<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2000.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO
________________
Commission file number: 0-28420
Integ Incorporated
------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-167017
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
2800 Patton Road, St. Paul, MN 55113
--------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Telephone Number: (651) 639-8816
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. Yes X No
----- -----
As of May 3, 2000, the registrant had 9,834,078 shares of $.01 par value common
stock issued and outstanding.
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INTEG INCORPORATED
INDEX
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PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Balance Sheets as of March 31, 2000 and
December 31, 1999 3
Statements of Operations for the three months ended
March 31, 2000 and 1999 and for the period from
April 3, 1990 (inception) through March 31, 2000 4
Statements of Cash Flows for the three months ended March 31,
2000 and 1999 and for the period from
April 3, 1990 (inception) through March 31, 2000 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities (Use of proceeds from public offering) 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
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Integ Incorporated
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
----------------- ----------------
(unaudited)
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 1,585,167 $ 2,953,270
Prepaid expenses 94,393 82,755
Accounts receivable - related party 181,662 181,669
----------------- ----------------
Total current assets 1,861,222 3,217,694
----------------- ----------------
Furniture and equipment 8,445,737 8,498,173
Less accumulated depreciation (3,244,159) (3,088,449)
----------------- ----------------
5,201,578 5,409,724
Other assets 4,753 8,579
----------------- ----------------
Total assets $ 7,067,553 $ 8,635,997
================= ================
Liabilities and shareholders' equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 506,164 $ 511,873
Current portion of capital lease obligations 6,734 14,178
Current portion of long-term debt 1,426,818 1,398,098
----------------- ----------------
Total current liabilities 1,939,716 1,924,149
----------------- ----------------
Long-term liabilities:
Capital lease obligations, less current maturities - -
Long-term debt, less current maturities 803,966 1,273,920
----------------- ----------------
Total long-term liabilities 803,966 1,273,920
----------------- ----------------
Shareholders' equity:
Common stock 98,591 97,286
Additional paid-in capital 55,000,990 54,786,327
Deficit accumulated during the development stage (50,709,243) (49,368,631)
----------------- ----------------
4,390,338 5,514,982
Deferred compensation (66,467) (77,054)
----------------- ----------------
Total shareholders' equity 4,323,871 5,437,928
----------------- ----------------
Total liabilities and shareholders' equity $ 7,067,553 $ 8,635,997
================= ================
</TABLE>
3
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Integ Incorporated
(A Development Stage Company)
Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Period from
Three Months Ended April 3, 1990
March 31 (Inception)
----------------------------------- March 31,
2000 1999 2000
-------------- --------------- ----------------
<S> <C> <C> <C>
Operating expenses:
Research and development $ 433,914 $ 792,333 $ 24,312,823
Manufacturing development 414,880 589,850 9,463,677
General and administrative 414,006 548,810 18,313,263
-------------- --------------- -----------------
Operating loss (1,262,800) (1,930,993) (52,089,763)
-------------- --------------- -----------------
Other income (expense):
Interest income 33,358 126,586 4,804,362
Interest expense (122,883) (195,013) (3,306,816)
Other 11,713 81 (117,026)
-------------- --------------- -----------------
(77,812) (68,345) 1,380,520
-------------- --------------- -----------------
Net loss for the period and deficit accumulated during
the development stage $ (1,340,612) $ (1,999,338) $ (50,709,243)
============== =============== =================
Net loss per share:
Basic and diluted $ (0.14) $ (0.21) $ (13.55)
============== =============== ================
Weighted average number of common shares outstanding:
Basic and diluted 9,763,128 9,616,974 3,742,507
============== =============== ================
</TABLE>
4
<PAGE>
Integ Incorporated
(A Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
Period from
Three Months Ended April 3, 1990
March 31 (Inception) to
---------------------------------------- March 31
2000 1999 2000
---------------------------------------- ---------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,340,612) $ (1,999,338) $ (50,709,243)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 193,220 274,265 4,002,458
Deferred compensation amortization 10,587 10,587 1,150,997
Amortization of loan commitment fee - - 250,074
Impairment of fixed assets 384,160
(Gain)loss on sale of equipment and deposit
write-off (5,874) - 88,742
Value of options and warrants related to debt
financing, lease guarantee, extension of
options, compensation and consulting services 101,563 94,893 567,592
Changes in operating assets and liabilities:
Receivables 7 - (210,491)
Prepaid expenses and other assets (7,811) 27,298 289,492
Accounts payable and accrued expenses (6,472) (160,774) 505,401
---------------- ------------------- ---------------------
Net cash used in operating activities (1,055,392) (1,753,069) (43,680,818)
---------------- ------------------- ---------------------
INVESTING ACTIVITIES:
Purchase of furniture and equipment - (5,325) (8,948,196)
Proceeds from sale of furniture and equipment 21,562 - 120,887
---------------- ------------------- ---------------------
Net cash used in investing activities 21,562 (5,325) (8,827,309)
---------------- ------------------- ---------------------
FINANCING ACTIVITIES:
Proceeds from sale of Convertible
Preferred Stock - - 22,789,732
Proceeds from bridge loan debt - - 2,900,000
Proceeds from borrowings under loan
agreement - - 5,486,446
Payments on long-term debt (441,234) (41,295) (3,108,346)
Payments on capital lease obligations (7,446) (289,780) (687,333)
Proceeds from sale of common stock 114,407 - 26,712,795
---------------- ------------------- ---------------------
Cash provided (used) by financing activities (334,273) (331,075) 54,093,294
---------------- ------------------- ---------------------
Increase (decrease) in cash and cash equivalents (1,368,103) (2,089,469) 1,585,167
Cash and cash equivalents at beginning of period 2,953,270 11,175,695 -
---------------- ------------------- ---------------------
Cash and cash equivalents at end of period $ 1,585,167 $ 9,086,226 $ 1,585,167
================ =================== =====================
</TABLE>
5
<PAGE>
INTEG INCORPORATED
(A Development Stage Company)
Notes To Financial Statements
(unaudited)
(1) Basis of Presentation
The accompanying financial statements, which are unaudited except for the
balance sheet as of December 31, 1999, have been prepared in accordance with
instructions to Form 10-Q and do not include all the information and notes
required by Generally Accepted Accounting Principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. These financial statements should be read in conjunction with the
financial statements and accompanying notes from the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 filed with the Securities and
Exchange Commission.
(2) Net Loss Per Share
Loss per share is calculated under FASB Statement 128. Basic loss per share is
based on the weighted average shares outstanding and exclude any dilutive
effects of options and warrants. Diluted loss per share for the company is the
same as basic earnings per share because the effect of options and warrants is
anti-dilutive.
(3) Equipment Loan Agreement
During 1996, the Company entered into an equipment loan agreement, which
provides for borrowings up to $12.5 million to finance the purchase of equipment
and fixtures including automated manufacturing equipment and tooling. Loans are
paid back monthly over a four-year period. The obligation of the lender to make
additional loans expired December 31, 1998. The Company borrowed a total of $5.5
million under the agreement.
6
<PAGE>
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Cautionary Statement
This Quarterly Report on Form 10-Q contains forward-looking statements as
defined in the Private Securities Litigation Reform Act of 1995. When used in
this Form 10-Q and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral statements made
with the approval of an authorized executive officer, the words or phrases
"believes," "anticipates," "expects," "intends," "will likely result,"
"estimates," "projects" or similar expressions are intended to identify such
forward-looking statements, but are not the exclusive means of identifying such
statements. These forward-looking statements involve risks and uncertainties
that may cause the Company's actual results to differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, the following: risks
associated with the development of a new technology; dependence on the strategic
alliance and LifeGuide(TM) System, uncertainty of market acceptance; risks
associated with the Company's history of operating losses, accumulated deficit,
expectation of future losses, risks; dependence on continued funding from Amira
Medical; risks associated with the corporate alliance; risks associated with
limited clinical testing experience; uncertainty of obtaining Food and Drug
Administration clearances or approvals; heightened competition; risk of
technological obsolescence; risks associated with the lack of manufacturing
capability and dependence on suppliers; risks associated with the Company's
dependence on patents and proprietary technology, risks associated with
retaining key personnel and attracting additional qualified skilled personnel;
and the risks associated with product liability and limited insurance coverage.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances after the date of such statements. Readers are
urged to carefully review and consider the various disclosures made by the
Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business. Such
forward-looking statements are qualified in their entirety by the cautions and
risk factors set forth under "Cautionary Statement" filed as Exhibit 99.1 to the
1999 Annual Report on Form 10-K.
General
From inception through March 31, 2000, the Integ Incorporated (the "Company
") has incurred losses totaling $50.7 million, consisting of $24.3 million of
research and development expenses, $9.5 million of manufacturing development
expenses, $16.9 million of general and administrative and other expenses, net of
interest income. The Company's activities have consisted primarily of research
and product development, product design, development of the manufacturing
equipment and processes and marketing strategies needed for the introduction of
the LifeGuide System. The Company has generated no revenue and has sustained
significant operating losses each year since inception. The Company expects such
losses to continue for the next several years.
7
<PAGE>
The Company announced in April 1999 that it had formed an alliance with
Amira Medical to jointly develop a new generation of home glucose monitoring
tests utilizing interstitial fluid ("ISF"). Under the alliance, products to be
developed will combine Integ's ISF collection technology with Amira's glucose
measurement technologies. Both companies will contribute resources to the
products' development, which will be manufactured by the Company and
commercialized by Amira. Under the terms of the strategic alliance, the Company
is responsible for the development of a method to sample ISF using the Company's
proprietary sampling technology, designing and manufacturing development of a
means to integrate the Company's sampling technology with Amira's test strip
technology, and manufacture of a packaged and sterile LifeGuide Key, including
the Company's ISF sampling technology incorporating Amira's test strip. Under
the strategic alliance, Amira is responsible for development and calibration of
a sterilizable test strip, test strip manufacturing and scale-up and bulk
shipping system development, defining test strip environmental and packaging
requirements inputs for the LifeGuide Key; development of meter electronics,
optics, calibration and software; management of ongoing meter contract
manufacturing; filing and holding title to all regulatory submissions in its
name in connection with the strategic alliance; labeling and packaging the
LifeGuide System for final sale and marketing, sales, distribution and customer
service of the LifeGuide System.
As part of the strategic alliance agreement, the Company will have the
option at a future date, to merge with a subsidiary of Amira, subject to certain
conditions. Total consideration payable to the Company`s shareholders,
optionholders, and warrantholders in connection with any merger with Amira is
$20,000,000 in cash and 2,000,000 shares of common stock of Amira, subject to
reduction in certain circumstances. The complete terms of the agreement are
available as an exhibit to the Integ Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 9, 1999.
Under the strategic alliance, the Company and Amira have established a
joint product development plan. This plan involves four product platform phases:
feasibility, calibration, clinical and commercial. The Company completed the
feasibility phase of the plan, where it demonstrated the ability to measure ISF
glucose using the Amira AtLast(TM) system in a non-integrated fashion, in
September 1999. The Company announced completion of the calibration phase in
February 2000. On March 29, 2000 the company announced that, based on
discussions with Amira Medical, it expected to do additional development work on
the LifeGuide System before proceeding to clinical trials. The Company has not
established a new target date for entering clinical trials.
In January 2000, the Company established a budget for the year 2000 in
support of the joint development plan, which took into account the contributions
that Amira is making toward completion of LifeGuide product development. On
February 15, 2000, the Company entered into a preferred stock agreement with
Amira which is intended to provide up to $5.6 million in funding to Integ for
the continued development of the LifeGuide System through the year 2000.
Commencing in April 2000, the Company will be dependent upon sales of stock to
Amira to meet its operating expenses
The Company is developing the LifeGuide System, a next generation hand-held
glucose monitoring product for use by people with diabetes. Utilizing the
Company's proprietary ISF sampling technology, the LifeGuide System will allow
people with diabetes to frequently self-monitor their glucose levels without
repeatedly enduring the pain and mess associated with lancing their fingers to
obtain a blood sample. The Company believes that the proposed LifeGuide System
represents a significant technological advance in glucose monitoring and will
enable people with diabetes to manage their disease more effectively and
conveniently
8
<PAGE>
Integ, a Minnesota corporation, was incorporated in April 1990.
The Company's future success is dependent upon the successful development
of the LifeGuide System, the development of which is ongoing and the complete
efficacy of which has not yet been demonstrated, and upon its ability to
exercise its option to merge with Amira. The Company is currently focused on the
research and development activities necessary to complete development of the
LifeGuide System and assess product performance.
Results of Operations
Comparison of the Three Months Ended March 31, 2000 and 1999
General: The Company's net loss totaled $1.3 million for the period March 31,
2000 as compared to $2.0 million for the same period in 1999. The company
expects net losses to continue for the next several years.
Research and development expenses: Research and development expenses decreased
to $434,000 during the three months ended March 31, 2000 from $792,000 during
the same period in 1999. This decrease was primarily attributable to decreased
staffing costs ($101,000), the allocation of certain expenses to Amira
($113,000), decreased consulting expenses ($158,000), contract fees ($31,000)
and depreciation expense ($25,000). These decreases were partially offset by an
increase patent legal expense ($42,000) and expenses related to internal
diabetic studies ($28,000).
Manufacturing development expenses: Manufacturing development expenses decreased
to $415,000 during the three months March 31, 2000 from $590,000 during the same
period in 1999. The decrease in manufacturing development expenses is primarily
attributable to decreased staffing costs ($132,000) and the allocation of
certain expenses to Amira ($137,000). These decreases were partially offset by
increased prototype expenses ($44,000) as well as an increase in contract fees
($50,000).
General and administrative expenses (In accordance with the terms of the
strategic alliance with Amira, the Company no longer incurs expenses categorized
previously as clinical and regulatory and sales and marketing. For presentation
purposes, these expenses have been reclassified as general and administrative.)
General and administrative expenses decreased to $414,000 during the three
months ended March 31, 2000 from $549,000 during the same period in 1999. The
decrease is primarily attributable to allocated facility expenses to sub-lease
tenant and Amira ($69,000), decreased depreciation expense ($59,000), director
and officer liability insurance expense ($34,000), recruiting expense ($17,000)
and other expenses of ($29,000). The decrease was partially offset by increased
staffing costs ($73,000).
Interest income: Interest income decreased to $33,000 during the three month
period ended March 31, 2000 from $127,000 during the same period in 1999. The
decrease resulted from lower average balances of cash and cash equivalents.
Interest expense: Interest expense decreased to $123,000 during the three month
period ended March 31, 2000 from $195,000 during the same period in 1999. The
decrease in interest expense is attributable to payments made on long-term debt
and capital leases. On March 31, 2000 the Company's
9
<PAGE>
long term liabilities, including current portions, were $2,238,000 as compared
to $3,752,000 on March 31, 1999.
Other Income: Other income increased to $12,000 for the three months ended March
31, 2000 from $0 for the same period in 1999. The increase is primarily
attributable to gains from the sale of equipment.
Liquidity and Capital Resources
The Company's operations since inception have been funded by net proceeds
from the sale of Common and Preferred Stock totaling approximately $52 million
and proceeds from borrowings under an equipment loan agreement totaling $5.5
million. As of March 31, 2000 the Company had cash and cash equivalents of $1.6
million and working capital of $(100,000).
The equipment loan agreement contains covenants that place restrictions on
sales of assets, transactions with affiliates, creation of additional debt, and
other customary covenants. Borrowings under the equipment loan agreement are
collateralized by a large part of the Company's assets.
On February 15, 2000, the Company entered into a preferred stock agreement
with Amira which is intended to provide up to $5.6 million in funding to Integ
for the continued development of the LifeGuide System through the year 2000.
Sales of preferred stock to Amira only occur after the Company's cash balance
has declined to $1.5 million and the Company will then only sell preferred stock
to Amira from time to time in amounts sufficient for it to meet its expenses
incurred in connection with the Company's 2000 budget. Commencing in April 2000,
the Company will be dependent upon sales of stock to Amira to meet its operating
expenses.
As part of the strategic alliance with Amira, the Company agreed that it
would not take any actions outside the ordinary course of business which would
result in a liability or an obligation to make payments, and would not issue any
debt or debt securities without Amira's consent, and that the amount of any of
these types of liabilities would be deducted from the consideration payable by
Amira in connection with the merger of the Company with a subsidiary of Amira.
The Company also agreed that it would not incur any liabilities or obligations
to make payments in excess of $1,000,000 in the ordinary course of business
without Amira's consent. The Company cannot predict whether these agreements
will adversely affect its ability to meet its future liquidity and capital
requirements.
The Company's future liquidity and capital requirements will depend on
numerous factors, including when or if the performance of the LifeGuide System
meets the required performance specifications, the ability of the Company to
successfully maintain its strategic alliance with Amira, the ability and desire
of Amira to provide additional funding, the extent to which the Company's
LifeGuide System gains market acceptance, the timing of regulatory actions
regarding the LifeGuide System, and the results of clinical trials and
competition. See Exhibit 99.1 to Form 10-K for the year ended December 31, 1999
for a more detailed description of the factors that may affect the Company's
future liquidity and capital requirements.
10
<PAGE>
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
The Company has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents investments. The Company's cash and
cash equivalents are invested in highly liquid vehicles, including money market
accounts and high-grade commercial paper as guided by the company's investment
policy. As a result of the Company's investment policy, a decrease in the
interest rate earned would not be material to the Company's results. All of the
Company's transactions are conducted in US dollars. Accordingly, the Company is
not exposed to foreign currency risk.
Part II. OTHER INFORMATION
Item 2: Changes in Securities (Use of proceeds from public offering)
The net offering proceeds to the Company from its initial public offering in
1996, after deducting expenses, were approximately $26.1 million. The Company
has used the net offering proceeds to the Company for the following purposes in
the approximate amounts set forth below:
Investment in short-term, interest bearing securities;
primarily investment grade commercial paper $ 1,494,000
and money market funds
Capital expenditures 2,403,000
Research and development and clinical and regulatory
preparation 11,009,000
Manufacturing scale-up and marketing activities 5,709,000
Working capital and other general corporate purposes 5,485,000
-----------
Total use of proceeds $26,100,000
===========
Except for officer compensation and relocation payments totaling $1,974,000 in
the aggregate, director compensation totaling $309,000 in the aggregate, and
consulting fees paid to a director totaling $213,000, none of such payments were
paid directly or indirectly to (i) officers or directors of the Company or their
affiliates, (ii) persons owning 10% or more of the Company's equity securities
or (iii) affiliates of the Company.
11
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed herewith.
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-4352)).
3.2 Amended Bylaws of the Company (incorporated by reference to Exhibit
3.3 to the Company's Registration Statement of Form S-1 (SEC File No.
333-4352)).
3.3 Certificate of Designations for Series B Preferred Stock of the
Company, dated February 15, 2000 (Incorporated by reference to exhibit
3.1 of the Company's Current Report on form 8-K dated February 15,
2000).
4.1 Series B Preferred Stock Purchase Agreement, dated February 15, 2000
between the Company and Amira Medical (incorporated by reference to
exhibit 4.1 of the Company's Current report on Form 8-K dated February
15, 2000).
4.2 Amendment No. 1 to Rights Agreement, dated February 15, 2000 between
the Company and Norwest Bank Minnesota, National Association
(incorporated by Reference to exhibit 4.2 of the Company's Current
Report on Form 8-K dated February 15, 2000).
10.1 Consulting Agreement dated April 3, 2000 by and between the Company
and Mark B. Knudson.
27 Financial Data Schedule.
(b) A current report on Form 8-K, dated February 15, 2000 was filed during
this quarter reporting the Series B Preferred Stock Purchase Agreement
between the Company and Amira Medical.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEG INCORPORATED
(Registrant)
Date: May 12, 2000 By: /s/ Susan L. Critzer
-------------------------------------
Susan L. Critzer
President and Chief Executive
Officer Acting Chief Financial
Officer (principal executive
officer, principal financial and
accounting officer)
13
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EXHIBIT INDEX
Exhibit
- -------
10.1 Consulting Agreement dated April 3, 2000 by and between the Company and
Mark B. Knudson.
27. Financial Data Schedule
<PAGE>
EXHIBIT 10.1
Integ Incorporated
Consulting Agreement
This Agreement is made effective the 3rd day of April, 2000 by and between Integ
Incorporated (Integ), a Minnesota corporation, whose principal place of business
is 2800 Patton Road, St. Paul, MN 55113, and Mark B. Knudson, Ph.D. In
consideration of the mutual covenants and promises set forth herein, the parties
hereby agree as follows:
1. Engagement Area: Integ engages Mark B. Knudson, Ph.D. as a consultant
for Integ in the area of management, training, technical expertise and
advisory services.
2. Term: Unless terminated as hereafter provided, this Agreement shall
begin on April 3, 2000 and end on April 2, 2003. The parties may
negotiate one or more renewals of this Agreement.
3. Duties: Duties will be assigned by Integ and will involve consulting
in the area of technical expertise and advisory services.
4. Compensation: Integ shall pay Mark B. Knudson, Ph.D. $6,750.00 per
month in arrears for consulting services rendered in pursuit of this
Agreement. Integ will reimburse Mark B. Knudson, Ph.D. for incidental
expenses incurred in performing this Agreement, but such expenses
shall not exceed $100.00 per month without Integ's prior written
consent. Travel expenses must be approved in advance by Integ. Mark B.
Knudson, Ph.D. shall provide Integ with appropriate documentation for
tax purposes for all expenses paid by Integ.
5. Termination: Not withstanding any contrary provision contained
elsewhere in this Agreement, this Agreement and the rights and
obligations of Integ and Mark B. Knutson, Ph.D. hereunder (other than
the rights and obligations of the parties under Section 7 or 9) shall
be terminated upon the occurrence of any of the following events:
a) 90 days after Mark B. Knudson, Ph.D.'s death; or
b) 90 days after Mark B. Knudson, Ph.D. becomes disabled so that he
is unable to render his normal services under this Agreement for
a continuous period of thirty (30) days; or
<PAGE>
c) Immediately in the event that Mark B. Knudson, Ph.D. is convicted
of any crime (excluding traffic violations or other minor
offenses), or engages in any activities that constitute a
material violation of normal standards of business ethics; or
d) Immediately in the event that Mark B. Knudson, Ph.D. willfully
refuses to comply with or implement reasonable policies and work
direction established by Integ; or
e) Upon fifteen (15) days prior written notice to Mark B. Knudson,
Ph.D., if Mark B. Knudson, Ph.D. has failed in any material
respect to perform his responsibilities hereunder and such
default is not cured within such fifteen (15) day period.
In the event this Agreement is terminated pursuant to this Section 5
prior to the expiration of the term hereof, Mark B. Knudson, Ph.D.
shall be entitled to receive his monthly consulting fee through the
date of termination, but all other rights to receive consulting fees
shall terminate on such date.
6. Status and Authority: In rendering services pursuant to this
Agreement, Mark B. Knudson, Ph.D. shall be acting as an independent
contractor and not as an employee or agent of Integ. As an independent
contractor, Mark B. Knudson, Ph.D. shall have no authority, express or
implied, to commit or obligate Integ in any manner whatsoever, except
as specifically authorized from time to time in writing by an
authorized representative of Integ, which authorization may be general
or specific. Nothing contained in this Agreement shall be construed or
applied to create a partnership. Mark B. Knudson, Ph.D. shall be
responsible for the payment of all federal, state or local taxes
payable with respect to all amounts paid to Mark B. Knudson, Ph.D.
under this Agreement; provided, however, that if Integ is determined
to be liable for the collection and/or remittance of any such taxes,
Mark B. Knudson, Ph.D. shall immediately reimburse Integ for all such
payments made by Integ.
7. Confidential Information: Because of the confidential nature of the
information which will be disclosed to Mark B. Knudson, Ph.D. under
this Agreement, Mark B. Knudson, Ph.D. will not, except as authorized
by Integ, disclose such confidential information to any other third
party or company. The obligation of confidentiality shall not be
applicable with respect to such information which: (A) was known to
Mark B. Knudson, Ph.D. prior to disclosure, (B) is or becomes known to
the public by general publication without violation of this Agreement,
(C) is given to Mark B. Knudson, Ph.D. by a third party having a right
to do so, or (D) is independently developed by Mark B. Knudson, Ph.D.
without the use of information supplied by Integ under this Agreement.
8. Exclusivity: Because of the confidential nature of the information
which will be disclosed to Mark B. Knudson, Ph.D. under this
Agreement, Mark B. Knudson,
<PAGE>
Ph.D. will not do any other consulting work in the area of Integ's
interests without prior approval by Integ.
9. Ownership of Inventions and Patents: If any patentable inventions
result from performance of this Agreement, all rights under any
patents that may issue on those inventions shall belong exclusively to
Integ. Mark B. Knudson, Ph.D. agrees to assign all such inventions to
Integ without further payment from Integ. Mark B. Knudson, Ph.D. also
agrees that, upon Integ's request and at Integ's expense, he would
provide reasonable assistance to Integ in prosecuting patents covering
those inventions.
10. Notices: All notices required or permitted by this Agreement shall be
in writing and shall be delivered in person or sent by certified or
registered mail, return receipt required, postage paid as follows:
President
Integ Incorporated
2800 Patton Road
St. Paul, MN 55113
Mark B. Knudson, Ph.D.
1309 West Royal Oaks Drive
Shoreview, MN 55126
or to other's address as either party may designate. All mailing
notices shall be deemed effective upon depositing in the mail.
11. Waiver: The waiver of either party of a breach of any provision of
this Agreement shall not operate as or be construed as a continuing
waiver or as a consent to or waiver of such subsequent breach.
12. Modification: This Agreement may only be modified in writing signed by
both parties.
13. Nonassignable: Since the services to be provided under this Agreement
are personal, all duties to be executed by Mark B. Knudson, Ph.D.
shall be performed by Mark B. Knudson, Ph.D. and may not be assigned
or delegated without written consent of Integ.
14. Entire Agreement: This Agreement constitutes the entire Agreement
between the parties with respect to the subject matter hereof and
supersedes all previous agreements and understandings rather oral or
written between the parties with respect to the subject hereof.
<PAGE>
15. Governing Law: This Agreement shall be governed by the laws of the
State of Minnesota. In witness thereof, the parties have set forth
their hand hither and to on the date indicated below.
Integ Incorporated Mark B. Knudson, Ph.D.
By: _________________________ By: _________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,585,167
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,861,222
<PP&E> 8,445,737
<DEPRECIATION> 3,244,159
<TOTAL-ASSETS> 7,067,553
<CURRENT-LIABILITIES> 1,939,716
<BONDS> 0
0
0
<COMMON> 98,591
<OTHER-SE> 4,225,280
<TOTAL-LIABILITY-AND-EQUITY> 7,067,553
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,262,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122,883
<INCOME-PRETAX> (1,340,612)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,340,612)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,340,612)
<EPS-BASIC> (.14)
<EPS-DILUTED> (.14)
</TABLE>
