Company becomes involved in such litigation, it
could consume substantial resources. Significant legal issues remain as to the
extent to which patent protection may be afforded in the field of biotechnology
in the United States, Canada and other countries, and the scope of any such
protection has not yet been broadly tested. The Company, therefore, also relies
upon trade secrets, know-how, and continuing technological advancement to
develop and maintain its competitive position. Disclosure and use of the
Company's know-how is generally controlled under agreements with the parties
involved. In addition, the Company has confidentiality agreements with its key
employees, consultants, officers and directors. There can be no assurance,
however, that all confidentiality agreements will be honored, that others will
not independently develop equivalent technology, that disputes will not arise as
to the ownership of intellectual property, or that disclosure of the Company's
trade secrets will not occur. Furthermore, there can be no assurance that others
have not obtained or will not obtain patent protection that will exclude the
Company from using its trade secrets and confidential information. To the extent
that consultants or research collaborators use intellectual property owned by
others in their work with the Company, disputes may also arise as to the rights
to related or resulting know-how or inventions.
POTENTIAL MARKET SIZE
In 1997, Neuro-Biotech commissioned Ernst & Young (Toronto) to create a market
potential assessment for the Company's diagnostic kits. The report, issued in
1997, concluded that the issue of stress-related illnesses was a growing concern
around the world. The issue is of particular interest in the corporate world
where the cost of stress is becoming a serious financial burden. The Ernst &
Young report cited a 1997 Gallup Poll of 201 U.S. organizations which found that
nearly 60% of all managers concluded that stress-related illnesses were
pervasive among their workers. These managers also estimated that stress related
illnesses cost the organization approximately 16 days of sick leave and $8,000
per person per year.(1)
Stress is also an issue outside of the workforce. Around the world, the
incidence of stress-related illnesses continues to rise. Increased mental stress
and an inability to effectively manage stress is increasingly implicated as a
causative factor in predisposing individuals to a variety of illnesses. From
peptic ulcers to migraines to hypertension to strokes to multiple sclerosis, the
role of stress in the onset of disease is under increasing scrutiny. The Company
believes that it could be possible that ineffective stress management has a role
in the development of most illnesses.
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1. THE GROWTH OF EMPLOYMENT STRESS CLAIMS, Albert M. Drukteinis, M.D., J.D.,
New England Psychodiagnostics, 1997.
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The market research conducted in 1997 by Ernst & Young found that stress was a
contributing factor in at least 30% of the cases seen by general practitioners.
With specialists, especially neurologists and endocrinologists, the proportion
of stress-related complaints increases to as much as 70%. While stress is not
usually the primary complaint, the underlying symptoms frequently identify
mis-managed stress as a factor that is compromising the general health of the
individual.
Neuro-Biotech believes that the ability to prevent or treat stress-related
illnesses brings considerable value to individuals, practitioners and payers
within a health system. Measuring an individual's ability to manage stress
provides health care practitioners with a useful tool in preventing illness and
monitoring health status. A number of physicians contacted in the research
conducted by Ernst & Young indicated that a quantitative measure would assist in
motivating individuals resistant to acknowledge that stress was having a
physical effect on their body. The Company believes that it would also assist in
providing feedback to patients on a stress management program or lifestyle
modification program.
The Company's first three diagnostic kits are intended to be used sequentially
as part of a clinical follow-up and a more accurate pharmacological therapy. At
present, patients suffering from specific disease states consult their
physicians from two to four times per year. Neuro-Biotech intends to reach these
physicians and their patients through marketing strategies, including training
and education.
SymPath-TM- addresses the market of annual checkups and general complete
examinations. In the majority of industrialized countries, about 50% of adults
have an annual check-up or some type of fatigue-related consultation as
confirmed in Quebec by an extract of the Quebec Health Insurance Program 1995
annual statistic reports showing the number of consultations, including check-up
and major examinations.
Market research with physicians tends to indicate a strong potential for the
kits from insurance and employer requests through executive medicals. Currently
over 20,000 executive medicals are performed annually in Canada at a cost
ranging from $600 to $1,500. Within this market, the Company believes that the
risk assessment capability of the diagnostic kits could provide exceptional
value at negligible incremental costs.
Neuro-Biotech believes the competitive benefits of the diagnostic kits including
their ease of use, relative inexpensiveness and accuracy will enable the company
to achieve preferred status with practitioners in the management of stress, the
treatment of stress-related illnesses and the diagnosis of adrenal
abnormalities.
COMPETITION
In general, the pharmaceutical and biotechnology industries are characterized by
rapidly evolving technology and intense competition. The Company's potential
competitors include major pharmaceutical, diagnostic, chemical and biotechnology
companies, many of which have financial, technical and marketing resources
significantly greater than those of the Company. In addition, many biotechnology
companies have formed collaborations with large, established
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pharmaceutical companies to support research, development and commercialization
of products that may be competitive with those of the Company. Academic
institutions, government agencies and other public and private research
organizations are also conducting research activities and seeking patent
protection and may commercialize products on their own or through joint
ventures.
While a strong competitive environment generally exists in the pharmaceutical
and biotechnology industries, the Company is not aware of any competition in the
specific field of neuroscience-related diagnostic tools. Although large
pharmaceutical companies have developed diagnostic tools using blood samples to
evaluate various diseases, the Company believes that there are no diagnostic
tools specifically related to the detection of stress-related diseases. The
existence of these products, or other products or treatments of which the
Company is not aware, or products or treatments that may be developed in the
future, may adversely affect the marketability of products developed by the
Company.
Neuro-Biotech's diagnostic tools use a finger-prick blood sample to
quantitatively measure a blood parameter and to track its variations according
to different stressful events in order to prevent the disease and to have a more
accurate diagnosis with regards to the involvement of the nervous system.
Current methods of detecting individuals with a compromised ability to manage
stress include a clinical history or clinical signs and symptoms such as
elevated blood pressure, headaches, anxiety, reduced immune functioning or
psychological symptoms. To the best of the company's knowledge there is no
quantitative clinical measurement for stress currently available.
Current methods of diagnosing diseases of adrenal abnormalities such as
Cushing's Syndrome and Addison's Disease are often expensive, time consuming and
intrusive, requiring support from a health care facility such as a hospital.
Many tests are expensive and are completed over a course of days.
Some of the current methods for detecting diseases related to the HPAS axis
include the following:
CURRENT METHODS OF DIAGNOSING CUSHING'S SYNDROME
- 24-HOUR URINARY FREE CORTISOL LEVELS. This method involves measuring the
amount of cortisol in urine collected over a 24-hour period. Elevated
levels are diagnostic for Cushing's Syndrome and require that one of the
tests described below be done to locate the cause.
- DEXAMETHASONE SUPPRESSION TEST. This test involves the administration of
oral dexamethasone every 6 hours for 4 days, and testing of 24-hour urine
collections from the day before and from each day of the test. A normal
response should be a drop in blood and urine cortisol levels. In patients
with Cushing's Syndrome, cortisol levels stay high. This test helps to
distinguish between pituitary and ectopic ACTH producing tumors.
- CRH STIMULATION TEST. This test involves the injection of corticotrophin
releasing hormones ("CRH"). Patients with pituitary adenomas usually
experience a rise in blood levels of
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ACTH and cortisol, a response rarely seen in patients with ectopic ACTH
syndrome and practically never in patients with cortisol-secreting adrenal
tumors.
- DEXAMETHASONE-CRH TEST. The test is used to distinguish between Cushing's
Syndrome and pseudo-Cushing's Syndrome. Elevations of cortisol during this
test suggest Cushing's Syndrome.
- PETROSAL SINUS SAMPLING. This method involves measuring ACTH in samples of
blood withdrawn from the veins which drain the pituitary. Levels of ACTH
from the petrosal sinuses are compared with levels in the forearm vein.
Higher levels in the petrosal sinus indicate the presence of a pituitary
adenoma while similar levels suggest ectopic ACTH syndrome.
- RADIOLOGIC IMAGING. Procedures such as x-rays and MRI's are used to locate
tumors and determine their size and location after a diagnosis has been
established.
CURRENT METHOD OF DIAGNOSING ADDISON'S DISEASE
- ACTH STIMULATION TEST. In this test, blood and urine cortisol levels are
measured before and after an injection of a synthetic form of ACTH. Blood
cortisol is measured 30 and 60 minutes after the ACTH injection. The normal
response is a rise in cortisol levels. Patients with adrenal insufficiency
respond poorly or not at all. In a second test administered to poor
responders, synthetic ACTH is injected over 48-72 hours, and blood and
urine cortisol is measured the day before the test and during the injection
period. Patients with primary adrenal insufficiency do not produce cortisol
during the test period while patients with a secondary condition respond
adequately on the second or third day.
- INSULIN-INDUCED HYPOGLYCEMIA TEST. Blood glucose and cortisol levels are
measured before and 30, 45 and 90 minutes after an injection of fast-acting
insulin. The normal response is for blood glucose levels to fall and
cortisol levels to rise. The reverse occurs in patients with Addison's
Disease.
Neuro-Biotech believes the competitive advantages of SymPath-TM- over the
current testing methods described above include SymPath-TM-'s ease of use,
relative inexpensiveness and accuracy.
MARKETING
The Company selects the markets to be penetrated based primarily on potential
revenues and ease of entry. However, the Company is aware that additional
factors will influence the selection of future markets, such as the market
position of potential partners and the regulatory environment.
As additional capital is obtained, Neuro-Biotech intends to invest in targeted
market studies as well as in market penetration analysis to tailor its promotion
activities such as conferences, scientific and technical publications and
specialized advertisements.
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As noted previously, Neuro-Biotech intends to enter into royalty agreements with
leading manufacturers and distributors for its products, taking into account
market penetration strategies previously discussed. Estimated royalties have
been determined based on the expected selling price of the diagnostic kits, as
well as royalty percentages current in the market. The anticipated royalty per
diagnostic kit varies from 5% to 15% of the selling price, depending on the
nature of the market, its geographic location and the role assumed by the
distributor.
EMPLOYEES
Neuro-Biotech currently has twelve (12) employees, compared to twenty two (22)
in fiscal year 1998. The decrease in employees is directly related to the
Company's current capital restraints. Neuro-Biotech's employees include
researchers, professionals and a management team. The Company anticipates a
minimal increase in the number of employees over the next fiscal year.
Neuro-Biotech does not have a scientific advisory committee; however, the
Company intends to create such a committee in fiscal year 2000 and is currently
identifying potential members. In addition to Dr. Roberge, Neuro-Biotech has
three key employees, Michel Charest, Dr. Sam Cooper and Pierre Savard.
- Mr. Charest is Vice President, Services and Supplies, for NBI. He is a
biochemist with significant experience in clinical biochemistry and
enzymology. He is in charge of research and development logistics.
- Dr. Sam Cooper is Director, Analytical Research. He has significant
experience in pharmacognosy, classical neuro-pharmacology, analytical
chemistry, quality control of active ingredients in pharmaceutical
formulations, pharmacokinetics and drug metabolisms.
- Mr. Savard is Director, Regulatory and Legal Affairs. He has more than
ten years' experience in the Provincial Government and in the
pharmaceutical industry. He was posted to the Premier's Cabinet and
acted an ministerial representative under several Cabinet Ministers.
GOVERNMENTAL REGULATION
In Canada and the United States, the design, development, testing, manufacturing
and marketing of biotechnology products are rigorously controlled by the HPB and
the FDA, respectively. The laws of both countries require the licensing of
manufacturing facilities, carefully controlled research and the testing of
products.
In Canada, in vitro screening and diagnostic kits, such as those sold by
Neuro-Biotech, are considered "medical devices." Copies of the instructions for
use and labels of a medical device must be filed with the Bureau of Medical
Devices of the HPB. Companies must also maintain records of test results showing
the product is safe and performs as claimed.
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In the United States, pursuant to the Federal Food, Drug, and Cosmetic Act and
the regulations promulgated thereunder (the "FDC Act"), the FDA regulates the
preclinical and clinical testing, manufacturing, labeling, distribution and
promotion of medical devices. In the United States, medical devices are
classified into one of three classes (i.e., Class I, II, or III) on the basis of
the controls deemed necessary by the FDA to reasonably ensure their safety and
effectiveness. Class I devices are subject to general controls (e.g., labeling,
premarket notification and adherence to current good manufacturing practices
("cGMPs"), and Class II devices are subject to general and special controls
(such as performance standards, postmarket surveillance, patient registries, and
FDA guidelines). Generally, Class III devices are those which must receive
premarket approval by the FDA to ensure their safety and effectiveness
(life-sustaining, life-supporting and implantable devices, or new devices which
have been found not to be substantially equivalent to legally marketed devices).
Before a new device can be introduced in the market, the manufacturer must
generally obtain FDA clearance or approval through either clearance of a 510(k)
notification or approval of a premarket approval application ("PMA"). However,
most Class I devices are now exempt from the FDA's market clearance
requirements. A PMA application must be filed if a proposed device is not
substantially equivalent to a legally marketed Class I or Class II device, or if
it is a preamendment Class III device for which the FDA has called for PMA
applications. A PMA application must be supported by valid scientific evidence
to demonstrate the safety and effectiveness of the device, typically including
the results of clinical trials, bench tests and laboratory and animal studies.
The PMA application must also contain a complete description of the device and
its components, and a detailed description of the methods, facilities and
controls used to manufacture the device. In addition, the submission must
include the proposed labeling, advertising literature and any training
materials.
Once the FDA determines that the PMA application is sufficiently complete to
permit a substantive review, the FDA will accept the application for filing and
begin its review. Although the FDA has 180 days to review a PMA application,
such reviews generally take one to three years, and may take significantly
longer, from the date the PMA application is accepted for filing. During the
review of a PMA application, an advisory committee likely will be convened to
review and evaluate the application and provide recommendations to the FDA as to
whether the device should be approved. The FDA is not bound by the
recommendation of the advisory panel. In addition, prior to approval, the FDA
generally will inspect the manufacturing facility to ensure compliance with
applicable cGMP requirements.
If granted approval, the PMA application may include significant limitations on
the indicated uses for which the product may be marketed, and the agency may
require post-marketing studies of the device. If the FDA's evaluation of the PMA
application or manufacturing facilities is not favorable, the FDA will deny
approval of the PMA application or issue a "non-approval" letter. The FDA may
determine that additional clinical trials are necessary, in which case approval
may be delayed for one or more years while additional clinical trials are
conducted and submitted. The PMA application process can be expensive, uncertain
and lengthy, and a number of devices for which FDA clearance has been sought by
other companies have never been approved for marketing. Modifications to a
device that is the subject of an approved PMA application, its
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labeling or its manufacturing process may require approval by the FDA of PMA
application supplements or new PMA applications. Supplements to a PMA
application often require the submission of the same type of information
required for an initial PMA application, except they are generally limited to
that information needed to support the proposed change.
A 510(k) clearance will be granted if the submitted information establishes that
the proposed device is "substantially equivalent" to a legally marketed Class I
or Class II medical device or a preamendment Class III medical device for which
the FDA has not called for PMA applications. In some cases, 510(k) submissions
require clinical data. It generally takes from four to 12 months from submission
to obtain 510(k) premarket clearance, but it may take longer. The FDA may
determine that a proposed device is not substantially equivalent to a legally
marketed device, or that additional information is needed before a substantial
equivalence determination can be made. A "not substantially equivalent"
determination, or a request for additional information could prevent or delay
the market introduction of new products that fall into this category.
For any devices that are cleared through the 510(k) process, modifications or
enhancements that could significantly affect safety or effectiveness, or
constitute a major change in the intended use of the device, will require new
510(k) submissions. If human clinical trials of a device are required, whether
for a 510(k) or a PMA application, and the device presents a "significant risk,"
the sponsor of the trial (usually the manufacturer or the distributor of the
device) will have to file an IDE application prior to commencing human clinical
trials. The IDE application must be supported by data, typically including the
results of animal and laboratory testing. If the IDE application is approved by
the FDA and one or more appropriate IRBs, human clinical trials may begin at a
specific number of investigational sites with a specific number of patients, as
approved by the FDA. If the device presents a "nonsignificant risk" to the
patient, a sponsor may begin the clinical trial after obtaining approval for the
study by one or more appropriate IRBs without the need for FDA approval.
Submission of an IDE does not give assurance that the FDA will approve the IDE
and, if it is approved, there can be no assurance that the FDA will determine
that the data derived from these studies supports the safety and efficacy of the
device or warrants the continuation of clinical studies. Sponsors of clinical
trials are permitted to sell investigational devices distributed in the course
of the study provided such compensation does not exceed recovery of the costs of
manufacture, research, development and handling. An IDE supplement must be
submitted to and approved by the FDA before a sponsor or investigator may make a
change to the investigational plan that may affect its scientific soundness or
the rights, safety or welfare of human subjects.
Although clinical investigations of most devices are subject to the IDE
requirements, clinical investigations of in vitro diagnostic ("IVDs") tests are
exempt from the IDE requirements, including FDA approval of investigations,
provided the testing meets certain exemption criteria. IVD manufacturers must
also establish distribution controls to assure that IVDs distributed for the
purpose of conducting clinical investigations are used only for that purpose.
Pursuant to current FDA policy, manufacturers of IVDs labeled for
investigational use only ("IUO") or research use only ("RUO") are encouraged by
the FDA to establish a certification program under which investigational IVDs
are distributed to or utilized only by individuals, laboratories or
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health care facilities that have provided the manufacturer with a written
certification of compliance indicating that the IUO or RUO product will be
restricted in use and will, among other things, meet institutional review board
and informed consent requirements.
Any devices manufactured or distributed by the Company pursuant to FDA clearance
or approvals are subject to pervasive and continuing regulation, including
routine inspections of facilities by the FDA. Manufacturers of medical devices
for marketing in the United States are required to adhere to applicable
regulations setting forth detailed cGMP requirements, which include testing,
control and documentation requirements. Manufacturers must also comply with
Medical Device Reporting ("MDR") requirements that a firm report to the FDA any
incident in which its product may have caused or contributed to a death or
serious injury, or in which its product malfunctioned and, if the malfunction
were to recur, it would be likely to cause or contribute to a death or serious
injury. Labeling and promotional activities are subject to scrutiny by the FDA
and, in certain circumstances, by the Federal Trade Commission.
The Company is also subject to numerous laws relating to such matters as safe
working conditions, manufacturing practices, environmental protection, fire
hazard control and disposal of hazardous or potentially hazardous substances.
There can be no assurance that the Company will not be required to incur
significant costs to comply with such laws and regulations in the future or that
such laws or regulations will not have a material adverse effect upon the
Company's ability to do business. Noncompliance with applicable requirements can
result in, among other things, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, failure of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of marketing clearances or approvals, and criminal prosecution.
RISK FACTORS
In addition to the other information in this Registration Statement, the
following risk factors should be considered carefully in evaluating the Company
and its business.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES
An investment in the Company should be viewed in light of the risks and
uncertainties inherently faced by a company in the early stages of development.
Neuro-Biotech commenced operations in December 1997 and has incurred net losses
in each quarter since its inception. As to date the Company has been engaged
primarily in product research and development and has only recently begun the
commercialization of its first product, SymPath-TM-. Accordingly, the Company
has a limited operating history on which an evaluation of the Company's
prospects can be made. Neuro-Biotech and its prospects must be considered in
light of the risks, expenses and difficulties frequently encountered in the
establishment of a business in an industry with evolving standards, and the
development and commercialization of new products based on scientific
discoveries.
The Company incurred net losses of $2,898,662 and $2,145,720 in fiscal 1998 and
1999, respectively. As of November 30, 1999, the Company had an accumulated
deficit of $5,647,917. In addition, Neuro-Biotech intends over time to increase
its level of expenditures in the areas of research and development. There can be
no assurance that the Company's revenues will increase
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in future periods, that the Company will become profitable, if at all, on a
quarterly or annual basis in the future or that any such profitability can be
sustained.
ADDITIONAL CAPITAL REQUIREMENTS
Neuro-Biotech has incurred negative cash flows from operations since inception,
and has expended, and will need to expend, substantial funds to complete its
planned product development efforts, including:
- research and development;
- clinical studies and regulatory activities; and
- expansion of its marketing activities.
In addition, the Company expects that it will require additional capital either
in the form of debt or equity, irrespective of whether and when it reaches
profitability, for the following activities:
- working capital;
- further product development; and
- acquisition of additional products and technologies.
The Company's future capital requirements and the adequacy of its available
funds depend on numerous factors, including:
- successful commercialization of its products;
- magnitude, scope and results of its product development efforts;
- progress of preclinical studies and clinical trials;
- progress of regulatory affairs activities;
- costs of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights;
- competing technological and market developments; and
- expansion of strategic alliances for the sale, marketing and
distribution of its products.
Neuro-Biotech currently expects that its existing cash, together with decreased
operating costs, and revenues generated by products sales and royalties will be
adequate to fund its operations through fiscal year 2000. The Company can not
give assurance that it will not consume its available capital resources before
that time.
POSSIBLE UNAVAILABILITY OF OTHER FINANCING
There can be no assurance the Company will be able to obtain additional
financing on acceptable terms, if at all. Neuro-Biotech may seek to raise
additional capital through public or private offerings of equity or debt or
through collaborative agreements, strategic alliances with corporate partners
and others, or through other contractual arrangements with third parties. The
Company may receive additional funds upon the exercise of common stock purchase
warrants and stock options, but there can be no assurance that any warrants or
stock options will be exercised or that
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the amounts received will be sufficient to meet the Company's capital needs. If
adequate funds are not available, Neuro-Biotech may be required to delay,
further scale back or eliminate one or more of its development programs or
certain aspects of its operations, or to obtain funds by entering into
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its products, product candidates,
technologies or potential markets, that the Company would otherwise not
relinquish. If adequate funds are not available, business, financial condition
and results of operations will be materially and adversely affected.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations have fluctuated on an annual and quarterly
basis and may fluctuate significantly from period to period in the future, due
to, among other factors:
- variations in revenue from sales of and royalties from its products;
- timing of regulatory approvals and other regulatory announcements
relating to its products;
- variations in its marketing, manufacturing and distribution alliances;
- timing of new product announcements and introductions by the Company
and its competitors; and
- product obsolescence resulting from new product introductions.
Many of these factors, and others not listed above, are outside the Company's
control. Due to one or more of these factors, the Company's results of
operations may fall below the expectations of securities analysts and investors
in one or more future quarters. If this happens, the market price of the
Company's common stock could be materially and adversely affected.
DEPENDENCE ON MARKET ACCEPTANCE OF SYMPATH-TM- FOR REVENUES
SymPath-TM- was introduced to the market during the second half of fiscal year
1999 and is expected to account for a significant percentage of the Company's
product-related revenue in the foreseeable future.
Because this product is expected to contribute the majority of the Company's
revenues, Neuro-Biotech's business, financial condition and results of
operations depends on its acceptance as a safe, effective and cost efficient
alternative to other available treatment and diagnostic protocols by the medical
community, including:
- health care providers, such as hospitals and physicians;
- third-party payors, including Medicare, Medicaid;
- private insurance carriers; and
- health maintenance organizations.
Neuro-Biotech believes that efforts to market SymPath-TM- to physicians and
hospitals has been well received, based on statements by physicians to the
Company's employees as to the benefits of SymPath-TM- and presentations on
SymPath-TM- by physicians at medical association meetings.
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However, training by physicians, technicians and other health care professionals
is required before certain of the Company's products can be used for diagnosis
or therapy. There can be no assurance that additional physicians will make this
commitment or otherwise accept this product as part of their treatment
practices.
DEPENDENCE ON STRATEGIC ALLIANCES
Neuro-Biotech's success depends in significant part upon the success of its
collaborative partners. Because the Company's strategic alliance are responsible
for its manufacturing and distribution activities, these activities are outside
the Company's direct control. There can be no assurance that the Company's
partners will perform their obligations with the Company. In the event that
Neuro-Biotech's strategic partners do not successfully manufacture and
distribute the Company's products, or breach their obligations, the successful
commercialization of SymPath-TM- would not be achieved or would be delayed, and
new product development could be inhibited, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to maintain its existing
collaborative arrangements; if they expire or are terminated, there can be no
assurance that they will be renewed, or that new arrangements will be available
on acceptable terms, if at all. In addition, there can be no assurance that any
new arrangements or renewals of existing arrangements will be successful, that
the parties to any new or renewed agreements will perform their obligations
thereunder, or that any potential collaborators will not compete with the
Company.
There can also be no assurance that Neuro-Biotech's existing or future
collaborations will lead to the development of product candidates or
technologies with commercial potential, that the Company will be able to obtain
proprietary rights or licenses for proprietary rights for its candidates or
technologies developed in connection with these arrangements, or that the
Company will be able to ensure the confidentiality of proprietary rights and
information developed in such arrangements or prevent the public disclosure
thereof.
RISKS ASSOCIATED WITH MANUFACTURING
Neuro-Biotech's products must be manufactured through third-party manufacturers
in compliance with regulatory requirements and at acceptable costs.
While Neuro-Biotech believes that the Company manufacturing arrangements
currently address its needs for the production of SymPath-TM-, there can be no
assurance that it will be able to continue to successfully outsource the
manufacturing of its products. If the Company is unable to successfully
manufacture or arrange for the manufacture of its products and product
candidates, there would be a material adverse effect on its business, financial
condition and results of operations.
The Company and its third party manufacturers are required to adhere to FDA
regulations setting forth requirements for cGMP and similar regulations in other
countries, which include extensive testing, control and documentation
requirements. On going compliance with cGMP, labeling and
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other applicable regulatory requirements is monitored through periodic
inspections and market surveillance by state and federal agencies, including the
FDA, and by comparable agencies in other countries. Failure of Neuro-Biotech and
its third-party manufacturers to comply with applicable regulations could result
in sanctions being imposed on the Company, including fines, injunctions, civil
penalties, failure of the government to grant premarket clearance or premarket
approval of drugs, delays, suspension or withdrawal of approvals, seizures or
recalls of products, operating restrictions and criminal prosecutions.
RISKS ASSOCIATED WITH REIMBURSEMENT BY THIRD-PARTY PAYORS
Neuro-Biotech's business, financial condition and results of operations will
continue to be affected by the efforts of governments and other third-party
payors to contain or reduce the costs of healthcare through various means. There
have been, and the Company expects that there will continue to be, a number of
federal and state proposals to implement government control of pricing and
profitability of diagnostic and therapeutic products. In addition, an emphasis
on managed care increases possible pressure on pricing of these products. While
the Company cannot predict whether such legislative or regulatory proposals will
be adopted or the effects such proposals or managed care efforts may have on the
Company's business, the announcement of such proposals and the adoption of such
proposals or efforts could have a material adverse effect on Neuro-Biotech's
business, financial condition and results of operations. Further, to the extent
such proposals or efforts have a material adverse effect on other companies that
are prospective corporate partners for Neuro-Biotech, the Company's ability to
establish strategic alliances may be materially and adversely affected.
Sales of the Company's products depend in part on the availability of
reimbursement to the consumer from third-party payors, including Medicare,
Medicaid, and private health insurance plans. Third-party payors are
increasingly challenging the prices charged for medical products and services.
There can be no assurance that the Company's products will be considered
cost-effective and that reimbursement to consumers will continue to be
available, or will be sufficient to allow the Company to sell its products on a
competitive basis. Approval of Neuro-Biotech's products for reimbursement by a
third-party payor may depend on a number of factors, including the payor's
determination that the Company's products are clinically useful and
cost-effective, medically necessary and not experimental or investigational.
Reimbursement is determined by each payor individually and in specific cases.
The reimbursement process can be time consuming and costly. If the Company
cannot secure adequate third-party reimbursement for its products, there would
be a material adverse effect on its business, financial condition and results of
operations.
INTENSE COMPETITION IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES
The biotechnology and pharmaceutical industries are subject to intense
competition from large pharmaceutical, biotechnology and other companies, as
well as universities and research institutions.
Many of the competitors have, compared to Neuro-Biotech, substantial advantages
with respect to their:
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- financial, marketing, sales, manufacturing, distribution and
technological resources;
- sales and marketing expertise;
- distribution channels;
- experience in establishing third-party reimbursement for their
products;
- research and development expertise;
- experience in conducting clinical trials;
- experience in regulatory matters;
- manufacturing efficiency; and
- name recognition.
Due to this intensely competitive environment, there can be no assurance that
the Company will be able to compete effectively against such existing or
potential competitors or that competition will not have a material adverse
effect on its business, financial condition and results of operations.
INTELLECTUAL PROPERTY RISKS
Neuro-Biotech is highly dependent upon proprietary technology and seeks to
protect such technology through a combination of patents, licenses and trade
secrets. The Company has applied for, obtained and licensed patents for certain
proprietary aspects of its technology and processes in the United States and
other countries. The Company is particularly dependent upon the enforceability
of its patents with respect to SymPath-TM-. There can be no assurance that the
Company's owned and licensed patents will prove to be enforceable or that
additional patents will be issued. Neither can assurance be given that the
technologies the Company uses do not infringe upon the proprietary rights of
others, although the Company is not aware of any such infringement or any
adverse claim. Insofar as Neuro-Biotech relies in part on trade secrets and
unpatented know-how to maintain its competitive position, there can be no
assurance that others will not independently develop similar or superior
technologies or that the Company's trade secrets and know-how will not become
known to others. Neuro-Biotech could incur substantial costs in seeking
enforcement of its patents against infringement or preventing unauthorized use
of its trade secrets by others, or in defending patent infringement claims
brought against the Company.
Neuro-Biotech's success depends, in part, on its ability, and the ability of its
collaborators or licensors, to obtain protection for products and technologies
under United States and foreign patent laws, to preserve trade secrets, and to
operate without infringing the proprietary rights of third-parties. Because of
the substantial length of time and expense associated with development of new
products, the biopharmaceutical industry places considerable importance on
obtaining, and maintaining, patent and trade secret protection for new
technologies, products and processes. The Company has obtained rights to certain
patents and patent applications and may obtain or seek rights from third-parties
to additional patents and patent applications. There can be no assurance that
patent applications relating to its products or technologies will result in
patients being issued, that any issued patents will afford Neuro-Biotech
adequate protection, or that such patents will not be challenged, invalidated,
infringed or circumvented. Furthermore, there can be no assurance that others
have not developed, or will not develop, similar products or technologies that
22
<PAGE>
will compete with the Company's without infringing upon the Company's
intellectual property rights.
Legal standards relating to the scope of claims and the validity of patents in
the biotechnology industry are uncertain and still evolving, and no assurance
can be given as to the degree of protection that will be afforded any patents
Neuro-Biotech is issued or licensed from others. There can be no assurance that,
if challenged by others in litigation, the patents the Company has been assigned
or has licensed from others will not be found invalid. There can be no assurance
that its activities would not infringe patents owned by others. Defense and
prosecution of patent matters can be expensive and time-consuming and,
regardless of whether the outcome is favorable to the Company, can result in the
diversion of substantial financial, management and other resources. An adverse
outcome could:
- subject the Company to significant liability to third parties;
- require the Company to cease any related research and development
activities and product sales; or
- require the Company to obtain licenses from third-parties.
No assurance can be given that any licenses required under any such patents or
proprietary rights would be made available on terms acceptable to the Company,
if at all. Moreover, the laws of certain countries may not protect the Company
proprietary rights to the same extent as United States law.
Neuro-Biotech's success also depends on the skill, knowledge, and experience of
its scientific and technical personnel. To help protect its rights, the Company
requires all employees, consultants, advisors and collaborators to enter into
confidentiality agreements that require disclosure, and in most cases,
assignment to the Company, of their ideas, developments, discoveries and
inventions, and that prohibit the disclosure of confidential information to
anyone outside the Company. There can be no assurance, however, that these
agreements will provide adequate protection for Neuro-Biotech's trade secrets,
know-how or other proprietary information in the event of any unauthorized use
or disclosure.
PRODUCT DEVELOPMENT
Product development involves a high degree of risk. There can be no assurance
that the product candidates the Company develops, pursues or offers will prove
to be safe and effective, will receive the necessary regulatory approvals or
will ultimately achieve market acceptance. The Company's product candidates will
require substantial additional investment, laboratory development, clinical
testing and regulatory approvals prior to their commercialization. There can be
no assurance that Neuro-Biotech will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of new
products. If the Company is unable to successfully develop and commercialize
products on a timely basis or at all, or achieve market acceptance of such
products, there could be material adverse effect on its business, financial
condition and results of operations.
23
<PAGE>
Before the Company obtains regulatory approvals for the commercial sale of any
of its products under development, Neuro-Biotech must demonstrate through
preclinical studies and clinical trials that the product is safe and efficacious
for use in each target indication. The results from preclinical studies and
early clinical trials may not be predictive of results that will be obtained in
large-scale testing, and there can be no assurance that the Company's clinical
trials will demonstrate the safety and efficacy of any products or will result
in marketable products. A number of companies in the biotechnology industry have
suffered significant setbacks in advanced clinical trials, even after promising
results in earlier trials. In addition, there can be no assurance that product
issues will not arise following successful clinical trials and FDA approval.
The rate of completion of clinical trials also depends on the rate of patient
enrollment. Patient enrollment depends on many factors, including the size of
the patient population, the nature of the protocol, the proximity of patients to
clinical sites and the eligibility criteria for the study. Delays in planned
patient enrollment may result in increased costs and delays, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
GOVERNMENT REGULATION
Any products tested, manufactured or distributed by Neuro-Biotech or on its
behalf pursuant to regulatory clearances or approvals are subject to pervasive
and continuing regulation by numerous regulatory authorities, including the HPB
and the FDA. Changes in existing requirements or adoption of new requirements or
policies could adversely affect the Company's ability to comply with regulatory
requirements. If the Company fails to comply with regulatory requirements, there
could be a material adverse effect on its business, financial condition and
results of operations. There can be no assurance that it will not be required to
incur significant costs to comply with laws and regulations in the future or
that laws or regulations will not have a material adverse effect upon its
business, financial condition and results of operations.
Numerous governmental authorities (each a "Regulatory Agency"), principally the
FDA in the United States and the HPB in Canada, and similar agencies in other
countries, regulate the preclinical testing, clinical trials, manufacture and
promotion of any medical devices Neuro-Biotech or its collaborative partners
develop. The medical device development and regulatory approval process is
lengthy, expensive, uncertain and subject to delays.
Any medical device the Company or its collaborative partners develop must
receive Regulatory Agency approval before it may be marketed in a particular
country. The regulatory process, which includes preclinical testing and clinical
trials, varies from country to country, can take many years and requires the
expenditure of substantial resources. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations which could
delay, limit or prevent Regulatory Agency approval.
Delays or rejections may be encountered based upon changes in Regulatory Agency
policy during the period of development and/or the period of review of any
application for Regulatory Agency approval for a medical device. These delays
could adversely affect the marketing of any products
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<PAGE>
the Company or its collaborative partners develop, impose costly procedures upon
the Neuro-Biotech's activities, diminish any competitive advantages the Company
or collaborative partners may attain and adversely affect the Company's ability
to receive royalties.
There can be no assurance that, even after such time and expenditures,
Regulatory Agency approvals will be obtained for any medical devices developed
by or in collaboration with the Company. Moreover, if Regulatory Agency approval
for a medical device is granted, such approval may entail limitations on the
indicated uses for which it may be marketed that could limit the potential
market for any such device. Furthermore, if and when such approval is obtained,
the marketing, manufacture, labeling, storage and record keeping related to the
Company's products would remain subject to extensive regulatory requirements.
Discovery of previously unknown problems with a medical device, its manufacture,
or its manufacturer may result in restrictions on such device, its manufacture,
or its manufacturer, including withdrawal of the device from the market. Failure
to comply with regulatory requirements could result in fines, suspension of
regulatory approvals, operating restrictions and criminal prosecution.
The FDC Act requires that the Company's products be manufactured in FDA
registered facilities subject to inspection. The manufacturer must be in
compliance with cGMP, which imposes certain procedural and documentation
requirements upon Neuro-Biotech and its manufacturing partners with respect to
manufacturing and quality assurance activities. Noncompliance with cGMP can
result in, among other things, fines, injunction, civil penalties, recalls or
seizures or products, total or partial suspension of production, failure of the
government to grant premarket clearance or premarket approval for medical
devices, withdrawal of marketing approvals and criminal prosecution. If the
Company or its manufacturing partners were to fail to comply with the
requirements of cGMP, there could be a material adverse effect on the Company's
business, financial condition and results of operations.
ATTRACTION AND RETENTION OF KEY PERSONNEL
Neuro-Biotech is highly dependent on Dr. Roberge and the other principal members
of the Company's scientific staff, the loss of whose services might
significantly delay or prevent the achievement of research, development or
strategic objectives. The Company's success depends on its ability to retain key
employees and to attract additional qualified employees. Competition for such
personnel is intense, and there can be no assurance that the Company will be
able to retain existing personnel and to attract, assimilate or retain
additional highly qualified employees in the future.
ITEM 2. DESCRIPTION OF PROPERTY
Neuro-Biotech's equipment and facilities are recently manufactured and designed
to meet the international standards for pharmaceutical research and development
activities. The Company has established Good Laboratory Practices ("GLPs") and
standard operating procedures ("SOPs"). The Company's offices and laboratories
are located in Sainte-Foy, Quebec. Neuro-Biotech occupies approximately 11,000
square feet of leased floor space in a building dedicated to the biotechnology
industry. The lease expires on June 30, 2004. As of July 31, 1999, the Company
acknowledged owing the landlord $741,554 for rent, utilities and leasehold
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improvements. On September 24, 1999, the Company entered into an agreement with
the landlord in which $200,000 was payable at the signing of the agreement, and
$541,554 was payable in five equal annual installments of $108,311 until June 1,
2004.
The Company owns a full complement of equipment used in all aspects of its
research and development, including the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
EQUIPMENT APPROXIMATE VALUE
-------------------------------------------------------------------------------------------------
<S> <C>
Analytical chromatographical systems (8-10) $1,100,000
-------------------------------------------------------------------------------------------------
Automated clinical workstation (1) $105,000
-------------------------------------------------------------------------------------------------
Protein purification system (1) $75,000
-------------------------------------------------------------------------------------------------
Multiparameter system for cell separation (1) $320,000
-------------------------------------------------------------------------------------------------
Centrifugation apparatus (2) $200,000
-------------------------------------------------------------------------------------------------
Other equipment $400,000
-------------------------------------------------------------------------------------------------
TOTAL $2,200,000
-------------------------------------------------------------------------------------------------
</TABLE>
The Company leases its laboratory equipment from Hewlett Packard (Canada) Ltd.
under a capital lease expiring in August 2003. The lease balance at fiscal year
end 1999 was $1,361,641. The lease is repayable in monthly installments of
$31,060 including interest at 9.25%. Hewlett Packard (Canada) Ltd. has been
chosen as Neuro-Biotech's major supplier, as the Company believes it offers the
most sensitive analytical equipment as well as the related integrated software
systems.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings involving Neuro-Biotech or any of its
assets.
ITEM 4. CONTROL OF REGISTRANT
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of July 28, 2000 by each person who,
to the knowledge of the Company, beneficially owned more than 10% of the common
stock.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
NUMBER OF COMMON SHARES OWNED OR PERCENTAGE OF OUTSTANDING
NAME OF PERSON OR GROUP CONTROLLED AS OF THE EFFECTIVE DATE COMMON SHARES
<S> <C> <C>
-------------------------------------------------------------------------------------------------
Dr. Andree G. Roberge 7,000,000 26.92%
-------------------------------------------------------------------------------------------------
CDS & Co. (1) 16,207300 62.32%
-------------------------------------------------------------------------------------------------
Directors and Officers as a
group (7 people, including Dr. Roberge) 10,812,078 (2) 41.57%
-------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
(1) CDS & Co. is a depository/intermediary. The identity of the beneficial
shareholders of these securities is not known to the Company.
(2) Includes stock options and warrants to acquire an aggregate of 2,574,745
common shares.
ITEM 5. NATURE OF TRADING MARKET
The common shares are listed and posted for trading over the counter on the
Canadian Dealing Network ("CDN") under the stock symbol "NBIO" since April 27,
1998. The following table sets forth the high and low closing bid prices on the
CDN and the volume of common shares traded for each fiscal quarter for the
period indicated. All financial figures are expressed in Canadian Dollars.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
FISCAL PERIOD HIGH ($) LOW ($) VOLUME
-------- ------- ------
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------------
YEAR ENDING NOVEMBER 30, 2000
-------------------------------------------------------------------------------------------------------
Second Quarter 2.60 0.75 6,660,800
-------------------------------------------------------------------------------------------------------
First Quarter 2.45 0.53 11,254,627
-------------------------------------------------------------------------------------------------------
YEAR ENDING NOVEMBER 30, 1999
-------------------------------------------------------------------------------------------------------
Fourth Quarter 0.80 0.32 3,745,915
-------------------------------------------------------------------------------------------------------
Third Quarter 0.70 0.37 1,886,101
-------------------------------------------------------------------------------------------------------
Second Quarter 0.55 0.32 1,590,290
-------------------------------------------------------------------------------------------------------
First Quarter 0.45 0.20 1,240,698
-------------------------------------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, 1998
-------------------------------------------------------------------------------------------------------
Fourth Quarter 0.28 0.15 638,807
-------------------------------------------------------------------------------------------------------
Third Quarter 0.60 0.22 1,866,984
-------------------------------------------------------------------------------------------------------
Second Quarter 0.95 0.40 2,731,436
-------------------------------------------------------------------------------------------------------
</TABLE>
On July 28, 2000, the closing bid price of the common shares on the CDN was
$0.50 per share.
To the best of the Company's knowledge, as of July 28, 2000, 321,286 common
shares were held by 17 registered holders in the United States. The common
shares currently are not listed for trading on any securities exchange in the
United States. The common shares are not registered to trade in the United
States in the form of American Depository Receipts or similar certificates.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the export or import of capital, or affecting the remittance of
interest, dividends or other payments by
27
<PAGE>
the Company to non-residents. Dividends paid to United States residents,
however, are subject to a 15% withholding tax or a 5% withholding tax for
dividends if the shareholder is a corporation owning at least 10% of the
outstanding voting shares of the corporation pursuant to Article X of the
reciprocal tax treaty between Canada and the United States. See "Item 7 -
Taxation".
Except as provided in the Investment Canada Act (the "Act"), which has
provisions that restrict the holding of voting shares by non-Canadians, there
are no limitations specific to the rights of non-Canadians to hold or vote the
common shares under the laws of Canada or the Province of Ontario, or in the
charter documents of the Company.
Management of the Company believes that the following general summary fairly
describes those provisions of the Act pertinent to an investment in the Company
by a person who is not a Canadian resident (a "non-Canadian").
The Act requires a non-Canadian making an investment which would result in the
acquisition of control of a Canadian business, the gross value of the assets of
which exceed certain threshold identify, to either notify, or file an
application for review with, Investment Canada, the federal agency created by
the Act.
The notification procedure involves a brief statement of information about the
investment on a prescribed form which is required to be filed with Investment
Canada by the investor at any time up to 30 days following implementation of the
investment. It is intended that investments requiring only notification will
proceed without government intervention unless the investment is in a specific
type of business activity related to Canada's cultural heritage and national
identity.
If an investment is reviewable under the Act, an application for review in the
form prescribed is normally required to be filed with Investment Canada prior to
the investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investment is likely to be of net benefit to Canada. If the
Minister is not satisfied that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been implemented, may be required to divest himself of control of the
business that is the subject of the investment.
The following investments by non-Canadians are subject to notification under the
Act:
1. An investment to establish a new Canadian business; and
2. An investment to acquire control of a Canadian business that is not
reviewable pursuant to the Act.
The following investments by a non-Canadian are subject to review under the Act:
1. Direct acquisitions of control of Canadian businesses with assets of
$5 million or more, unless the acquisition is being made by a World
Trade Organization
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<PAGE>
("WTO") member country investor (the United States being a member of
the WTO);
2. Direct acquisitions of control of Canadian businesses with assets of
$160 million or more by a WTO investor;
3. Indirect acquisitions of control of Canadian businesses with assets of
$5 million or more if such assets represent more than 50% of the total
value of the assets of the entities the control of which is being
acquired, unless the acquisition is being made by a WTO investor, in
which case there is no review;
4. Indirect acquisitions of control of Canadian businesses with assets of
$50 million or more even if such assets represent less than 50% of the
total value of the assets of the entities the control of which is
being acquired, unless the acquisition is being made by a WTO
investor, in which case there is no review; and
5. An investment subject to notification that would not otherwise be
reviewable if the Canadian business engages in the activity of
publication, distribution or sale of books, magazines, periodicals,
newspapers, film or video recordings, audio or video music recordings,
or music in print or machine-readable form.
Generally speaking, an acquisition is direct if it involves the acquisition of
control of the Canadian business or of its direct or indirect Canadian parent
and an acquisition is indirect if it involves the acquisition of control of a
non-Canadian direct or indirect parent of an entity carrying on the Canadian
business. Control may be acquired through the acquisition of substantially all
of the assets of the Canadian business. No change of voting control will be
deemed to have occurred if less than one-third of the voting control of a
Canadian corporation is acquired by an investor.
A WTO investor, as defined in the Act, includes an individual who is a national
or a member country of the WTO or who has the right of permanent residence in
relation to that WTO member, a government or government agency of a WTO
investor-controlled corporation, limited partnership, trust or joint venture
that is neither WTO-investor controlled or Canadian controlled of which
two-thirds of its board of directors, general partners or trustees, as the case
may be, are any combination of Canadians and WTO investors.
The higher thresholds for WTO investors do not apply if the Canadian business
engages in activities in certain sectors such as uranium, financial services
(except insurance), transportation services or media activities.
The Act specifically exempts certain transactions from either notification or
review. Included among this category of transactions is the acquisition of
voting shares or other voting interests by any person in the ordinary course of
that person's business as a trader or dealer in securities.
ITEM 7. TAXATION
CANADIAN TAXATION ISSUES
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<PAGE>
The following is a summary of the principal Canadian federal income tax
considerations generally applicable in respect of the common shares. The tax
consequences to any particular holders of common shares will vary according to
the status of that holder as an individual, trust, corporation or member of a
partnership, the jurisdiction in which that holder is subject to taxation, the
place where that holder is resident and, generally, according to that holder's
particular circumstances.
This summary is applicable only to holders who are resident in the United
States, have never been resident in Canada, hold their common shares as capital
assets and will not use or hold the common shares in carrying on business in
Canada.
The following general discussion in respect of taxation is based upon the
Company's understanding of the rules. No opinion was requested by the Company or
provided by its auditors and lawyers.
Generally, dividends paid by Canadian corporations to non-resident shareholders
are subject to a withholding tax of 25% of the gross amount of such dividends.
However, Article X of the tax treaty between Canada and the United States
reduces to 15% the withholding tax on the gross amount of dividends paid to
residents of the United States. A further reduction in the withholding tax rate
on the gross amount of dividends to 5% for dividends paid in 1997 and thereafter
where a United States corporation owns at least 10% of the voting stock of the
Canadian corporation paying the dividends.
A non-resident who holds common shares as a capital asset will not be subject to
taxes on capital gains realized on the disposition of such common shares unless
such common shares are "taxable Canadian property" within the meaning of the
Income Tax Act (Canada) and no relief is afforded under any applicable tax
treaty. The common shares would be taxable Canadian property of a non-resident
if, at any time during the five year period immediately preceding a disposition
by the non-resident of such common shares not less than 25% of the issued shares
of any class of the Company belonged to the non-resident, the person with whom
the non-resident did not deal at arm's length, or to the non-resident and any
person with whom the non-resident did not deal at arm's length. Article XIII of
the tax treaty between Canada and the United States provides relief from
Canadian tax on capital gains from the sale of common shares which are "taxable
Canadian property" unless the person who disposes of the common shares:
a) was resident in Canada for 120 months in the 20 years preceding the
disposition;
b) was resident in Canada at any time in the 10 years preceding the
disposition; and
c) the common shares were owned at the time the person ceased to be
resident in Canada.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain United States federal income
tax consequences that may apply to a "U.S. Holder" (as defined below) of common
shares. This discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), the
30
<PAGE>
Treasury Department regulations promulgated thereunder (the "Regulations"),
published Internal Revenue Service ("IRS") rulings, published administrative
positions of the IRS, and court decisions that are currently applicable, any or
all of which could materially and adversely change at any time, possibly on a
retroactive basis. In addition, the discussion does not consider the potential
effects, both adverse and beneficial, of any proposed legislation which, if
enacted, could be applied at any time, possibly on a retroactive basis. The
following discussion is not intended to be, nor should it be construed to be,
legal or tax advice to any holder or prospective holder of common shares. No
opinion was requested by the Company, or is provided by its lawyers and/or
auditors, with respect to the United States federal income tax consequences
described in the following discussion. Accordingly, holders and prospective
holders of common shares should consult their own tax advisors about the United
States federal, state, local and foreign tax consequences of purchasing, owning,
and disposing of common shares.
U.S. HOLDERS
As used herein, a "U.S. Holder" includes a holder of common shares who is a
citizen or resident of the United States, a corporation or partnership created
or organized in or under the laws of the United States or of any political
subdivision thereof, certain defined trusts and estates, and any other person or
entity whose ownership of common shares is effectively connected with the
conduct of a trade or business in the United States. A U.S. Holder does not
include persons subject to special provisions of Federal income tax law, such as
tax-exempt organizations, qualified retirement plans, financial institutions,
insurance companies, real estate investment trusts, regulated investment
companies, broker-dealers, non-resident alien individuals or foreign
corporations whose ownership of common shares is not effectively connected with
the conduct of a trade or business in the United States and shareholders who
acquired their stock through the exercise of employee stock options or otherwise
as compensation.
DISTRIBUTIONS ON COMMON SHARES
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to common shares are required to include in gross income for United
States federal income tax purposes the gross amount of such distributions to the
extent that the Company has current or accumulated earnings and profits, without
reduction for any Canadian income tax withheld from such distributions. Such
Canadian tax withheld may be credited, subject to certain limitations, against
the U.S. Holder's United States federal income tax liability or, alternatively,
may be deducted in computing the U.S. Holder's United States federal taxable
income by those who itemize deductions. (See the detailed discussion at "Foreign
Tax Credit" below). To the extent that distributions exceed current or
accumulated earnings and profits of the Company, they will be treated first as a
return of capital up to the U.S. Holder's adjusted basis in the common shares
(and not subject to tax) and thereafter as gain from the sale or exchange of the
common shares (which is taxable as capital gains). Preferential tax rates for
long-term capital gains may apply to certain U.S. Holders who satisfy minimum
holding period and other requirements. There are currently no preferential tax
rates for long-term capital gains for a U.S. Holder that is a corporation.
31
<PAGE>
Dividends paid on the common shares generally will not be eligible for the
dividends-received deduction available to corporations receiving dividends from
certain United States corporations. A U.S. Holder which is a corporation may,
under certain circumstances, be entitled to a 70% deduction of the United States
source portion of dividends received from the Company (unless the Company
qualifies as a "foreign personal holding company" or a "passive foreign
investment company," as defined below) if such U.S. Holder owns shares
representing at least 10% of the voting power and value of the Company. The
availability of this deduction is subject to several complex limitations which
are beyond the scope of this discussion.
FOREIGN TAX CREDIT
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of common shares of the Company may be entitled,
at the option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Furthermore, a US Holder which is a domestic
corporation may claim a deemed paid foreign tax credit based on the underlying
income taxes of the Company.
Generally, it will be more advantageous to claim a credit because a credit
reduces United States federal income taxes on a dollar-for-dollar basis, while a
deduction merely reduces the taxpayer's income subject to tax. This election is
made on a year-by-year basis and applies to all foreign income taxes (or taxes
in lieu of income tax) paid by (or withheld from) the U.S. Holder during the
year. There are significant and complex limitations which apply to the credit,
among which is the general limitation that the credit cannot exceed the
proportionate share of the U.S. Holder's United States federal income tax
liability that the U.S. Holder's foreign source income bears to his/her or its
worldwide taxable income. In the determination of the application of this
limitation, the various items of income and deduction must be allocated to
foreign and domestic sources. Complex rules govern this allocation process.
There are further limitations on the foreign tax credit for certain types of
income such as "passive income," "high withholding tax interest," "financial
services income," "shipping income," and certain other classifications of
income. The availability of the foreign tax credit, the deemed paid foreign tax
credit, and the application of the limitations on the credit are fact-specific
and holders and prospective holders of common shares should consult their own
tax advisors regarding their individual circumstances.
DISPOSITION OF COMMON SHARES
A U.S. Holder will recognize gain or loss upon the sale of common shares equal
to the difference, if any, between (i) the amount of cash plus the fair market
value of any property received, and (ii) the shareholder's tax basis in the
common shares. This gain or loss will be capital gain or loss if the common
shares are a capital asset in the hands of the U.S. Holder, which will be a
short-term or long-term capital gain or loss depending upon the holding period
of the U.S. Holder. Gains and losses are netted and combined according to
special rules in arriving at the overall capital gain or loss for a particular
tax year. Deductions for net capital losses are subject to significant
limitations. For U.S. Holders who are individuals, any unused portion of such
net capital loss may be carried over to be used in later tax years until such
net capital loss is thereby exhausted. For U.S. Holders that are corporations
(other than corporations subject to Subchapter S of the Code), an unused net
capital loss may be carried back three years from the loss year and carried
forward five years from the
32
<PAGE>
loss year to be offset against capital gains until such net capital loss is
thereby exhausted.
OTHER CONSIDERATIONS
In the following four circumstances, the above sections of the discussion may
not describe the United States federal income tax consequences resulting from
the holding and disposition of common shares of the Company. However, on the
basis of (a) the number of shareholders of its common shares, (b) the majority
ownership of its shares by Canadian and other non-U.S. residents, and (c) the
fact that the majority of its assets are actively managed (not passively held),
the Company believes that it is neither a "Foreign Personal Holding Company,"
"Foreign Investment Company," "Passive Foreign Investment Company," nor a
"Controlled Foreign Company."
FOREIGN PERSONAL HOLDING COMPANY
If at any time during a taxable year more than fifty percent (50%) of the total
combined voting power or the total value of the Company's outstanding shares is
owned, actually or constructively, by five or fewer individuals who are citizens
or residents of the United States, and sixty percent (60%) or more of the
Company's gross income for such year was derived from certain passive sources
(e.g. from dividends received from its subsidiaries), the Company would be
treated as a "foreign personal holding company" for United States federal income
tax purposes. In that event, U.S. Holders that hold common shares would be
required to include in gross income for such year their allowable portions of
such passive income to the extent the Company does not actually distribute such
income.
FOREIGN INVESTMENT COMPANY
If fifty percent (50%) or more of the combined voting power or total value of
the Company's outstanding shares is held, actually or constructively, by
citizens or residents of the United States, United States domestic partnerships
or corporations, or estates or trusts (as defined by Code Section 7701(a)(30)),
and the Company is found to be engaged primarily in the business of investing,
reinvesting, or trading in securities, commodities, or any interest therein, it
is possible that the Company might be treated as a "foreign investment company"
as defined in Section 1246 of the Code, causing all or part of any gain realized
by a U.S. Holder selling or exchanging common shares to be treated as ordinary
income rather than capital gains.
PASSIVE FOREIGN INVESTMENT COMPANY
As a foreign corporation with U.S. Holders, the Company could potentially be
treated as a passive foreign investment company ("PFIC"), as defined in Section
1297 of the Code, depending upon the percentage of the Company's income which is
passive, or the percentage of the Company's assets which are held for the
purpose of producing passive income.
The rules governing PFICs can have significant tax effects on U.S. shareholders
of foreign corporations. Section 1297(a) of the Code defines a PFIC as a
corporation that is not formed in the United States and, for any taxable year,
ither (i) seventy-five percent (75%) or more of its
33
<PAGE>
gross income is "passive income", which includes interest, dividends and certain
rents and royalties or (ii) the average percentage, by fair market value (or, if
the company is a controlled foreign corporation or makes an election, by
adjusted tax basis), of its assets that produce or are held for the production
of "passive income" is fifty percent (50%) or more. The taxation of a U.S.
shareholder who owns stock in a PFIC is extremely complex and is therefore
beyond the scope of this discussion. U.S. persons should consult with their own
tax advisors with regard to the impact of these rules.
CONTROLLED FOREIGN COMPANY
If more than fifty percent (50%) of the voting power of all classes of stock or
the total value of the stock of the Company is owned, directly or indirectly, by
citizens or residents of the United States, United States domestic partnerships
and corporations or estates or trusts other than foreign estates or trusts, each
of whom own 10% or more of the total combined voting power of all classes of
stock of the Company or the total value of the stock of the Company ("United
States shareholders"), the Company could be treated as a controlled foreign
corporation under Subpart F of the Code.
This classification would trigger the application of many complex results
including the required inclusion by such United States shareholders in income of
their pro rata share of "Subpart F income" (as specifically defined by the Code)
of the Company and the Company's earnings invested in U.S. property. In
addition, regardless of the classification of the Company as a Controlled
Foreign Corporation under Section 1248 of the Code, gain from the sale or
exchange of common shares by a U.S. person who is or was a United States
shareholder (as defined above) at any time during the five-year period ending
with the sale or exchange is treated as ordinary dividend income to the extent
of earnings and profits of the Company attributable to the stock sold or
exchanged. Because of the complexity of Subpart F and Section 1248, and because
it is not clear that the Company is a controlled foreign corporation, a more
detailed review of these rules is outside of the scope of this discussion.
ITEM 8. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with the Financial Statements and Notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial data included elsewhere in this Registration Statement. The
consolidated statements of income and deficit for the years ended December 31,
1997, 1998 and the eleven months ended November 30, 1999 and the balance sheet
data at December 31, 1998 and November 30, 1999, are derived from audited
consolidated financial statements included elsewhere in this Registration
Statement. The balance sheet data at December 31, 1997 is derived from audited
consolidated financial statements not appearing elsewhere in this Registration
Statement. The consolidated statements of income and deficit for the three
months ended February 29, 2000 and March 31, 1999 are derived from unaudited
financial statements included elsewhere in this Registration Statement. The
Company's audited consolidated financial statements are prepared in Canadian
generally accepted accounting principles which vary in certain respects from
United States generally accepted accounting principles. In the case of the years
ended November 30, 1999 and
34
<PAGE>
December 31, 1998, the financial statements have been audited by Arthur
Andersen, and in the case of the year ended December 31, 1997, the financial
statements have been audited by Ernst & Young. See Note 16 to the financial
statements for a discussion of the significant differences between Canadian and
U.S. generally accepted accounting principles as they apply to the Company for
the periods presented therein. Historical results are not necessarily indicative
of future results and the results for interim periods are not necessarily
indicative of results to be expected for the entire year.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
--------------------------------------------- ---------------------------
NOVEMBER 30, DECEMBER 31, DECEMBER 31, FEBRUARY 29, MARCH 31,
1999 1998 1997 2000 1999
------------- ------------ ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
INCOME LOSS AND DEFICIT
Total revenue -- -- 90,000 434,400 --
Net loss from period (2,145,720) (2,898,662) (454,035) (104,586) (532,055)
Per share (0.09) (0.18) (0.03) N/A N/A
BALANCE SHEET DATA (AT PERIOD END)
Total assets 5,594,821 5,781,311 2,264,490 N/A N/A
Total long-term debt 4,242,102 (1) 3,947,091 (1) 608,384 N/A N/A
U.S. GAAP RECONCILED AMOUNTS
Net loss for period (2,133,970) (2,609,366) N/A N/A N/A
Per share (0.11) (0.18) N/A N/A N/A
</TABLE>
(1) Includes capital lease obligations of $899,709 at November 30, 1999
and $1,023,032 at December 1998 as more fully described in Note 7 to
the financial statements.
ITEM 9. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH "SELECTED CONSOLIDATED FINANCIAL
DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS REGISTRATION STATEMENT. THIS DISCUSSION AND ANALYSIS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS.
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT
LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
REGISTRATION STATEMENT.
35
<PAGE>
GENERAL
Neuro-Biotech is a Canadian biotechnology company engaged primarily in the
research, development and commercialization of non-invasive, in vitro diagnostic
kits for use in early detection and prevention of stress-related and
neuroscience-based diseases. The kits are designed for use by physicians during
routine examinations as a screening device for determining at-risk patients and
as a follow-up after initial drug therapy. The kits require only a finger-prick
blood sample to identify abnormal blood readings that were previously
undetectable.
In 1999, SymPath-TM- became the Company's first diagnostic kit to receive
Canadian, United States and international patent recognition, and it is
currently Neuro-Biotech's only diagnostic kit in commercial production.
Neuro-Biotech has obtained a Medical Device License from the HPB which
authorizes the Company to manufacture and distribute SymPath-TM- within Canada
and the countries that recognize HPB regulations. The Company is in the process
of filing applications with the United States Food and Drug Administration.
Neuro-Biotech believes that SymPath-TM- is the only quantitative, reliable
diagnostic test available to biochemically and clinically measure an
individual's stress level. SymPath-TM- allows physicians to use a simple blood
sample to diagnose such stress-related diseases as hypertension, anxiety,
depression, burn-out, panic syndrome and chronic fatigue syndrome. In December
1999, the Company entered into its largest contract for the distribution of
SymPath-TM-. The agreement calls for the distribution of 575,000 SymPath-TM-
kits throughout the Middle East, and is expected to generate revenues of
approximately $3.4 million (US$2.3 million). In February 2000, 75,000
SymPath-TM- kits were distributed pursuant to such agreement at US$4.00 per kit.
The US$4.00 price per kit is guaranteed if the remaining 500,000 tests are
delivered before February 15, 2001. The Company plans on using SymPath-TM-
revenues to fund the commercialization of two additional diagnostic kits in
fiscal year 2001. These two kits, NB-S297 and NB-S397, are based on the same
technological platform as SymPath-TM- and, subject to approval of regulatory
authorities, will be targeted for the global market, subject to capital
availability and other resources. The Company also hopes to research and develop
prescription and natural drugs for use in the treatment of stress-related and
neuroscience-based diseases and to utilize its state-of-the-art facilities to
offer worldwide clinical services and to develop a diagnostic clinical reference
library. Capital restraints have recently curtailed these activities.
The scientific basis for Neuro-Biotech's products is applied neuroscience
enzymology. The Company has expertise in understanding the neurochemical
interactions between the nervous system, the endocrine system and the immune
system. Following a stressful event, these three systems work together to
protect the body by releasing various chemicals through the HPAS axis. These
chemicals help the body restore homeostasis, or normal human functioning, thus
enabling the body to maintain or restore initial physiologic and biochemical
balances after a stressful event. Neuro-Biotech has characterized and quantified
a specific selection of these chemicals and has developed diagnostic methods to
detect them in the blood. The Company's diagnostic kits are designed to provide
a quick and accurate tool to quantifiably measure stress and its effects by
identifying abnormal blood readings and measuring specific neurochemical levels.
36
<PAGE>
During fiscal year 1999, the Company changed its fiscal year-end from December
31 to November 30 to coincide with its operating subsidiary, Neuro-Biotech Inc.
Although fiscal year 1999 is presented in an eleven-month period, it includes
twelve months of operations for Neuro-Biotech Inc., the Company's operating
subsidiary. While the Company was in existence for less than one month in fiscal
year 1997, for comparison purposes, the fiscal year 1997 financial statements
include twelve months of operations of Neuro-Biotech Inc.
RESULTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, 1999 ("FISCAL 1999"), DECEMBER 31, 1998 ("FISCAL 1998")
AND DECEMBER 31, 1997 ("FISCAL 1997")
REVENUES. Neuro-Biotech began commercialization of its first diagnostic kit in
December 1999, and, therefore, the Company did not realize revenues from product
sales during Fiscal 1999, 1998 or 1997. The $90,000 of revenues realized in 1997
resulted from research services performed by Neuro-Biotech Inc. for a third
party.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$1,149,885 in Fiscal 1999, $1,143,741 in Fiscal 1998 and $163,538 in Fiscal
1997. These expenses principally reflect product development efforts and support
for various ongoing clinical trials involving, principally, SymPath-TM- as well
as the Company's other projected diagnostic products.
MARKETING EXPENSES. Marketing expenses were $312,399 in 1999, $124,144 in 1998
and $206,733 in 1997. These expenses reflect marketing efforts for
SymPath-TM- and expenses relating to the Company's initial market assessment
activities. The 1999 increase from 1998 is due to the formation of a separate
marketing department in the first quarter of 1999. The marketing department was
comprised of three employees and was active through the first half of 1999. In
June 1999, the marketing department was terminated due to capital restraints.
The 1998 decrease from 1997 is due to various market assessment projects
performed by Ernst & Young (Toronto) during Fiscal 1997 and costs relating
to the formation of the Company's business plan.
ADMINISTRATIVE EXPENSES. Administrative expenses were $555,585 in 1999,
$1,581,893 in 1998 and $127,671 in 1997. The 1999 decrease from 1998 is due to
the following: (i) in 1998 the Company incurred fee and charges of approximately
$500,000 relating to financing; (ii) in 1999 the Company sub-contracted various
financing and accounting services resulting in a savings of approximately
$150,000 in 1999; (iii) 1998 professional fees were approximately $100,000
higher compared to 1999; and (iv) the Company implemented various other cost
containing efforts in 1999.
FINANCIAL EXPENSES. Financial expenses represent the net difference between
interest revenue and interest expense. Financial expenses were $168,851 in 1999,
$98,884 in 1998 and nil in 1997. These expenses principally reflect fees related
to borrowings. The increase in 1999 from 1998 is due to the cost of servicing
debt for a full year compared to 1998.
37
<PAGE>
THREE MONTHS ENDED FEBRUARY 29, 2000 ("FIRST QUARTER 2000"), MARCH 31, 1999
("FIRST QUARTER 1999")
REVENUES. The $434,400 of revenues during the First Quarter 2000 reflect the
Company's first sales of SymPath-TM-. An initial order of 75,000 SymPath-TM-
kits was shipped to the Middle East in February 2000. The Company did not
realize revenues during the First Quarter 1999.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$193,996 during the First Quarter 2000, $293,813 during the First Quarter 1999.
These expenses principally reflect product development efforts and support for
various ongoing clinical trials involving, principally, SymPath-TM- as well as
the Company's other projected diagnostic products.
MARKETING EXPENSES. Marketing expenses were $10,783 during the First Quarter
2000 and $93,009 during the First Quarter 1999. These expenses principally
reflect marketing efforts for SymPath-TM-. The First Quarter 2000 decrease is
due to various cost containing efforts implemented during the second half of
Fiscal Year 1999.
ADMINISTRATIVE EXPENSES. Administrative expenses were $173,126 during the First
Quarter 2000 and $141,674 during the First Quarter 1999.
FINANCIAL EXPENSES. During the First Quarter 2000 the Company had net interest
revenue of $12,189 compared to net interest expense of $3,559 during the First
Quarter 1999. The net interest revenue in the First Quarter 2000 is due to
decreases in interest expense relating to the Company's financing.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments were $651,057 as
of November 30, 1999, compared to $105,000 as of December 31, 1998 and $703,315
in 1997. The increase from 1998 is due to proceeds remaining from a private
placement completed in Fiscal 1999. The cash used for operating activities in
Fiscal 1999 was $1.2 million compared to $2.1 million in Fiscal 1998. The
decrease in cash used for operating activities from 1998 was primarily due to
lower spending in all areas as a result of the Company's capital restraints. The
cash used for operating activities in the First Quarter 2000 was $446,113
compared to $591,882 in the First Quarter 1999.
Historically, the Company has met its working capital requirements through
financing transactions involving the private placement of equity securities or
equity equivalents. During 1999, the Company completed private placements of
common shares and common share purchase warrants, yielding net proceeds of
approximately $2.8 million. Also, after year-end, the Company received cash
considerations of approximately $1.6 million through the exercise of warrants
and options.
The Company's capital and operating requirements may change depending upon
various factors, including: (i) whether the Company and its strategic partners
achieve success in manufacturing,
38
<PAGE>
marketing and commercialization of its products; (ii) the amount of resources
which the Company devotes to clinical evaluations and the expansion of marketing
and sales capabilities; and (iii) competitive and technological developments.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to implement its planned product development efforts,
including research and development, clinical studies and regulatory activities,
and to further its marketing and sales programs. The Company expects that its
existing capital resources as of November 30, 1999 will be adequate to fund the
Company's operations through Fiscal 2000. No assurances can be given that
the Company will not consume a significant amount of its available resources
before that time. In addition, the Company expects that it will have additional
requirements for debt or equity capital, irrespective of whether and when it
reaches profitability, for further development of products, product and
technology acquisition costs, and working capital.
The Company has curtailed operations to meet existing capital constraints. At
these reduced levels of operations, the Company's monthly operating loss is
approximately $125,000 to $150,000. The Company will not be able to achieve its
business plan without additional personnel and capital resources. Management
estimates that if properly funded, achievement of the Company's business plan
would entail a current monthly operating loss of $225,000 to $300,000 over a
period of 24 months until the Company could reasonably expect cash flow from
operations to sustain required levels of activity and a projected capital
requirement of $15,000,000.
The Company's future capital requirements and the adequacy of available funds
will depend on numerous factors, including the successful commercialization of
its products, progress in its product development efforts, magnitude and scope
of such efforts, progress with clinical trials, progress with regulatory affairs
activities, the costs of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights, competing technological and
market developments, and the expansion of strategic alliances for the sales,
marketing, manufacturing and distribution of its products. Since the Company
currently has very limited available funds and revenues are insufficient to meet
current or planned operating requirements, the Company must obtain additional
funds through equity or debt financing, strategic alliances with corporate
partners and others, or through other sources. There can be no assurance that
the financing commitments described above or other financial alternatives will
be available when needed or at terms commercially acceptable to the Company or
that the Company would have adequate authorized unissued shares available for
issuance without stockholder approval. If adequate funds are not available, the
Company may be required to delay, further scale back or eliminate certain
aspects of its operations or attempt to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates, products or potential
markets. If adequate funds are not available, the Company's business, financial
condition and results of operations will be materially and adversely affected.
39
<PAGE>
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Neuro-Biotech's operating results are reported in Canadian dollars. It is
expected that the majority of the Company's revenues will be generated in
foreign currencies, including a significant portion in U.S. dollars, while the
Company's expenses will be generated in Canadian dollars. The exchange rate
between the Canadian dollar and foreign currencies has generally varied
significantly over the past five years. To the extent that foreign currency
revenues are greater than expenses in a strengthening foreign currency
environment, there will be a positive impact on Neuro-Biotech's income from
operations. Conversely, if foreign currency revenues are greater than foreign
currency expenses in a weakening foreign currency environment, there will be a
negative impact on the Company's income from operations. This exchange rate
risk, on an annual basis, primarily reflects the impact of fluctuating exchange
rates on the net difference between total foreign currency revenues and foreign
currency expenses.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
The names and positions with the Company of each director and executive officer
are:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
NAME POSITION(S) DATE ELECTED OR APPOINTED
---------------------- ----------------------------------- ------------------------------------
<S> <C> <C>
Dr. Andree G. Roberge Chair of the Board December 1997
of Directors
Albert Barbusci Director, President and Chief Director: February 1999. President
Executive Officer and Chief Executive Officer: August
1999
Daniel Bourgeois Director, Secretary Director and Secretary: August 1998
Morden C. Lazarus Non-executive Director December 1997
David H. Wolk Non-executive Director December 1997
Dane Bedward Non-executive Director August 1998
Anthony Barbusci Acting Vice President - Finance and June 1999
Chief Financial Officer
</TABLE>
The Company's directors are elected by shareholders at each annual meeting or,
in the event of a vacancy, appointed by the Board of Directors then in office to
serve until the next annual meeting or until their successors are duly elected
and qualified. The Company's executive officers are appointed by the Board of
Directors and serve at the discretion of the Board of Directors.
40
<PAGE>
Anthony Barbusci is the acting Vice President - Finance and Chief Financial
Officer of the Company, and he is the brother of Albert Barbusci, a director and
the President and Chief Executive Officer of the Company.
PROFILES OF DIRECTORS AND EXECUTIVE OFFICERS
The following are profiles of the directors and executive officers, including
their principal occupations during the five years prior to the date hereof.
MR. ALBERT BARBUSCI -- DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mr. Barbusci has been for the past five (5) years and currently is the owner and
Chairman of the marketing firm of Cadence Communications Inc. In 1991 he founded
Events International Meeting Planners Inc. ("EIMP"), a professional services
conference organizer. From 1991 to 1998 Mr. Barbusci served as President of
EIMP. Currently and since 1998 he has served as the Vice Chairman of EIMP. From
1995 to 1999, Mr. Barbusci served as the Chief Executive Officer of
Dentsu-Cadence Canada Inc.
DR. ANDREE G. ROBERGE -- CHAIR OF BOARD OF DIRECTORS
From 1989-1994, Dr. Roberge was General Director and Scientific Director of the
Armand Frappier Institute. From 1994-1997, she was Director of the Health Center
of the Institute National de la Recherche Scientifique. Since 1997, Dr. Roberge
has been and currently is President and CEO of Neuro-Biotech Inc, the Company's
wholly-owned operating subsidiary.
MORDEN C. LAZARUS -- DIRECTOR
Currently and for the past 34 years, Mr. Lazarus has been a practicing solicitor
in Quebec. He is currently a senior partner at Lazarus, Charbonneau, a
Quebec-based law firm. Since December 1998, Mr. Lazarus has been and currently
is Chairman of ISee3D Corporation. Since June 1999, Mr. Lazarus has been and
currently is a director of Eiger Technologies Inc., and since November 1999, he
has been and currently is a director of United Tote Canada Inc.
DAVID H. WOLK -- DIRECTOR
Currently, Mr. Wolk is an independent businessman providing private counsel for
financial and investor relations communications to Canadian publicly traded
companies. From 1997 to 1999, he served as Senior Vice President of National
Public Relations Ltd., a company comprising of advanced technology, healthcare,
financial/corporate and consumer products practice groups. From 1993 to 1997,
Mr. Wolk served as Senior Vice President and General Manager of Hill & Knowlton,
Toronto, a communications consulting company.
DANIEL BOURGEOIS -- DIRECTOR AND SECRETARY
Currently and since 1996, Mr. Bourgeois has been a member of the law firm of
Pothier Delisle. He has also held positions as a tax policy officer with both
the Canadian and Quebec governments between 1982 and 1986. Mr. Bougeois has held
several other concurrent posts
41
<PAGE>
including a professor of tax law at Laval University in Quebec City and a
professor of business law at the Bar School Association. He holds a bachelor of
business degree, a bachelor degree in law and a master degree in taxation.
DANE BEDWARD -- DIRECTOR
Currently and since 1998, Mr. Bedward has been the Vice President and General
Manager of Genzyme Corporation Inc. (US); a leading medical and pharmaceutical
company. Prior to that and since 1995, he has held various positions within
Genzyme Canada Inc., including Area Manager and President/Managing Director.
From 1991-1995, he served as Director of International Marketing of MDS Nordion
Inc.
ANTHONY BARBUSCI -- ACTING VICE PRESIDENT - FINANCE AND CHIEF FINANCIAL OFFICER
From 1994 to 1998, Mr. Barbusci was Vice President, Finance and Administration,
of both Cadence Communications Inc. and Events International Meeting Planners
Inc. From 1990 to 1994, Mr. Barbusci was Regional Vice President of Prenor Trust
Company of Canada.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION
The Company has six (6) directors, two (2) of whom are executive officers. The
total cash remuneration, including the reimbursement of expenses, paid or
accrued during Fiscal 1999 to all members of management (all directors,
executive officers and any other key personnel who were employed by the Company
or its subsidiaries or retained on a consulting basis) was $426,795. Pursuant to
a resolution adopted at a Board of Directors' meeting held on February 22, 1999,
directors receive options to purchase 6,250 common shares for each Board of
Directors' meeting that they attend.
The Company has in place a stock option plan, which was approved by the
Company's shareholders at the annual and special meeting of shareholders held on
December 10, 1997 (the "Plan"). The Plan has been established to provide
incentives to qualified parties to increase their proprietary interest in the
Company and thereby encourage their continuing association with the Company. The
Plan is administered by the Directors of the Company. The Plan provides that
options will be issued to employees, directors and other persons or companies
providing management or consulting services to the Company or its subsidiaries.
The maximum number of common shares available under the Plan is 5,000,000.
Options issued pursuant to the Plan have an exercise price as determined by the
Board of Directors of the Company, provided that the exercise price shall not be
less than the price permitted by any stock exchange on which the common shares
are then listed.
As of November 30, 1999 the total options granted and outstanding was 2,167,500.
Subsequent to the year-end, 100,000 common shares were issued upon the exercise
of 100,000 options.
The Company does not have a pension, retirement, or similar plan.
42
<PAGE>
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
STOCK OPTIONS
The following table sets forth details with respect to the outstanding stock
options as of July 28, 2000.
<TABLE>
<CAPTION>
MARKET VALUE OF
NUMBER OF COMMON SECURITIES
SHARES UNDERLYING
EXPIRATION RESERVED EXERCISE OPTIONS ON
OPTIONEE CATEGORY DATE OF GRANT DATE UNDER OPTION PRICE DATE OF GRANT
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------
Directors (of the Company or May 4, 1999 Feb. 22, 2009 131,250 $0.43 $0.43
its subsidiaries) who are not
Executive Officers (4) Nov. 23, 1999 Nov. 23, 2009 443,750 $0.50 $0.50
-------------------------------------------------------------------------------------------------------------------------
Executive Officers (3) May 4, 1999 Feb. 22, 2009 118,750 $0.43 $0.43
July 17, 1999 July 16, 2009 774,750 $0.37 $0.37
Nov. 23, 1999 Nov. 23, 2009 494,000 $0.50 $0.50
-------------------------------------------------------------------------------------------------------------------------
Other Employees of the April 15, 1998 March 23, 2002 31,800 $1.00 $1.00
Company (8)
Feb. 22, 1999 Feb. 21, 2009 75,000 $0.43 $0.43
-------------------------------------------------------------------------------------------------------------------------
Other Persons or Feb. 1, 2000 Feb. 1, 2010 1,740,000 $0.58 $0.58
Corporations
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
WARRANTS
The Company has also issued common stock purchase warrants in connection with
several private placements. The common share purchase warrants outstanding as of
July 28, 200 from these private placements are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
NAME WARRANT GRANT EXPIRATION DATE NUMBER EXERCISE
TYPE DATE OUTSTANDING PRICE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cadence Communications Series B November 30, 1998 November 30, 2000 612,245 $0.75
Inc.(1)
----------------------------------------------------------------------------------------------------------------------
Roytor & Co. Series D August 5, 1998 August 5, 2000 1,000,000 $0.50
----------------------------------------------------------------------------------------------------------------------
Tutimpex Trading Inc. Series E March 7, 1999 March 7, 2001 400,000 $0.40
Multivox Marketing Inc. February 21, 1999 February 21, 2001 50,000 $0.40
----------------------------------------------------------------------------------------------------------------------
Said Mabrouky Series G June 23, 1999 June 23, 2001 500,000 $0.50
Spectral Enterprises Ltd. July 30, 1999 July 30, 2001 1,750,000 $0.50
Keen Sing Industries Ltd. July 30, 1999 July 30, 2001 600,000 $0.50
Y.B. Investments Corp. July 30, 1999 July 30, 2001 1,000,000 $0.50
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Albert Barbusci, director and the President and Chief Executive Officer of
Neuro-Biotech, is also the owner and Chairman of Cadence Communications Inc.
As of July 28, 2000, the directors and officers of the Company and its
subsidiaries collectively held stock options and warrants to acquire an
aggregate of 2,574,745 common shares. This amount includes the 612,245 warrants
owned by Cadence Communications Inc. where Mr. Albert Barbusci is the owner and
Chairman.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
In July 1999, one insider of the Company had a material interest in a
transaction which may be considered material to the Company. Specifically, in
July 1999, the law firm of Lazarus Charbonneau (of which Morden C. Lazarus, a
director of the Company, is a principal) subscribed for an aggregate of 533,333
common shares of the Company for an aggregate subscription price of $240,000. In
consideration for the foregoing issuance, Lazarus Charbonneau agreed to forgive
the Company from the repayment of certain debts owing to Lazarus Charbonneau in
an amount equal to the subscription price.
44
<PAGE>
During Fiscal 1998 and 1999, the Company paid approximately $120,000 to the law
firm of Pothier Delisle for legal services. At the time of the services, Daniel
Bourgeois was a lawyer with Pothier Delisle and a director of Neuro-Biotech.
In November 1998, Cadence Communications Inc. subscribed for an aggregate of
612,245 units of the Company, each unit being comprised of one common share and
one Series B common stock purchase warrant for an aggregate subscription price
of $300,000. Albert Barbusci is the owner and Chairman of Cadence Communications
Inc. At the time of the transaction, Mr. Barbusci was not a director, officer or
employee of Neuro-Biotech; however, he is currently a director and the President
and Chief Executive Officer of the Company. Consideration for the units was paid
by Cadence Communications Inc. in the form of a $100,000 payment and marketing
services rendered to Neuro-Biotech valued at $200,000.
In June 1999, the Company entered into an agreement with Albert Barbusci in
which Mr. Barbusci agreed to facilitate a minimum initial financing of
$2,000,000 for the Company through various private placements in exchange for:
(1) 1,000,000 stock options to be issued to Mr. Barbusci; (2) Mr. Barbusci to be
named President-Elect and Chief Operating Officer; (3) Mr. Barbusci to be given
sole responsibility for all financial matters, marketing and administration of
the business of Neuro-Biotech Corporation and Neuro-Biotech Inc., including
being the sole signatory of the bank account of both accounts; (4) 200,000
options to be issued to his brother, Anthony Barbusci; (5) Anthony Barbusci to
be appointed acting Vice President - Finance and Chief Financial Officer of the
Company.
45
<PAGE>
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Neuro-Biotech's authorized capital is comprised of an unlimited number of common
shares of which 26,006,533 common shares are currently issued and outstanding
and 5,000,000 are reserved for issuance under the Company's stock option plan.
(See Item 12 "Options to Purchase Securities from Registrant or Subsidiaries.")
Holders of common shares are entitled to receive notice of, and to attend and
vote at, all meetings of the shareholders of the Company. Each share carries one
vote at any meeting. Hence, holders of a majority of common shares can elect all
directors of the Company and other shareholders would not be able to elect any
other director.
Holders of common shares are entitled to dividends as and when declared by the
directors, and upon liquidation, to receive such assets of the Company as may be
distributable to such holders. The common shares have no preemptive rights and
are not convertible into any other security. There is no sinking fund applicable
to the common shares and the holders are not subject to assessment by
Neuro-Biotech.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
AND USE OF PROCEEDS
Not applicable.
ITEM 17. FINANCIAL STATEMENTS
See "Financial Statement" beginning on page F-1.
ITEM 18. FINANCIAL STATEMENTS
Not applicable.
46
<PAGE>
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) Index to Financial Statements of Neuro-Biotech Corporation
<TABLE>
<CAPTION>
<S> <C>
Arthur Andersen report on the consolidated financial statements for F-2
1999 and 1998 and the notes to consolidated financial statements
Ernst & Young report on the consolidated statements of income and F-4
deficit and cash flows for the year ended December 31, 1997
Consolidated balance sheets at November 30, 1999 and December 31, 1998 F-5
Consolidated income and deficit for the eleven months ended November F-7
30, 1999, the years ended December 31, 1998 and 1997, and the unaudited
three month periods ended February 29, 2000 and March 31, 1999.
Consolidated cash flows for the eleven months ended November 30, F-8
1999, the years ended December 31, 1998 and 1997, and the unaudited
three month periods ended February 29, 2000 and March 31, 1999.
Notes to consolidated financial statements F-9
Consent of Arthur Andersen for 1999 and 1998 financial statements F-26
Consent of Ernst & Young for 1997 financial statements F-27
</TABLE>
(b) Exhibits
<TABLE>
<CAPTION>
<S> <C>
1(1) Articles of Incorporation - Penstar Wirecom, Ltd. (1)
1(2) Bylaws - Penstar Wirecom, Ltd. (1)
1(3) Articles of Amalgamation - Penstar Wirecom, Ltd. (1)
1(4) Articles of Amendment - Penstar Wirecom, Ltd. (Name Change to
Neuro-Biotech Corporation) (1)
2(1) Stock Option Plan (1)
2(2) Form of Stock Option Agreement (1)
2(3) Form of Warrant Certificate (1)
3(1) Intellectual Property Purchase Agreement between Neuro-Biotech (1)
Inc. and Laval University (original French version)
3(2) Intellectual Property Purchase Agreement between Neuro-Biotech (1)
Inc. and Laval University (English translation)
3(3) Premises Lease Agreement between Neuro-Biotech Corporation and (1)
SITQ Bureaux Inc. (original French version)
3(4) English Summary of Premises Lease Agreement between (1)
Neuro-Biotech Corporation and SITQ Bureaux Inc.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3(5) Laboratory Equipment Lease Agreement between Neuro-Biotech (1)
Corporation and Hewlett Packard
3(6) Distribution Agreement by and between Neuro-Biotech (1)
Corporation and Tutimpex Trading Inc.
3(7) Form of Loyalty and Confidential Disclosure Agreement (1)
3(8) Form of Service Agreement (1)
</TABLE>
48
<PAGE>
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, as
amended, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereto duly authorized.
NEURO-BIOTECH CORPORATION
Date: August 1, 2000 By: /s/ Albert Barbusci
-------------------------------
Albert Barbusci
President and Chief Executive Officer
49
<PAGE>
NEURO-BIOTECH CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Arthur Andersen report on the consolidated financial statements for 1999 and F-2
1998 and the notes to consolidated financial statements
Ernst & Young report on the consolidated statements of income and deficit and F-4
cash flows for the year ended December 31, 1997
Consolidated balance sheets at November 30, 1999 and December 31, 1998 F-5
Consolidated income and deficit for the eleven months ended November 30, F-7
1999, the years ended December 31, 1998 and 1997, and the unaudited three
month periods ended February 29, 2000 and March 31, 1999
Consolidated cash flows for the eleven months ended November 30, 1999, F-8
the years ended December 31, 1998 and 1997, and the unaudited three month
periods ended February 29, 2000 and March 31, 1999
Notes to consolidated financial statements F-9
Consent of Arthur Andersen for 1999 and 1998 financial statements F-26
Consent of Ernst & Young for 1997 financial statements F-27
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Neuro-Biotech Corporation
We have audited the consolidated balance sheet of NEURO-BIOTECH CORPORATION as
at November 30, 1999 and December 31, 1998 and the consolidated statements of
income and deficit and cash flows for the periods of eleven and twelve months
then ended. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at November 30,
1999 and December 31, 1998 and the results of its operations and its cash flows
for the periods of eleven and twelve months then ended in accordance with
Canadian generally accepted accounting principles.
Canadian generally accepted accounting principals vary in certain significant
respects from accounting principles generally in the United States of America.
Application of accounting principles generally accepted in the United States of
America would have affected the consolidated shareholders' equity (deficiency)
as at November 30, 1999 and December 31, 1998, and the consolidated net loss for
each of the two periods then ended to the extent summarized in Note 16 to the
consolidated financial statements.
The comparative figures shown as at December 31, 1997 were reported on by other
auditors.
Arthur Anderson & Cie
General Partnership
Chartered Accountants
Quebec City, Canada
March 2, 2000
F-2
<PAGE>
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING DIFFERENCES
In the United States of America, reporting standards for auditors require the
addition of an explanatory paragraph (following the opinion paragraph) when the
financial statements are affected by conditions and events that cast substantial
doubt on the company's ability to continue as a going concern, such as those
described in Note to the consolidated financial statements. Our report to the
Directors dated March 2, 2000 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditors' report when these are adequately disclosed in the financial
statements.
Arthur Anderson & Cie
General Partnership
Chartered Accountants
Quebec City, Canada
March 2, 2000
F-3
<PAGE>
AUDITORS' REPORT
To the Directors of
Neuro-Biotech Corporation:
We have audited the consolidated balance sheet of Neuro-Biotech Corporation as
at December 31, 1997 and the consolidated statements of loss and deficit and
cash flows for the eleven-month period then ended. These financial statements
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at December 31,
1997 and the results of its operations and its cash flows for the eleven-month
period then ended in accordance with accounting principles generally accepted in
Canada.
Quebec, Canada Ernst & Young, L.P.
March 18, 1998 Chartered Accountants
F-4
<PAGE>
<TABLE>
<CAPTION>
NEURO-BIOTECH CORPORATION
----------------------------------------------------------------------------------------------------------------------
NOVEMBER 30, DECEMBER 31,
CONSOLIDATED BALANCE SHEET 1999 1998
$ CAN $ CAN
==========================================================================================================================
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 80,137 $ -
Term deposit, 4.3%, due December 3, 1999 570,920 105,000
Sale taxes credits receivable 29,491 55,209
Income taxes - 50,000
Research and development tax credits (Note 3) 521,000 809,329
Laboratory materials and supplies 187,216 207,253
Prepaid expenses 39,478 19,924
-------------------- --------------------
1,428,242 1,246,715
INVESTMENTS (Note 4) 2,303,025 2,170,497
CAPITAL ASSETS (Note 5) 1,423,054 1,819,449
OTHER ASSETS (Note 6) 440,500 544,650
-------------------- --------------------
$5,594,821 $5,781,311
==========================================================================================================================
</TABLE>
ON BEHALF OF THE BOARD
(signed) Albert Barbusci
...................................................., Director
(signed) Dr Andree G. Roberge
...................................................., Director
F-5
<PAGE>
<TABLE>
<CAPTION>
NEURO-BIOTECH CORPORATION
-------------------------------------------------------------------------------
NOVEMBER 30, DECEMBER 31,
1999 1998
======================================================================================================================
LIABILITIES
CURRENT LIABILITIES
<S> <C> <C>
Bank overdraft $ - $ 95,962
Accounts payable and accrued charges 588,740 1,136,568
Current portion of obligation under capital lease
(Note 7) 276,840 265,158
Current portion of long-term debt (Note 8) 108,311 -
----------------- ------------------
973,891 1,497,688
OBLIGATION UNDER A CAPITAL LEASE (Note 7)
899,709 1,023,032
LONG-TERM DEBT (Note 8) 3,342,393 2,924,059
----------------- ------------------
5,215,993 5,444,779
----------------------------------------------------------------------------------------------------------------------
ADVANCES FOR CAPITAL STOCK SUBSCRIPTIONS - 624,977
----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Capital stock (Note 9) 6,026,745 3,213,752
Accumulated deficit $(5,647,917) (3,502,197)
------------------ ------------------
378,828 (288,445)
----------------------------------------------------------------------------------------------------------------------
$5,594,821 $5,781,311
======================================================================================================================
</TABLE>
COMMITMENTS (Note 10)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
NEURO-BIOTECH CORPORATION
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
November 30, December 31, December 31,
(UNAUDITED) 1999 1998 1997
CONSOLIDATED INCOME AND DEFICIT February 29, March 31, (11 months) (12 months) (12 months)
For the period ended 2000 1999 $ CAN $ CAN $ CAN
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES $434,000 $ - $ - $ - $ 90,000
COST OF CLINICAL SERVICES $158,000 $ - $ - $ - 46,093
----------------------------------------------------------------------------
276,334 $ - - - 43,907
OPERATING EXPENSES
Research and development 193,996 293,813 1,149,885 1,143,741 163,538
Marketing 10,783 93,009 312,399 124,144 206,733
Royalties 15,204 - - - -
Administrative 173,126 141,674 555,585 1,581,893 127,671
Financial (12,189) 3,559 168,851 98,884 -
----------------------------------------------------------------------------
2,186,720 2,948,662 497,942
LOSS BEFORE INCOME TAXES 104,586 532,055 2,186,720 2,948,662 454,035
INCOME TAX CREDIT - - (41,000) (50,000) -
----------------------------------------------------------------------------
NET LOSS 104,586 532,055 2,145,720 2,898,662 454,035
DEFICIT, BEGINNING OF YEAR 5,647,917 3,502,197 3,502,197 603,535 -
SHARE ISSUE EXPENSES - - - - 149,500
----------------------------------------------------------------------------
DEFICIT, END OF YEAR 5,752,503 4,034,252 $5,647,917 $3,502,197 $603,535
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
<PAGE>
<TABLE>
<CAPTION>
NEURO-BIOTECH CORPORATION
--------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED CASH FLOWS (UNAUDITED) November 30, December 31, December 31,
For the period ended February 29, March 31, 1999 1998 1997
2000 1999 (11 months) (12 months) (2 months)
$ CAN $ CAN $ CAN
================================================================================================================================
OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net Loss (104,586) (532,055) $(2,145,720) $(2,898,662) $(454,035)
Items not affecting cash:
Amortization of capital assets 109,308 113,409 454,159 294,795 19,460
Amortization of other assets 23,100 23,100 104,150 312,396 -
Accrued interest on investments (33,132) (33,132) (132,528) (33,132) -
Charges settled by capital stock - - 88,533 449,977 -
issuance
----------------------------------------------------------------------------
(5,310) (423,678) (1,631,406) (1,874,626) (434,575)
Net change in non-cash working capital items (440,803) (163,204) 358,256 (192,678) 187,531
----------------------------------------------------------------------------
(446,113) (591,882) (1,273,150) (2,067,304) (247,044)
--------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of investments - - - (2,137,365) -
Acquisition of capital assets (50,420) - (57,764) (390,204) (202,996)
----------------------------------------------------------------------------
(50,420) - (57,764) (2,527,569) (202,996)
--------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Changes in bank overdraft - - (85,572) 85,572 -
Changes in term deposit - - 105,000 - (105,000)
Issuance of capital stock, net of issue 561,300 750,000 2,099,483 1,575,601 100
costs
Issuance of subsidiary capital stock, net
of issue costs - - - - 1,371,051
Advances for capital stock subscriptions - - - 175,000 -
Proceeds from issuance of long-term notes,
net of issue costs - - - 2,338,000 -
Repayment of obligation under capital lease (66,871) (62,156) (111,641) (252,314) -
Due to a director - - (14,909) 64,309 59,750
Other - - - - (277,546)
----------------------------------------------------------------------------
494,429 687,844 1,992,361 3,986,168 1,048,355
--------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS INCREASE (DECREASE) (2,104) 95,962 661,447 (608,705) 598,315
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 651,057 9,038 (10,390) 598,315 -
CASH AND CASH EQUIVALENTS,
END OF YEAR
648,953 105,000 $651,057 $(10,390) $598,315
================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-8
<PAGE>
NEURO-BIOTECH CORPORATION
-------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
November 30, 1999
-------------------------------------------------------------------------------
1. STATUTES OF INCORPORATION AND NATURE OF ACTIVITIES
Neuro-Biotech Corporation (the "Corporation) is incorporated under the
laws of the province of Ontario. During the year, the Corporation
changed its fiscal year-end from December 31 to November 30 to
harmonize with its operating subsidiary. Therefore, although the
current year is presented as an eleven-month period, it includes, as
last year, twelve months of operations for this subsidiary which
represents almost all of the Corporation's income.
The Corporation is a biotechnology corporation involved in applied
neuroscience enzymology. Its goals are to research, develop and
commercialize new reliable tools for early diagnosis, natural
prescription drugs for therapeutic use and clinical laboratory
services. The Corporation plans to continue its commercialization and
research and development activities throughout 2000.
The operations of the Corporation are subject to all the risks inherent
in the establishment and maintenance of a developing biotechnology
enterprise; in particular, the successful completion of its research
and development activities, commercialization of its products and
obtaining its required financing.
However, these financial statements have been prepared in accordance
with Canadian accounting principles that apply to a going concern. This
presupposes that the Corporation will continue its operations in the
foreseeable future and that it will be able to realize its assets and
discharge its liabilities in the normal course of operations.
Subsequent to the year-end, the Corporation, through its wholly-owned
subsidiary, Neuro-Biotech Inc., signed its first major contract
covering the sale of 575,000 SymPath-TM- diagnostic tests to Tutimpex /
Royal Pharma in Egypt. This sale is expected to generate $3.4 million
in gross revenue for fiscal 2000. An initial order of 75,000 tests was
shipped in February 2000.
This important step in commercializing its first product and opening
the Middle East market has encouraged the Corporation to commit
additional funds to accelerate final development and production of its
next two diagnostic kits. Management expects that both will be ready
for commercialization by the end of December 2000.
Also, after year-end, the Corporation issued 2,033,600 common shares,
for cash considerations totaling $1,238,600, through the exercise of
warrants and options as set out in Note 9.
These consolidated financial statements do not reflect adjustments that
would be necessary if the going concern assumption was not appropriate,
because management believes that the
F-9
<PAGE>
events described above combined with other ongoing investment
negotiations will mitigate the effect of the conditions and facts that
raise doubt about the appropriateness of this assumption. 2.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and its two wholly-owned subsidiaries which are:
- Neuro-Biotech Inc., the operating Corporation through which
the research, development and commercialization activities are
carried;
- 1246895 Ontario Inc., which have no commercial activities of
its own and which assets consists primarily of advances to
Neuro-Biotech Inc. and to Neuro-Biotech Corporation.
All significant intercompany transactions and balances have been
eliminated upon consolidation.
USE OF ESTIMATES
The presentation of financial statements in accordance with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingencies 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.
LABORATORY MATERIALS AND SUPPLIES
Laboratory materials and supplies are valued at lower of cost and
replacement cost, the cost being determined using the first in, first
out basis.
GOVERNMENT ASSISTANCE
Government assistance is recorded in the year the Corporation becomes
eligible for receipt thereof. Assistance related to fixed assets is
recorded as a reduction of the related fixed assets whereas assistance
related to expenses is recorded as a reduction of the related expenses.
CAPITAL ASSETS
Capital assets are recorded at cost, that is, for assets under capital
lease, the present value of minimum lease payments over the lease term
and are amortized over their estimated useful lives using the
straight-line method, as follows:
F-10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Office furniture and equipment 20 %
Laboratory equipment 20 %
Computer equipment 30 %
Leasehold improvements 20 %
</TABLE>
Patents will be amortized over their useful life starting in the period
when revenues are recognized in connection with the underlying products
and technologies.
LONG-TERM NOTES ISSUE EXPENSES
Long-term debt issue expenses are amortized using the straight-line
method over a five-year period, representing the term of debt under the
"Immigrant Investor" loan program and the related investments.
Amortization is accounted for as financial expenses in the statement of
income.
GOODWILL
Goodwill, which represents the excess purchase price over the fair
value of the underlying net assets of acquired subsidiaries, is
amortized over ten years using the straight-line method.
3. RESEARCH AND DEVELOPMENT TAX CREDITS
Research and development tax credits were claimed in tax returns not
yet reviewed by the taxation authorities. In case of differences
between the amounts claimed by the Corporation and the amounts granted
by the tax authorities, the resulting adjustments will be recorded in
the year when the differences are determined.
<TABLE>
<CAPTION>
4. INVESTMENTS NOVEMBER 30, DECEMBER 31,
1999 1998
-------------------------------------------
<S> <C> <C>
Term notes, General Motors Acceptance Corporation of Canada
Limited, 5.85 %, maturing August 6, 2003 $2,303,025 $2,170,497
The investments serve as collateral for the note payable (Note 8)
issued in 1998, under Quebec's Government ((Immigrant Investor)) loan
program. Fees paid by the Corporation are accounted for as other
assets, which are amortized throughout the life of the investments.
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
5. CAPITAL ASSETS NOVEMBER 30, DECEMBER 31,
1999 1998
---------------------------------- --------------------------------
COST CUMULATED NET NET
AMORTIZATION VALUE VALUE
$ CAN $ CAN $ CAN $ CAN
--------------- ------------------ ---------------- ---------------
<S> <C> <C> <C> <C>
Office furniture and equipment $ 75,700 $ 28,991 $ 46,709 $ 61,841
Laboratory equipment 115,921 36,113 79,808 103,154
Computer equipment 56,131 335,949 20,182 38,890
Leasehold improvements 167,323 41,830 125,493 158,961
Fixed assets under capital lease
Laboratory equipment 1,872,134 616,893 1,255,241 1,556,845
Computer equipment 187,574 113,476 74,098 130,370
2,474,783 873,252 1,601,531 2,050,061
Investment tax credits (297,655) (104,838) (192,817) (244,393)
2,177,128 768,414 1,408,714 1,805,668
Intangible
Patents 14,340 - 14,340 13,781
--------------- ------------------ ---------------- ---------------
$2,191,468 $768,414 $1,423,054 $1,819,449
<CAPTION>
6. OTHER ASSETS NOVEMBER 30, DECEMBER 31,
1999 1998
$ CAN $ CAN
---------------------- -------------------
<S> <C> <C>
Long-term notes issue expenses $346,500 $438,900
Goodwill 94,000 105,750
---------------------- -------------------
$440,500 $544,650
</TABLE>
F-12
<PAGE>
7. OBLIGATION UNDER CAPITAL LEASE
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1999 1998
$ CAN $ CAN
---------------------- -------------------
<S> <C> <C>
Capital lease contract, repayable in monthly installments of $31,060
including interest calculated at a rate of 9.25%,
maturing in August 2003 $1,361,641 $1,574,232
Interest included in the installments 185,092 286,042
---------------------- -------------------
1,176,549 1,288,190
Current portion 276,840 265,158
---------------------- -------------------
$899,709 $1,023,032
</TABLE>
Minimum lease payments under the capital lease contract for the next
four years are as follows:
2000 - $372,721
2001 - $372,721
2002 - $372,721
2003 - $243,478
F-13
<PAGE>
<TABLE>
<CAPTION>
8. LONG-TERM DEBT NOVEMBER 30, DECEMBER 31,
1999 1998
$ CAN $ CAN
---------------------- -------------------
<S> <C> <C>
Notes payable, issued under the Quebec's government ((Immigrant
Investor)) loan program, secured by an hypothec without delivery on the
investments in term notes (Note 4), bearing interest at an average rate
of 0.1224%, maturing and payable August 6, 2003 $2,800,000 $2,800,000
Loan, repayable in yearly principal installments of $108,311,
without interest, maturing June 1, 2004 541,554 -
Advances form a director, without interest or repayment terms 109,150 124,059
---------------------- -------------------
3,450,704 2,924,059
Current portion 108,311 -
---------------------- -------------------
$3,342,393 $2,924,059
9. CAPITAL STOCK
Authorized
Unlimited number of common shares, without par value
NUMBER OF AMOUNT OF
Issued SHARES CAPITAL STOCK
---------------------- -------------------
<S> <C> <C>
Balance at December 31, 1998 16,030,485 $3,213,752
Issuance for cash considerations 6,035,692 2,274,483
Issuance as payment of accounts payable 1,188,006 538,510
---------------------- -------------------
Balance at November 30, 1999 23,254,183 $6,026,745
ISSUANCE OF CAPITAL STOCK - ADDITIONAL INFORMATION
Capital stock issued during the year for cash considerations comprises
204,082 Units, composed of 204,082 common shares and an equal number of
Series B common share
F-14
<PAGE>
purchase warrants, issued to a company subject to the influence of one
of the Corporation's Director for $100,000.
Capital stock issued during the year as payment for accounts payable
comprises 408,163 Units, composed of 408,163 common shares and an equal
number of Series B common share purchase warrants, and 533,333 common
shares issued to entities subject to the influence of Corporation's
Directors for $439,990.
Capital stock issued during the year as payment for accounts payable
comprises an amount of $22,575 representing the accrued salary expense
in connection with the Corporation's commitment to pay 50 % of the
exercise price of 105,000 stock purchase options granted during the
year to employees for past services. No shares have been issued at
November 30, 1999.
The other issuances of common shares for considerations totaling
$2,250,428 comprise 1,500,000 Series E common share purchase warrants
and 4,500,000 Series G common share purchase warrants.
STOCK OPTION PLAN
In 1997, the shareholders approved the creation of a stock option plan,
under which the Board of Directors may grant options to employees,
directors and any other persons or companies providing management or
consulting services to the corporation and its subsidiaries. The
maximum number of shares available under this plan was limited to 10 %
of the issued capital stock.
During the year the plan was amended to increase the number of stock
options and related reserved shares to 5,000,000 and the following
options were granted under the plan:
- 250,000 options to purchase common shares at $0.43 per share
until February 22, 2009 and 612,500 options to purchase common
shares at $0.50 per share until November 23, 2009 have been
granted in favor of the Corporation's directors;
- 574,750 options to purchase common shares at $0.37 per share
until July 16, 2009 and 425,250 options to purchase common
shares at $0.50 per share until November 23, 2009 in favor of
the President and Chief Executive Officer;
- 200,000 options to purchase common shares at $ 0.37 per share
until July 16, 2009 in favor of the Corporation's Acting
Vice-president Finance and Chief Financial Officer;
- 105,000 options to purchase common shares at $ 0.43 per share
until February 22, 2009 in favor of employees upon a
resolution to issue 15,000 of such options to each management
employees who has more than one year experience with the
company, the share being paid 50 % by the employee and 50 % by
the Corporation.
The following table summarizes information about options granted under
the plan at November 30, 1999:
F-15
<PAGE>
NUMBER OF
EXERCISE PRICE OPTIONS
------------------------ -----------------------
Options granted and outstanding
<S> <C> <C>
Expiring February 22, 2009 $.043 355,000
Expiring July 16, 2009 $0.37 774,750
Expiring November 23, 2009 $0.50 1,037,750
--------------
2,167,500
Granted and exercised in prior year 94,500
Total number granted under the plan 2,262,000
Less: Total number available under the plan 5,000,000
Total number available for grant 2,738,000
</TABLE>
In addition to the options granted during the year, the Board of
Directors resolved to reserve 500,000 options available to be granted
to members of a Biotech Advisory Board that it is intended to form.
WARRANTS
At November 30, 1999, there are outstanding warrants providing their
holders the right to purchase an aggregate number of 9,433,943 common
shares.
The following table summarizes information about warrants outstanding
at November 30, 1999:
F-16
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
EXERCISE PRICE WARRANTS
------------------------ ----------------------
<S> <C> <C>
Series A Warrants, expiring April 15, 2000 $1.00 750,000
Series B Warrants, expiring July 10, 2000 $0.75 300,000
Series B Warrants, expiring, August 24, 2000 $0.75 300,000
Series B Warrants, expiring, November 30, 2000 $0.75 612,245
Series C Warrants, expiring, July 20, 2000 $0.78 471,698
Series D Warrants, expiring, August 5, 2000 $0.50 1,000,000
Series E Warrants, expiring, March 7, 2001 $0.40 1,000,000
Series E Warrants, expiring, February 21, 2001 $0.40 500,000
Series G Warrants, expiring, June 23, 2001 $0.50 500,000
Series G Warrants, expiring, July 30, 2001 $0.50 4,000,000
----------------------
Outstanding at November 30, 1999 9,433,943
</TABLE>
SUBSEQUENT TRANSACTIONS
Subsequent to the year-end, the following transactions occurred:
- 233,600 common shares have been issued upon exercise of
233,600 Series A Warrants, expiring April 15, 2000, at $ 1.00;
- 600,000 common shares have been issued upon exercise of
600,000 Series B Warrants, expiring July 10, 2000, at $ 0.75;
- 450,000 common shares have been issued upon exercise of
450,000 Series E Warrants, expiring February 21, 2001, at $
0.40;
- 650,000 common shares have been issued upon exercise of
650,000 Series G Warrants, expiring July 30, 2001, at $ 0.50;
- 100,000 common shares have been issued upon exercise of
100,000 options, expiring November 23, 2009, at $ 0.50.
10. COMMITMENTS
The Corporation is committed under license agreements to pay Universite
Laval royalties of 3.5 % on the sale of diagnostic kits for a total of
$ 3,000,000 in royalties.
The Corporation is committed under an agreement to pay CREDEQ
professional fees of 2 % on its sales for a total of $ 52,000 in fees.
The Company has lease commitments expiring from August 2000 to June
2004 for office space and equipment rental. The balance of such
commitments is $ 1,237,101 at November 30, 1999. Minimum lease payments
payable over the next five years are as follows:
F-17
<PAGE>
2000 - $276,421
2001 - $285,235
2002 - $297,150
2003 - $242,608
2004 - $135,687
11. ADDITIONAL INFORMATION ON THE STATEMENTS OF CASH FLOWS
Cash flows related to operating activities include net interest
disbursements of $30,330 (1998 - $70,517; 1997 - $0) and income tax
credit receipt for $50,000 (1998 and 1997 - $0).
Cash and cash equivalent consist of cash, term deposit free of
encumbrances with an initial term of less than three months and bank
overdraft representing outstanding cheques. Bank overdraft representing
credit facilities is not included in cash and cash equivalent. Cash and
cash equivalent at year-end comprise the following items:
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31, DECEMBER 31, 1997
1999 1998
---------------------- -------------------- ------------------
<S> <C> <C> <C>
Cash $80,137 $ - $598,315
Outstanding cheques - (10,390) -
Term deposit 570,920 - -
$651,057 $(10,390) $598,315
12. TAX BENEFITS AVAILABLE
The Corporation has accumulated losses for tax purposes for future
years amounting to $3,847,000 at the federal level and $ 1,839,000 at
the provincial level which can be applied against future taxable income
as follows:
FEDERAL PROVINCIAL
----------------------- -----------------------
<S> <C> <C>
2004 $ 64,000 $ 56,000
2005 $2,314,000 $ 334,000
2006 $1,469,000 $1,449,000
Temporary differences which would have given rise to future income
taxes asset amount to $649,000.
</TABLE>
The balance of scientific research expenses deductible for tax purposes
for future years amounts to $2,958,000 at the federal level and $
3,602,000 at the provincial level and can be applied against future
taxable income indefinitely.
The balance of scientific research tax credits that can be applied
against future income taxes at the federal level amounts to $420,000
expiring as follows:
2007 - $151,000
F-18
<PAGE>
2008 - $255,000
2009 - $ 14,000
No future income tax assets relating to the above items has been
accounted for.
13. RELATED PARTY TRANSACTIONS
During the period, the Corporation paid salary and fringe benefits
totaling $165,852 to a director (1998 - $172,716 to directors).
14. FINANCIAL INSTRUMENTS' FAIR VALUE
For financial instruments such as cash, term deposit, accounts
receivable, bank overdraft and accounts payable the carrying values are
equivalent to their fair values, because of the short-term maturity of
these financial instruments.
The fair value of the investments in term notes have not been
determined because the Corporation must keep these investments until
their maturing dates as a guarantee for the repayment of the notes
issued under the Quebec's government ((Immigrant Investor)) loan
program. Also, the fair value of such notes payable has not been
determined as its repayment is fully covered by the value of the
investments given as securities at their maturing date.
For the obligation under capital lease, the carrying value is
equivalent to its fair value because the interest rate of such contract
is equivalent to the interest rate on similar contract that the
Corporation might have contracted at the balance sheet date.
15. COMPARATIVE FIGURES FOR THE PRIOR YEAR
Certain comparative figures have been reclassified to conform with the
presentation used in the current year.
16. SUMMARY OF DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("US GAAP")
The Corporation's financial statements are prepared in accordance with
Canadian GAAP, which differ in certain significant respects from US
GAAP. The significant differences that have a material impact on the
Corporation's financial statements relate principally to the following
items and the adjustments necessary to reconcile the consolidated net
loss and shareholders' equity (deficiency) with US GAAP are shown in
the schedules below.
a) GOODWILL
In 1997, goodwill was recognised for an amount of $117,500 as a result
of the application of the Canadian GAAP related to reverse acquisition
transactions accounted for using the purchase method. Under US GAAP,
because the reverse acquisition took place between a private operating
company and a public shell company the transaction would have been
treated as a capital transaction and no goodwill would have been
recorded. Therefore the Canadian and US GAAP reconciliation of
shareholders' equity (deficiency) schedules
F-19
<PAGE>
include adjustments, representing the net book value of the goodwill,
of $94,000 and $105,750 shown respectively as reductions of 1999 and
1998 total assets and shareholders' equity.
The statements of income under Canadian GAAP include amortization
expenses of goodwill of $11,750 in both 1999 and 1998 periods. The
Canadian and US GAAP reconciliation of income schedule includes
adjustments of $11,750 to each of these years' income to write off the
amortization expenses.
b) DEFERRED CHARGES
At December 31, 1997 deferred charges amounting to $277,546 met the
capitalization criteria under Canadian GAAP and consequently were
included in the total asset at that date. In 1998 the Corporation's
management determined the criteria were no longer met and the total
amount was written-off in 1998. Under US GAAP, these costs would have
been expensed in 1997. This difference in GAAP does not have any impact
shareholders' equity at November 30, 1999 and December 31, 1998.
c) ADVANCES FOR CAPITAL STOCK SUBSCRIPTION
Under US GAAP, these advances would have been accounted for as equity.
The Canadian and US GAAP reconciliation of shareholders' equity
(deficiency) schedule include an adjustment to that effect.
d) INTEREST FREE LOAN
Amounts of loan and advances accounted for under Canadian GAAP
typically represent the amount of principal due under the terms of the
underlying agreements without consideration of any differences between
the effective interest rate and the market rate. Under US GAAP, debt
should be stated at present value at inception. The interest free loan
consists of a long-term payment agreement of operating expenses. Since
this payable restructuring was done in connection with a new lease, the
gain amounting to $ 114,740 under US GAAP, is deemed an incentive to
sign the new lease and would be deferred and amortized over the term of
the new lease. The difference between the nominal value of the interest
free loan shown under Canadian GAAP and its present value has been
determined using the Canadian prime rate at year-end plus 2 %. The
Canadian and US GAAP reconciliation schedules do not include any
adjustment thereof because amortization of the deferred incentive would
be compensated by an accrued interest charge on the debt which would
result in the same net consolidated loss and shareholders' equity
(deficiency), to all material respects, as reported under Canadian
GAAP.
F-20
<PAGE>
e) ADVANCES FROM A DIRECTOR
The advances from a director without interest has been determined to
have a present value equal to its nominal value because no repayment
terms exist. Under US GAAP, these advances would have been presented as
current liabilities on the balance sheets.
f) STOCK OPTION PLAN
The Corporation has elected to measure its stock-based awards using the
intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB No.
125"). Under this method, any compensation expense, measured as the
excess, if any, of the quoted market price of the Company's shares at
the dated of the grant over the option's exercise price, would have to
be reflected over the vesting periods of these options. Generally, the
Corporation's options are granted at an exercise price equal to the
fair market value on the date of the grant and the options plan is
fixed. Therefore for those options, the application of APB No. 25 does
not result in the recognition of compensation expense. In instances
where the options are granted at an exercise price equal to the fair
value on the date of the grant but for which the Corporation is
committed to pay 50 % of the exercise price, a compensation expense
representing the exercise price to be assumed by the Corporation has
been recognized for Canadian GAAP purposes. Since the options vest
immediately upon granting, the application of APB No. 25, for US GAAP
purposes, results in the same amount of compensation expense as that
recognized for Canadian GAAP purposes.
g) SHARE ISSUE EXPENSES
The amount of share issue expenses accounted to the deficit in 1997
would have been deducted, under US GAAP, from the amount credited to
capital stock in connection with the related shares.
h) DEVELOPMENT STAGE ENTERPRISE
The Corporation is a development stage enterprise as defined in the
Statement of Financial Accounting Standards No. 7 "Accounting and
Reporting for Development Stage Enterprises" ("SFAS No. 7"). On the
balance sheets, the amount of deficit shown in the primary financial
statements in conjunction with the effect of the adjustments to US GAAP
herewith presented would have been described, under SFAS No. 7, as
"Deficit accumulated during the development stage". Under SFAS No. 7,
the income statements must show the amounts of revenues and expenses
for each period covered and, in addition, cumulative amounts from the
enterprise's inception. Because the statements of income presented show
all of the Corporation's revenues and expenses since the beginning of
its operations, no additional disclosure is deemed necessary to comply
with SFAS No. 7. Finally, SFAS No. 7 requires the presentation of a
statement of stockholders' equity showing specific information about
issuance of capital stock from
F-21
<PAGE>
<TABLE>
<CAPTION>
the enterprise's inception. The following schedule shows the additional
information required: NUMBER OF AMOUNT OF
SHARES CAPITAL STOCK
-------------------- -------------------
<S> <C> <C>
Deemed common shares issued for cash considerations
(Neuro-Biotech Inc. common shares) 1,000 $ 100
Subdivision of the shares on the basis of 10,000 shares for each
existing share 9,999,000 -
----------------------------------------
Deemed outstanding prior to the reverse acquisition
(corresponding to the number of Neuro-Biotech Corporation common
shares issued for the reverse acquisition) 10,000,000 100
Outstanding common shares of Neuro-Biotech Corporation (formerly
Penstar Wirecom, Ltd.) deemed to be issued in the acquisition 942,072 1
Shares issued for the acquisition of 1246895 Ontario Inc. 2,172,215 1,371,051
----------------------------------------
BALANCE AT DECEMBER 31, 1997 UNDER US GAAP 13,114,287 $1,371,152
Issuance of common shares for cash considerations upon exercising
of 94,500 stock options 94,500 75,600
Issuance of Units, for cash considerations, comprising 750,000 common
shares and an equal number of Series A Warrants 750,000 600,000
Issuance of Units, for cash considerations, comprising 600,000 common
shares and an equal number of Series B Warrants 600,000 300,000
Issuance of Units, for cash considerations, comprising 471,698 common
shares and an equal number of Series C Warrants 471,6989 250,000
Issuance of Units, for cash considerations, comprising 1,000,000 common
shares and an equal number of Series D Warrants 1,000,000 350,000
-------------------- -------------------
BALANCE AT DECEMBER 31, 1998 UNDER US GAAP 16,030,485 2,946,752
Issuance of Units, for cash considerations, comprising 1,000,000 common
shares and an equal number of Series E Warrants 1,000,000 300,000
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Issuance of Units, for considerations of $99,483 in cash and $50,517 as
payment of accounts payable, comprising 500,000 common shares and an
equal number of Series E Warrants 500,000 150,000
Issuance of Units, for considerations of $100,000 in cash and 612,245 300,000
$200,000 as payment of accounts payable, comprising 612,245
common shares and an equal number of Series B Warrants
Issuance of Units, for cash considerations, comprising 500,000 500,000 175,000
common shares and an equal number of Series G Warrants
Issuance of 533,333 common shares as payment of accounts payable 533,333 239,990
Issuance of Units, for cash considerations, comprising 4,000,000 4,000,000 1,600,000
common shares and an equal number of Series G Warrants
Issuance of 78,120 common shares as payment of accounts payable 78,120 25,428
Accrued salary expense in connection with the grant of stock - 22,575
options (see item f) above)
BALANCE AT NOVEMBER 30, 1999 UNDER US GAAP 23,254,183 $5,759,745
------------------------------------------------------------------- -------------------- -------------------
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
i) SUMMARY OF THE EFFECT ON INCOME OF THE DIFFERENCES BETWEEN CANADIAN
AND US GAAP
PERIOD ENDED
-------------------- --------------------
NOVEMBER 30, DECEMBER 31,
1999 1998
(11 MONTHS) (12 MONTHS)
$ CAN $ CAN
-------------------- --------------------
Ref.
-----------
<S> <C> <C>
Net loss under Canadian GAAP $(2,145,720) $(2,898,662)
Write off of goodwill 16(a) 11,750 11,750
Write off of deferred charges in 1997 instead
of 1998 16(b) - 277,546
-------------------- --------------------
Net loss under US GAAP $(2,133,970) $(2,609,366)
Basic loss per share under US GAAP $(0.1072) $(0.1791)
Diluted loss per share under US GAAP $(0.1072) $(0.1791)
* : Common stock equivalents have been disregarded for purposes of
computing diluted loss per share as their effects would be
antidilutive.
j) SUMMARY OF THE EFFECT ON SHAREHOLDERS' EQUITY (DEFICIENCY) OF THE
DIFFERENCE BETWEEN CANADIAN AND US GAAP
PERIOD ENDED
-------------------- --------------------
NOVEMBER 30, DECEMBER 31,
1999 1998
$ CAN $ CAN
-------------------- --------------------
Ref.
-----------
Total shareholders' equity (deficiency) under
<S> <C> <C>
Canadian GAAP $378,288 $(288,445)
Write off of goodwill 16(a) (94,000) (105,750)
Reclassification of the advances for capital
stock subscriptions 16(c) - 624,977
-------------------- --------------------
Total shareholders' equity under US GAAP
284,288 $230,782
</TABLE>
F-24
<PAGE>
k) Statement of cash flows
The cash flows reported in the primary statements of cash flows
prepared under Canadian GAAP comply in all material respects to
International Accounting Standard No. 7.
F-25
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated March 2, 2000, with respect to the consolidated
balance sheets of Neuro-Biotech Corporation as at November 30, 1999 and December
31, 1998 and the consolidated statements of income and deficit and cash flows
for the periods of eleven and twelve months then ended, referred to in items 8
and 17 of the Registration Statement on Form 20-F. We consent to the use of the
aforementioned report in the Registration Statement on Form 20-F.
Arthur Anderson & Cie
General Partnership
Chartered Accountants
Quebec City, Canada
July 31, 2000
F-26
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated March 18, 1998, with respect to the consolidated
financial statements of Neuro-Biotech Corporation as at and for the eleven-month
period ended December 31, 1997, referred to in items 8 and 17 of the
Registration Statement on Form 20-F. We consent to the use of the aforementioned
report in the Registration Statement on Form 20-F.
Quebec, Canada Ernst & Young, LLP
July 31, 2000 Chartered Accountants
F-27
