As filed with the Securities and Exchange Commission on December 5, 2000
Registration No. 333-45990
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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MEDITECH PHARMACEUTICALS, INC.
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(Name of small business issuer in its charter)
NEVADA 2834 95-3819300
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(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
Number)
10105 E. Via Linda #103, PMB 382
Phoenix, Arizona 85258
(480) 614-2874
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(Address and telephone number of principal executive offices
and principal place of business)
Gerald N. Kern
Chairman and Chief Executive Officer
Meditech Pharmaceuticals, Inc.
10105 E. Via Linda #103, PMB 382,
Phoenix, Arizona 85258
(480) 614-2874
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(Name, address and telephone number of agent for service)
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Copies to:
Mark Ziebell, Esq.
Jeffers, Shaff & Falk, LLP
18881 Von Karman Avenue, Suite 1400
Irvine, California 92612
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Approximate date of proposed sale to the public: From time to time after the
effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
-------------------------- -------------------- -------------------------- ---------------------- ------------------
Title of Each Class of Amount to be Proposed Maximum Offering Proposed Maximum Amount of
Securities to be Registered Price Per Security (1) Aggregate Offering Registration Fee
Registered Price
-------------------------- -------------------- -------------------------- ---------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock, $.00001 52,649,333 (2) $0.253 $13,320,281 $3,516.55
par value
-------------------------- -------------------- -------------------------- ---------------------- ------------------
Common Stock, $.00001 24,466,667 (3) $0.253 $ 6,190,067 $1,634.17
par value
-------------------------- -------------------- -------------------------- ---------------------- ------------------
Total 77,116,000 (4) $0.253 $19,510,348 $5,150.72
-------------------------- -------------------- -------------------------- ---------------------- ------------------
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended
(the "Act"), based on the average of the closing bid and asked prices for
our common stock as reported on the OTC Electronic Bulletin Board on
September 14, 2000.
(2) Includes up to an aggregate of 40,000,000 shares of our common stock
issuable as put shares to Swartz Private Equity, LLC ("Swartz") pursuant to
the Investment Agreement. Also includes 12,649,333 outstanding shares of
our common stock held by other selling shareholders.
(3) Includes (i) 7,000,000 shares of our common stock issuable upon exercise of
a commitment warrant issued to Swartz, (ii) up to 4,000,000 shares of our
common stock issuable upon exercise of purchase warrants that we may issue
to Swartz pursuant to the Investment Agreement, and (iii) 13,466,667 shares
of our common stock issuable upon exercise of options and warrants issued
or committed to be issued to other selling shareholders.
(4) This Registration Statement also covers any additional shares of our common
stock that may become issuable by virtue of the anti-dilution provisions of
the warrants. No additional registration fee is included for these shares.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, Dated December 4, 2000
PROSPECTUS
Meditech Pharmaceuticals, Inc.
The Resale of 77,116,000 Shares of Common Stock
This prospectus relates to the resale by the selling shareholders of up to
77,116,000 shares of our common stock. The selling shareholders may sell the
stock from time to time in the over-the-counter market at the prevailing market
price or in negotiated transactions. Of the shares offered,
o 9,316,000 shares are presently outstanding and held by selling
shareholders,
o 3,333,333 shares are presently outstanding and held by Immune
Network, Limited which it acquired upon partial exercise of an
option,
o Up to 40,000,000 shares are issuable to Swartz Private Equity,
LLC ("Swartz"), as put shares,
o Up to 7,000,000 shares are issuable upon the exercise of
commitment warrants issued to Swartz,
o Up to 4,000,000 shares are issuable upon the exercise of purchase
warrants issuable to Swartz in connection with the exercise of
puts to Swartz,
o 6,666,667 shares are issuable upon the exercise of an irrevocable
option held by Immune Network, Limited that we granted in
connection with our letter agreement;
o 6,800,000 shares are issuable upon the exercise of options and
warrants issued or committed to be issued to other selling
shareholders who are either employees or consultants to whom we
granted options or issued warrants in exchange for services
rendered.
Our common stock is quoted on the over-the counter electronic bulletin
board under the symbol "MDCH.OB." On Decmeber 1, 2000, the average of the bid
and asked prices of our common stock was $0.1475 per share.
Investing in our common stock involves a high degree of risk. You should
invest in our common stock only if you can afford to lose your entire
investment. See "Risk Factors" beginning on page 3 of this prospectus.
Neither the Securities and Exchange Commission ("SEC") nor any state
securities commission has approved or disapproved these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
SWARTZ PRIVATE EQUITY, LLC
The date of this prospectus is December 4, 2000
<PAGE>
The following table of contents has been designed to help you find
important information contained in this prospectus. We have included subheadings
to aid you in searching for particular information you might want to return to.
We encourage you to read the entire prospectus.
TABLE OF CONTENTS
PROSPECTUS SUMMARY............................................................1
About our Company.........................................................1
About our revenues........................................................1
About our Investment Agreement............................................1
Additional Shares We Are Registering......................................1
THE OFFERING..................................................................2
RISK FACTORS..................................................................3
USE OF PROCEEDS..............................................................10
SELLING SHAREHOLDERS.........................................................11
Investment Agreement.....................................................12
Additional Securities Being Registered...................................13
PLAN OF DISTRIBUTION.........................................................15
MANAGEMENT...................................................................17
Directors and Executive Officers.........................................17
Executive Compensation...................................................18
SUMMARY COMPENSATION TABLE...................................................18
OPTION GRANTS IN LAST FISCAL YEAR............................................19
OPTION EXERCISES AND FISCAL YEAR-END VALUES..................................19
Employment Agreements....................................................19
BUSINESS.....................................................................20
Our Products.............................................................20
Agricultural Products....................................................21
Marketing Plan...........................................................21
Competition..............................................................22
Patents..................................................................22
Government Regulation....................................................23
Employees................................................................23
Litigation...............................................................23
Properties...............................................................23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION..................24
AND RESULTS OF OPERATIONS....................................................24
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS................................26
ON ACCOUNTING AND FINANCIAL DISCLOSURE.......................................26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................27
MARKET INFORMATION...........................................................28
DIVIDEND POLICY..............................................................28
PRINCIPAL STOCKHOLDERS.......................................................29
DESCRIPTION OF SECURITIES....................................................30
Common Stock.............................................................30
Preferred Stock..........................................................30
Dividends................................................................30
Options and Warrants.....................................................30
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS............................31
TRANSFER AGENT...............................................................31
LEGAL MATTERS................................................................31
EXPERTS......................................................................31
ADDITIONAL INFORMATION.......................................................31
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PROSPECTUS SUMMARY
This summary highlights information found in greater detail elsewhere in
this prospectus. This summary is not complete and does not contain all of the
information you should consider before investing in our common stock. You should
read the entire prospectus carefully, including the "Risk Factors." This
prospectus describes our company, finances and products. Federal and state
securities laws require that we include in this prospectus all the important
information that you will need to make an investment decision.
About our Company
Meditech Pharmaceuticals, Inc. is a Nevada corporation incorporated in
1983. We are a drug development company and our business is focused in the areas
of research, development, and marketing in the biomedical industry, with an
emphasis on anti-infective drugs. Anti-infective drugs are agents that inhibit
or prevent infections. We have completed various stages in the planning and
development of products containing our proprietary drugs Viraplex(R) and
MTCH-24(TM).
Our development activities since inception have included efforts to secure
financing, create a management and business structure, and develop and test
Viraplex(R) and MTCH-24(TM). MTCH-24(TM) has demonstrated positive preliminary
test results against acne, citrus canker, herpes, and other viral and fungal
problems. Citrus canker is a plant disease that causes loss of oranges, other
citrus fruit trees, and some vegetables Viraplex(R) has been tested against
orofacial and genital herpes. Orofacial herpes affects the area around the mouth
and face.
About our Revenues
To date we have not generated any revenue from the sale of products.
Revenues consist entirely of a $25,000 fee paid to us by Immune Network,
Limited. ("INL") in connection with the execution of our letter agreement dated
February 3, 2000. Pursuant to the letter agreement, we granted INL an
irrevocable option to license, develop and market several applications of
MTCH-24(TM) and Viraplex (R). In addition, pursuant to the letter agreement, INL
is obligated to pay to us the sum of $100,000 upon execution of a definitive
license agreement. Although we have not completed negotiations of the license,
INL has paid the $100,000, which has been recorded as deferred revenue as of May
31, 2000.
About our Investment Agreement
We have entered into an investment agreement with Swartz Private Equity,
LLC to raise up to $30 million through a series of sales of our common stock to
Swartz. The dollar amount of each sale is limited by our common stock's trading
volume. A minimum period of time must occur between sales. In turn, Swartz will
sell our stock in the open market, sell our stock to other investors through
negotiated transactions or hold our common stock in its own portfolio. This
prospectus covers Swartz's resale of our common either in the open market or to
other investors.
Additional Shares We Are Registering
We are also registering for resale (i) 9,316,000 shares of our common stock
previously sold in various exempt private offerings, (ii) 3,333,333 shares of
our common stock issued to Immune Network, Limited ("INL") following the partial
exercise of an irrevocable option and 6,666,667 shares of our common stock
underlying the balance of the irrevocable option granted to INL in connection
with the letter agreement, and (iii) 6,800,000 shares of our common stock
underlying options and warrants granted to various employees and consultants of
our company in consideration for services rendered to us.
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THE OFFERING
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<S> <C>
Common stock outstanding prior to this offering 140,046,765(1)
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Common stock being offered for resale to the 77,116,000(2)(3)
public
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Common stock outstanding after this offering 180,046,765(4)
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Percentage of common stock outstanding 37.7%
following this offering that shares being
offered for resale represent
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Price per share to the public $0.1475(5)
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Total proceeds raised by offering None, however we have received proceeds from the
sale of shares that are presently outstanding.
We may receive up to $30 million from Swartz
under the investment agreement and we may
receive additional amounts from the sale of
shares to Swartz and the other selling
shareholders upon the exercise of outstanding
options and warrants.
------------------------------------------------ -------- --------------------------------------------------
Use of proceeds We plan to use the proceeds for marketing, sales,
commercialization, completion of product
development and working capital and general
corporate purposes
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(1) Does not include 7,000,000 shares underlying warrants issued to Swartz in
connection with the Investment Agreement nor any shares underlying warrants
which we may issue to Swartz in the future pursuant to the Investment
Agreement. Also does not include 13,466,667 shares underlying options and
warrants currently outstanding and held by the remaining selling
shareholders.
(2) Includes (i) 12,649,333 shares that are presently outstanding, (ii) up to
40,000,000 shares that may be issued to Swartz pursuant to the Investment
Agreement, (ii) 7,000,000 shares underlying warrants issued to Swartz in
connection with the Investment Agreement, (iv) up to 4,000,000 shares
underlying warrants that we may issue to Swartz in the future pursuant to
the Investment Agreement, and (v) 13,466,667 shares underlying outstanding
options and warrants held by the remaining selling shareholders.
(3) The current number of shares that Swartz could receive and resell under the
equity line for each of our puts is the lesser of (i) 1,500,000 shares per
put or (ii) 15% of the aggregate daily reported trading volume of our
common stock for the last 20 days, which currently calculates to
approximately 780,000 shares. We estimate that we will make to Swartz no
more than ten puts per year. Using the pricing mechanism and the current
market price and trading volume of our common stock, we estimate that we
will put to Swartz a total of 23,400,000 shares of our common stock over
the next three years and issue warrants to purchase an aggregate of
2,340,000 shares of our common stock in connection with our puts.
(4) Includes up to 40,000,000 shares that may be issued to Swartz pursuant to
the Investment Agreement.
(5) The average of the bid and asked prices of our common stock on December 1,
2000.
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RISK FACTORS
An investment in the common stock being offered for resale by the selling
shareholders is very risky. You should carefully consider the risk factors
described below, together with all other information in this prospectus before
making an investment decision. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations. If any of the following risks actually occurs, our business,
financial conditions or operating results could be materially adversely
affected. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
We have a history of operating losses and limited product revenues and we may
never become profitable.
Although we were incorporated in May 1982 and became a public company in
1983, we ran out of funds in 1986 when there was a down turn in the stock
market. From 1987 to 1999 we had very limited operations and conducted minimal
research in order to keep our projects alive. In late 1999 we gradually
commenced research and development on our products in anticipation of the Swartz
Private Equity, LLC financing. Consequently, we have a limited operating history
upon which potential investors may evaluate our performance. To date, we have
generated an accumulated deficit of more than $16.2 million. For the years ended
May 31, 2000 and 1999, we incurred net losses of approximately $1,150,100 and
$767,000, respectively. In addition, our future operations may not be
profitable. We must consider the likelihood of our success relative to the
problems, difficulties, complications, and delays frequently encountered in
connection with the development and operation of a new business, and the
significant change in strategy toward increased licensing for over-the-counter
products.
We expect that our operating expenses will increase significantly during
the next several years as we:
o Develop our products;
o Increase our sales and marketing activities; and
o Increase our general and administrative functions to support our
growing operations.
With increased expenses, we will need to generate significant additional
revenues to achieve profitability. We cannot be certain that we will obtain a
high enough volume of purchases in the future to generate sufficient revenues
and achieve profitability.
If we do not obtain adequate financing to fund our future operations and to
complete development and introduce products we may not be able to successfully
implement our business plan.
The costs of conducting clinical trials are high. We believe that our
existing capital resources, including estimated net proceeds of $5,850,000 from
this offering, will satisfy our capital requirements for at least the next 24
months. However, we may need to raise additional funds in the future to:
o Continue our research development efforts;
o Obtain regulatory approvals of our products;
o Obtain additional patents for our products;
o Respond to competitive relationships; and
o Acquire complementary businesses, technologies, content or
product.
Although it is difficult to estimate the amount of additional financing we
will require, we anticipate that over the next two years we will need
approximately $1 million to complete our product development, $1.5 million for
marketing, sales and commercialization expenses and $3.4 million for working
capital and general corporate purposes. This estimate could increase or the
allocations could change if we start a new study for Viraplex(R). Based on our
potential rate of cash operating expenditures and our current plans, we
anticipate our cash requirements for the next two years may need to come
primarily from the proceeds of the Investment Agreement with Swartz Private
Equity, LLC. However, our ability to raise funds under the Investment Agreement
is subject to certain conditions. These conditions include the continuing
effectiveness of a registration statement covering the resale of the shares sold
under the Investment Agreement and a limitation on the number of shares we may
issue based on the volume of trading in our common stock. We anticipate that our
future cash requirements may be fulfilled by improved sales of product, the sale
3
<PAGE>
of additional equity securities and/or debt financing. However, we cannot assure
you that additional financing will be available on terms favorable to us, or at
all. If adequate funds are not available or are not available on acceptable
terms, our ability to fund our research and development, take advantage of
unanticipated opportunities, develop or enhance our products or otherwise
respond to competitive pressures would be significantly limited. If we raise
additional funds by issuing equity or convertible debt securities, the
percentage ownership of our stockholders will be reduced, and these securities
may have rights, preferences or privileges senior to those of our stockholders.
Our auditors have expressed substantial doubt about our ability to continue as a
going concern which ability is dependent on the net proceeds of this offering.
Singer Lewak Greenbaum & Goldstein LLP, in their independent auditors'
report, has expressed "substantial doubt" as to our ability to continue as a
going concern based on significant operating losses we have incurred since
inception. Our consolidated financial statements do not include any adjustments
that might result from the outcome of that uncertainty. The going concern
qualification is also described in note 3 of the notes to our consolidated
financial statements. Without the net proceeds from this offering, our ability
to remain in business will be in jeopardy.
We have not completed the development of any products and, as a result, we have
had no revenues from the sale of products since inception and we do not expect
to be profitable for several more years.
We halted testing on Viraplex(R) and MTCH-24(TM) in 1987 due to a lack of
funds. We notified the Food and Drug Administration (the "FDA") of our plan to
cease testing of our products and the INDA for Viraplex(R) was put on hold.
Although it would be possible to reopen the INDA, the technology has changed
drastically since 1987 and it may be more economical and practical to start a
completely new study. We believe that this would cost between $3 and 5 million.
We would engage a reputable testing facility to complete testing of our
products. With regards to Viraplex(R), we hope to reopen the NCI studies which
would require approximately $100,000 to complete the reformulation of the
compound into a more soluble form. We believe that this would require a new
patent application since the reformulation would be considered to be a new drug.
In connection with MTCH-24(TM), we plan to market this product as an
over-the-counter treatment for the Herpes Simplex I virus. We believe that a
limited claims product could be marketed without the need to obtain further FDA
approval. However, after introducing the limited claims product we plan to
pursue an over-the-counter NDA so that we can make greater claims regarding our
products. We estimate that the cost related to this undertaking is approximately
$800,000. We also plan to market MTCH-24(TM) as an agricultural pesticide. This
would require further testing which we believe would cost approximately
$250,000.
As a result of our failure to complete the development of our products, we
have not generated any significant revenues from the sale of products. We are
currently working with one strategic partner, Immune Network Limited, to move
our products to regulatory and commercial acceptance. We also hope to release
our initial products through licensing arrangements with larger retail product
companies within the next two years. As a result, we are dependent on the
financial resources and marketing capabilities of third parties and we cannot
give you any assurances that we will successfully bring our products to market.
If we do not obtain governmental approvals for our products, we will be unable
to market them.
The marketing of Viraplex(R) and MTCH-24(TM) involves claims that such
products act as antiviral and antibacterial agents and are effective against
retroviruses such as herpes, Epstein-Barr virus, cytomegalovirus (one of the
herpes viruses that causes localized or widespread diseases in humans), and
citrus canker. Under FDA rules, we are required to obtain scientific data to
support any health claims we make concerning our products. We have completed
Phase I and Phase II clinical testing for the FDA on both products and are
approved to enter into clinical trials.
We will not be able to commercialize our products until we have acceptable
clinical trial results and regulatory approval from the FDA and foreign
regulatory authorities. The FDA and other regulatory authorities require that
the safety and efficacy of a drug be supported by results from adequate and
well-controlled clinical trials before approval for commercial sale. If the
results of the clinical trials of our products do not demonstrate that they are
safe and effective (specifically, that the results show that the product is
statistically significant in altering the course of the disease), we will not be
able to submit to the FDA a New Drug Application or other relevant applications
4
<PAGE>
for pre-market approval. Further, the results of pre-clinical testing and
initial clinical trials do not necessarily predict how safe and effective a
product will be when it is evaluated in large-scale Phase III clinical trials.
It is possible that unacceptable side effects may be discovered at any time. A
number of companies have suffered significant setbacks in advanced clinical
trials, despite promising results in earlier trials.
Even if we believe the clinical trials demonstrate the safety and efficacy
of a product, the FDA and other regulatory authorities may not accept our
assessment of the results. In order to demonstrate the safety and efficacy of
the products we may have to conduct additional clinical trials beyond those
currently planned. The process of obtaining regulatory clearances or approvals
is costly and time-consuming.
We may experience difficulties in the introduction of new products that could
result in our having to incur significant unexpected expenses or delay the
launch of new products.
We cannot predict how long our pre-clinical and clinical trials will take
or whether they will be successful. The rate of completion of the clinical
trials for our products depends on many factors, including obtaining adequate
clinical supplies and the rate of patient recruitment. Patient recruitment is a
function of many factors, including the size of the patient population, the
proximity of patients to clinical sites, and the eligibility criteria for
patients who may enroll in the trial. We may experience increased costs, program
delays, or both, if there are delays in patient enrollment in the clinical
trials.
Our compounds and products are in various stages of development. These
development stage products and compounds may not be completed in time to allow
production or marketing due to the inherent risks of new product and
pharmaceutical development, limitations on financing, competition, loss of key
personnel and other factors. Although we may license some of our compounds and
products at their current stage of development, we cannot give you any assurance
that we will be able to do so. Unanticipated clinical or regulatory obstacles
can arise at any time and result in lengthy and costly delays or in a
determination that further development is not feasible.
The development of our products and compounds has taken longer than
anticipated and could be additionally delayed. Therefore, there can be no
assurance of timely completion and introduction of improved products on a
cost-effective basis, or that such products, if introduced, will achieve market
acceptance such that, in combination with existing products, they will sustain
us or allow us to achieve profitable operations.
If MTCH-24(TM) and Viraplex(R) do not gain widespread market acceptance, our
anticipated sales and results of operations will suffer.
Through our alliance with Immune Network Research, Limited, we are
conducting testing for approval of our MTCH-24(TM) (which we intend to
commercially market as Zorex) and Viraplex(R) products. Preliminary studies
indicate that MTCH-24(TM) and Viraplex(R) are effective against a wide range of
retroviruses including herpes, citrus canker, cytomegalovirus, and other viral
and bacterial agents. However, we cannot guarantee that the products will
achieve widespread acceptance by the market. If any unanticipated problem arises
concerning the efficacy of MTCH-24(TM) or Viraplex(R), or the products fail to
achieve widespread market acceptance for any reason, this will adversely affect
our prospects for our future operating results.
We need to manage growth in operations to maximize our potential growth and
achieve our expected revenues.
In order to maximize potential growth in our market opportunities, we
believe that we must expand our manufacturing and marketing operations. This
expansion will place a significant strain on our management and our operational,
accounting, and information systems. We expect that we will need to continue to
improve our financial controls, operating procedures, and management information
systems. We will also need to effectively train, motivate, and manage our
employees. Our failure to manage our growth could disrupt our operations and
ultimately prevent us from generating the revenues we expect.
5
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Since effective trademark, patent and trade secret protection may be unavailable
in every country in which we do or plan to do business, protection of our
intellectual property rights is uncertain and we may be unable to prevent others
from developing similar products or using our marks.
We regard our service marks, trademarks, trade secrets, patents and similar
intellectual property as critical to our success. We rely on trademark, patent
and trade secret law, as well as confidentiality and license agreements with our
employees, customers, partners and others to protect our proprietary rights. We
have received trademark and patent protection for our products in the United
States, Canada and Italy. However, effective trademark, service mark, patent and
trade secret protection may not be available in every country in which we sell
or will sell our products. Therefore, the steps we take to protect our
proprietary rights may be inadequate and we cannot give you any assurance that
our competitors will not independently develop formulations and processes that
are substantially equivalent or superior to our own.
Intense competition from existing and new entities may adversely affect our
revenues and profitability.
We compete with pharmaceutical companies, many of whom are developing or
can be expected to develop products similar to ours. One competitor is
Burroughs-Wellcome, Co. who produces Zovirax(R), an FDA-approved drug that is
currently available by prescription, for the treatment of herpes infections.
Although this product competes with Viraplex(R) its application is much more
limited. Unlike Viraplex(R), Zovirax(R) can only be used in selected cases of
genital and mucocutaneous herpes and is limited to specific usage. Viraplex's(R)
application is much broader. Other current competitors include Uniliver (with
Vaseline Intensive lip care), Avanir Pharmaceuticals (with Docusanol) and
Blistex.
Many pharmaceutical companies and other researchers have announced their
intention to introduce, or are believed to be in the process of developing a
variety of products that may perform some or all of the functions of proposed
Viraplex(R) and MTCH-24(TM) products. Competing products are already available
for many of the functions of proposed MTCH-24(TM) products.
Many of our competitors are more established than we are, have
significantly greater financial, technical, marketing and other resources than
we. Some of our competitors have greater name recognition and a larger customer
base. These competitors may be able to respond more quickly to new or changing
opportunities and customer requirements and may be able to undertake more
extensive promotional activities, offer more attractive terms to customers, and
adopt more aggressive pricing policies. We intend to create greater brand
awareness for our brand name so that we can successfully compete with these
competitors. We cannot assure you that we will be able to compete effectively
with current or future competitors or that the competitive pressures we face
will not harm our business.
Our products and the processes we use could expose us to substantial liability.
Product liability could arise from claims by users of our products or of
products manufactured by processes we developed, or from manufacturers or other
selling our products, either directly or as a component of other products. We do
not have any insurance coverage for these risks at this time. When, and if, we
acquire product liability insurance, we cannot give you any assurance that it
will be adequate to protect us or that the insurance coverage will continue to
be available on reasonable terms.
We depend on our key management personnel and the loss of their services could
harm our business.
We place substantial reliance upon the efforts and abilities of our
executive officers, Gerald N. Kern, our Chairman and Chief Executive Officer,
and Steven I. Kern, our Chief Financial Officer and Chief Operating Officer. The
loss of the services of either of them could have a material adverse effect on
our business, operations, revenues or prospects. We presently have employment
agreements with each of them. We have no assurance, however, that upon the
expiration of their respective employment agreements they will remain in our
employ. We do not maintain and we do not intend to obtain key man like insurance
on the lives of these individuals.
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We have limited personnel resources and we must attract and retain qualified
employees to succeed in our business plan.
We currently have only three employees. Other employees with necessary
skills have discussed joining the company upon re-financing, if and when
completed, but may not actually do so. If they do not, we will need to recruit
and retain professional and technical staff to ensure that we have the range of
skills necessary to operate and maintain our business.
Current economic conditions make it difficult to attract, compensate and
retain qualified employees. We expect to hire additional personnel in all
segments of our business and in all of the markets in which we conduct our
business. Our success will depend on getting the right people involved in our
continued growth and development. Our business could be materially adversely
affected if we are not able to attract new, qualified employees, or retain and
motivate our existing employees.
Failure to license our products could seriously hinder our ability to further
develop our products and market them successfully.
If we do not negotiate acceptable collaborative arrangements for our
principal products, we will lack the funds to further develop them. We do not
have internal marketing and sales capabilities and will need to rely on
collaborative partners to market and sell any products that we may successfully
develop. Even if we find collaborative partners, we may not be able to
completely control the amount and timing of resources our collaborative partners
will devote to these activities. We intend to seek collaborative arrangements
for MTCH-24(TM) and Viraplex(R) to help cover the cost of development, but we do
not know whether we will be successful. If we cannot find collaborative
relationships or other sources of financing we may not be able to continue some
of our development programs and would be forced to sell assets, including
technology, to raise capital.
We will expand our business into international markets and this will expose us
to the risks associated with doing business in emerging markets, such as the
risk of political, civil and economic instability.
A key part of our business plan is to sell our products in international
markets. To date, we have no experience in developing and marketing our products
internationally. International markets we have selected may not develop at a
rate that supports our level of investment.
In addition, we will face certain risks in doing business on an
international level, including:
o Unexpected changes in regulatory requirements;
o Trade barriers;
o Difficulties in staffing and managing foreign operations because
of language and cultural differences;
o Longer payment cycles;
o Currency exchange rate fluctuations;
o Problems in collecting accounts receivable;
o Political and economic instability;
o Import and export restrictions;
o Seasonal fluctuations in business activity; and
o Adverse tax consequences.
These risks are dynamic and difficult to quantify.
We have not paid any dividends since inception and have no current plans to pay
any dividends.
We have never declared or paid any cash dividends on our common stock since
our inception. We currently intend to retain any future earnings for funding
growth and therefore, do not expect to pay any dividends in the foreseeable
future.
7
<PAGE>
The substantial number of shares of our common stock that are eligible for
future sale in the public market could adversely affect prevailing market prices
of our common stock or limit our ability to raise additional capital.
Future sales of substantial amounts of our common stock in the public
market, or the perception that these sales might occur, could adversely affect
the prevailing market price of our common stock or limit our ability to raise
additional capital. We currently have 140,046,765 shares of our common stock
issued and outstanding and 24,466,667 shares of our common stock are reserved
for issuance upon the exercise of outstanding options and warrants.
No precise prediction can be made of the effect, if any, that market sales
of our common stock or the future availability of shares for sale will have on
the market price of our common stock from time to time. Sales of substantial
amounts of our common stock in the public market could adversely affect
prevailing market prices and limit our ability to raise additional capital.
Our stock price will fluctuate after this offering, which could result in
substantial losses for investors.
The market price for our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control. These
factors include:
o Quarterly variations in operating results;
o Changes in financial estimates by securities analysts;
o Announcements by us or our competitors of new products,
significant contracts, acquisitions or strategic relationships;
o Disputes concerning our patents or proprietary rights;
o Publicity about our company, our products or our competitors;
o Publicity regarding actual or potential medical results relating
to products under development by us or our competitors;
o Additions or departures of key personnel;
o Any future sales of our common stock or other securities; and
o Stock market price and volume fluctuations of publicly-traded
companies
These and other external factors have caused and may continue to cause the
market price and demand for our common stock to fluctuate substantially, which
may limit or prevent investors from readily selling their shares of common stock
and may otherwise negatively affect the liquidity of our common stock.
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. If securities class action litigation is brought against us it could
result in substantial costs and a diversion of our management's attention and
resources, which could hurt our business.
The exercise of our put rights may lower the market price of our common stock
and substantially dilute the interests of other holders of our common stock.
As we exercise our put rights, we will be required to issue shares of our
common stock to Swartz at a price below the prevailing market price of our
common stock.
The shares issuable to Swartz upon exercise of our put rights will be
issued at a price equal to the lesser of (i) the market price for our common
stock minus $.075 or (ii) 91% of the market price for our common stock.
Accordingly, we will issue the shares issuable to Swartz upon exercise of our
put rights at a rate that will be below the market price of our common stock.
The sale of material amounts of our common stock could reduce the price of
our common stock and encourage short sales.
As we sell shares of our common stock to Swartz pursuant to our put rights
and if, and to the extent that Swartz sells our common stock, our common stock
price may decrease due to the additional shares in the market. As the price of
our common stock decreases, and if we decide to exercise our right to put shares
to Swartz, we will be required to issue more shares of our common stock upon
8
<PAGE>
exercise of our put rights for any given dollar amount invested by Swartz,
subject to a designated minimum put price specified by us and a minimum
designated number of shares to be purchased. This may encourage short sales,
which could place further downward pressure on the price of our common stock.
The exercise of our put rights may substantially dilute the interests of
other holders.
The shares of our common stock issuable upon exercise of our put rights
will be available for sale immediately upon issuance. Accordingly, subject to
(i) any designated minimum put price we may specify, (ii) any minimum number of
shares which we choose to put and (iii) any volume limitations, as further
described under "Selling Shareholders," the exercise of our put rights may
result in substantial dilution to the interests of the other holders of our
common stock and the price of our common stock may decrease which would entitle
the selling shareholder to receive a greater number of shares of our common
stock upon exercise of our put rights.
The exercise of outstanding options and warrants may adversely affect our stock
price and your percentage ownership.
If all of the warrants that may be issued to Swartz under the Investment
Agreement are issued, there will be outstanding options and warrants to purchase
24,466,667 shares of our common stock, assuming that we issue a total of
11,000,000 warrants to Swartz under the Investment Agreement (including the
7,000,000 warrants already issued). The number of warrants that we may issue to
Swartz under the Investment Agreement will fluctuate depending on the price at
which we put shares to Swartz, which in turn will depend on the market price of
our common stock at the time of the put. In the future, we may grant more
warrants or options under stock option plans or otherwise. The exercise of stock
options and warrants that are presently outstanding or may be issued in the
future will dilute the percentage ownership of our other shareholders.
Our common stock is subject to penny stock regulation that may affect the
liquidity for our common stock.
Our common stock is subject to regulations of the Securities and Exchange
Commission relating to the market for penny stocks. These regulations generally
require that a disclosure schedule explaining the penny stock market and the
risks associated therewith be delivered to purchasers of penny stocks and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors. The
regulations applicable to penny stocks may severely affect the market liquidity
for our common stock and could limit your ability to sell your securities in the
secondary market.
Trading in our common stock on the OTC Bulletin Board may be limited thereby
making it more difficult for investors to resell their shares of our common
stock.
Our common stock trades on the OTC Bulletin Board. The OTC Bulletin Board
is not an exchange and, because trading of securities on the OTC Bulletin Board
is often more sporadic than the trading of securities listed on an exchange or
Nasdaq, you may have difficulty reselling any of the shares that you purchase
from the selling shareholders.
9
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the resale of our common stock
pursuant to this offering. We may, however, receive proceeds from the sale of
our common stock to Swartz pursuant to the Investment Agreement, and, if
exercised, we will receive proceeds from the sale of shares to Swartz and the
other selling shareholders upon their exercise of warrants or options. If all
shares of common stock we are offering to Swartz are sold, and the warrants and
options are exercised, we estimate that we will receive net proceeds of
approximately $5,850,000. Net proceeds are determined after deducting all
expenses of this offering (estimated to be $150,000).
We intend to use the net proceeds from this offering as follows:
Marketing, sales and commercialization $ 1,500,000
Completion of product development 1,000,000
Working capital and general corporate purposes 3,350,000
-----------
Total $ 5,850,000
===========
Pending the use of any proceeds as discussed above, we intend to invest
these funds in short term, interest bearing investment-grade obligations.
10
<PAGE>
<TABLE>
<CAPTION>
SELLING SHAREHOLDERS
The following table sets forth certain information as of the date of this
prospectus, with respect to Swartz and the other selling shareholders for whom
we are registering shares for resale to the public. Swartz and the other selling
shareholders propose selling all of their shares, in which case each would
beneficially own no shares after the offering. Except as set forth below, none
of the selling shareholders currently is an affiliate of ours, and none of them
has had a material relationship with us during the past three years. None of the
selling shareholders are or were affiliated with registered broker-dealers. An
asterisk indicates if their common stock ownership is less than one percent.
Maximum No. of Amount and Percentage
Shares Beneficially Shares to be Sold of Common Stock
Name of Owned Prior to Pursuant to this after the offering(1)
Stockholder Offering Prospectus Number %
---------------------------- ------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Swartz Private Equity, LLC.. 51,000,000 51,000,000(2) 0 *
Immune Networks, Ltd........ 10,000,000 10,000,000 0 *
Gerald N. Kern.............. 33,266,794(3) 7,010,000 26,256,794 14.5%
Cynthia S. Kern............. 3,000,000(4) 3,000,000 0 *
Harry Hall.................. 800,000(5) 800,000 0 *
Lester Goldstein............ 1,050,000(6) 1,050,000 0 *
Frederick W. Croft.......... 550,000(7) 550,000 0 *
Gregg Martins............... 806,000(8) 806,000 0 *
Steven I. Kern.............. 2,500,000(9) 2,500,000 0 *
Ira Victor.................. 50,000(10) 50,000 0 *
Mark Politi................. 50,000(11) 50,000 0 *
Alan Weiss.................. 100,000(12) 100,000 0 *
Murdie Antonio.............. 200,000(13) 200,000 0 *
Total....................... 103,372,794 77,116,000 26,256,794 14.5%
----------
* Represents less than one percent.
(1) Assumes that the selling shareholders will resell all of the offered shares
and the selling shareholders will hold no shares for their own accounts.
(2) Represents up to 40,000,000 shares of our common stock that we may sell to
Swartz pursuant to the Investment Agreement and up to 11,000,000 shares of
our common stock that we may issue to Swartz upon Swartz's exercise of
warrants issued or issuable in connection with the Investment Agreement. It
is expected that Swartz will not own beneficially more than 9.9% of our
outstanding common stock at any time. The Managers of Swartz are Eric
Swartz and Michael Kendrick.
(3) Includes 1,500,000 shares of our common stock issuable upon exercise of
outstanding stock options. Includes 26,256,794 shares of common stock owned
by Petro-Med, Inc. Mr. Kern is Chairman of the Board and Chief Executive
Officer of Petro-Med, Inc. and may be deemed the beneficial owner of such
shares. Does not include an aggregate of 2,250,000 shares of common stock
held by Mr. Kern's spouse and adult children. Mr. Kern disclaims beneficial
ownership of the shares held by such persons. Mr. Kern is Chairman of our
Board of Directors and our Chief Executive Officer.
(4) Includes 1,000,000 shares of our common stock issuable upon exercise of
outstanding stock options. Does not include an aggregate of 7,260,000
shares of our common stock held by Ms. Kern's spouse and adult children.
Ms. Kern disclaims beneficial ownership of the shares held by such persons.
Ms. Kern is our Company's President and Corporate Secretary and is a member
of our Board of Directors.
(5) Includes 450,000 shares of our common stock issuable upon exercise of
outstanding stock purchase warrants. Mr. Hall is a member of our Board of
Directors.
(6) Includes 450,000 shares of our common stock issuable upon exercise of
outstanding stock purchase warrants. Mr. Goldstein is a member of our Board
of Directors.
(7) Includes 300,000 shares of our common stock issuable upon exercise of
outstanding stock purchase warrants.
(8) Includes 200,000 shares of our common stock issuable upon exercise of
outstanding stock purchase warrants.
(9) Includes 2,500,000 shares of our common stock issuable upon exercise of
outstanding stock options. Mr. Kern is our Chief Operating Officer and
Chief Financial Officer.
(10) Includes 50,000 shares of our common stock issuable upon exercise of
outstanding stock purchase warrants.
(11) Includes 50,000 shares of our common stock issuable upon exercise of
outstanding stock purchase warrants.
(12) Includes 100,000 shares of our common stock issuable upon exercise of
outstanding stock purchase warrants.
(13) Includes 200,000 shares of our common stock issuable upon exercise of
outstanding stock purchase warrants.
11
</TABLE>
<PAGE>
The securities we issued to the selling shareholders were sold in private,
unsolicited transactions that did not involve a public offering pursuant to an
exemption from registration under Section 4(2) of the Securities Act. All of the
selling shareholders other than Swartz and Immune Network, Limited are our
employees or are consultants to us. The issuance of shares of our common stock
to Immune Network, Limited, a Canadian corporation, was also made pursuant to
the exemption available under Regulation S.
Investment Agreement
On June 30, 2000, we entered into an investment agreement with Swartz
Private Equity, LLC ("Swartz"). The investment agreement entitles us to issue
and sell our common stock to Swartz for up to an aggregate of $30 million from
time to time during a three-year period beginning on the date that this
registration statement is declared effective. Each election by us to sell stock
to Swartz is referred to as a put right.
The current number of shares that Swartz could receive and resell under the
equity line for each of our puts is the lesser of (i) 1,500,000 shares per put
or (ii) 15% of the aggregate daily reported trading volume of our common stock
for the last 20 days, which currently calculates to approximately 780,000
shares. We estimate that we will make to Swartz no more than ten puts per year.
Using the pricing mechanism and the current market price and trading volume of
our common stock, we estimate that we will put to Swartz a total of 23,400,000
shares of our common stock over the next three years and issue warrants to
purchase an aggregate of 2,340,000 shares of our common stock in connection with
our puts.
Put Rights. In order to invoke a put right, we must have an effective
registration statement on file with the SEC registering the resale of shares of
our common stock that may be issued as a consequence of the exercise of our put
right. We must also give at least ten but not more than 20 business days'
advance notice to Swartz of the date on which we intend to exercise a particular
put right and we must indicate the maximum number of shares of our common stock
that we intend to sell to Swartz. At our option, we may also designate a maximum
dollar amount of our common stock (not to exceed $2 million) that we will sell
under the put and/or a minimum purchase price per common share at which Swartz
may purchase shares under the put. The number of shares of our common stock sold
to Swartz in a put may not exceed the lesser of (i) 1.5 million shares, (ii) 15%
of the aggregate daily reported trading volume of our common stock, excluding
certain block trades of our common stock, during the 20 business days after the
date of our put notice, excluding any trading days in which the common stock
trades below a minimum price, if any, that we specify in our put notice, (iii)
15% of the aggregate daily reported trading volume of our common shares during
the 20 business days before the put date, excluding certain block trades, or
(iv) a number of shares that, when added to the number of shares acquired by
Swartz under the investment agreement during the 31 days preceding the put date,
would exceed 9.99% of the total number of shares of our common stock
outstanding.
For each share of our common stock, Swartz will pay us the lesser of:
o The market price for such share, minus $.075; or
o 91% of the market price for the shares.
Provided, however, that Swartz may not pay us less than the designated minimum
per share price, if any, that we indicate in our notice.
Market price is defined as the lowest closing bid price for our common
stock on its principal market during the pricing period. The pricing period is
defined as the 20 business days immediately following the date we exercise the
put right.
Warrants. Within five business days after the end of each pricing period,
we are required to issue and deliver to Swartz a warrant to purchase a number of
shares of our common stock equal to ten percent of the common shares issued to
Swartz in the applicable put. Each warrant will be exercisable at a price that
will initially equal 110% of the market price on the date on which we exercised
the put right. The warrants will have semi-annual reset provisions. Each warrant
will be immediately exercisable and have a term beginning on the date of
issuance and ending five years thereafter.
Limitations And Conditions Precedent To Our Put Rights. Swartz is not
required to acquire and pay for any shares of our common stock with respect to
any particular put for which, between the date we give advance notice of an
intended put and the date the particular put closes:
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<PAGE>
o We have announced or implemented a stock split or combination of
our common stock;
o We have paid a common stock dividend;
o We have made a distribution of all or any portion of our assets
or evidences of indebtedness to the holders of our common stock;
or
o We have consummated a major transaction, such as a sale of all or
substantially all of our assets or a merger or tender or exchange
offer that results in a change of control of our company.
Short Sales. Swartz and its affiliates are prohibited from engaging in
short sales of our common stock unless Swartz has received a put notice under
which shares have not yet been issued and the amount of shares involved in the
short sale does not exceed the number of shares specified in the put notice.
Cancellation of Puts. We must cancel a particular put between the date of
the advance put notice and the last day of the pricing period if:
o We discover an undisclosed material fact relevant to Swartz's
investment decision;
o The registration statement registering the resale of our common
stock becomes ineffective; or
o Our common stock is delisted from the then primary exchange.
If a put is canceled, it will continue to be effective, but the pricing
period for the put will terminate on the date notice of cancellation of the put
is given to Swartz. Because the pricing period will be shortened, the number of
shares Swartz will be required to purchase in the canceled put will be smaller
than it would have been had the put not been canceled.
Shareholder Approval. Under the investment agreement, we may sell Swartz a
number of shares that is more than 20% of our shares outstanding on the date of
this prospectus. If we become listed on the NASDAQ Small Cap Market or NASDAQ
National Market, we may be required to obtain shareholder approval to issue some
or all of the shares to Swartz. As we are currently a bulletin board company, we
do not need shareholder approval.
Termination of Investment Agreement. We may terminate our right to initiate
further puts or terminate the investment agreement at any time by providing
Swartz with notice of such intention to terminate; however, any such termination
will not affect any other rights or obligations we have concerning the
investment agreement or any related agreement.
Restrictive Covenants. During the term of the investment agreement and for
a period of one-year after the investment agreement is terminated, we are
prohibited from engaging in certain transactions. These include the issuance of
any equity securities, or debt securities convertible into equity securities, in
a private transaction without the prior written approval of Swartz. We are also
prohibited from entering into any private equity line type agreements similar to
the investment agreement without obtaining Swartz's prior written approval.
Right of First Refusal. Swartz has a right of first refusal to participate
in any private capital raising transaction of equity securities that closes on
or prior to one year after the termination of the investment agreement.
Swartz's Right of Indemnification. We have agreed to indemnify Swartz
(including its stockholders, officers, directors, employees, investors and
agents) from all liability and losses resulting from any misrepresentations or
breaches we make in connection with the investment agreement, our registration
rights agreement, other related agreements, or the registration statement.
Additional Securities Being Registered
On February 3, 2000, we entered into a letter agreement with Immune
Network, Limited, a Canadian corporation ("INL") pursuant to which we granted
INL a warrant to purchase up to 10,000,000 shares of our common stock at an
exercise price of $0.03 per share. As of the date of this prospectus, INL has
exercised the option as to, and purchased, 3,333,333 shares of our common stock.
13
<PAGE>
On February 1, 2000, we granted an option to purchase 2,500,000 shares of
our common stock to Steven I. Kern in consideration for services rendered to our
company as our Chief Financial Officer and Chief Operating Officer. The option
expires on May 1, 2007 and the exercise price is $0.05 per share.
On February 1, 2000, we issued warrants to each of Mr. Goldstein and Mr.
Hall, in exchange for their continued services as directors. The warrants are
immediately exercisable at an exercise prize of $0.21 per share. The warrants
expire on May 1, 2007.
On February 1, 2000, we granted to Gregg Martins and Fred Croft, warrants
to purchase 250,000 and 350,000 shares of our common stock, respectively, in
exchange for consulting services. The warrants are immediately exercisable at an
exercise price of $0.21 per share. The warrants expire on May 1, 2007.
On February 1, 2000, we granted warrants to three consultants to purchase
an aggregate of 350,000 shares of our common stock in exchange for consulting
services rendered. The warrants are immediately exercisable at an exercise price
of $0.21 per share as to 300,000 warrants and $0.05 as to 50,000 warrants. The
warrants expire on May 1, 2007.
On January 17, 2000, we issued 100,000 shares of our common stock to each
of Mr. Goldstein and Mr. Hall in exchange for services rendered. The shares were
valued at $0.025 per share.
On January 17, 2000, we issued 100,000 shares of our common stock to Gregg
Martins, a consultant to our company, in exchange for services rendered. The
shares were valued at $0.025 per share.
On June 1, 1999, we granted an option to purchase 2,000,000 shares of our
common stock to Cynthia Kern in consideration for services rendered to our
company. Ms. Kern exercised the option during the fiscal year ended May 31,
2000. The exercise price for the option was $0.01 per share. On February 1, 2000
we granted an additional option to Ms. Kern to purchase 1,000,000 shares of our
common stock at an exercise price of $0.21 per share. The option expires on May
1, 2007.
On June 1, 1999, we granted an option to purchase 3,000,000 shares of our
common stock to Gerald N. Kern in consideration for services rendered to our
company. Mr. Kern exercised the option during the fiscal year ended May 31,
2000. The exercise price for the option was $0.01 per share. On February 1, 2000
we granted an additional option to Mr. Kern to purchase 1,500,000 shares of our
common stock at an exercise price of $0.21 per share. The option expires on May
1, 2007.
On June 1, 1999, we issued a warrant to purchase 400,000 Shares of our
common stock to each of Lester Goldstein and Harry Hall, both directors of our
company, in exchange for their service as directors and consulting services. The
warrants were immediately exercisable at a price of $0.01 per share. The
warrants expire on May 31, 2006. On February 3, 2000, Mr. Goldstein and Mr. Hall
each exercised his respective warrant as to 250,000 shares.
14
<PAGE>
PLAN OF DISTRIBUTION
Each selling shareholder is free to offer and sell his or her shares of our
common stock at such times, in such manner and at such prices as he or she may
determine. The types of transactions in which the shares of our common stock are
sold may include transactions in the over-the-counter market (including block
transactions), negotiated transactions, the settlement of short sales of our
common stock, or a combination of such methods of sale. The sales will be at
market prices prevailing at the time of sale or at negotiated prices. Such
transactions may or may not involve brokers or dealers. The selling shareholders
have advised us that they have not entered into agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of their
shares. The selling shareholders do not have an underwriter or coordinating
broker acting in connection with the proposed sale of our common stock.
The selling shareholders may sell their shares directly to purchasers or to
or through broker-dealers, which may act as agents or principals. These
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders. They may also receive compensation
from the purchasers of our common stock for whom such broker-dealers may act as
agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
Swartz Private Equity, LLC is, and each remaining selling shareholder and
any broker-dealer that assists in the sale of our common stock may be deemed to
be, an "underwriter" within the meaning of Section 2(a)(11) of the Securities
Act. Any commissions received by such broker-dealers and any profit on the
resale of the shares of our common stock sold by them while acting as principals
might be deemed to be underwriting discounts or commissions. The selling
shareholders may agree to indemnify broker-dealers for transactions involving
sales of our common stock against certain liabilities, including liabilities
arising under the Securities Act.
Because Swartz is, and each remaining selling shareholder may be deemed to
be, an underwriter within the meaning of Section 2(a)(11) of the Securities Act,
the selling shareholders will be subject to prospectus delivery requirements.
We have informed Swartz that the anti-manipulation rules of the SEC,
including Regulation M promulgated under the Securities Exchange Act, will apply
to its sales in the market, and we have informed the other selling shareholders
that these anti-manipulation rules may apply to their sales in the market. We
have provided all of the selling shareholders with a copy of such rules and
regulations.
Regulation M may limit the timing of purchases and sales of any of the
shares of our common stock by the selling shareholders and any other person
distributing our common stock. The anti-manipulation rules under the Securities
Exchange Act may apply to sales of shares of our common stock in the market and
to the activities of the selling shareholders and their affiliates. Furthermore,
Regulation M of the Securities Exchange Act may restrict the ability of any
person engaged in the distribution of shares of our common stock to engage in
market-making activities with respect to the particular shares of common stock
being distributed for a period of up to five business days prior to the
commencement of such distribution. All of the foregoing may affect the
marketability of our common stock and the ability of any person or entity to
engage in market-making activities with respect to our common stock.
Rules 101 and 102 of Regulation M under the Securities Exchange Act, among
other things, generally prohibit certain participants in a distribution from
bidding for or purchasing for an account in which the participant has a
beneficial interest, any of the securities that are the subject of the
distribution. Rule 104 of Regulation M governs bids and purchases made to
stabilize the price of a security in connection with a distribution of the
security.
The selling shareholders, other than Swartz, also may resell all, or a
portion, of the common shares in open market transactions in reliance upon Rule
144 under the Securities Act, provided they meet the criteria and conform to the
requirements of such Rule. Swartz may not rely upon Rule 144 since Swartz is an
underwriter within the meaning of Section 2(a)(11) of the Securities Act and the
safe-harbor provided by Rule 144 is not available to underwriters of our common
stock.
15
<PAGE>
Swartz and the other selling stockholders will pay all commissions,
transfer taxes and other expenses associated with their sales. The shares
offered hereby are being registered pursuant to our contractual obligations, and
we have agreed to pay the expenses of the preparation of this prospectus.
16
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following persons are our current directors, executive officers and
significant employees:
Name Age Position
---- --- ------------------------------------
Gerald N. Kern 62 Chairman of the Board,
Chief Executive Officer and Director
Steven I. Kern 33 Chief Operating Officer and
Chief Financial Officer
Cynthia Kern 49 President and Corporate Secretary;
Harry Hall 65 Director
Lester Goldstein, PhD 57 Director
Each director is elected to hold office until the next annual meeting of
stockholders and until his or her successor is duly elected and qualified. All
officers serve at the discretion of our Board of Directors.
Gerald N. Kern
Chairman of the Board and Chief Executive Officer; Director
Mr. Gerald N. Kern has been our Chairman of the Board and Chief Executive
Officer since July 1982 and has been a director of our company since July 1982.
Mr. Kern served as our President from July 1982 until June 1995. From August
1996 to February 1998, Mr. Kern has also served as Chairman of the Board,
President and Chief Executive Officer of GumTech International, Inc., a chewing
gum company. From August 1994 to August 1996, Mr. Kern served as President of
AURA Interactive, an electronics company. Since July 1982, he has served as
President and Chief Executive Officer and a director of Petro-Med, Inc., a
shareholder of our company.
Steven I. Kern
Chief Operating Officer and Chief Financial Officer
Mr. Steven I Kern has served as our Chief Financial Officer since February
2000. Prior to joining our company, Mr. Kern was the Vice President of Marketing
for Financial Management Advisors, Inc. from February 1999 to January 2000. From
July 1996 to January 1999, Mr. Kern served as a Vice President for Merrill Lynch
in its Private Client Group. Mr. Kern was also a Vice President for Smith Barney
from October 1993 to July 1996. He graduated from the University of California,
Los Angeles with a B.A. in English.
Cynthia S. Kern
President and Corporate Secretary
Mrs. Kern has served as our President since June 1995 and as our Corporate
Secretary since July 1982. Prior to joining us, Mrs. Kern served as President
and Treasurer of FSL Cosmetics, Ltd. Mrs. Kern earned a B.A. in English from the
University of California at Los Angeles.
Lester F. Goldstein, Ph.D.
Director
Dr. Goldstein has been a member of our Board of Directors since July 1982.
Since January 2000, Dr. Goldstein has served as the President and Chief
Operating Officer of Island Mist, a manufacturer of portable missing systems.
From April 1998 to January 2000, Dr. Goldstein was Vice President of Coast
Energy, a manufacturer of energy saving devices. From August 1996 to February
1998, Dr. Goldstein served as Executive Vice President of Gumtech International,
Inc., a chewing gum manufacturer, where he was responsible for operations. Prior
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<TABLE>
<CAPTION>
to that position, from July 1992 to August 1996 Dr. Goldstein served as Vice
President of AURA Systems, an electronics company. Dr. Goldstein obtained a B.A.
from Hofstra University in Physics and Mathematics and an M.S. and Ph.D. in
Physics from the Polytechnic University of New York.
Harry Hall
Director
Mr. Hall has been a member of our Board of Directors since 1984. Mr. Hall
has over 30 years of corporate management experience. Since 1986, Mr. Hall has
been a principal at Hall & Associates, a sales and marketing consulting firm.
Mr. Hall is a graduate of Auburn University where he received a B.S. in Business
Administration and he has completed the Effective Executive Program at Wharton
University. Mr. Hall has also served as the President of the Consumer Affairs
Committee of the American Apparel Manufacturers Association.
Executive Compensation
The following table sets forth information concerning the compensation of
our chief executive officer and each of the other two most highly compensated
executive officers for services rendered in all capacities to our company for
each of the fiscal years ended May 31, 1998, 1999 and 2000. Due to our financial
condition, all executive officers have agreed to defer receipt of their
compensation during each of the last three fiscal years. All of the individuals
named in the table will hereinafter be referred to as the "Named Executive
Officers".
SUMMARY COMPENSATION TABLE
------------------------------------- --------------------------------------- --------------------------------------
Annual Compensation Long-Term Compensation Award
------------------------------------- --------------------------------------- --------------------------------------
Restricted Securities
Fiscal Stock Underlying
Name and Principal Position Year Salary Bonus Grants Options
------------------------------------- ----------- -------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C> <C>
Jerry N. Kern 2000 $ 54,000 $ 0 None 4,500,000
Chairman of the Board and 1999 $ 108,000 $ 0 None None
Chief Executive Officer 1998 $ 108,000 $ 0 None None
------------------------------------- ----------- -------------- ------------ ----------------- --------------------
Steven I. Kern 2000 $ 0 $ 0 None 2,500,000
Chief Operating Officer and 1999 $ 0 $ 0 None None
Chief Financial Officer 1998 $ 0 $ 0 None None
------------------------------------- ----------- -------------- ------------ ----------------- --------------------
Cynthia Kern 2000 $ 22,500 $ 0 None 3,000,000
President and Corporate 1999 $ 45,000 $ 0 None None
Secretary 1998 $ 45,000 $ 0 None None
------------------------------------- ----------- -------------- ------------ ----------------- --------------------
We do not currently maintain any employee benefit plans for our employees.
Employee benefits, including medical, dental and life insurance benefits and a
401(k) retirement savings plan, may be considered when management deems it
necessary to attract and maintain additional key employees.
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<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in the fiscal
year ended May 31, 2000 to the Named Executive Officers.
---------------------- ---------- ------------------------- ------------------- --------------- ------------- -------------
Percent
Total Options
Number of Securities Granted to Exercise Grant
Named Officer Grant Underlying All Employees Price Expiration Date
e Options Granted in Fiscal Year ($/Share) Date Value
---------------------- ---------- ------------------------- ------------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald N. Kern 6/1/99 3,000,000 33.3% $0.01 5/31/06 $30,000
2/1/00 1,500,000 16.7% $0.21 5/1/07 $45,000
---------------------- ---------- ------------------------- ------------------- --------------- ------------- -------------
Steven I. Kern 2/1/00 2,500,000 16.7% $0.05 5/1/07 $75,000
---------------------- ---------- ------------------------- ------------------- --------------- ------------- -------------
Cynthia Kern 6/1/99 2,000,000 22.2% $0.01 5/31/06 $20,000
2/1/00 1,000,000 11.1% $0.21 5/1/07 $30,000
---------------------- ---------- ------------------------- ------------------- --------------- ------------- -------------
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information on option exercises in the fiscal
year ended May 31, 2000, by the Named Executive Officers and the value of
unexercised options held by the Named Executive Officers as of May 31, 2000.
------------------------- --------------- ----------- ---------------------------------- ----------------------------------
Number of
securities underlying Value of unexercised
Shares unexercised options in-the-money options at
acquired on Value at May 31, 2000 May 31, 2000
------------------------- --------------- ----------- ---------------------------------- ----------------------------------
Name Exercise realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
------------------------- --------------- ----------- -------------- ------------------- ----------------- ----------------
Gerald N. Kern 3,000,000 $810,000 1,500,000 None $477,150 --
------------------------- --------------- ----------- -------------- ------------------- ----------------- ----------------
Steven I. Kern None -- 2,500,000 None $695,250 --
------------------------- --------------- ----------- -------------- ------------------- ----------------- ----------------
Cynthia Kern 2,000,000 $580,000 1,000,000 None $318,100 --
------------------------- --------------- ----------- -------------- ------------------- ----------------- ----------------
Employment Agreements
We entered into an employment agreement with Gerald N. Kern dated as of
February 3, 2000 and approved by our directors on April 20, 2000, providing for
his employment as Chief Executive Officer effective February 3, 2000. The
agreement is contingent upon completion of the Swartz offering. The agreement
provides for a three-year term and a base salary of $150,000 per annum for the
first year with a minimum annual increase equal to the consumer price index. He
is also eligible for bonuses at the discretion of our Board of Directors.
Certain other expenses, such as a car allowance, travel and expense account,
will also be paid to him on a monthly basis. We may terminate Mr. Kern's
employment with or without cause. However, is we terminate him without cause
this would result in a lump sum severance payment, including the unearned salary
for the remainder of the term plus any prorated earned bonuses. Also, upon a
change of control, Mr. Kern may elect to terminate his employment and obtain a
lump sum severance payment equal to the base salary for the remaining term of
the agreement plus any prorated earned bonuses. In the event that the Swartz
financing is completed, we will grant Mr. Kern an option to purchase 15,950,000
common shares that will vest over the term of his employment agreement.
On February 3, 2000 we entered into an employment agreement with Steven I.
Kern, which was approved by our directors on February 3, 2000, providing for his
employment as Chief Operating Officer and Chief Financial Officer. The agreement
is contingent upon completion of the Swartz offering. The agreement provides for
a three-year term and a base salary of $120,000 per annum. The base salary may
be increased at the discretion of our Board. The agreement provides for payment
of certain expenses, such as a car allowance, expense account and travel, and
eligibility for executive bonuses at the discretion of our Board of Directors.
In the event that the Swartz financing is completed, we will grant Mr. Kern an
option to purchase 13,950,000 shares that will vest over the term of his
employment agreement. We may terminate Mr. Kern's employment with or without
cause. However, is we terminate him without cause this would result in a lump
sum severance payment equal to the remainder of the base salary due under the
agreement. If within 12 months of a change in control Mr. Kern's employment is
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<PAGE>
terminated other than for cause, or if Mr. Kern refuses to accept or voluntarily
resigns from a position other than a qualified position, then he will receive a
lump sum severance payment equal to 12 months of his then current salary.
BUSINESS
Meditech Pharmaceuticals, Inc. is a Nevada corporation. We began our
business in May 1982 and incorporated in Nevada on March 21, 1983.
Our Products
We have developed two patented compounds: MTCH-24(TM) and Viraplex(R). Both
of these compounds show positive test results for treatment of a variety of
enveloped viruses. An enveloped virus is one in which the infectious particle is
surrounded by a coating made of protein, fatty substances and carbohydrate.
MTCH-24(TM)
Herpes I and II are enveloped viruses. How MTCH-24(TM) acts against
enveloped viruses is not fully understood. However, based on laboratory tests
conducted for our company, MTCH-24(TM) is believed to be effective against a
wide range of other enveloped viruses such as influenza, Epstein-Barr virus
("EBV"), respiratory syncytial virus ("RSV," a virus which affects the
respiratory system), pseudorabies (a specific virus in the rabies family), rhino
tracheitis (an infection of the lungs and throat), and cytomegalovirus ("CMV").
It is also believed to be effective against rotavirus, a non-enveloped virus
that is a major cause of diarrhea and inflammation of the intestinal tract in
infants and in certain animals.
EBV is a herpes virus that causes infectious mononucleosis and may be a
cause of Burkitt's lymphoma, a disease found mostly in Africa and New Guinea,
and less frequently, in the United States. EBV causes widespread early childhood
disease in developing countries, and is also associated with nasopharyngeal
carcinoma, a malignant tumor of the nose, usually affecting young adults.
CMV is a virus, the effects of which vary substantially depending upon the
age and immune status of the infected person. Infection of an infant can result
in a fatal disease involving the nervous system and liver. Infection acquired
later in life may cause a syndrome clinically indistinguishable from
mononucleosis. Generalized CMV infection, which can be fatal, may also occur in
patients whose immune systems have been compromised.
Rotavirus is believed to be the causative agent in over 50% of all cases of
acute diarrhea in children requiring hospitalization. It can be highly
contagious and sometimes fatal. Rotavirus is also a major cause of
gastroenteritis in swine and lambs. Gastroenteritis is an inflammation often due
to an infectious agent of the intestinal tract with a mortality rate of 30% to
50%.
Initial therapeutic uses of MTCH-24(TM) will include the topical treatment
of Herpes Simplex Virus I and acne. Future dosage forms and uses covered by
patents include creams, lotions, mouthwashes, cleansers, surface disinfectants,
impregnated facial tissues, douches and inhalants. We have developed an
over-the-counter product containing MTCH-24(TM) for treating symptoms of herpes
simplex virus infections of the lips, mouth, and face (e.g. cold sores and fever
blisters). Initially, the active ingredients shown in the product will be drugs,
other than MTCH-24(TM), that previously have been recognized by the FDA as safe
and effective for their intended use, as specified in FDA monographs or proposed
monographs. MTCH-24(TM) will be used in these products as a non-active
ingredient or a surfactant, an agent that is used externally such as soap or
topical anti-microbial agent plus wetting agent. An anti-microbial agent is one
that either prevents or kills microbes, including bacterial germs and viruses.
Under these conditions, we hope our over-the-counter product will fall within
the scope of the FDA regulations. Consequently, we may be able to bring our
product to market in the United States without further FDA approval. Outside FDA
and FTC counsel will conduct extensive legal research prior to the release for
sale of any of our products.
Viraplex(R)
The National Cancer Institute has conducted studies since 1987 to screen
60,000 drugs against cancer related organisms. One of the final drugs remaining
in this study as being potentially effective against some cancers is
Viraplex(TM). They have not yet completed the testing to determine actual
effectiveness.
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One of the problems in moving this project forward was the inherent
insolubility of Viraplex(R). In 1997 and 1998, we reformulated the drug into a
fully soluble form, now making it possible to deliver the maximum therapeutic
dose to the intended site of delivery. We may use part of the proceeds from this
offering to continue the cancer trials via the production of the more soluble
form of the drug.
We are currently testing Viraplex(R), as well as MTCH-24(TM). Pending
satisfactory test results, we plan to develop additional products containing
these drugs. Viraplex(R), which is administered orally in capsule form as a
prescription treatment for orofacial and genital herpes simplex virus
infections, started Phase III clinical trials for safety and effectiveness in
humans. However, we have suspended these trials pending the obtaining of
additional capital to finance the trials. We received permission from the FDA in
1987 to initiate a 320-patient Phase III study, consisting of 160 patients with
genital herpes and 160 patients with orofacial herpes. We had completed more
than 50% of this testing prior to our suspension of the testing due to lack of
funds. Because this test was structured as a double blind test (a test where
half the patients unknowingly receive a placebo and the other half unknowlingly
receive the drug) only the bio-statistician has the ability to determine the
test results prior to completion of the testing. If we decide to complete this
test, instead of commencing a new test, the results will be published upon
completion.
Agricultural Products
Fungal, bacterial and viral plant diseases cause loss of crops worldwide.
Fungi pose a major health hazard by producing mycotoxins, toxic chemical
substances that cause potentially deadly diseases in humans and animals. In
particular, aflatoxin produced by Aspergillus flavus is among the most deadly
substances known to mankind. Aflatoxin is a plant disease that affects grain
crops such as corn and wheat. Aspergillus is a group of fungi that causes
disease in humans, animals and plants. In humans, Aspergillus commonly causes
lung disease due either to direct growth of the organism or by allergic
mechanisms. The Aspergillus flavus strain often grows on stored grain, corn and
other foodstuffs causing spoilage, and may produce toxic substances that render
these foods poisonous. MTCH-24 (TM) has been shown to be effective in inhibiting
and preventing the growth of Aspergillus on wheat and corn.
Organisms of the bacteria genus Xanthomonas cause citrus canker. Xanthomas
consist of a group of bacteria that infects plants and causes significant loss
of commercially important fruits and vegetables. MTCH-24(TM) has been shown to
inhibit this organism at concentrations non-toxic to humans. Biosciences
Laboratories in Montana is currently conducting tests using MTCH-24(TM) against
this organism and two others.
We have engaged in limited testing and development in this area and are
seeking to interest potential licensees or joint venture partners to provide
assistance in testing, obtaining the necessary approvals for, and marketing one
or more of our agricultural products. At this point, we have not decided which
of our agricultural products we will seek to develop commercially or the order
of such development. This will depend in large part on the identity of the
licensees or joint venture partners and the wishes and interests of such
parties.
Marketing Plan
Presently, depending upon the timing and amount raised through our
investment agreement with Swartz, we estimate that we will have commercial
products that we will market in the United States within the next two years. In
addition, we intend to bring out an MTCH-24(TM)-based Cold Sore product in the
United States. The target customers for our products are drug chains, drug
wholesalers, mass marketers and food chains. We also plan to market our product
directly over the Internet. If available, we intend to employ independent sales
representative organizations.
We hope to use an independent advertising group to market and promote our
products. We would aim media at the appropriate segments of the population, as
well as publications targeting the self-medicating segment. We intend for most
of the advertising to be in print. We have assigned the task of developing a
brand name to a professional outside agency specializing in drug naming. We hope
to select a name with maximum consumer impact and long consumer attention span.
We are also working with a drug naming consulting firm to develop a name we will
use commercially for MTCH-24(TM). We have selected the name Zorex(TM) and have
filed a trademark application with the United States Patent and Trademark Office
to register the mark.
In addition to our selling efforts upon commercialization of our products,
we are currently attempting to enter into licensing arrangements with larger
pharmaceutical and consumer product companies, especially on an international
21
<PAGE>
level. Because we can enter into licensing arrangements prior to
commercialization of our products, licensing arrangements can be used to raise
capital and obtain assistance with research and development. For example, on
February 3, 2000, we entered into a letter agreement with Immune Network,
Limited, a Canadian corporation ("INL"). Pursuant to the agreement, we granted
INL an irrevocable option for a period of one year to obtain an exclusive
license to make, have made, promote, sell and distribute Viraplex and
MTCH-24(TM), and any derivatives or formulation of either product, throughout
the world, excluding the United States. Pursuant to this letter agreement, INL
has paid to us $100,000 in anticipation of entering into a formal license
agreement in which we will receive a seven percent and four percent royalty on
INL's net sales of MTCH-24(TM) and Viraplex, respectively. In addition, INL will
initiate and fund a minimum of $20,000 worth of research and development
activities on MTCH-24(TM) and Viraplex, and will provide to us all data from
these activities.
Pursuant to the letter agreement, we also granted to INL an irrevocable
option to purchase 10,000,000 shares of our common stock at an exercise price of
$0.03 per share. The shares of common stock issuable upon exercise of the option
are being registered in this registration statement. INL paid to us an
additional $25,000 relating to this irrevocable option. Finally, we have also
agreed to nominate INL's president to our board of directors upon the
effectiveness of this Registration Statement.
Competition
There is at least one FDA-approved product currently available, by
prescription, for the treatment of herpes infections. Burroughs-Wellcome Co.
sells it under the name Zovirax(R) (Acyclovir). FDA approval of Zovirax is
limited to selected cases of genital and mucocataneous herpes and also to
specific usage. Mucocataneous herpes relates to certain lubricating linings in
the body and/or skin. Herpes Simplex Viruses typically cause infection at these
sites. Other companies are testing vaccines intended to prevent infection by
herpes viruses. Treatment of persons presently afflicted with recurrent herpes
infections is the primary focus of the products we are developing.
Many pharmaceutical companies and other researchers have announced their
intention to introduce, or are believed to be in the process of developing a
variety of products that may perform some or all of the functions of our
Viraplex(R) and MTCH-24(TM) products. Competing products are already available
for many of the functions of our MTCH-24(TM) products. Other current competitors
include Uniliver (with Vaseline Intensive lip care), Avanir Pharmaceuticals
(with Docusanol) and Blistex.
Patents
Our performance and ability to compete depends to a significant degree on
our proprietary knowledge. We rely or intend to rely on a combination of patent
and trade secret laws, non-disclosure agreements and other contractual
provisions to establish, maintain and protect our proprietary rights.
MTCH-24(TM)
1. United States Patent #4,717,735 (Antibacterial Methods and
Agent), issued January 1, 1988 (6 claims)
2. United States Patent #4,719,235 (Methods and Compositions for
Treating Viral Infections), issued January 12, 1988 (37 claims)
3. United States Patent #4,752,617 (Antibacterial Methods and
Agent), issued June 21, 1988 (6 claims)
4. Canadian Patent #1,242,147 (Method for Treating Viral Infection),
issued September 20, 1988 (6 claims)
5. Canadian Patent #1,256,032 (Method and Composition for Treating
Viral Infections), issued July 20, 1989 (16 claims)
6. United States Patent #4,885,310 (Antifungal Methods and Agent),
issued December 205, 1989 (26 claims)
VIRAPLEX (R)(R)
1. Italian Patent #1,196,739 (Herpes Simplex Treatment), issued
November 25, 1988 (6 claims)
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2. United States Patent #4,810,707 (Herpes Simplex Treatment),
issued March 7, 1989 (5 claims)
3. Canadian Patent #1,261,269 (Herpes Simplex Treatment), issued
September 26, 1989 (14 claims)
Government Regulation
Pharmaceutical products are subject to extensive regulation in the United
States and most foreign countries. In the United States, ethical pharmaceutical
products cannot be marketed or sold before they have passed the FDA's required
three-stage process. Providing adequate test data, completing filings and
obtaining final regulatory approval is usually a multi-year process.
Once ethical pharmaceutical products are approved for sale, many of them
are purchased through health plans which are subject to state and Federal
regulations including the Health Maintenance Act of 1973, the Knox-Keene Act in
California, and numerous other regulations which bar some forms of treatment and
some pharmaceutical products as being "experimental" or "not medically
necessary."
Similar regulations and regulatory oversight are in place in most
countries. This ongoing regulatory oversight can also result in the withdrawal
of products from the market after their approval for sale in instances where new
test data creates additional regulatory concerns.
Employees
We currently have three employees. We currently contract with outside
partners to perform the testing and registration of our patented products. As we
move toward completion of testing and introduction of products to the market, we
plan to substantially increase the number of employees in administrative and
marketing roles.
Litigation
We are not a party to any material legal proceedings nor are we aware of
any pending litigation against our company.
Properties
We currently operate out of space owned by Gerald Kern, our Chairman and
CEO, that is provided to us without charge. This space will not be adequate for
operations as we move forward. We anticipate acquiring a small office in Los
Angeles within the next 12 months.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
operations in conjunction with the consolidated financial statements and the
related notes included elsewhere in this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of many factors, including but not limited to, those
described under "Risk Factors" and elsewhere in this prospectus.
Overview
We are a drug development company, founded in 1982, focused in the areas of
research, development, and marketing in the biomedical industry, with an
emphasis on anti-infective drugs. We have completed various stages of planning
and developing products containing our proprietary drugs Viraplex (R) and
MTCH-24(TM).
Our development activities since inception have included efforts to secure
financing, create a management and business structure, and develop and test
Viraplex (R) and MTCH-24(TM) for release as both over-the-counter and ethical
products. These activities have produced very little operating revenues.
From the time we became a public company in 1983 to 1987, our operations
related primarily to research and development, securing our patents, initiating
and continuing clinical tests, recruiting personnel and raising capital. In 1987
we halted testing of our products and significantly reduced our research and
development efforts due to a lack of funding. From 1987 through late-1999, we
had very limited operations, and conducted minimal research and development in
order to keep our existing projects active. During our period of inactivity,
most of the costs incurred by the Company related to general administrative
expenses, primarily executive compensation which was accrued but not paid and
stock based compensation, and other minimal operating costs to keep the Company
and its products afloat pending a financing. In late-1999, in anticipation of
our financing arrangement with Swartz Private Equity, LLC, we gradually
restarted research and development efforts and minimal testing of our products.
We anticipate that, with the anticipated proceeds we will receive through
the sale of our common stock to Swartz under the Investment Agreement, we will
be able to expand our research and development efforts and complete testing, or
conduct new testing, of our products.
Going Concern
Our consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the consolidated
financial statements, we experienced a loss of approximately $1,150,100 during
the year ended May 31, 2000, had a cash balance of approximately $115,000, and
had an accumulated deficit of approximately $16,246,000 at May 31, 2000. These
factors, among others, raise substantial doubt about our ability to continue as
a going concern.
We must raise additional funds in order to actively reinstate our research
and development efforts, to complete existing product testing which was
suspended in 1987, or commence new testing on such product, and to conduct
additional testing on our products. We intend to obtain the necessary financing
through our Investment Agreement with Swartz Private Equity, LLC. There can be
no assurance that we will be successful in raising from Swartz sufficient
additional capital in order to continue and complete our research and
development and testing. Our future success is dependent upon raising additional
money to provide for the necessary operations of the Company. If we are unable
to obtain such additional financing, there would be a material adverse effect on
our business, financial position, and results of operations. Our continuation as
a going concern is dependent on our ability to generate sufficient capital to
meet our obligations on a timely basis, and to continue and complete our
research and development and testing efforts.
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<PAGE>
Three Months Ended August 31, 2000, Compared with Three Months Ended August 31,
1999
We incurred a net loss of approximately $194,000 for the three months ended
August 31, 2000, as compared to a net loss of approximately $258,000 for the
three months ended August 31, 1999. The decrease in net loss of approximately
$64,000 is due primarily to a decrease in general and administrative expenses of
approximately $76,000, which was partially offset by increases of approximately
$5,000 and $7,000, in research and development expenses and interest expense,
respectively.
The decrease in general and administrative expenses from approximately
$183,000 for the three months ended August 31, 1999 to approximately $107,000
for the three months ended August 31, 2000, is due primarily to a decrease in
stock based compensation expense and accrued compensation, as certain of the
Company's officers are not currently receiving a salary for their services.
The increase in research and development expenses from zero for the three
months ended August 31, 1999 to approximately $5,000 for the three months ended
August 31, 2000, is a result of the Company reinstating certain research and
development efforts in anticipation of the financing arrangement with Swartz
Private Equity, LLC. In prior periods, the Company had conducted minimal or no
research and development due to a lack of funding. Because the Company
anticipates raising capital through this financing arrangement, it has gradually
restarted its research and development efforts.
The increase in interest expense from approximately $75,000, for the three
months ended August 31, 1999 to approximately $82,000 for the three months ended
August 31, 2000 is primarily due an increase in advances to the Company from
affiliates, upon which interest expense is calculated. Because the Company has
not had the funds to pay all of its general and administrative operating
expenses, the Company's Chief Executive Officer from time to time advances funds
to the Company to cover such expenses. As a result, the Company records the
expense when paid and records an increase in advances from affiliates.
Fiscal Year Ended May 31, 2000 Compared with Fiscal Year Ended May 31, 1999.
Results of Operations
The consolidated May 31, 2000 financial statements included a net loss of
$1,150,100, of which $309,000, or approximately 41%, was due to interest
accruals. The consolidated May 31, 1999 financial statements included a net loss
of $767,400, of which $283,000, or approximately 40%, was due to interest
accruals and salary accruals. The increase in net loss from fiscal year 1999 to
fiscal year 2000 is due primarily to the recognition of stock based compensation
of approximately $400,000 attributable to the option granted to Immune Network,
Limited.
Sources of Revenues and Revenue Recognition
Our revenues have grown to $25,000 in 2000 after no revenues in 1999.
Revenues consist entirely of a $25,000 fee paid to us by Immune Network,
Limited. ("INL") in connection with the execution of our letter agreement dated
February 3, 2000. Pursuant to the letter agreement, we granted INL an
irrevocable option to license, develop and market several applications of
MTCH-24(TM) and Viraplex (R). In addition, pursuant to the letter agreement, INL
is obligated to pay to us the sum of $100,000 upon execution of a definitive
license agreement. Although we have not completed negotiations of the license,
INL has paid the $100,000, which has been recorded as deferred revenue as of May
31, 2000.
We will recognize revenues from licenses over the period of the applicable
license.
Operating Expenses
Our expenses include research and development and general and
administrative. Research and development consists of laboratory expenses,
consulting expenses, test expenses, clinical and research salaries, and other
costs associated with the development of products not yet marketed. General and
administrative expenses include the salaries and benefits costs of management
and other non-manufacturing employees, including stock based compensation, sales
and marketing expenses, rent, accounting, legal and operational costs. Personnel
compensation and facilities costs represent a high percentage of our operating
expenses and are relatively fixed in advance of each quarter.
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<PAGE>
Research and Development Costs. Direct research and development costs in
2000 were $1,200, up from $0 in 1999. This increase is due to the gradual
restarting of our research and development efforts in anticipation of our
financing with Swartz.
General and Administrative Expenses. Direct salaries and costs were
$484,400 in 1999 and increased to $864,900 in 2000, an increase of approximately
79%. The increase in direct salaries and costs for 2000 compared to 1999 was
primarily due to the stock based compensation attributable to the INL option
grant. In the future, we expect direct costs to increase in absolute dollar
terms but to decrease as a percentage of revenues due to over-the-counter
products reaching the market and the sale of additional product licenses.
Gerald Kern, our Chairman and Chief Executive Officer, advanced funds to us
in order to pay certain of our selling, general and administrative expenses
during 1999 and 2000. Upon receipt of these advances and payment of the
expenses, the Company recorded the appropriate expense on its statement of
operations and increased its liability for advances from affiliates. In the
future, we expect selling, general and administrative expenses to increase in
absolute dollars but to decrease as a percentage of revenues due to improved
economies of scale and higher overall revenues.
Liquidity and Capital Resources
Since inception, we have funded our operations and investments in property
and equipment through cash from equity financings and licensing fees.
Our cash and cash equivalents were $0 at May 31, 1999 and $114,800 at May
31, 2000. Cash was not augmented by net proceeds from financing activities in
either year. This increase in cash is attributable to the payments received from
INL.
On June 30, 2000, we entered into an investment agreement with Swartz
Private Equity, LLC. The investment agreement entitles us to issue and sell our
common stock to Swartz for up to an aggregate of $30 million from time to time
during a three-year period beginning on the date that this registration
statement is declared effective. This is also referred to as a put right. The
trading volume limits the dollar amount of each sale and a minimum period of
time must occur between sales. In order to sell shares to Swartz, there must be
an effective registration statement on file with the SEC covering the resale of
the shares by Swartz and we must meet certain other conditions.
We have incurred recurring operating losses and positive cash flows from
operating activities and have negative working capital. We believe that our
available equity financing arrangement with Swartz will be sufficient to meet
our working capital and capital expenditure requirements for at least the next
two years. However, there can be no assurance that we will receive financing
from Swartz, that we will not require additional financing within this time
frame or that such additional financing, if needed, will be available on terms
acceptable to us, if at all.
Year 2000 Compliance
The Year 2000 problem is the result of certain computer programs being
written using two digits, rather than four digits, to define the applicable
year. Any computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, or not recognize the
date at all. If not corrected, this could result in system failures or
miscalculations that could result in service or other interruptions. To date, we
have not experienced any significant Year 2000 problems.
Testing and compliance monitoring as part of our Year 2000 program will
continue throughout 2000 to ensure proper leap year operations and that system
changes and additions are Year 2000 compliant.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
As discussed in our Form 8-K filed with the SEC on September 8, 2000, on
September 6, 2000 our Board of Directors approved the engagement of Singer Lewak
Greenbaum & Goldstein LLP, as our independent certified public accountants, to
26
<PAGE>
audit our financial statements for the fiscal year ending May 31, 2001. Singer
Lewak Greenbaum & Goldstein, LLP, was also engaged to audit our financial
statements for the fiscal year ended May 31, 2000, and each of the two years in
the period then ended, for inclusion in this registration statement. The
engagement of Singer Lewak Greenbaum & Goldstein LLP follows the replacement of
Roy A. Cohen, C.P.A., who had been engaged to audit our financial statements for
the fiscal years ended May 31, 1985 through 2000. The audit reports provided by
Roy A. Cohen, C.P.A. for the prior two fiscal years did not contain an adverse
opinion or disclaimer of opinion; however, the audit reports for such periods
did contain a going concern qualification.
There were no past or present disagreements between our company and Roy A.
Cohen, C.P.A., on any matter of accounting principles or practices, financial
statement disclosure or auditing, scope or procedure. There were no "reportable
events" (as such term is defined in Item 304 of Regulation S-K) that occurred
within our two most recent fiscal years nor any subsequent interim period
preceding the replacement of Roy A. Cohen, C.P.A.
During our two most recent fiscal years and any subsequent interim period
prior to the engagement of Singer Lewak Greenbaum & Goldstein LLP, neither we
nor anyone on our behalf consulted with Singer Lewak Greenbaum & Goldstein LLP,
regarding either (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on our financial statements or (ii) any matter that was either
the subject of a "disagreement" or a "reportable event."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since our inception, we have received advances from Petro-Med, Inc., an
affiliate, to fund our working capital requirements. Although we did not receive
any advances during the fiscal years 2000 or 1999, we did accrue interest each
year of $309,000 and $283,000, for the years ended May 31, 2000 and 1999,
respectively, on the balance of outstanding advances. Interest accrues at the
rate of nine percent per annum.
Pursuant to our letter agreement dated February 3, 2000 with Immune
Network, Limited ("INL"), and the proposed worldwide (excluding the United
States) license agreement between our Company and INL which we are currently
negotiating, we granted an option to INL to purchase 10,000,000 restricted
shares of our common stock upon execution of the definitive license agreement.
The option has been issued to INL in consideration for analytic and development
work to be performed by INL to develop new applications and new patent claims
for our products. If the option were exercised currently, the 10,000,000 shares
of our common stock would represent approximately seven percent of our total
issued and outstanding shares. To date, INL has exercised the option as to
3,333,333 shares.
We have also agreed to grant to INL certain registration and information
rights with respect to the option and shares purchased upon exercise of the
option. Subject to certain limitations, we are obligated to use our best efforts
to register the shares underlying the to option. We are also obligated to
include the shares, subject to certain limitations, in any underwriting and in
any other registration statement filed by us. The 10,000,000 shares are being
registered pursuant to the registration statement of which this prospectus is a
part.
As previously discussed, we issued a warrant to Swartz Private Equity, LLC
to purchase 7,000,000 shares of our common stock as a condition to entering into
the investment agreement dated June 30, 2000.
27
<PAGE>
MARKET INFORMATION
Our common stock is traded in the over-the-counter market and is quoted on
the Nasdaq Over-The-Counter Bulletin Board system under the symbol "MDCH.DB."
Prices reported represent prices between dealers, do not include markups,
markdowns or commissions and do not necessarily represent actual transactions.
The market for our shares has been sporadic and at times very limited.
The following table sets forth the high and low bid quotations for our
common stock for the fiscal years ended May 31, 2000 and 1999.
HIGH LOW
---- ---
Fiscal Year Ended May 31, 2000
First Quarter $0.02 $0.01
Second Quarter 0.08 0.01
Third Quarter 0.97 0.31
Fourth Quarter 0.44 0.27
Fiscal Year Ended May 31, 1999
First Quarter $0.03 $0.02
Second Quarter 0.02 0.02
Third Quarter 0.03 0.02
Fourth Quarter 0.04 0.01
On December 1, 2000, the closing bid price of our common stock was $0.145
and there were approximately 3,000 shareholders of record, excluding stock held
in street name.
DIVIDEND POLICY
We have never declared cash dividends on our capital stock. We currently
intend to retain all available funds and any future earnings for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.
28
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of date of this prospectus, the stock
ownership of each officer and director of our company, of all our officers and
directors as a group, and of each person known by us to be a beneficial owner of
five percent or more of our common stock. Except as otherwise noted, each person
listed below is the sole beneficial owner of the shares and has sole investment
and voting power over such shares. Unless otherwise indicated, the address of
each names beneficial owner is the same as that of our principal executive
offices located at 10105 E. Via Linda, No. 13, Scottsdale, Arizona 85258.
Name and Address Amount and Nature of Percentage of
of Beneficial Owner Beneficial Ownership Class
------------------- -------------------- ---------
Petro-Med, Inc. 26,256,794 18.7%
Gerald N. Kern 33,266,794 (1) 23.5%
Steven I. Kern 2,500,000 (2) 1.8%
Cynthia S. Kern 3,000,000 (3) 2.1%
Lester Goldstein 1,050,000 (4) *
Harry Hall 800,000 (5) *
Immune Network, Limited 10,000,000 (6) 6.8%
3650 Wesbrook Mall
Vancouver, Canada, BC V6S ZLZ
Swartz Private Equity, LLC 7,000,000 (7) 4.8%
200 Rosewell Summit
Suite 285
Roswell, Georgia 30076
All directors & officers 40,616,794 27.8%
as a group (5 persons)
---------------------------------------------
* Less than 1%.
(1) Mr. Kern is the Chairman of the Board and Chief Executive Officer of
Petro-Med, Inc. and may be deemed the beneficial owner of the
26,256,794 shares owned by Petro-Med, Inc. Includes 1,500,000 shares
issuable upon exercise of outstanding stock options. Does not include
an aggregate of 2,250,000 shares of our common stock held by Mr.
Kern's spouse and adult children. Mr. Kern disclaims beneficial
ownership of the shares held by such persons.
(2) Includes 2,500,000 shares issuable upon exercise of outstanding stock
options.
(3) Includes 1,000,000 shares issuable upon exercise of outstanding stock
options. Does not include an aggregate of 7,260,000 shares of common
stock held by Ms. Kern's spouse and adult children. Ms. Kern disclaims
beneficial ownership of the shares held by such persons.
(4) Includes 450,000 shares issuable upon exercise of outstanding stock
purchase warrants.
(5) Includes 450,000 shares issuable upon exercise of outstanding stock
purchase warrants.
(6) Includes 6,666,667 shares issuable upon exercise of the stock option
we granted to Immune Network, Limited.
(7) Includes 7,000,000 shares issuable upon exercise of the outstanding
warrant we issued to Swartz in connection with the
Investment Agreement.
Pursuant to the Investment Agreement, Swartz has the right to acquire
up to an additional 40,000,000 shares of our common stock under certain
circumstances, excluding certain warrants. It is expected that Swartz will not
own beneficially more than 9.9% of our outstanding common stock at any one time.
Swartz will also receive an amount of purchase warrants to purchase shares of
our common stock equal to ten percent of the number of put shares purchased. See
"Investment Agreement".
29
<PAGE>
DESCRIPTION OF SECURITIES
The following summary description of our capital stock is a summary and is
qualified in its entirety by reference to our Articles of Incorporation, as
amended to date and our Bylaws. All material terms of these referenced documents
are disclosed in this document. Our authorized capital stock consists of
400,000,000 shares of common stock, $.00001 par value per share, and 25,000,000
shares of preferred stock, $.00001 par value per share.
Common Stock
As of December 1, 2000, a total of 140,046,765 shares of our common stock
were issued and outstanding. The holders of our common stock are entitled to one
vote for each share held. The affirmative vote of a majority of votes cast at a
meeting that commences with a lawful quorum is sufficient for approval of
matters upon which shareholders may vote, including questions presented for
approval or ratification at the annual meeting. Our common stock does not carry
cumulative voting rights, and holders of more than 50% of our common stock have
the power to elect all directors and, as a practical matter, to control our
company. Holders of our common stock are not entitled to preemptive rights, and
our common stock may only be redeemed at our election.
After the satisfaction of requirements with respect to preferential
dividends, if any, holders of our common stock are entitled to receive, pro
rata, dividends when and as declared by our board of directors out of funds
legally available therefore. Upon our liquidation, dissolution or winding-up,
after distribution in full of the preferential amount, if any, to be distributed
to holders of the preferred stock, holders of our common stock are entitled to
share ratably in our assets legally available for distribution to our
shareholders. All outstanding shares of common stock are fully paid and
non-assessable.
Preferred Stock
We currently do not have any shares of preferred stock outstanding. Our
board of directors is authorized to issue up to 25,000,000 shares of preferred
stock, without any further action by the stockholders. Our board of directors
may also divide any and all shares of preferred stock into series and fix and
determine the relative rights and preferences of the preferred stock, such as
the designation of series and the number of shares constituting such series,
dividend rights, redemption and sinking fund provisions, liquidation and
dissolution preferences, conversion or exchange rights and voting rights, if
any. Issuance of preferred stock by our board of directors will result in such
shares having dividend and/or liquidation preferences senior to the rights of
the holders of our common stock and could dilute the voting rights of the
holders of our common stock.
Dividends
We have not paid any cash dividends to date, and we do not intend to
declare any cash dividends on the common shares in the foreseeable future.
Payment of dividends is solely at the discretion of our board of directors.
Options and Warrants
We do not currently have in place a formal employee stock option plan. From
time to time our Board of Directors has authorized the grant of stock options to
employees and other service providers. Such options do not qualify as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1986, as
amended. As of December 1, 2000, the following options to purchase our common
stock were outstanding: (i) an option to purchase 2,500,000 shares of our common
stock at an exercise price of $0.05 per share, which will expire on May 1, 2007;
and (ii) options to purchase an aggregate of 2,500,000 shares of our common
stock at an exercise price of $0.21 per share, which will expire on May 1, 2007.
As of December 1, 2000, the following warrants to purchase our common
stock were outstanding: (i) a commitment warrant issued to Swartz to purchase
7,000,000 shares of our common stock at an exercise price of $0.33 per share,
which will expire on May 20, 2005; (ii) warrants to purchase an aggregate of
300,000 shares of our common stock at an exercise price of $0.01 per share,
which will expire on May 31, 2006; (iii) warrants to purchase an aggregate of
50,000 shares of our common stock at an exercise price of $0.05 per share, which
will expire on May 1, 2007, (iv) warrants to purchase an aggregate of 1,600,000
shares of our common stock at an exercise price of $0.21 per share, which will
30
<PAGE>
expire on May 1, 2007, and a warrant issued to Immune Network, Ltd. to purchase
6,666,667 shares of our common stock at an exercise price of $0.03 per share.
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
As permitted by applicable law, our Bylaws provide that we will indemnify
our officers, directors, employees, consultants and agents. This includes
indemnification against attorneys' fees and other expenses and liabilities they
incur to defend, settle or satisfy any civil or criminal action brought against
them arising out of their association with or activities on behalf of our
company. However, they will not be indemnified if they are adjudged to have
acted with gross negligence, engaged in willful misconduct, knowingly violated
the law, breached their duty of loyalty or received improper personal benefit.
We may also bear the expenses of such litigation for any such persons upon their
promise to repay such sums if it is ultimately determined that they are not
entitled to indemnification. Such expenditures could be substantial and may not
be recouped, even if we are so entitled. We have provided for indemnification
for liabilities arising under the Securities Act of 1933 as they may be
permitted to directors, officers or persons controlling us. The Securities and
Exchange Commission has informed us that such indemnification is against public
policy and may be unenforceable.
TRANSFER AGENT
American Securities Transfer & Trust, Inc., 12029 W. Alameda Parkway,
Lakewood, CO 80228, acts as our transfer agent and registrar for our common
stock. Their telephone number is (303) 984-1062.
LEGAL MATTERS
Jeffers, Shaff, & Falk, LLP, Irvine, California 92612 has passed on the
validity of the common stock offered by us.
EXPERTS
Our financial statements as of May 31, 2000 and May 31, 1999, and for each
of the years in the two year period ended May 31, 2000, have been included in
this Prospectus and in the Registration Statement in reliance on the report,
which contains an explanatory paragraph relating to our ability to continue as a
going-concern as described in Note 3 to the financial statements, of Singer
Lewak Greenbaum & Goldstein LLP, independent accountants, given on authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Commission a registration statement on Form SB-2
under the Securities Act with respect to the common stock offered hereby. This
prospectus does not contain all of the information set forth in the rules and
regulations of the Commission. For further information with respect to our
company and this offering, we refer you to the registration statement and
exhibits filed as part of it. You may inspect the registration statement,
including the exhibits thereto, without charge at the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549 and at the regional offices of the Commission located at 7 World Trade
Center, 13th Floor, New York, New York. You may obtain copies of all or any
portion of the registration statement from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
upon payment of the prescribed fees. You may obtain information on the operation
of the Public Reference Room by calling the Commission at 1-800-SEC-0330. You
may also access such material electronically by means of the Commissions home
page on the Internet at http://www.sec.gov. Descriptions contained in this
prospectus as to the contents of an contract or other document filed as an
exhibit to the registration statement are not necessarily complete and each such
description is qualified by reference to such contract or document.
We mail a copy of our audited Annual Report on Form 10-KSB along with a
proxy statement to our shareholders prior to our annual meeting.
31
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONTENTS
May 31, 2000 and August 31, 2000 (unaudited)
================================================================================
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Operations F-5 - F-6
Consolidated Statements of Stockholders' Deficit F-7 - F-12
Consolidated Statements of Cash Flows F-13 - F-15
Notes to Consolidated Financial Statements F-16 - F-34
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Meditech Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheet, as restated (see
Note 2) of Meditech Pharmaceuticals, Inc. and subsidiary (development stage
companies) as of May 31, 2000, and the related consolidated statements of
operations, stockholders' deficit, and cash flows, as restated (see Note 2) for
each of the two years in the period ended May 31, 2000, and for the period from
May 4, 1982 (inception) to May 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the restated, consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Meditech Pharmaceuticals, Inc. and subsidiary as of May 31, 2000, and the
results of their consolidated operations and their consolidated cash flows for
each of the two years in the period ended May 31, 2000, and for the period from
May 4, 1982 (inception) to May 31, 2000 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. During the years ended May
31, 2000 and 1999, the Company incurred net losses of $1,150,100 and $767,400,
respectively. In addition, the Company's accumulated deficit was $16,051,600 as
of May 31, 2000. Recovery of the Company's assets is dependent upon future
events, the outcome of which is indeterminable. In addition, successful
completion of the Company's transition, ultimately, to the attainment of
profitable operations is dependent upon obtaining adequate financing to fulfill
its development activities and achieving a level of sales adequate to support
the Company's cost structure. These factors, among others, as discussed in Note
3 to the consolidated financial statements, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
November 8, 2000, except
for the fifth paragraph of
Note 5, as to which the
date is November 30, 2000
F-2
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
May 31, 2000 and August 31, 2000 (unaudited)
================================================================================
ASSETS
(restated)
August 31, May 31,
2000 2000
---------- -----------
(unaudited)
Current assets
Cash $ 80,600 $ 114,800
Prepaid expenses 600 600
---------- -----------
Total current assets 81,200 115,400
Other assets 15,500 2,100
---------- -----------
Total assets $ 96,700 $ 117,500
========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
May 31, 2000 and August 31, 2000 (unaudited)
===================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
(restated)
August 31, May 31,
2000 2000
------------ ------------
(unaudited)
Current liabilities
<S> <C> <C>
Accounts payable and accrued expenses $ 1,503,600 $ 1,502,500
Accrued compensation 2,787,100 2,787,100
Advances from affiliates 3,684,500 3,603,800
Advances from stockholders 43,500 43,500
Loan payable 71,000 71,000
Deferred revenue 100,000 100,000
------------ ------------
Total current liabilities 8,189,700 8,107,900
------------ ------------
Minority interest in consolidated subsidiary 191,300 191,300
------------ ------------
Commitments and contingencies
Stockholders' deficit
Preferred stock, $0.001 par value
25,000,000 shares authorized
0 (unaudited) and 0 issued and outstanding -- --
Common stock, $0.001 par value
400,000,000 shares authorized
136,713,432 (unaudited) and 136,713,432 shares issued
and outstanding 136,700 136,700
Subscriptions receivable (10,000) (10,000)
Additional paid-in capital 7,834,550 7,743,200
Accumulated deficit (16,245,550) (16,051,600)
------------ ------------
Total stockholders' deficit (8,284,300) (8,181,700)
------------ ------------
Total liabilities and stockholders' deficit $ 96,700 $ 117,500
============ ============
The accompanying notes are an integral part of these financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended May 31, 2000 and 1999,
for the Three Months Ended August 31, 2000 and 1999 (unaudited), and
for the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
======================================================================================================
For the
Period from
May 4,
For the Three Months Ended For the Year Ended 1982
August 31, May 31, (Inception)
---------------------------- ---------------------------- to August 31,
2000 1999 2000 1999 2000
------------ ------------ ------------ ------------ ------------
(restated) (restated) (restated) (restated)
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ -- $ 25,000 $ -- $ 25,000
------------ ------------ ------------ ------------ ------------
Operating expenses
Research and
development 4,800 -- 1,200 -- 1,843,100
General and
administrative 107,450 183,485 864,900 484,400 12,190,450
Aborted stock
offering costs -- -- -- -- 325,400
------------ ------------ ------------ ------------ ------------
Total operating
expenses 112,250 183,485 841,100 484,400 14,333,950
------------ ------------ ------------ ------------ ------------
Loss before other
income (expense) (112,250) (183,485) (841,100) (484,400)
------------ ------------ ------------ ------------ ------------
Other income
(expense)
Interest expense (81,700) (74,700) (309,000) (283,000) (2,615,500)
Interest income -- -- -- -- 298,500
Other income, net -- -- -- -- 75,600
------------ ------------ ------------ ------------ ------------
Total other income
(expense) (81,700) (74,700) (309,000) (283,000) (2,241,400)
------------ ------------ ------------ ------------ ------------
Loss before minority
interest in losses
of subsidiary (193,950) (258,185) (1,150,100) (767,400) (16,575,350)
Minority interest in
losses of
subsidiary -- -- -- -- 329,800
------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended May 31, 2000 and 1999,
for the Three Months Ended August 31, 2000 and 1999 (unaudited), and
for the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
=====================================================================================================
For the
Period from
May 4,
For the Three Months Ended For the Year Ended 1982
August 31, May 31, (Inception)
------------------------- --------------------------- to August 31,
2000 1999 2000 1999 2000
----------- ----------- ------------- ----------- --------------
(restated) (restated) (restated) (restated)
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net loss $ (193,950) $ (258,185) $ (1,150,100) $ (767,400) $ (16,245,550)
=========== =========== ============= =========== ==============
Basic and diluted loss
per share $ (0.001) $ (0.002) $ (0.01) $ (0.01) $ (0.13)
=========== =========== ============= =========== ==============
Weighted-average
shares
outstanding 136,713,432 123,816,925 136,272,691 129,363,432 120,142,266
=========== =========== ============= =========== ==============
The accompanying notes are an integral part of these financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
=====================================================================================
Common Stock Treasury Stock
-------------------------- -------------------------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Initial capitalization 48,000,000 $ 48,000 $ $
Net loss
----------- ----------- ----------- -----------
Balance May 31, 1983 48,000,000 48,000 -- --
Private placement of stock 4,715,000 4,700 -- --
Initial public offering 13,200,000 13,200 -- --
Offering costs -- -- -- --
Cash on sale of common
stock to officer 50,000 50 -- --
Compensation on stock
issued to officer 50,000 50 -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance May 31, 1984 66,015,000 66,000 -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance May 31, 1985 66,015,000 66,000 -- --
Issuance of stock for
subscriptions to officer 8,000,000 8,000 -- --
Issuance of options for
services to consultants -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
========================================================================================
Deficit
Accumulated
Additional During the
Subscriptions Paid-in Development
Receivable Capital Stage Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Initial capitalization $ 529,400 $ $ 577,400
Net loss (1,022,600) (1,022,600)
----------- ----------- ----------- -----------
Balance May 31, 1983 -- 529,400 (1,022,600) (445,200)
Private placement of stock -- 584,700 -- 589,400
Initial public offering -- 3,946,800 -- 3,960,000
Offering costs -- (935,435) -- (935,435)
Cash on sale of common
stock to officer -- 7,450 -- 7,500
Compensation on stock
issued to officer -- 20,500 -- 20,550
Net loss (1,338,400) (1,338,400)
----------- ----------- ----------- -----------
Balance May 31, 1984 -- 4,153,415 (2,361,000) 1,858,415
Net loss (1,794,100) (1,794,100)
----------- ----------- ----------- -----------
Balance May 31, 1985 -- 4,153,415 (4,155,100) 64,315
Issuance of stock for
subscriptions to officer (1,440,000) 1,440,000 -- 8,000
Issuance of options for
services to consultants -- 160,200 -- 160,200
Net loss -- -- (1,533,800) (1,533,800)
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
F-7(Con't)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
==========================================================================================
Common Stock Treasury Stock
-------------------------- ------------------------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance May 31, 1986 74,015,000 $ 74,000 -- $ --
Conversion of advances
from affiliates 10,000,000 10,000 -- --
Rescission of common stock
issued to officer and held in
treasury -- -- 8,000,000 --
Issuance of shares for
services rendered 310,000 300 -- --
Issuance of Viral Research
Technologies, Inc. common
stock for services -- -- -- --
Issuance of Viral Research
Technologies, Inc. options
for services -- -- -- --
Issuance of options for
services -- -- -- --
Net loss
----------- ----------- ----------- -----------
Balance, May 31, 1987 84,325,000 84,300 8,000,000 --
Issuance of shares to
consultants for services 1,540,000 1,500 -- --
Stock options exercised 366,000 400 -- --
The accompanying notes are an integral part of these financial statements.
F-8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
===========================================================================================
Deficit
Accumulated
Additional During the
Subscriptions Paid-In Development
Receivable Capital Stage Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance May 31, 1986 $(1,440,000) $ 5,753,615 $(5,688,900) $(1,301,285)
Conversion of advances
from affiliates -- 549,900 -- 559,900
Rescission of common stock
issued to officer and held in
treasury 1,440,000 (1,440,000) -- --
Issuance of shares for
services rendered -- 77,900 -- 78,200
Issuance of Viral Research
Technologies, Inc. common
stock for services -- 296,700 -- 296,700
Issuance of Viral Research
Technologies, Inc. options
for services -- 190,400 -- 190,400
Issuance of options for
services -- 42,200 42,200
Net loss -- -- (1,706,300) (1,706,300)
----------- ----------- ----------- -----------
Balance, May 31, 1987 -- 5,470,715 (7,395,200) (1,840,185)
Issuance of shares to
consultants for services -- 125,800 -- 127,300
Stock options exercised -- 9,500 -- 9,900
The accompanying notes are an integral part of these financial statements.
F-8(Con't)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
======================================================================================
Common Stock Treasury Stock
-------------------------- -------------------------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
Stock options issued to
<S> <C> <C> <C> <C>
employees and consultants -- $ -- -- $ --
Issuance of common stock
of subsidiary -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance, May 31, 1988 86,231,000 86,200 8,000,000 --
Common stock issued to
officer 8,000,000 8,000 -- --
Stock options issued to
employees and consultants -- -- -- --
Sale of common stock 2,756,832 2,800 -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance, May 31, 1989 96,987,832 97,000 8,000,000 --
Sale of common stock 100,000 100 -- --
Stock options issued to
employees -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance, May 31, 1990 97,087,832 97,100 8,000,000 --
Stock issued for services 2,750,000 2,800 -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
F-9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
==========================================================================================
Deficit
Accumulated
Additional During the
Subscriptions Paid-In Development
Receivable Capital Stage Total
----------- ---------- ----------- -----------
Stock options issued to
<S> <C> <C> <C> <C>
employees and consultants $ -- $ 13,800 $ -- $ 13,800
Issuance of common stock
of subsidiary -- 290,000 290,000
Net loss -- -- (880,200) (880,200)
----------- ----------- ----------- -----------
Balance, May 31, 1988 -- 5,909,815 (8,275,400) (2,279,385)
Common stock issued to
officer -- 72,000 -- 80,000
Stock options issued to
employees and consultants 15,600 -- 15,600
Sale of common stock -- 131,600 134,400
Net loss (641,400) (641,400)
----------- ----------- ----------- -----------
Balance, May 31, 1989 -- 6,129,015 (8,916,800) (2,690,785)
Sale of common stock -- 3,200 -- 3,300
Stock options issued to
employees -- 7,300 -- 7,300
Net loss -- -- (522,000) (522,000)
----------- ----------- ----------- -----------
Balance, May 31, 1990 -- 6,139,515 (9,438,800) 3,202,185
Stock issued for services -- 38,300 -- 41,100
Net loss -- -- (479,100) (479,100)
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
F-9(Con't)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
=================================================================================
Common Stock Treasury Stock
------------------------- ----------------------
Shares Amount Shares Amount
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Balance, May 31, 1991 99,837,832 $ 99,900 8,000,000 $ --
Sale of common stock 2,000,000 2,000 --
Net loss -- -- -- --
---------- ---------- --------- ----------
Balance, May 31, 1992 101,837,832 101,900 8,000,000 --
Net loss -- -- -- --
----------- ---------- --------- ----------
Balance, May 31, 1993 101,837,832 101,900 8,000,000 --
Stock issued for services 7,385,300 7,400 -- --
Net loss
----------- ---------- --------- ----------
Balance, May 31, 1994
(restated) 109,223,132 109,300 8,000,000 --
Committed stock for
services -- -- -- --
Net loss -- -- -- --
----------- ---------- --------- ----------
Balance, May 31, 1995
(restated) 109,223,132 109,300 8,000,000 --
Net loss -- -- -- --
----------- ---------- --------- ----------
Balance, May 31, 1996
(restated) 109,223,132 109,300 8,000,000 --
The accompanying notes are an integral part of these financial statements.
F-10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
=====================================================================================
Deficit
Accumulated
Additional During the
Subscriptions Paid-In Development
Receivable Capital Stage Total
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, May 31, 1991 $ -- $ 6,177,815 $ (9,917,900) $ (3,640,185)
Sale of common stock -- 29,400 -- 31,400
Net loss -- -- (483,100) (483,100)
---------- ------------ ------------ ------------
Balance, May 31, 1992 -- 6,207,215 (10,401,000) (4,091,885)
Net loss -- -- (449,400) (449,400)
---------- ------------ ------------ ------------
Balance, May 31, 1993 -- 6,207,215 (10,850,400) (4,541,285)
Stock issued for services -- 208,400 -- 215,800
Net loss (753,900) (753,900)
---------- ------------ ------------ ------------
Balance, May 31, 1994
(restated) -- 6,415,615 (11,604,300) (5,079,385)
Committed stock for
services -- 13,600 -- 13,600
Net loss -- -- (515,600) (515,600)
---------- ------------ ------------ ------------
Balance, May 31, 1995
(restated) -- 6,429,215 (12,119,900) (5,581,385)
Net loss -- -- (501,600) (501,600)
---------- ------------ ------------ ------------
Balance, May 31, 1996
(restated) -- 6,429,215 (12,621,500) (6,082,985)
The accompanying notes are an integral part of these financial statements.
F-10(Con't)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
=====================================================================================
Common Stock Treasury Stock
--------------------------- -------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Stock issued for services 3,360,300 $ 3,300 -- $ --
Stock issued to employees
as compensation 11,980,000 12,000 -- --
Net loss -- -- --
------------ ------------ ------------ ----------
Balance, May 31, 1997
(restated) 124,563,432 124,600 8,000,000 --
Net loss -- -- -- --
------------ ------------ ------------ ----------
Balance, May 31, 1998
(restated) 124,563,432 124,600 8,000,000 --
Stock issued to employees 3,500,000 3,500 -- --
Stock issued to vendors for
services 1,300,000 1,300 -- --
Net loss -- -- -- --
------------ ------------ ------------ ----------
Balance, May 31, 1999
(restated) 129,363,432 129,400 8,000,000 --
Stock issued to employees
as compensation 450,000 400 -- --
Stock issued to vendors for
services 1,400,000 1,400 -- --
Exercise of options for
accrued compensation 5,000,000 5,000 -- --
The accompanying notes are an integral part of these financial statements.
F-11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
=======================================================================================
Deficit
Accumulated
Additional During the
Subscriptions Paid-In Development
Receivable Capital Stage Total
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Stock issued for services $ -- $ 89,100 $ -- $ 92,400
Stock issued to employees
as compensation -- 322,900 -- 334,900
Net loss -- -- (957,400) (957,400)
---------- ------------ ------------ ------------
Balance, May 31, 1997
(restated) -- 6,841,215 (13,578,900) (6,613,085)
Net loss -- -- (555,200) (555,200)
---------- ------------ ------------ ------------
Balance, May 31, 1998
(restated) -- 6,841,215 (14,134,100) (7,168,285)
Stock issued to employees -- 120,000 -- 123,500
Stock issued to vendors for
services -- 51,700 -- 53,000
Net loss -- -- (767,400) (767,400)
---------- ------------ ------------ ------------
Balance, May 31, 1999
(restated) -- 7,012,915 (14,901,500) (7,759,185)
Stock issued to employees
as compensation -- 10,850 -- 11,250
Stock issued to vendors for
services -- 73,600 -- 75,000
Exercise of options for
accrued compensation -- 45,000 -- 50,000
The accompanying notes are an integral part of these financial statements.
F-11(Con't)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
=======================================================================================
Common Stock Treasury Stock
-------------------------- ---------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
Exercise of options for
<S> <C> <C> <C> <C>
subscriptions receivable 500,000 $ 500 $
Stock options issued to
consultants -- -- -- --
Stock options issued to
employees -- -- -- --
Contributed services -- -- -- --
Stock options issued to
Immune Network
Research, Ltd. -- -- -- --
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance, May 31, 2000
(restated) 136,713,432 136,700 8,000,000 --
Contributed services
(unaudited) -- -- -- --
Net loss (unaudited) -- -- -- --
------------ ------------ ------------ ------------
Balance, August 31, 2000
(restated) (unaudited) 136,713,432 $ 136,700 8,000,000 $ --
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
===========================================================================================
Deficit
Accumulated
Additional During the
Subscriptions Paid-In Development
Receivable Capital Stage Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Exercise of options for
subscriptions receivable $ (10,000) $ 9,500 $ -- $ --
Stock options issued to
consultants -- 29,000 -- 29,000
Stock options issued to
employees -- 35,435 -- 35,435
Contributed services -- 126,900 -- 126,900
Stock options issued to
Immune Network
Research, Ltd. -- 400,000 -- 400,000
Net loss -- -- (1,150,100) (1,150,100)
------------ ------------ ------------ ------------
Balance, May 31, 2000
(restated) (10,000) 7,743,200 (16,051,600) (8,181,700)
Contributed services
(unaudited) -- 91,350 -- 91,350
Net loss (unaudited) -- -- (193,950) (193,950)
------------ ------------ ------------ ------------
Balance, August 31, 2000
(restated) (unaudited) $ (10,000) $ 7,834,550 $(16,245,550) $ (8,284,300
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-12(Con't)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended May 31, 2000 and 1999,
for the Three Months Ended August 31, 2000 and 1999 (unaudited), and
for the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
========================================================================================================
For the
Period from
May 4,
For the Three Months Ended For the Year Ended 1982
August 31, May 31, (Inception)
-------------------------- --------------------------- to August 31,
2000 1999 2000 1999 2000
----------- ------------ ------------ ------------- -----------
(restated) (restated) (restated) (restated)
(unaudited) (unaudited) (unaudited)
Cash flows from
operating activities
<S> <C> <C> <C> <C> <C>
Net loss $ (193,950) $ (258,185) $ (1,150,100) $ (767,400) $(16,245,550)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities
Depreciation and
amortization -- -- -- -- 135,600
Warrants and
options issued to
employees and
vendors -- 121,685 86,200 -- 775,100
Minority interest
in losses of
subsidiary -- -- -- -- (329,800)
Stock issued to
employees and
vendors -- -- 514,500 176,500 1,667,300
Contributed
services 91,350 -- 126,900 -- 218,250
Accrued interest
on advances
from affiliates 81,700 74,700 309,000 283,000 2,615,500
Increase in
Prepaid expenses -- -- -- -- (600)
Other assets (10,000) -- (2,100) -- (12,100)
Increase in
Accounts payable
and accrued
expenses 1,100 11,000 53,700 58,915 1,503,600
The accompanying notes are an integral part of these financial statements.
F-13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended May 31, 2000 and 1999,
for the Three Months Ended August 31, 2000 and 1999 (unaudited), and
for the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
=================================================================================================
For the
Period from
May 4,
For the Three Months Ended For the Year Ended 1982
August 31, May 31, (Inception)
-------------------------- ------------------------- to August 31,
2000 1999 2000 1999 2000
-------------------------- ------------------------- -----------
(restated) (restated) (restated) (restated)
(unaudited) (unaudited) (unaudited)
Accrued
<S> <C> <C> <C> <C> <C>
compensation $ -- $ 50,800 $ 70,100 $ 240,800 $ 2,787,100
Deferred revenue -- -- 100,000 -- 100,000
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities (29,800) -- 108,200 (8,185) (6,785,600)
----------- ----------- ----------- ----------- -----------
Cash flows from
investing activities
Purchase of furniture
and equipment (3,400) -- -- -- (139,000)
----------- ----------- ----------- ----------- -----------
Net cash used in
investing activities (3,400) -- -- -- (139,000)
----------- ----------- ----------- ----------- -----------
Cash flows from
financing activities
Proceeds from
advances from
affiliates, net (1,000) -- 6,600 8,185 2,249,800
Proceeds from loan
payable -- -- -- -- 71,000
Proceeds from sale
of stock, net -- -- -- -- 4,684,400
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities (1,000) -- 6,600 8,185 7,005,200
----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
F-14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended May 31, 2000 and 1999,
for the Three Months Ended August 31, 2000 and 1999 (unaudited), and
for the Period from May 4, 1982 (Inception) to August 31, 2000 (unaudited)
==============================================================================================
For the
Period from
May 4,
For the Three Months Ended For the Year Ended (Inception)
August 31, May 31, 1982
---------------------- --------------------- to August 31,
2000 1999 2000 1999 2000
--------- --------- --------- --------- ---------
(restated) (restated) (restated) (restated)
(unaudited) (unaudited) (unaudited)
Net increase (decrease)
<S> <C> <C> <C> <C> <C>
in cash $ (34,200) $ -- $ 114,800 $ -- $ 80,600
Cash, beginning of
period 114,800 -- -- -- --
--------- --------- --------- --------- ---------
Cash, end of period $ 80,600 $ -- $ 114,800 $ -- $ 80,600
========= ========= ========= ========= =========
Supplemental disclosures of cash flow information
Interest paid $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
Income taxes paid $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-15
</TABLE>
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 1 - DESCRIPTION OF BUSINESS
Meditech Pharmaceuticals, Inc. ("Meditech") is a drug development company,
which is focused in the areas of research, development, and marketing in
the biomedical industry, with an emphasis on anti-infective drugs. Meditech
was incorporated in Nevada on March 21, 1983 and completed its initial
public offering in August 1983. Since then, it has been engaged in research
and development activities associated with bringing its products to market.
NOTE 2 - RESTATEMENTS
Shares Issued and Outstanding Restatement
-----------------------------------------
Meditech has restated its prior period financial statements for certain
adjustments related to accounting for shares issued during the years ended
May 31, 1994 through May 31, 2000. Meditech had recorded certain stock
grants to consultants that were not transacted during the years ended May
31, 1995 and 1994. In addition, Meditech incorrectly recorded the
acquisition of 8,000,000 shares of common stock into treasury as a
retirement of those shares. The resulting misstatements affect shares
outstanding in those periods as follows:
Common
Shares Common
Outstanding Shares
Year Ending as Previously Outstanding,
May 31, Reported as Corrected
----------- ------------- ------------
(in 000s) (in 000s)
1994 102,593 109,223
1995 103,681 109,223
1996 103,681 109,223
1997 119,016 124,563
1998 119,016 124,563
1999 123,816 129,363
2000 131,166 136,713
F-16
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 2 - RESTATEMENTS (Continued)
Compensation to Officers, Employees, and Consultants
----------------------------------------------------
During the years ended May 31, 2000 and 1999, Meditech incorrectly recorded
the fair market value of its shares and stock options issued to employees
and consultants.
Meditech had previously recorded stock grants at discounted rates and
grants of options to consultants and employees at their intrinsic value.
These grants have been corrected to reflect the fair market value of the
services or the fair market value of the instrument granted for those
grants to consultants and vendors and to properly reflect the application
of Meditech's stock based compensation policies where employees are
concerned.
The Company had previously recorded the option for 10,000,000 shares of
common stock issued to Immune Network Research, Ltd. (see Note 5) as
contingent on the signing of a definitive license agreement. However, as
the option was issued with no recourse to recover or cancel the option in
the event the agreement was not finalized, the Company should have
recognized the fair market value of the option as a charge when it was
granted. The charge of $400,000 for the fair market value of the option is
included under the caption "adjustment for corrected values attributed to
stock-based compensation."
In addition, during the year ended May 31, 2000, Meditech did not record
the fair market value of services provided by certain officers and
directors. Meditech has restated its financial statements to include
expenses relating to the fair market value of services performed where the
officers were not compensated by Meditech.
These changes have been corrected to reflect the appropriate values. Total
adjustments and their relative impact on Meditech's net loss are as
follows:
Adjustment
Fair Market for Corrected
Value of Values
Net Loss, Services Attributed to
Year Ending as Previously Provided Stock-Based Net Loss,
May 31, Reported by Officers Compensation as Corrected
-------- -------- ----------- ------------ ------------
2000 $ (1,002,300) $ (126,900) $ (20,900) $ (1,150,100)
1999 $ (721,500) $ -- $ (45,900) $ (767,400)
F-17
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 2 - RESTATEMENTS (Continued)
Compensation to Officers, Employees, and Consultants (Continued)
----------------------------------------------------
Adjustment
Fair Market for Corrected
Value of Values
Quarter Net Loss, Services Attributed to
Ending as Previously Provided Stock-Based Net Loss,
August 31, Reported by Officers Compensation as Corrected
---------- ------------- ------------ ------------ ------------
(unaudited)
2000 $ (102,600) $ (91,350) $ -- $ (193,950)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Meditech and
its 37% owned and controlled subsidiary Viral Research Technologies, Inc.
("Viral") (collectively, the "Company"). All significant intercompany
transactions and balances have been eliminated in consolidation.
Basis of Presentation
---------------------
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company incurred net
losses of $1,150,100, $767,400, $193,950 (unaudited), and $258,185
(unaudited) during the years ended May 31, 2000 and 1999 and the three
months ended August 31, 2000 and 1999, respectively. In addition, the
Company had an accumulated deficit of $16,051,600 and $16,245,550
(unaudited) as of May 31, 2000 and August 31, 2000, respectively.
Management recognizes that the Company must generate additional resources
and the eventual achievement of sustained profitable operations.
Management's plans include obtaining additional capital through equity
financing and the extension of existing debt. The consolidated financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
Development Stage Enterprise
----------------------------
The Company is a development stage company as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company is devoting substantially all
of its present efforts to establish a new business, and its planned
principal operations have not yet commenced. All losses accumulated since
inception have been considered as part of the Company's development stage
activities.
F-18
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Estimates
---------
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements,
as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with original maturity of three months
or less to be cash equivalents.
Offering Costs
--------------
Offering costs arose from warrants issued to the underwriter currently
involved with offerings of the Company's securities. Such costs are offset
against the proceeds of such offerings upon their successful completion and
are charged to operations in the event the offering is not successful.
Revenue
-------
Revenue represents license fees that are recognized when earned over the
period of the applicable license agreement.
Impairment of Long-Lived Assets
-------------------------------
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to future net
cash flows expected to be generated by the assets. If the assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount exceeds the fair value of the
assets. To date, no impairment has occurred.
Income Taxes
------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
F-19
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
-----------------------------------
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the Company's
financial instruments, including cash, accounts payable and accrued
expenses, and accrued compensation, the carrying amounts approximate fair
value due to their short maturities.
Concentrations of Credit Risk
-----------------------------
The financial instrument which potentially subjects the Company to
concentrations of credit risk is cash. The Company places its cash with
high quality financial institutions, and at times it may exceed the Federal
Deposit Insurance Corporation $100,000 insurance limit. As of May 31, 2000
and August 31, 2000, uninsured portions of cash amounted to $15,000 and $0
(unaudited), respectively.
Loss per Share
--------------
The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per
share is computed by dividing loss available to common stockholders by the
weighted-average number of common shares outstanding. Diluted loss per
share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares had been
issued and if the additional common shares were dilutive. For the years
ended May 31, 2000 and 1999, the Company incurred net losses; therefore,
basic and diluted loss per share are the same.
Accounting for Stock Options and Warrants
-----------------------------------------
The Company's policy is to account for stock-based compensation in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation." As
allowed by SFAS No. 123, the Company has elected to continue to measure
compensation cost under Accounting Principles Bulletin ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and comply with the pro
forma disclosure requirements of the standard.
Reclassifications
-----------------
Certain reclassifications have been made to the May 31, 1999 financial
statements to conform with the May 31, 2000 presentation.
F-20
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income
--------------------
For the year ended May 31, 2000, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting comprehensive income and its components in a financial statement.
Comprehensive income as defined includes all changes in equity (net assets)
during a period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include foreign
currency translation adjustments and unrealized gains and losses on
available-for-sale securities. Comprehensive income is not presented in the
Company's financial statements since the Company did not have any of the
items of comprehensive income in any period presented.
Recently Issued Accounting Pronouncements
-----------------------------------------
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 136, "Transfer of Assets to a Not-for-Profit Organization or Charitable
Trust that Raises or Holds Contributions for Others." This statement is not
applicable to the Company.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities." The Company does not expect adoption
of SFAS No. 137 to have a material impact, if any, on its financial
position or results of operations.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," to
provide guidance on the recognition, presentation, and disclosure of
revenue in financial statements. Changes in accounting to apply the
guidance in SAB No. 101 may be accounted for as a change in accounting
principle effective January 1, 2000. Management has not yet determined the
complete impact of SAB No. 101 on the Company; however, management does not
expect that application of SAB No. 101 will have a material effect on the
Company's revenue recognition and results of operations.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation," (an Interpretation of
Accounting Principles Bulletin Opinion No. 25 ("APB 25")) ("FIN 44"). FIN
44 provides guidance on the application of APB 25, particularly as it
relates to options. The effective date of FIN 44 is July 1, 2000, and the
Company has adopted FIN 44 as of that date.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Instruments and Certain Hedging Activities." This statement is not
applicable to the Company.
In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB Statement
No. 53 and Amendments to Statements No. 63, 89, and 121." This statement is
not applicable to the Company.
F-21
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 4 - MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY
On January 22, 1987, the Company and a 50% investor formed VRT, Inc.
("VRT"), a Nevada corporation, for the purposes of developing a marketing
strategy for its products. On January 26, 1987, the Company granted certain
exclusive rights to VRT to market and distribute the Company's products.
The agreement expired on November 30, 1996.
On April 30, 1987, pursuant to a merger agreement, VRT was combined with
Viral, a Nevada corporation and an inactive public shell, which became the
surviving corporation. In the transaction, Viral issued 15,000,000 shares
of common stock to the Company and its investor for all outstanding shares
of VRT. After the merger, the Company owned 37% of Viral. Viral's Board of
Directors is controlled by officers and directors of the Company, whose
Chief Executive Officer is the Chairman. Additionally, the companies have
the same management team, and Viral is economically dependent on the
Company to fund its continuing operations. Therefore, Viral has been
consolidated as it is effectively controlled by the Company.
At May 31, 2000 and August 31, 2000, the assets and liabilities of Viral
were as follows:
August 31, May 31,
2000 2000
---------- ----------
(unaudited)
Assets
Due from Meditech $ 400,000 $ 400,000
---------- ----------
Total assets $ 400,000 $ 400,000
========== ==========
Liabilities
Accounts payable $ 5,000 $ 5,000
Due to Meditech 129,000 129,000
---------- ----------
Total liabilities 134,000 134,000
Equity 266,000 266,000
---------- ----------
Total liabilities and equity $ 400,000 $ 400,000
========== ==========
Amounts recorded in the minority interest on the accompanying balance
sheets represent the pro-rata portion of Viral's equity attributable to
minority stockholders.
F-22
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Leases
------
Currently, the Company uses its operating facilities, which are provided by
its Chief Executive Officer, without a lease. There is no guarantee the
officer will be willing to provide these facilities in the future (see Note
9).
Employment Agreements
---------------------
The Company entered into an employment agreement dated as of February 3,
2000 with its Chief Executive Officer, contingent upon completion of the
offering discussed in Note 7. The agreement is for a three-year term and
provides for a base salary of $150,000 per annum for the first year with an
increase at least equal to the consumer price index over each succeeding
year. The agreement provides for a severance payment including the unearned
salary for the remainder of the contract plus any prorated earned bonuses
in the event of termination without cause or upon change of control.
Additionally, the agreement grants options to purchase 15,950,000 shares of
common stock exercisable at various prices and vesting over the course of
his employment agreement.
The Company entered into an employment agreement dated as of February 3,
2000 with its Chief Financial Officer, contingent upon completion of the
offering discussed in Note 7. The agreement is for a three-year term
providing for a base salary of $120,000 per annum for the first year and
not less than $120,000 per annum during the second and third years of the
agreement. In addition, the officer will be granted a total of 13,950,000
warrants exercisable at various prices and vesting over the course of the
agreement. The agreement provides for a severance payment including the
remainder of the base salary due under the agreement if the officer is
discharged without cause or if the officer is terminated within 12 months
of a change of control of the Company. The severance payment will be equal
to 12 months of the current salary.
Litigation
----------
The Company may become involved in various legal proceedings and claims
which arise in the ordinary course of its business. Management does not
believe that these matters will have a material adverse effect on the
Company's consolidated position or results of operations.
F-23
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
License Agreement
-----------------
On February 3, 2000, the Company received $25,000 from Immune Network
Research, Ltd. ("INR"), a Canadian pharmaceutical development company,
under a letter of intent. The payment was made for a one-year irrevocable
option granting the right to negotiate for an exclusive license for
pharmaceutical applications worldwide outside of the United States. The
Company then received an additional $100,000 from INR in anticipation of a
definitive agreement. Under the terms of the letter, the Company issued a
one-year option to INR for 10,000,000 shares of common stock, immediately
exercisable at $0.03 per share. In return, the Company will receive
royalties equal to 7% of net sales for all MTCH-24(TM) products sold and 4%
of net sales for all Viraplex(R) products sold by INR. During the second
quarter of 2000, the agreement was executed. The option was valued at
$400,000, using the Black-Scholes option-pricing model, which has been
recorded as an operating expense on the date granted.
NOTE 6 - STOCKHOLDERS' DEFICIT
Preferred Stock
---------------
The Company is authorized to issue 25,000,000 shares of its $0.001 par
value preferred stock. The Company has not issued any preferred stock to
date.
Common Stock
------------
On June 30, 1983, the Company sold 4,715,000 shares of its common stock at
$0.125 per share in a private offering. Total gross proceeds received from
the private offering, net of $250,000 of cancelled stock subscriptions,
were $589,400.
In July and August 1983, the Company sold 12,000,000 and 1,200,000 shares,
respectively, of its common stock at $0.30 per share in a public offering.
Total gross proceeds received from the offering were $3,960,000.
In December 1983, the Company sold 50,000 shares of common stock to an
officer at $0.15 per share for $7,500 and recorded $6,500 in compensation
expense, representing the difference between the price paid and the
discounted market value of the stock at the date of issuance.
In February 1984, the Company issued 50,000 shares of common stock to a
director for services. The Company recorded $14,000 in compensation
expense, representing the market value of the services at the date of
issuance.
F-24
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 6 - STOCKHOLDERS' DEFICIT (Continued)
Common Stock (Continued)
------------
On June 1, 1984, the Company issued 100,000 shares of common stock to its
former Chief Financial Officer for services rendered during the six-month
period ended May 31, 1984. Subsequently, this grant of shares was
rescinded, and an option to purchase common stock was issued.
In October 1985, the Company sold 8,000,000 shares of its common stock to
its Chief Executive Officer in exchange for the settlement of an $8,000
salary obligation and a note in the amount of $1,440,000 from the officer.
In December 1986, the note was cancelled and the 8,000,000 shares taken
into treasury. At that date, the officer received an option to purchase
8,000,000 shares of the Company's common stock for $0.01 per share. This
option was exercised in March 1989 for $80,000 in cash.
In June 1986, the Company converted advances of $559,900 from Petro-Med,
Inc. into 10,000,000 shares of common stock of the Company.
On April 7, 1987, the Company issued 210,000 shares of common stock to two
consultants for services rendered. The Company recorded $52,200 in
compensation expense, representing the discounted market value of the stock
at the date of issuance.
On April 16, 1987, the Company issued 100,000 shares of common stock to
three consultants for services rendered. The Company recorded $26,000 in
compensation expense, representing the discounted market value of the stock
at the date of issuance.
During the year ended May 31, 1987, Viral issued 350,000 shares of its
common stock to consultants for services valued at $296,700.
On June 11, 1987, the Company issued 100,000 shares of common stock to a
consultant for services rendered valued at $12,200.
On October 2, 1987, the Company issued 665,000 shares of common stock to
two consultants for services rendered valued at $51,100.
On March 2, 1988, the Company issued 150,000 shares of common stock to a
consultant for services rendered valued at $13,900.
On March 17, 1988, the Company issued 25,000 shares of common stock to a
consultant for services rendered valued at $3,200.
On March 22, 1988, the Company issued 100,000 shares of common stock to a
consultant for services rendered valued at $13,000.
F-25
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 6 - STOCKHOLDERS' DEFICIT (Continued)
Common Stock (Continued)
------------
On May 25, 1988, the Company issued 500,000 shares of common stock to a
consultant for services rendered valued at $33,900.
During the year ended May 31, 1988, Viral sold shares of its common stock
for net proceeds of $290,000.
On March 27, 1989, the Company sold 250,000 shares of common stock for
$0.10 per share for gross proceeds of $25,000.
During the year ended May 31, 1989, the Company sold 2,506,832 shares of
common stock for net proceeds of $109,400.
During the year ended May 31, 1990, the Company sold 100,000 shares of its
common stock in a private transaction for net proceeds of $3,300.
On January 2, 1991, the Company issued 2,750,000 shares of common stock as
compensation for services valued at $41,100.
During the year ended May 31, 1992, the Company sold 2,000,000 shares of
its common stock in a private transaction for net proceeds of $31,400.
On July 12, 1993, the Company issued 5,700,000 shares of its common stock
to employees as compensation and for relief of certain accrued salaries.
The aggregate value of the compensation was $151,000, which included
forgiveness of $90,450 of accrued payroll.
On July 12, 1993, the Company issued 1,685,300 shares of common stock to
consultants for services valued at $64,800.
During the year ended May 31, 1994, the Company committed certain stock to
a consultant for services. The services were performed through the year
ended May 31, 1997. The Company issued 3,360,300 shares of stock on July
11, 1996 and recognized consulting expense in the amount of $92,400 during
the year ended May 31, 1997. Consulting expense related to years prior to
May 31, 1997 was immaterial.
On July 11, 1996, the Company issued 11,980,000 shares of common stock to
employees for services and recognized $334,900 in compensation expense.
On July 9, 1998, the Company issued 3,500,000 shares of common stock to
employees for a total of $123,500 in compensation for services.
F-26
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 6 - STOCKHOLDERS' DEFICIT (Continued)
Common Stock (Continued)
------------
On July 9, 1998, the Company issued 1,300,000 shares of common stock to
consultants for a total of $53,000 in compensation for services.
During the year ended May 31, 2000, the Company issued 450,000 shares of
common stock to employees for compensation. The shares were valued at
$11,250.
During the year ended May 31, 2000, the Company issued 1,400,000 shares of
common stock to vendors for services rendered. In connection with the
issuance, the company recorded $75,000 in consulting expense.
During the year ended May 31, 2000, holders of 5,000,000 employee options
exercised their options to purchase common stock for forgiveness of $50,000
of accrued compensation, which represented the exercise price of the
options.
During the year ended May 31, 2000, holders of 500,000 options exercised
their option to purchase common stock for a subscription receivable of
$10,000.
Stock Purchase Warrants and Options
-----------------------------------
During the year ended May 31, 1985, the Company issued options to purchase
480,000 shares of common stock at various exercise prices to employees and
consultants of the Company. The fair market value of the options was
immaterial. None of these options were exercised, and all have expired.
On August 16, 1985, the Company issued options to purchase 1,600,000 shares
of its common stock at $0.023 per share to employees of the Company. These
options were issued at an exercise price that approximated market, and as
such, no compensation expense was recorded. All of these options have
expired.
On October 28, 1985, the Company issued options to purchase 8,000,000
shares of its common stock at $0.01 per share in connection with the
cancellation of a subscription receivable to its Chief Executive Officer.
Related to these options, the Company recognized compensation expense in
the amount of $104,000.
On February 27, 1986, the Company issued options to purchase 50,000 shares
of its common stock at the average of the bid/ask price on the date of
exercise to a consultant of the Company. Additionally, during the year
ended May 31, 1986, the Company issued options to purchase 462,000 shares
of its common stock to various consultants at exercise prices ranging from
$0.001 to $0.023 per share. The total consulting expense recognized in
connection with these options was $56,200. All of these options have
expired or been exercised.
F-27
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 6 - STOCKHOLDERS' DEFICIT (Continued)
Stock Purchase Warrants and Options (Continued)
-----------------------------------
During the year ended May 31, 1987, the Company issued options to purchase
1,675,000 shares of its common stock to employees of the Company. These
options were issued with an exercise price that approximated the fair
market value of the underlying common stock, and as such, no compensation
expense was recognized. All of these options have expired.
During the year ended May 31, 1987, the Company issued options to purchase
975,000 shares of its common stock to consultants of the Company at
exercise prices ranging from $0.01 to $0.08 per share. In connection with
these options, the Company recognized consulting expense of $42,200. All of
these options have expired.
During the year ended May 31, 1987, the Company's consolidated subsidiary
issued stock options to purchase 350,000 shares of Viral's common stock at
various exercise prices to consultants for services valued at $190,400. All
of these options have expired.
During the year ended May 31, 1988, the Company issued options to purchase
550,000 shares of its common stock at exercise prices ranging from $0.05 to
$0.15 per share to consultants for services rendered. In connection with
these options, the Company recognized consulting expense in the amount of
$13,800. All of these options have expired.
During the year ended May 31, 1989, the Company issued options to purchase
450,000 shares of its common stock at exercise prices ranging from $0.01 to
$0.07 per share to consultants for services rendered. In connection with
these options, the Company recognized consulting expense in the amount of
$15,600. All of these options have expired.
During the year ended May 31, 1990, the Company issued options to purchase
100,000 shares of its common stock at an exercise price of $0.06 per share
to two consultants for services rendered. In connection with these options,
the Company recognized consulting expense in the amount of $7,300. All of
these options have expired.
On January 17, 2000, the Company issued options to purchase 5,000,000
shares of common stock to employees and stockholders of the Company. The
options are exercisable at $0.21 per share for 1,000,000 options and $0.05
per share for 4,000,000 options and expire on February 3, 2007. The Company
recognized $15,435 as compensation expense related to these options.
F-28
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 6 - STOCKHOLDERS' DEFICIT (Continued)
Stock Purchase Warrants and Options (Continued)
-----------------------------------
On February 1, 2000, the Company issued to employees of the Company options
to purchase 700,000 shares of common stock exercisable at $0.21 per share,
vesting immediately and expiring on May 1, 2007. No compensation expense
was recognized as the exercise price at the time of the grant approximated
the fair market value of the stock at the date of grant.
On February 1, 2000, the Company issued options to purchase 900,000 shares
of its common stock to consultants of the Company. The options are
exercisable at $0.21 per share and expire on May 31, 2006. Related to these
options, the Company recognized $27,000 in compensation expense, which
represents the fair market value of the options at the date of grant.
On February 1, 2000, the Company issued options to purchase 50,000 shares
of its common stock to a consultant of the Company. The options are
exercisable at $0.05 per share and expire on May 1, 2007. Related to these
options, the Company recognized consulting expense of $2,000.
On May 16, 2000, the Company issued warrants to purchase 7,000,000 shares
of common stock as a condition of entering into the investment agreement
described in Note 7. The warrants are exercisable immediately at $0.03 per
share and expire in 10 years. The warrants are valued at $2,380,000 and
represent offering costs. When the transaction closes, it will be reflected
as a reduction in the net proceeds from the offering or, if the transaction
is aborted, will be charged to operations.
During the year ended May 31, 2000, the Company issued options to purchase
5,800,000 shares of common stock exercisable at $0.01 per share, vesting
immediately and expiring on May 31, 2006 to employees of the Company.
Related to these options, the Company recognized $20,000 of compensation
expense, which represents the intrinsic value of the options. As of May 31,
2000, options representing 300,000 shares of stock remained unexercised.
F-29
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 6 - STOCKHOLDERS' DEFICIT (Continued)
Employee Stock Option Transactions
----------------------------------
The Company has no formal stock option plan. The following summarizes all
transactions for the year ended May 31, 2000 involving the Company's common
stock purchase options issued to employees. (The Company did not have any
transactions during the years ended May 31, 1999, 1998, and 1997):
Weighted-
Average
Number Exercise
of Options Price
Outstanding, May 31, 1997, 1998, and 1999 -- $ --
Granted 11,500,000 $ 0.08
Exercised (5,500,000) $ 0.01
----------
Outstanding, May 31, 2000 6,000,000 $ 0.15
=========
Exercisable, May 31, 2000 6,000,000 $ 0.15
=========
The weighted-average remaining contractual life of the options outstanding
at May 31, 2000 is six years. The exercise prices for the options
outstanding at May 31, 2000 ranged from $0.01 to $0.21.
The Company has adopted only the disclosure provisions of SFAS No. 123. It
applies APB No. 25 and related interpretations in accounting for its plans
and does not recognize compensation expense for its stock-based
compensation plans other than for restricted stock and options/warrants
issued to outside third parties. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for awards
under these plans consistent with the methodology prescribed by SFAS No.
123, the Company's net loss and loss per share for the years ended May 31,
2000 and 1999 would be reduced to the pro forma amounts indicated below:
May 31,
-------------------------------
2000 1999
------------- --------------
Net loss
As reported $ (1,150,100) $ (767,400)
Pro forma $ (1,326,100) $ (767,400)
Loss per common share
As reported $ (0.01) $ (0.01)
Pro forma $ (0.01) $ (0.01)
F-30
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 6 - STOCKHOLDERS' DEFICIT (Continued)
Employee Stock Option Transactions (Continued)
----------------------------------
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants made before 1995. The fair value of these options was estimated
at the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for the year ended May 31, 2000:
dividend yield of 0%; expected volatility of 90%; risk-free interest rate
of 5.8%; and expected life of five years. The weighted-average fair value
of options granted during the year ended May 31, 2000 was $0.02, and the
weighted-average exercise price was $0.08.
For options granted during the year ended May 31, 2000 where the exercise
price was greater than the stock price at the date of grant, the
weighted-average fair value of such options was $0.03, and the
weighted-average exercise price of such options was $0.21. For options
granted during the year ended May 31, 2000 where the exercise price was
less than the stock price at the date of grant, the weighted-average fair
value of such options was $0.16, and the weighted-average exercise price of
such options was $0.18. No options were issued during the year ended May
31, 2000 where the exercise price equaled the stock price at the date of
grant.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
NOTE 7 - INVESTMENT AGREEMENT
On June 30, 2000, the Company entered into an investment agreement with
Swartz Private Equity, LLC ("Swartz"). The investment agreement entitles
the Company to issue and sell common stock to Swartz in the form of put
rights for up to an aggregate of $30,000,000 from time to time during a
three-year period beginning on the date of an effective registration
statement.
F-31
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 7 - INVESTMENT AGREEMENT (Continued)
Under the agreement, in order to invoke a put right, the Company must have
an effective registration statement on file with the Securities and
Exchange Commission and provide Swartz with at least 10 but not more than
20 business days advance notice of the date on which the Company intends to
exercise a put right and must indicate the number of shares of common stock
the Company intends to sell to Swartz. The Company may also designate a
maximum dollar amount of common stock (not to exceed $2,000,000), which the
Company will sell to Swartz during the put and/or a minimum purchase price
per common share at which Swartz may purchase shares during the put. The
number of shares of common stock sold to Swartz in a put may not exceed the
lesser of (i) 1,500,000 shares; (ii) 15% of the aggregate daily reported
trading volume of the Company's common shares, excluding certain block
trades, during the 20 business days after the date of a put notice, with
certain restrictions; (iii) 15% of the aggregate daily reported trading
volume of common shares during the 20 business days before the put date,
excluding certain block trades; or (iv) a number of shares that, when added
to the number of shares acquired by Swartz under the investment agreement
during the 31 days preceding the put date, would exceed 9.99% of the total
number of shares of common stock outstanding.
For each common share, Swartz will pay the Company the lesser of (i) the
market price for such put, minus $0.075 or (ii) 91% of the market price for
the put. This may be construed as a below-market issuance of securities and
could result in significant charges to the Company's earnings.
Additionally, within five business days after the end of each pricing
period, the Company is required to issue and deliver to Swartz a warrant to
purchase a number of shares of common stock equal to 10% of the common
shares issued to Swartz in the applicable put. Each warrant will be
exercisable at a price which will initially equal 110% of the market price
for the applicable put. The warrants will have semi-annual reset
provisions. Each warrant will be immediately exercisable and have a term
beginning on the date of issuance and ending five years thereafter.
Further, under the provisions of the agreement, during the term of the
investment agreement and for a period of one year thereafter, the Company
is prohibited from engaging in certain financing transactions involving the
Company's equity securities.
F-32
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 8 - INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
for income taxes consisted of the following:
August 31, May 31,
2000 2000
---------- ----------
(unaudited)
Deferred tax assets
Reserve for finance charges $ 400,000 $ 400,000
Accrued compensation 1,100,000 1,100,000
Interest on related party advances 1,050,000 1,010,000
Operating losses 1,888,000 1,629,000
Valuation allowance (4,438,000) (4,139,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
The federal operating loss carryforwards at August 31, 2000 were
approximately $5,242,500 (unaudited).
NOTE 9 - RELATED PARTY TRANSACTIONS
Since inception, the Company has received advances from Petro-Med, Inc, an
affiliate, to fund its working capital requirements. At May 31, 2000 and
1999 and August 31, 2000, the Company maintained short-term advances from
affiliates of $3,603,800, $3,294,800, and $3,684,500 (unaudited),
respectively. Accrued interest is attributed to the outstanding balance as
incurred. The advances bear interest at 9% per annum on any outstanding
balance. Interest expense on the advances was $309,000 and $283,000 for the
years ended May 31, 2000 and 1999, respectively.
At May 31, 2000 and August 31, 2000, the Company maintained unsecured
advances from stockholders in the amount of $43,500 and $43,500
(unaudited). The advances are unsecured, non-interest-bearing, and are
payable on demand.
Due to cash shortages, the Company has accrued deferred salaries and
related taxes payable to certain officers who are stockholders and
directors of the Company. At May 31, 2000, the aggregate amount of accrued
compensation was $2,787,100.
The Company has entered into certain employment agreements with its
officers and stockholders (see Note 5).
F-33
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,2000 and August 31, 2000 (unaudited)
================================================================================
NOTE 9 - RELATED PARTY TRANSACTIONS (Continued)
The Company maintains its primary place of business in facilities owned by
the Chief Executive Officer (see Note 5). In addition, the Company has not
paid or accrued compensation to its officers for the year ended May 31,
2000 and the three months ended August 31, 2000. Related to these services,
the Company has recorded expenses in the amount of $126,900 and $91,350
(unaudited) for the year ended May 31, 2000 and the three months ended
August 31, 2000, respectively, which have been reflected as an increase in
additional paid-in capital.
NOTE 10 - YEAR 2000 ISSUE
The Company has completed a comprehensive review of its computer systems to
identify the systems that could be affected by ongoing Year 2000 problems.
Upgrades to systems judged critical to business operations have been
successfully installed. To date, no significant costs have been incurred in
the Company's systems related to the Year 2000.
Based on the review of the computer systems, management believes all action
necessary to prevent significant additional problems has been taken. While
the Company has taken steps to communicate with outside suppliers, it
cannot guarantee that the suppliers have all taken the necessary steps to
prevent any service interruption that may affect the Company.
F-34
<PAGE>
================================================================================
You should rely on the information contained in this prospectus. We have
not authorized anyone to give you information different than that contained in
this prospectus. We are offering to sell shares of common stock only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus is current only as of its date, regardless of the time you
receive this prospectus.
----------------
TABLE OF CONTENTS
Page
Prospectus Summary.............................. 1
The Offering.................................... 2
Risk Factors.................................... 3
Use of Proceeds................................. 10
Selling Shareholders............................ 11
Plan of Distribution............................ 15
Management...................................... 17
Executive Compensation.......................... 18
Business........................................ 20
Management's Discussion and Analysis............ 24
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..........
26
Certain Relationships and Related Transactions..
27
Market Information.............................. 28
Dividend Policy................................. 28
Principal Stockholders.......................... 29
Description of Securities....................... 30
Indemnification of Officers and Directors....... 31
Legal Matters................................... 31
Experts......................................... 31
Additional Information.......................... 31
----------------
Until , 2000, all dealers that effect transactions in the common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is not in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
77,116,000 Shares
MEDITECH
PHARMACEUTICALS, INC.
Common Stock
---------------
PROSPECTUS
---------------
December 4, 2000
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification Of Officers And Directors.
Pursuant to our company's Bylaws, we Company may indemnify our directors
and officers under certain circumstances against reasonable expenses (including
court costs and attorneys' fees), judgments, penalties, fines, and amounts paid
in settlement actually and reasonably incurred in connection with any action,
suit or proceeding, whether civil, criminal, administrative or investigative, to
which any of them is a party by reason of his being a director, officer,
employee, or agent of our company if it is determined that he acted in
accordance with the applicable standard of conduct set forth in such statutory
provisions. Thus, the indemnification provisions will protect officers and
directors from liability only if the officer or director meets the applicable
standard of conduct and we have the financial ability to honor the indemnity.
ITEM 25. Other Expenses Of Issuance And Distribution.
Expenses payable in connection with the registration and distribution of
the securities being registered hereunder, all of which will be borne by the
Registrant, are as follows:
Registration Fee - Securities and Exchange Commission...... $ 5,151
Printing and Engraving..................................... 1,000*
Legal Fees and Expenses.................................... 10,000*
Accounting Fees............................................ 35,000*
Blue Sky Fees and Expenses................................. 1,000*
----------
Total.............................................. $ 52,151*
==========
* Estimated
ITEM 26. Recent Sales Of Unregistered Securities.
1. On July 9, 1998, we issued an aggregate of 3,500,000 shares of our common
stock to two employees as compensation for services valued at $123,500. The
shares were issued at an agreed value of $0.035 per share.
2. On July 9, 1998, we issued an aggregate of 1,300,000 shares of our common
stock to six consultants as compensation for services valued at $53,000.
The shares were issued at an agreed value of $0.04 per share.
3. On June 6, 1999, we issued warrants to purchase an aggregate of 5,800,00
shares of our common stock to two employees and two consultants at an
exercise price of $0.01 per share.
4. On January 17, 2000, we issued an aggregate of 450,000 shares of our common
stock to three consultants as compensation for services valued at $11,250.
The shares were issued at an agreed value of $0.025 per share.
5. On January 17, 2000, we issued an aggregate of 400,000 shares of our common
stock to four service providers and consultants as compensation for
services valued at $10,000. The shares were issued at an agreed value of
$0.025 per share.
6. On January 17, 2000, we issued an aggregate of 3,000,000 shares of our
common stock to two employees pursuant to the exercise of common stock
purchase warrants at an exercise price of $0.01 per shares.
II-1
<PAGE>
7. On February 1, 2000, we granted options to purchase an aggregate of
5,000,000 shares of our common stock to three employees at an exercise
price of $0.05 per share (as to 2,500,000 shares) and $0.21 per share (as
to 2,500,000 shares).
8. On February 1, 2000, we issued warrants to seven consultants and service
providers to purchase an aggregate of 1,600,000 shares of our common stock
at an exercise price of $0.21 per share.
9. On February 1, 2000, we issued warrants to one consultant to purchase an
aggregate of 50,000 shares of our common stock at an exercise price of
$0.05 per share.
10. On February 3, 2000, we issued 1,000,000 shares of our common stock to one
consultant as compensation for services valued at $65,000. The shares were
issued at an agreed value of $0.065 per share.
11. On February 3, 2000, we issued and aggregate of 2,000,000 shares of our
common stock to two employees pursuant to the exercise of common stock
purchase warrants at an exercise price of $0.01 per shares.
12. On February 3, 2000, we issued and aggregate of 500,000 shares of our
common stock to two consultants pursuant to the exercise of common stock
purchase warrants at an exercise price of $0.01 per shares.
13. On February 3, 2000, we granted an option to Immune Network, Limited, to
purchase 10,000,000 shares of our common stock at an exercise price of
$0.03 per shares.
14. On May 16, 2000, we issued an option to Swartz to purchase 7,000,000 shares
of our common stock at an exercise price of
$0.33 per share.
No underwriter was involved in any of the above issuances of securities.
All of the above securities were issued in reliance upon the exemptions set
forth in Section 4(2) of the Securities Act of 1933 on the basis that they were
issued under circumstances not involving a public offering. In addition, the
issuance to Immune Network, Limited, a Canadian Company, was pursuant to
Regulation S.
ITEM 27. Exhibits.
The Exhibits to this Registration Statement are listed in the Exhibit Index
commencing at page EX-1 hereof.
ITEM 28. Undertakings.
The undersigned Registrant hereby undertakes the following:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in this Registration
Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this registration, or any material
change to such information in the Registration Statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment to
this Registration Statement any of the securities being registered which remain
unsold at the termination of this offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the General Corporation Law of Nevada, the Articles of
Incorporation, or otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in such Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or person controlling the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or person controlling the Registrant in connection with any
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in such Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, State of Arizona, on the date below.
Dated: December 4, 2000 MEDITECH PHARMACEUTICALS, INC.
By: /s/ GERALD N. KERN
-------------------------------
Gerald N. Kern
Chief Executive Officer
II-4
<PAGE>
EX-1
EXHIBIT INDEX
MEDITECH PHARMACEUTICALS, INC.
The following exhibits are included as part of this Registration Statement,
except those exhibits marked (1), which have previously been filed with the
Securities and Exchange Commission and are incorporated by reference to another
registration statement, report or document. References to the "Company" in this
Exhibit Index mean MEDITECH PHARMACEUTICALS, INC., a Nevada corporation.
Exhibit
No. Description
3.1 Articles of Incorporation of Meditech Pharmaceuticals, Inc.
filed with the Secretary of State of the State of Nevada on
March 21, 1983 (1)
3.2 Certificate of Amendment of Articles of Incorporation of
Meditech Pharmaceuticals, Inc. filed with the Nevada
Secretary of State on July 7, 1983 (1)
3.3 Certificate of Amendment of Articles of Incorporation of
Meditech Pharmaceuticals, Inc. filed with the Nevada
Secretary of State on January 3, 1986 (1)
3.4 Certificate of Amendment of Articles of Incorporation of
Meditech Pharmaceuticals, Inc. filed with the Nevada
Secretary of State on June 27, 1986 (1)
3.5 Bylaws of Meditech Pharmaceuticals, Inc. (1)
3.6 Amendment to Bylaws of Pharmaceuticals, Inc. dated October *
17, 2000
4.1 Specimen common stock certificate (1)
4.2 Form of Stock Purchase Warrant dated July 1, 2000 *
5.1 Legal opinion of Jeffers, Shaff & Falk, LLP, attorneys at **
law
10.1 Letter Agreement between Meditech Pharmaceuticals, Inc. and *
Immune Network , Ltd. dated February 3, 2000.
10.2 Employment Agreement dated June 15, 2000 between Meditech *
Pharmaceuticals, Inc. and Gerald N. Kern
10.3 Employment Agreement dated June 15, 2000 between Meditech *
Pharmaceuticals, Inc. and Steven I. Kern
10.4 Investment Agreement between Meditech Pharmaceuticals, Inc. *
and Swartz Private Equity, LLC dated June 30, 2000
16.1 Letter on change in certifying accountant *
23.1 Consent of Independent Certified Public Accountants - *
Singer Lewak Greenbaum & Goldstein LLP
23.2 Consent of Jeffers, Shaff, & Falk, LLP **
---------
(1) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission in August
1983.
* Filed herewith
** To be filed by amendment
EX-1
