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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended June 30, 1997 Commission File No. 0-24972
PANAX PHARMACEUTICAL COMPANY LTD.
(Exact name of small business issuer in its charter)
New York 13-3754005
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Park Avenue - 27th Floor, New York, N.Y. 10022
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(Address of principal offices) (Zip Code)
Registrant's telephone number, including Area Code: (212) 319-8300
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $ .0001 per share
Common Stock Purchase Warrants
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Title of Class
Check 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 period
commencing June 30, 1996, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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Number of shares outstanding of Registrant's Common Stock, as of September 17,
1996: 3,356,912 shares.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part II of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ] Confirm
The Registrant's revenues for the year ended June 30, 1997 were $103,022.
Aggregate market value of voting stock held by non-affiliates of Registrant
(deemed by Registrant for this purpose to be the Officers and Directors and
those persons known to Registrant to beneficially own, exclusive of shares
subject to outstanding options, less than 5% of the outstanding shares of
Registrant's Common Stock) computed by reference to the closing sales price as
reported on the NASDAQ on September 26, 1996: $4,652,867.
Documents incorporated by reference: None.
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PART I
ITEM 1. BUSINESS
SUMMARY AND BACKGROUND
Panax Pharmaceutical Company Ltd. ("Panax" or the "Company") was
organized in May 1993 to focus on the development of new pharmaceutical
compounds identified in and isolated from plants. Plants are targeted by the
Company based on ethnobotanical information -- oral and recorded history of
the use of plants by native peoples to cure diseases. The ethnobotanical
approach is supplemented by medical science and natural product chemistry. The
discovery process is initially directed at the rich flora regions (temperate
zones) of the territory currently comprising the Commonwealth of Independent
States (the "C.I.S."), particularly Russia, Kazakhstan, Kyrgistan and Armenia.
Collection of plants, preparation of extracts, screening and
fractionating of plant extracts and identification and purification of
chemical compound has been performed at or through the laboratories, herbarium
and other facilities of the 250 year old Komarov Botanical Institute of the
Russian Academy of Sciences (the "Komarov Institute"), the leading botanical
institute in Russia and the publisher of the eight-volume encyclopedia
"Medicinal Plant Resources of the Soviet Union." The services are performed
pursuant to a long term exclusive agreement. Pharmacological screening of
plant extracts and isolated molecules is conducted in St. Petersburg, Russia
under the agreement and had been conducted under contracts with various
medical and pharmaceutical institutions, and in the United States with the
National Institutes of Health, as well as various universities in the USA, and
in Europe.
Routinely, as many as 20 chemists work on chemistry projects for
Panax. Costs of this program since 1994 have been less than $250,000 per year
which includes payments to the Komarov Institute and Russian personnel, and
the costs of materials and leased facilities associated with the medicinal
chemistry program.
In late calendar 1996, Panax modified its strategy, reducing its
natural product discovery activities and redirecting its principal efforts to
expanding its pipeline of commercially viable pharmaceutical products by
licensing or acquiring specifically-targeted products being developed for the
treatment of certain diseases.
At least for the near term, the Company intends to maintain its
affiliation with the Komarov Institute and continue, although on a more
limited basis if the proposed acquisitions discussed below are effected, its
natural product discovery activities. The Company believes that the agreement
with the Komarov Institute permits a more limited participation at the option
of the Company.
Chemical Libraries and Chemical Services. In late calendar 1996,
Panax began to transition its Chemical Services Division to a fee-for-services
business. The group has collected a library of over 30,000 pure compounds and
numerous natural products to which Panax has certain rights and has
implemented a sales strategy which includes providing third parties access to
the library and custom chemistry. The program was established to generate
revenues and provide low cost medicinal, synthetic and combinatorial
chemistry, as well as natural product isolation work, in support of future
discovery activities around new receptors or novel research programs brought
to Panax from external sources. The Company intends to evaluate the Chemical
Services Division on a regular basis to determine whether to enhance, adjust
or terminate the program. Revenues from these activities have been minimal to
date.
Purgative Product License. In late calendar 1996, Panax sought
opportunities to expand. The Company in February 1997 entered into an
exclusive world-wide license agreement with ALW Partnership ("ALW"), the
partners of which are Craig Aronchick, M.D., Scott H. Wright, M.D. and William
H. Lipshutz, M.D., to manufacture, have manufactured, use, sell and
sub-license in the field of colonic purgatives or laxatives a solid dosage
form of sodium phosphate for use as a colonic purgative or laxative (the
"Purgative Product") along with ALW's body of proprietary, technology
information, trade secrets and know-how relating thereto. Panax's rights under
the ALW
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License automatically extend to improvements developed by Panax and/or ALW
which are derivative of the Purgative Product. Panax also has a right of first
refusal with respect to any new products developed by ALW or a principal
thereof which relate to the field of use of the Product but which are not
derivative of the Purgative Product.
A Phase IIb clinical study was completed by Dr. Aronchick, Head of
the Endoscopy Unit at Pennsylvania Hospital and Associate Professor of
Medicine at Jefferson Medical College, and his colleagues. Dr. Aronchick
serves as a consultant to the Company and is a member of its Scientific
Advisory Board. In the study, 305 patients undergoing colonoscopy were
randomized to one of three purgative methods (Colyte, Fleet's Phospho-soda or
sodium phosphate tablets). All three preparations in this study showed equal
efficacy with respect to the quality of bowel surface cleansing. Forty-six
percent (46%) of patients taking liquid Fleets Phospho-soda and over 14% of
patients taking liquid Colyte found the taste unacceptable. Six percent (6%)
of the patients taking liquid Fleet's Phospho-soda and liquid Colyte
experienced moderate to severe vomiting as compared to none taking the
Purgative Product. All patients taking the Company's sodium phosphate tablets
found the pills to have no taste or a pleasant taste. Almost all patients who
took the Purgative Product during this study, and who had previously had
liquid Colyte or liquid Fleet's Phospho-soda for prior colonoscopies,
preferred the tablets for future colonoscopies. The Company intends to submit
an Investigational New Drug application (an "IND") to the United States Food
and Drug Administration (the "FDA") and expand on these clinical findings by
conducting a multi-center Phase III pivotal clinical trial. It is anticipated,
although there can be no assurance, that this confirmatory clinical trial
could begin in the fourth quarter of 1997 and be completed in 1998.
A U.S. patent as to the Purgative Product (covering any solid form of
administration of sodium phosphate for use as a colonic cleansing agent or as
a laxative) was issued on April 1, 1997. Patents on the Purgative Product are
pending in Europe, Japan, and Canada. To expand its product lines under the
ALW License, Panax recently filed a patent application covering alternative
salt mixtures which may be utilized in place of the sodium phosphate
formulation used in the Purgative Product.
Panax paid ALW $100,000 upon execution of the ALW License in February
1997 and is obligated to pay ALW an additional $150,000 subject to and upon
consummation of an equity financing of at least $2,000,000. Pursuant to the
ALW License and three-year consulting agreements with the partners of ALW,
additional cash payments, royalty payments and options to purchase shares of
Common Stock are to be made as follows: (i) $250,000 upon the Company's
receipt of a New Drug Application (an "NDA") with the FDA of any product under
the ALW License; (ii) royalties of: (a) 2% on the first $5,000,000 in net
sales of the Purgative Product during each calendar year; (b) 4% on net sales
of the Purgative Product above $5,000,000 and up to $10,000,000 during each
calendar year; and (c) 6% on net sales of the Purgative Product above
$10,000,000 during each calendar year, provided that after February 2003,
in order to maintain exclusivity of the licensed rights, the Company must make
minimum annual payments to ALW of $100,000 and provided further that royalties
shall be decreased or eliminated in accordance with the ALW License if the
patent on the Purgative Product expires or is found to be invalid or
unenforceable; and (iii) options exercisable at $.61 per share to purchase an
aggregate of (a) 250,000 shares during the period commencing on the date of
the consummation of the $2,000,000 financing and ending February 14, 2007; (b)
250,000 shares during the period commencing with the first sale in the United
States of any product under the ALW License and ending the later of February
14, 2007 or the earlier of the third anniversary of the first such sale or
February 14, 2010 and (c) 250,000 shares during the period which commences
with the first day following the first fiscal year during which net sales of
all products under the ALW License exceeds $20,000,000 and ends on the later
of (i) February 14, 2007 or the earlier of the third anniversary of such first
sale or February 14, 2010. The Company is also to fund at least $1,000,000 of
additional research over the course of two years commencing with the
consummation of the financing. The Company is obligated to register at its
expense under the Securities Act of 1933, as amended, the shares subject to
the options.
The ALW License is terminable by ALW if the Company (i) has failed to
conclude the $2,000,000 financing by November 14, 1997, (ii) fails to commit
at least $1,000,000 of funding to the development of the Purgative Product for
the first two years following consummation of the $2,000,000 financing, (iii)
has not paid royalties by February 2003 of at least $100,000 per year whether
or not sales have occurred, or (iv) if no commercial sale of the product or
"improvement" as defined in the ALW License has occurred by February 2005.
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No assurances can be given that the $2,000,000 financing will be
effected, that the Company will have sufficient funding to permit the full
development of the Purgative Product, that the Purgative Product will be fully
developed, that the required approvals from the FDA and other regulatory
bodies will be obtained or that if developed and approvals are obtained that
the Product will prove commercially profitable for the Company or that the
issued patents or those that are obtained will provide the Company with
adequate protection. FDA regulatory matters in connection with the Purgative
Product have not been reviewed or opined upon on behalf of Panax by
independent patent or FDA regulatory counsel.
Proposed Acquisitions
The Company is in the final stages of negotiating agreements to
acquire the outstanding capital stock of Sangen Pharmaceutical Company
("Sangen") and CorBec Pharmaceuticals, Inc. ("CorBec"). Sangen and CorBec are
each privately held development stage pharmaceutical companies. Each
acquisition is subject to, among other things, the consummation of the
acquisition of the other and to the Company effecting an equity financing of
at least $8,000,000 (the "Financing"). In view of the insufficient number of
authorized and unissued shares of Common Stock of the Company, it would also
be dependent on the approval by the shareholders of the Company at a special
meeting of shareholders of a proposed amendment to the Company's Certificate
of Incorporation to increase the authorized shares to 50,000,000 shares.
The acquisition of Sangen as contemplated by the draft Sangen
Acquisition Agreement would provide for the employment of Dr. Leonard S.
Jacob, Sangen's sole stockholder, officer and director and an independent
consultant to the Company, as the Company's Chairman and Chief Executive
Officer pursuant to a three-year employment agreement providing for an annual
base salary of $225,000. In addition, Dr. Jacob is to receive a ten year
Common Stock Purchase Warrant entitling him to purchase 1,200,000 shares of
Common Stock and, if on the closing date of the acquisition 1,200,000 shares
is less than 7 1/2% of the "Fully Diluted Capitalization" of the Company, an
option, exercisable for ten years, to purchase such number of shares of Panax
Common Stock as is equal to the difference between 1,200,000 shares and 7 1/2%
of the "Fully Diluted Capitalization" of the Company. "Fully Diluted
Capitalization" means the sum of (i) all shares issued and outstanding on the
date of the consummation of the proposed acquisition (the "Acquisition Date");
(ii) the shares sold in the Financing, (iii) the shares reserved for issuance
upon exercise of all warrants sold to investors and the placement agents in
the Financing, (iv) shares to be reserved for issuance pursuant to the
agreements related to the proposed acquisitions and to licenses for
proprietary rights to technology already licensed by the Company and to be
licensed in connection with the proposed acquisitions, and (v) all other
shares currently reserved for issuance upon exercise of options and warrants
outstanding on the date of the acquisition of Sangen other than (a) all shares
reserved and available for issuance under the Company's 1993 Stock Option Plan
and 1997 Consultant Stock Option Plan but not currently subject to outstanding
grants and (b) shares issuable upon exercise of warrants (the "IPO Warrants")
and a purchase option granted to the underwriter (the "Unit Purchase Option")
in the Company's initial public offering (unless exercised prior to April
1998, in the case of the IPO Warrants, and January 2000, in the case of the
Unit Purchase Option). Dr. Jacob's ten-year warrant with respect to 1,200,000
shares is to be exercisable at $.61 per share and his ten year option with
respect to additional shares, if any, is to be exercisable at the fair market
value of the Common Stock on the Acquisition Date. Pursuant to Dr. Jacob's
employment agreement, up to a maximum of 900,000 shares acquired upon exercise
of his warrant may be repurchased by the Company for nominal consideration in
the event Dr. Jacobs has failed to fulfill his employment agreement
obligations with the Company by either leaving the employ of the Company
without cause or being terminated for "cause", as defined in the employment
agreement, during the term of the agreement. The Company's repurchase right,
however, is to expire at the rate of 25,000 shares for each month he was
employed under the Agreement. The shares in excess of 1,200,000 included in
Dr. Jacob's option will vest in equal increments over a period of 36 months
commencing on the closing date of the proposed acquisitions.
As its sole asset, Sangen has the rights to acquire from Allegheny
University of the Health Sciences ("AUHS") and Dr. George Tuszynski, Professor
of Surgery, Medicine and Pathology at AUHS, the rights to a world-wide
exclusive license to develop, manufacture, sell, have manufactured or
sub-license a certain technology
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for inhibition and prevention of tumor metastasis. Dr. George Tuszynski, has
found a specific amino acid sequence in Thrombospondin ("TSP-1") that is
believed to be responsible for promoting the effects of this molecule on tumor
cell adhesion and metastasis. From this discovery, Dr. Tuszynski invented a
series of peptide molecules, and a patent for the molecules has been allowed
in the United States. These molecules significantly reduced metastasis of a
mouse tumor cell line and a human tumor cell line when injected into athymic
mice. Dr. Tuszynski has also developed a murine polyclonal antibody against
the TSP-1 receptor which was also shown to prevent or significantly reduce
metastasis in athymic mice. The Company anticipates that a patent application
directed to a novel sequence of the thrombospondin receptor and monoclonal
antibodies directed to the same will be filed in the near future. The peptide
molecules, the polyclonal antibody and the TSP-1 receptor are referred to
herein as the "Thrombospondin Technology."
Tumor metastasis is a multi-step process involving cell adhesion,
migration, invasion, colonization of distant organs and angiogenesis. TSP-1 is
a large glycoprotein secreted by platelets and synthesized by many cell types,
including endothelial and tumor cells. TSP-1 has been implicated as a promoter
of tumor progression and angiogenesis. A number of studies have demonstrated
that TSP-1 can bind to multiple surface receptors on the same cell or bind to
different receptors on different cells, including carcinoma cells. The Company
believes that blocking the TSP-1 receptor may represent a novel approach for
the treatment and prevention of metastasis by uniquely acting on certain steps
of the metastatic cascade.
Dr. Tuszynski has also identified a hexapeptide structure which
appears to prevent the spread of human tumors in animals by blocking the TSP-1
receptor. Preclinical testing is to be conducted to determine if the
pharmacokinetics and safety profile warrant the introduction of this molecule
into humans. If such studies support its introduction, human clinical testing
could begin in late 1998.
No assurance can be given that further studies will indicate the use
of the Thrombospondin Technology will prove to be successful in the inhibition
of metastases, that if the acquisition is effected the Company will be
successful in the development of commercially or profitable pharmaceutical
products from such technology or that the funds or collaboration arrangement
required for such development will be available to the Company on reasonable
terms. Patent matters in connection with the Thrombospondin Technology have
not been reviewed or opined upon on behalf of Panax by independent patent
counsel. FDA regulatory matters in connection with the Thrombospondin
Technology have not been reviewed or opined upon on behalf of Panax by
independent FDA regulatory counsel.
The Sangen acquisition agreement is to provide that, concurrently
with the consummation of the Company's acquisition of Sangen, the Company will
license such rights from AUHS and Dr. Tuszynski pursuant to an exclusive,
world-wide license to make, have made, use, sell, import, offer for sale and
sublicense the Thrombospondin Technology and to utilize and exploit the
related patents and proprietary information. The license agreement is to
terminate, unless earlier for breach or for failure of the Company to achieve
certain FDA product approval milestones within seven years, upon the
expiration or abandonment of the last patent related to the Thrombospondin
Technology. If the Sangen acquisition is consummated, the license would
require the Company to issue to AUHS 125,000 shares of Common Stock and
options to purchase 125,000 shares, to issue to Dr. Tuszynski ten-year
warrants to purchase 250,000 shares of Common Stock, to pay AUHS royalties of
2% of net sales of licensed products, to provide AUHS funding ranging from
$150,000 (in the first year) to $1,350,000 (over seven years, inclusive) for
sponsored research and would obligate the Company to engage Dr. Tuszynski as a
consultant for two years at $50,000 per year.
CorBec, founded in 1993 by Hillman Medical Ventures to discover and
develop pharmaceuticals designed to modulate the immune system by manipulating
macrophage and mast cell function, has focused on developing treatments in
three therapeutic areas: autoimmune disease, serious infections and
asthma/allergy. The therapeutic agents which have traditionally constituted
the mainstay for the treatment of autoimmune disorders are glucocorticoid
hormones (typically prednisone), which inhibit macrophage Fc receptor
expression but which must be administered in high dosages and/or for extended
periods of time and which are accompanied by substantial side
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effects, including exacerbation of diabetes, hypertension, electrolyte
imbalance, weight gain, osteoporosis and increased susceptibility to
infection. In the case of idiopathic thrombocytopenia purpura (ITP) and
autoimmune disease, from which over 100,000 patients in the United States
suffer, most patients relapse after glucocorticoid treatment is tapered, and
in a majority of such cases, surgical removal of the spleen is ultimately
required. The CorBec technology, developed under the guidance of Alan D.
Schreiber, M.D., Professor of Medicine and Assistant Dean for Research at the
University of Pennsylvania School of Medicine, consists of progesterone
derivatives which do not have the toxic side effects of glucocorticoid hormone
treatments and which also do not have the potentially undesirable sex-organ
hormonal effects normally associated with traditional progesterone and other
sex hormone treatments.
The most advanced product in the family of compounds comprising the
CorBec technology is CBP-1011, a potential ITP treatment. CorBec also is in an
early stage of development of CBP-2011/2012, a second generation compound of
CBP-1011. CBP-1011 is an orally administered steroid analog, demonstrating
steroid-like properties but without the side-effect profile commonly
associated with steroids. Clinical testing to date suggests that CBP- 1011 is
safe and effective in the treatment of patients with ITP. After a meeting with
the FDA in September 1996, CorBec initiated Phase III pivotal trials at 15
sites in the United States. There can be no assurance, however, that the Phase
III clinical trials of CBP-1011 will be successful, that, even if such trials
are successful, CBP-1011 will be approved by the FDA, or that, even if it is
so approved, the Company will be able obtain and maintain orphan drug
protection with respect to the compound and successfully market it.
The development activities are being performed under a research
agreement with the University of Pennsylvania, which has granted CorBec
pursuant to a license agreement the exclusive world-wide rights to make, have
made, use and sell the technology and products developed subject to the right
of non-profit organizations to use the products solely for education or
research purposes. The license with respect to the licensed compounds
comprising the CorBec Technology (the "CorBec License") may be terminated by
the licensor if the Company has not, by June 1998, (i) submitted a product to
the FDA for approval, (ii) offered a product for sale, either directly or
through a sublicensee, or (iii) made continuing reasonable efforts to develop
a product for submission for FDA approval or for sale. The CorBec License may
also be terminated if the Company fails to make minimum annual royalty
payments of $50,000 during 1998 and 1999 and $100,000 thereafter. Patent
matters in connection with the CorBec Technology have not been reviewed or
opined upon on behalf of Panax by independent patent counsel. FDA regulatory
matters in connection with the CorBec Technology have not been reviewed or
opined on behalf of Panax by independent FDA regulatory counsel.
CorBec does not have any employees or facilities. Its managerial and
administrative activities are performed by part-time consultants. Its
executive offices are maintained under a fee arrangement with, and in the
offices of, Hillman Medical Ventures in West Conshocken, Pennsylvania.
The acquisition of CorBec as contemplated by the draft acquisition
agreement would require the Company to pay the CorBec stockholders an
aggregate of $750,000 and issue to them an aggregate of 750,000 shares of
Common Stock. Additional cash payments in the aggregate amount of $16,580,000
and additional issuances of an aggregate of 720,000 shares of Common Stock are
to be made upon the achievement of the following milestones and targets: (i)
$500,000 and 180,000 shares upon the Company's receipt of a letter of approval
from the FDA allowing for the commercial sale of CBP-1011; (ii) 80,000 shares
following the first fiscal year net revenues from CBP-1011 sales equals or
exceeds $20,000,000; (iii) $7,500,000 (payable in five equal annual
installments) following the first fiscal year net revenues from CBP-1011
equals or exceeds $30,000,000; (iv) 180,000 shares following the first fiscal
year net revenues from CBP-1011 sales equals or exceeds $40,000,000; (v)
$500,000 and 30,000 shares upon the Company's filing of an IND with the FDA
with respect to a second generation compound (a "Second Drug"); (vi) $80,000
upon the successful completion of Phase II clinical trials with respect to a
Second Drug; (vii) 120,000 shares upon the Company's filing of an NDA with
respect to a Second Drug; (viii) $500,000 and 130,000 shares upon receipt of a
letter of approval from the FDA allowing for the commercial sale of a Second
Drug; and (ix) $7,500,000 (payable in five equal annual installments)
following the first fiscal year net revenues from the Second Drug equals or
exceeds $75,000,000. In addition, the Company is to enter into three-year
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consulting agreements with Dr. Alan Schreiber, who is a CorBec stockholder and
the inventor, and with the Chief Executive Officer of CorBec, providing for
aggregate annual consulting fees of $150,000 during the first year, $170,000
during the second year and $185,000 during the third year, and for the grant
to them of five year options to purchase at the market price on the date of
the CorBec acquisition an aggregate of 170,000 shares of Common Stock in three
equal annual installments. An option to purchase an additional 200,000 shares
at the market price on the date of grant for the five year period following
FDA approval, if any, of an IND and the commencement of clinical trials with
respect to a third generation compound is also to be granted to Dr. Schreiber.
The acquisition agreement is to also require the Company to fund up to
$240,000 of sponsored research over the course of three years and at least
$1,000,000 to fund clinical trials of the CBP-1011.
To satisfy the condition as to Financing, the Company is presently
attempting to effect a private placement involving an offering of shares of
its Common Stock. The terms of the private placement which originally provided
for the offering of units consisting of shares of Common Stock and warrants
to purchase additional shares are currently being renegotiated. The current
proposal involves an offering of up to 14,000,000 shares of Common Stock,
subject to a minimum sale of 8,000,000 shares, at a price of $1.00 per share.
It also provides that the Placement Agents are to receive warrants to purchase
additional shares of Common Stock if the offering is successfully consummated.
No assurance can be given that any Financing will be consummated, or, if
consummated, that it will be consummated for the amounts or on terms materially
consistent with the current proposal and as a result the number of shares to be
issued and reserved will not be increased substantially.
MARKETING
The Company currently has no marketing or sales staff and will seek
alliances or collaborative arrangements with pharmaceutical companies for all
or some of the products it may develop in order to utilize the marketing
staffs and experience of those companies in distribution of such products over
a broad-based market. No assurance can be given that any such collaborative
arrangements can be concluded.
PATENTS AND PROPRIETARY RIGHTS
The Company intends to file patents on those products it successfully
develops. There can be no assurance that any of its patent applications will
be upheld or that a patent if issued, would afford protection from material
infringement. Other entities may develop competitive products which do not
infringe on the Company's patents. Because of the substantial length of time
and expense associated with bringing new products through development and to
the marketplace, it is of considerable importance to obtain patent and trade
secret protection for new technologies, products and processes. As set forth
below, neither the Thrombospondin Technology nor the CorBec Technology has
been reviewed or opined upon on behalf of the Company by independent patent
counsel.
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In addition to patents, the Company relies on trade secrets and
proprietary know-how to protect its proprietary information. The Company has
and will enter confidentiality agreements with employees, consultants and
other parties including the Company's scientific advisors. The Company
requires all individuals who are engaged on projects of the Company to execute
confidentiality agreements before it provides sensitive or proprietary
information. There can be no assurance that these confidentiality agreements
will not be breached, that the Company would have adequate remedies for any
breach or that the Company's trade secrets will not otherwise become known to,
or independently developed by, competitors.
Lately there has been extensive litigation regarding patents and
other intellectual property rights generally. Although patent and intellectual
property disputes have often been settled through licensing or similar
arrangements, costs associated with such arrangements may be substantial and
there can be no assurance that necessary licenses would be available to the
Company on satisfactory terms or at all. Accordingly, an adverse determination
in a judicial or administrative proceeding or failure to obtain a license
under another party's dominating patents could prevent the Company from
developing and selling its product, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
GOVERNMENT REGULATION
The research, testing, manufacture, distribution, advertising and
marketing of pharmaceutical products are subject to extensive regulation by
governmental authorities in the United States and other countries.
The pharmaceutical regulatory process includes extensive preclinical
safety, pharmacology and toxicological testing. Preclinical data is required
for the filing of an IND with the FDA to conduct clinical testing to establish
safety, efficacy, purity and potency of any investigational pharmaceutical or
biological products. With respect to each pharmaceutical or biological product
candidate, the Company must initially conduct a limited Phase I (safety)
study, extensive Phase II studies, followed by a more extensive Phase III
study. This testing can take several years and require the expenditure of
substantial capital and other resources. There can be no assurance that this
testing will be completed on a timely basis or at all. Delays or denials of
marketing approval are encountered regularly. These delays may be encountered
both domestically and abroad. Prior to a company commencing marketing of a
pharmaceutical product, it must file an NDA or a Product License Application
("PLA") and an Establishment License Application ("ELA") with the FDA and be
issued the appropriate new drug approval, product license and establishment
license. An NDA or PLA relates to the product itself, while an ELA is required
before product marketing can begin. There can be no assurance that even after
clinical testing, regulatory approval of an NDA or PLA or an ELA will ever be
obtained. If obtained, NDA or PLA and ELA regulatory approval may entail
limitations on the indicated uses for which any product may be marketed.
Following regulatory approval, if any, a product and its manufacturer are
subject to continuing regulatory oversight and review. Later discovery of
problems with a product or its manufacturer may result in restrictions on such
product or its manufacturer. These restrictions may include withdrawal of the
marketing approval for the product. Violation of FDA requirements in general
can lead to recall or seizure of products, injunction against production,
distribution, sales and marketing, and criminal prosecution, among other
sanctions.
The cost to the Company of conducting extensive human clinical trials
for any potential biopharmaceutical or biological product can vary
dramatically based on a number of factors, including, but not limited to, the
order and timing of clinical indications pursued, the size of the patient
population, the number of participating institutions and the number and type
of end points subject to data collection. Because of the intense competition
in the market in which the Company operates, the Company may have to expend
substantial additional funds to obtain access to such resources, or delay or
modify its plans significantly. There can be no assurance that the Company
will have sufficient resources to complete the required clinical testing
regulatory review and approval process or that the Company could survive the
inability to obtain, or delays in obtaining, such approvals. Moreover, there
can be no assurance that clinical testing of the Company's product candidates
will provide sufficient evidence of safety and efficacy in humans, that
regulatory approvals will be granted for any product candidate or that it will
be
7
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economically feasible for the Company to commercialize any product candidate
for which regulatory approval is ultimately granted.
When and if approvals are granted, the Company, the approved drug,
the manufacture of such drug and the facilities in which such drug is
manufactured are subject to ongoing regulatory review. Subsequent discovery of
previously unknown problems may result in restriction of a product's use or
withdrawal of the product from the market. Adverse government regulation that
might arise from future legislative or administrative action, particularly as
it relates to health care reform and product pricing, cannot be predicted.
To date, CorBec has completed clinical trials on CBP-1011 and, since
January 1997, Phase III clinical trials have been ongoing. There can be no
assurance however, that additional Phase III clinical trials will not be
required, including a direct competitive comparison with prednisone.
Phase IIb clinical trials have been completed as to the Purgative
Product, and the Company currently plans to submit an IND with respect thereto
in the fourth quarter of 1997. There can be no assurance that such IND will be
submitted, and if submitted, that such IND will be approved. In addition,
there can be no assurance that additional Phase IIb clinical trials will not
be required.
Prior to marketing either the compounds derived from the CorBec
Technology or the Purgative Product or any other compounds or products to be
developed by the Company (including the Thrombospondin Technology), such
product candidate or compound must undergo an extensive regulatory approval
process required by the FDA and by comparable agencies in other countries.
This process, which includes preclinical studies and clinical trials of each
compound to establish its safety and efficacy and confirmation by the FDA that
good manufacturing practices ("GMP") were maintained during testing and
manufacturing, can take many years, requires the expenditure of substantial
resources and gives larger companies with greater financial resources a
competitive advantage over the Company. To date, no product candidate being
developed or to be developed by the Company has been submitted for NDA
approval or has obtained NDA approval by the FDA or any other regulatory
authority for marketing, and there can be no assurance that any such product
or compound will ever be so submitted or that FDA approval or approval from
any other regulatory authority for any products developed by the Company will
be granted on a timely basis, if at all, or that the Company will be able to
obtain the labeling claims desired for its products or compounds. The Company
is and will continue to be dependent upon the laboratories and medical
institutions conducting its preclinical studies and clinical trials to
maintain both good laboratory and good clinical practices. Data obtained from
preclinical studies and clinical trials are subject to varying interpretations
which could delay, limit or prevent FDA regulatory approval. Delays or
rejections may be encountered based upon changes in FDA policy for drug
approval during the period of development and FDA regulatory review. Similar
delays also may be encountered in foreign countries. Any denials or delays in
obtaining the requisite approvals would likely have a material adverse effect
on the Company.
Panax has not engaged the services of FDA regulatory counsel to
review any of the regulatory procedures conducted in the development of the
CorBec Technology, the Purgative Product or the Thrombospondin Technology,
including without limitation, preclinical studies, clinical trials and
correspondence with the FDA in connection therewith. The Company intends to
engage the services of independent FDA regulatory counsel in the near future.
COMPETITION
Competition in the pharmaceutical industry in general and in the
development of new pharmaceutical products in particular is extremely intense.
Among the principal factors upon which such competition is based are
scientific and technical staffs, research and testing facilities, marketing,
distribution, price, therapeutic efficacy, side effect profile, effective use,
safety, physician expense and patient compliance. There are many treatments
for infectious diseases and many under development, including those derived
from natural sources. To the extent any of the outstanding therapeutics or
those under development are directed towards the disease indications on which
8
<PAGE>
the Company has focused, they represent significant competition. In the
absence of a collaborative arrangement with a substantial pharmaceutical
company, the Company will also have a competitive disadvantage with respect to
many pharmaceutical companies which have significantly greater research and
development capabilities as well as greater marketing, financial and human
resources than the Company. Most of its competitors have significantly greater
experience than the Company in undertaking preclinical testing and human
clinical trials of new pharmaceutical products and obtaining regulatory
approvals of such products.
There can be no assurance that the Company's products or technologies
will not be rendered obsolete or non-competitive as a result of developments
by other pharmaceutical companies or that the Company will be able to keep
pace with such developments or that the Company 's proprietary protection will
prove effective. Many of the competitors have developed or are in the process
of developing technologies that are, or in future may be, the basis for
competitive products, including those with an entirely different approach or
means to accomplish the desired therapeutic product the Company anticipates
developing. The competing products may prove to be more effective and less
costly than the products the Company has targeted for development.
ENVIRONMENTAL REGULATIONS
In connection with its research and development activities and its
manufacturing of materials for clinical trials conducted in Russia, the
Company is currently subject to laws and standards prescribed by the Russian
government. The Company is also subject to United States federal, state and
local laws, rules regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal
of certain materials and wastes with respect to its activities in the United
States. There can be no assurance that the Company will not be required to
incur significant costs to comply with environmental and health safety
regulations. The Company's research and development involves or will involve
the controlled use of hazardous materials, chemicals, viruses and various
radioactive compounds. While the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by Russia and comply with those prescribed by local, state and
federal regulations in the United States, the risk of accidental contamination
or injury from these materials cannot be completely eliminated. In the event
of such an accident, the Company could be held liable for any damages that
result and any such liability could exceed the resources of the Company.
PRODUCT LIABILITY
In the development and sale of products, the Company will face risks
of exposure to product liability claims based on allegations that the use or
investigation of the product resulted in injury. To reduce such risk, the
Company, after development of a product, will seek to obtain insurance
coverage against claims that may be asserted. No assurance can be given that
such coverage can be successfully obtained or that it will prove to be
adequate.
EMPLOYEES AND FACILITIES
As of September 17, 1997, the Company had three full time employees.
The Company has the benefit of the services of 17 persons who are members of
the scientific team and one administrative individual, all of whom are
employees of or affiliates of the Komarov Institute or St. Petersburg State
University, but devote a material portion of their time to the Company's
operations. The Company's staff is also supplemented by a group of ten
business and scientific consultants, some of whom are members of the Company's
Scientific Advisory Board.
Under an agreement, originally dated in July 1993 and amended in
March 1994, with the Komarov Institute the Institute has agreed to make
available for a ten year period to the Company for the cataloguing,
identification and research of medicinal plants the Institute's chemical
laboratory and other laboratory facilities, herbarium, conservatory and
library and approximately 4,700 square feet of its space for Company offices,
and to permit the Company to employ on a part-time basis (ranging from 25% to
50%), subject to the prior approval of the
9
<PAGE>
Institute, those Institute employees selected by the Company. Under the
agreement, the Company issued at $.0005 per share in July 1993, 100,000 shares
of its Common Stock and pays the Institute an annual fee which increased in
March 1994 from $12,000 to $18,000 to compensate for the cost of providing the
services of its employees. For each of the years ended June 30, 1996 and June
30, 1997, the fee amounted to $18,000.
Some plant testing had been prior to the change in the Company's
focus also performed under contractual arrangements at independent
laboratories in Russia and in the United States.
SCIENTIFIC ADVISORY BOARD
The Company has a Scientific Advisory Board to advise the Company
with respect to selection of plant extracts, the prioritization of plant
candidates for chemical fractionation and screening as well as the scientific
and business merits of certain opportunities for licensing or acquisition of
compounds which are clinical candidates or platform technologies. The SAB
constitutes an interdisciplinary group of ethnobotanists, phytochemists,
pharmacologists and medical doctors. The members were selected based on
excellence in their fields, unique expertise in product development and
ability to contribute to the Company's research and development process.
The Board members currently are:
PAUL ACTOR, PH.D., is a Research Professor in microbiology and
immunology at Temple University School of Medicine. Prior to starting his own
consulting firm, Dr. Actor had been employed by Smith Kline Beecham in various
positions including Director of Microbiology, Director of Natural Products
Pharmacology, Director of Strategic Planning and Technology Evaluation and
Director of Compound and Technology Acquisitions.
Dr. Actor has gained worldwide recognition for his discovery of
numerous anti-infective products. He has served on editorial boards of several
journals and holds elected office in local and national societies. He has more
than 100 patents and publications and is a Fellow of the Infectious Diseases
Society of America and the American Academy of Microbiology.
EDWARD BRADLEY, M.D., who earned his M.D. degree from Harvard Medical
School, is Senior Vice President of Clinical Development for the Sanofi
Research Division, responsible for the direction of research and development
for all therapeutic areas. He also serves as Chief Medical Officer of the U.S.
subsidiary of Sanofi Winthrop, Inc. Prior to joining Sanofi, he served as
Senior Vice President, Portfolio Management, Sterling Winthrop Pharmaceuticals
Research Division, and Vice President of Clinical Research and Development
with Cetus Corporation.
Dr. Bradley, a member of the American Association of Cancer Research,
American Society of Clinical Oncology, American Society for Clinical
Pharmacology and Therapeutics, and the Society for Biological Therapy, serves
on the editorial boards of the Journal of Investigational New Drugs and the
Journal of Immunotherapy. He has also served on the Board of Directors of the
Society for Biological Therapy, is a Diplomat of the American Board of
Internal Medicine with a subspecialty certification in oncology and is the
author of over fifty scientific publications in the area of clinical biology
and tumor immunology.
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<PAGE>
MORTON E. GOLDBERG D.SC., recently retired as Clinical Professor of
Pharmacology and Experimental Therapeutics in the Department of Pharmacology
at the University of Pennsylvania School of Medicine where he served as a
liaison in development of collaborative research programs between faculty and
the pharmaceutical and biotechnology industries.
Dr. Goldberg spent over 33 years in the pharmaceutical industry with
increasing levels of responsibility. He retired in 1991 from ICI
Pharmaceuticals (now Zeneca) where he was Vice-President of Research,
Development and Regulatory Affairs. Previously, he was Vice-President for Drug
Discovery at ICI after having been Director of Pharmacology at the Squibb
Institute for Medical Research and prior thereto, Director of Pharmacodynamics
at the Warner Lambert Research Institute.
Dr. Goldberg has lectured on strategic analysis and portfolio
management for the pharmaceutical industry. He is a consultant to the
pharmaceutical and biotechnology industry and a member of either the Board of
Directors or the Scientific Advisory Board of several emerging companies as
well as a consultant to two venture capital groups. He is also a member of the
Extramural Science Advisory Board of the National Institute for Drug Abuse
(NIDA).
LEONARD S. JACOB, M.D., PH.D., has been an independent consultant to
the Company since May 1996. See "Item 9. Directors, Executive Officers,
Promoters and Control Persons; Compliance with Section 16(a) of the Exchange
Act" for Mr. Jacob's biographical information.
ALEXANDER SCRIABINE, M.D., is currently a consultant to several
pharmaceutical and biotechnology companies and a lecturer on pharmacology at
Yale University School of Medicine. He had been Director of the Institute for
Preclinical Pharmacology, Miles, Inc., now Bayer. For more than ten years Dr.
Scriabine was affiliated at various capacities with Merck &Co., last as
Executive Director of Pharmacology where he participated in the development of
a number of drugs which are currently on the market. Prior to that he worked
for Pfizer, Inc.
Dr. Scriabine has more than two hundred publications in scientific
journals and book chapters in the areas of cardiovascular and central nervous
system pharmacology. He wrote or edited 14 books on drug discovery and
development. Dr. Scriabine is a member of numerous scientific societies
including American Heart Association, American Society for Clinical
Pharmacology, American Society for Pharmacology and Experimental Therapeutics
and International Society for Heart Research, and is serving on the editorial
boards of several major pharmacological journals.
DENNIS STEVENSON, PH.D., is currently Curator and Administrator of
the Harding and Lieberman Laboratories at the New York Botanical Garden. Prior
to that he had been Honorary Curator of the New York Botanical Garden. He has
held positions as Professor of Botany and Professor of Biology at CUNY,
Universita di Napoli, Italy, Cornell University and New York University. Dr.
Stevenson has written more than 100 papers, abstracts, and books on the
taxonomy of certain plant families. He is a member of editorial board of
several botanical journals, and several prestigious American and international
professional societies, such as Botanical
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Society of America, Linnean Society of London and International Association
for Plant Taxonomy. He has participated in numerous field expeditions in
various parts of the world including West Indies, Central and South America
and Australia.
The SAB members are compensated by the Company in the form of monthly
retainers or, in some cases, per diem fees based on services and, in some
cases, options.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive and administrative offices at 425 Park
Avenue, 27th Floor, New York, New York 10022 are held under a sublease which
expires on April 29, 2000. See "Item 12. Certain Relationships and Related
Transactions" for information concerning a cost-sharing agreement between the
Company and affiliates of certain officers and directors of the Company
regarding the sharing of space and facilities at the offices.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings currently pending against the
Company. The Company has been advised by Sangen of a possible claim of the
co-inventors of a technology for damages who have asserted that Sangen breached
an obligation to enter into an agreement to acquire a license to their
technology. The Company has been advised by CorBec that CorBec is not a party
to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The following table sets forth by fiscal quarter the range on
the Nasdaq SmallCap Stock Market of high and low closing bid prices of the
Common Stock and the Warrants for the period from July 1, 1995 (the first date
that the Common Stock and Warrants traded separately from the Units) through
June 30, 1997.
PERIOD LOW HIGH
- ------ --- ----
Common Stock
- -------------
7/1/95 - 9/30/95 $ .88 $2.00
10/1/95 - 12/31/95 1.13 3.63
1/1/96 - 3/31/96 .88 1.94
4/1/96 - 6/30/96 .72 1.63
7/1/96 - 9/30/96 .50 .875
10/1/96 - 12/31/96 .44 .69
1/1/97 - 3/31/97 .63 3.25
4/1/97 - 6/30/97 1.75 2.72
Warrants
- --------
7/1/95 - 9/30/95 $ .25 $1.25
10/1/95 - 12/3/95 .63 1.88
1/1/96 - 3/31/96 .13 1.13
4/1/96 - 6/30/96 .16 .25
7/1/96 - 9/30/96 .125 .25
10/1/96 - 12/31/96 .0563 .063
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1/1/97 - 3/31/97 .50 .563
4/1/97 - 6/30/97 .313 .438
(b) There were approximately 116 record holders of Common Stock
and 27 record holders of Warrants as of October 8, 1997.
(c) No dividends have been paid on the Common Stock since the
Company's incorporation. The Company is not subject to any
agreements that limit its ability to pay dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements of the Company and Notes thereto appearing elsewhere in this Annual
Report.
PLAN OF OPERATIONS
Panax historically has been engaged in the discovery and development
of new pharmaceutical compounds identified in and isolated from plants. The
Company takes the ethnobotanical approach to the study of plants which is
supplemented by medical science and natural product chemistry. Many of the
plants targeted by the Company are indigenous to Russia and other states of
the Commonwealth of Independent States.
Commencing in late calendar 1996, Panax has sought out opportunities
to expand its product pipeline via licensing or acquisition of drug candidates
and platform technologies. The Company entered in: (i) January 1997 into a
letter of intent to acquire Sangen, which was recently organized to engage in
the discovery and development of pharmaceutical products for the treatment of
cancer (Sangen's principal asset is its right to acquire an exclusive
worldwide license to the Thrombospondin Technology which as indicated by early
preclinical studies, may be useful in the prevention of metastatic cancer
including breast, lung, prostate, pancreas and squamous cell cancer); (ii)
February 1997 into an agreement granting the Company an exclusive worldwide
license to manufacture and sub-license a novel purgative product being
developed by the licensors for clearing the colon prior to colonoscopy
("Purgative Product"); and (iii) May 1997 into a letter of intent to acquire
CorBec, which is engaged in the development of pharmaceuticals designed to
modulate the immune system by manipulating macrophage and mast cell function.
Pursuant to the proposed acquisition agreements, consummation of the
acquisitions of Sangen and CorBec and of the license of the Thrombospondin
Technology are subject to several conditions, including the execution and
delivery of acquisition agreements and the consummation by the Company of a
financing of at least $8,000,000 by October 31, 1997. The license agreement
for the Purgative Product provides the licensor with the right to terminate
the agreement if the Company has not completed a financing of at least
$2,000,000 by November 14, 1997.
Pursuant to the proposed Sangen acquisition agreement and related
agreements, if consummated, Dr. Leonard S. Jacob, Sangen's sole stockholder
and Chief Executive Officer, who will become Chairman of the Board and Chief
Executive Officer of the Company under a long term employment agreement, is to
be issued a ten year Common Stock Purchase Warrant entitling him to purchase
1,200,000 shares of Common Stock and, if on the closing date of the
acquisition 1,200,000 shares is less than 7 1/2% of the Fully Diluted
Capitalization of the Company, an option, exercisable for 10 years, to
purchase such number of shares of Panax Common Stock as is equal to the
difference between 1,200,000 shares and 7 1/2% of the Fully Diluted
Capitalization of the Company. Dr. Taffy J. Williams, Panax's President and
Chief Executive Officer, who will become President and Chief Operating Officer
of the Company following the acquisition, received in January 1997, an option
to purchase the greater of 500,000 shares of Common Stock or such number of
shares of Common Stock at the time of the acquisition as equals 5% of the
Fully Diluted Capitalization of the Company. The exercise price of Dr. Jacob's
warrant (up to
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1,200,000 shares) and Dr. Williams' option (up to 500,000 shares) is $.61 per
share. The exercise price of Dr. Jacob's option (in excess of 1,200,000
shares) and Dr. Williams' option (in excess of 500,000 shares) is the market
price on the closing date of the proposed acquisition. "Fully Diluted
Capitalization" has the meaning set forth in the second paragraph of Item 1.
Business - Proposed Acquisitions."
The Sangen acquisition will also involve the grant to Dr. Tuszynski,
the inventor of the Thrombospondin Technology, and AUHS of 125,000 shares and
options to purchase an aggregate of 375,000 shares, of which options for
250,000 shares will be exercisable upon achievement of specified milestones in
the development of a new drug candidate. In addition, Dr. Tuszynski and AUHS
will be entitled to cash royalties based on net sales and sub-license fees
derived from the technology. The Company has agreed to fund additional
research in Dr. Tuszynski's laboratory in an amount ranging from $150,000 (in
the first year) to $1,350,000 (over seven years, inclusive). Dr. Tuszynski is
to be engaged as a consultant to the Company for a two year period at a fee of
$50,000 per year.
In consideration for the grant of a license to the Purgative Product,
the Company (i) is obligated to make certain payments based on milestones,
aggregating up to $500,000 based on the completion of a financing and certain
development milestones, of which $100,000 has been paid, (ii) has issued
options to purchase an aggregate of 750,000 shares of Common Stock at a price
of $0.61 per share, of which 250,000 shares are to be exercisable upon
consummation of a financing of $2,000,000 or more and 500,000 shares become
exercisable if certain developmental milestones are met and (iii) is required
to pay cash royalties of 2% of net sales of the related drug which percentage
will increase to 4% with respect to net sales between $5,000,000 and
$10,000,000 and to 6% as to net sales in excess of $10,000,000. The payment of
$100,000 is not refundable in the event a financing of at least $2,000,000 is
not completed by November 1997 and the licensor chooses to terminate the
license agreement.
The acquisition of CorBec, if consummated, will result in the payment
of $750,000 and the issuance of 750,000 shares of Common Stock of the Company
with provisions for additional cash payments and stock issuances based upon
the achievement of certain milestones for CorBec's most advanced drug
candidate, CBP-1011, an orally administered glucocorticoid analog, which is in
a Phase III pivotal clinical trial in the United States. These milestones
include the receipt of an FDA letter of approval to sell the drug, and certain
designated annual amounts of sales. The maximum cash and shares to be issued
will be an aggregate of $8,000,000 in cash and 440,000 shares of Common Stock.
Additional cash payments of up to $8,580,000 and 280,000 shares of Common
Stock are to be made based on the achievement of certain annual levels of
sales of a second drug developed from the CorBec technology.
The Company will incur a non-recurring charge attributable to each
acquisition which will be treated as purchased research and development and
expensed in the period that each acquisition is consummated.
RESULTS OF OPERATIONS
Year Ended June 30, 1997 and 1996
The Company incurred a loss of $1,649,951, or $0.51 per share, for
the year ended June 30, 1997 compared to $1,216,930, or $0.38 per share for
the year ended June 30, 1996. The Company expects to incur additional losses
in the foreseeable future.
The Company anticipates incurring additional losses over at least the
next several years, and such losses are expected to increase as the Company
expands its research and development activities relating to its Purgative
Product and its contemplated acquisition of two technologies for the treatment
of auto-immune diseases and cancer. To achieve profitability, the Company,
alone or with others, must successfully develop and commercialize its
technologies and products, conduct pre-clinical studies and clinical trials,
obtain required regulatory approvals and successfully manufacture, introduce
and market such technologies and products. The time required to reach
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<PAGE>
profitability is highly uncertain, and there can be no assurance that the
Company will be able to achieve profitability on a sustained basis, if at all.
Research and development expenses amounted to $742,539 for the year
ended June 30, 1997 compared to $644,051 for the year ended June 30, 1996. The
increase was attributable to development expenses on the Purgative Product
licensed in February 1997, expenses for plant extraction, development of
chemical libraries and salaries. The increases were partially offset by
decreases in expenses for plant collections in Russia and pharmacoligical
screening of those plants. Research and development expenses are expected to
increase substantially in the future if the foregoing proposed acquisitions
are consummated and development of the Purgative Product continues provided
the license is not terminated.
General and administrative expenses amounted to $1,010,937 for the
year ended June 30, 1997 compared to $811,901 for the year ended June 30,
1996. The increases in general and administrative expenses are the result of
increased salary expense, legal expense and consulting expenses associated
with the Company's seeking new technologies and products. If the Sangen and
CorBec acquisitions are consummated, the Company expects general and
administrative expenses to increase with the addition of Dr. Leonard S. Jacob
as Chairman of the Board and Chief Executive Officer of the Company and an
expanded scale of operations associated with the development of multiple
technologies.
Interest income amounted to $103,525 and $239,022 for the years ended
June 30, 1997 and June 30, 1996, respectively. Interest income was earned on
the proceeds of the Company's initial public offering in January 1995 of its
common stock and warrants. Interest income has been decreasing reflecting
reduced cash balances.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has incurred net operating losses
and, as of June 30, 1997, had an accumulated deficit of $3,992,351. The
Company has financed its net operating losses through June 30, 1997 by a
series of debt and equity financings.
At June 30, 1997, the Company had remaining cash, cash equivalents
and investments of $1,175,597. Cash and cash equivalents is comprised
primarily of the proceeds from the Company's initial public offering in
January 1995. Management does not believe that available cash, cash
equivalents and investments are sufficient to fund the Company through the end
of fiscal year 1998 without additional debt or equity financing. Pursuant to
the proposed acquisition agreements, the Sangen and CorBec acquisitions will
be subject to completion of an equity financing by the Company of at least
$8,000,000 by October 31, 1997. No assurance can be given that the financing
will be completed. In the event that the acquisitions are completed, the
Company's cash requirements will be substantially increased to fund the
development of the CorBec technology and the Thrombospondin Technology.
The Company's capital requirements depend on numerous factors which
cannot be quantified, including continued progress in its research and
development activities, progress with pre-clinical studies and clinical
trials, prosecuting and enforcing patent claims, technological and market
developments, the ability of the Company to establish product development
arrangements, the cost of manufacturing, scale-up, effective marketing
activities and arrangements, and licensing or acquisition activity. The
Company is seeking to obtain additional funds through equity or debt
financing. No assurance can be given that additional financing will be
available when needed or on terms acceptable to the Company. If adequate
additional funds are not available, the Company may be required to delay,
scale back or eliminate certain of its research, drug discovery or development
activities or certain other aspects of its business. If adequate funds are not
available, the Company's business will be materially and adversely affected.
ITEM 7. FINANCIAL STATEMENTS.
See pages F-1 through F-15.
15
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The Company's executive officers and directors are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ---------
<S> <C> <C>
Dr. Taffy James Williams* 48 Chairman of the Board, President and Chief Executive Officer
Dr. Tanya G. Akimova* 44 Vice-President, Administration and Business Development,
Secretary and Director
J. R. LeShufy* 74 Vice-President, Investor Relations and Director
Bernard Nagelberg* 44 Vice-President, Finances, Treasurer and Director
Dr. Leonid S. Shpilenya 50 Vice-President, Russian Operations and Director
Dr. Alexey L. Shavarda 48 Vice-President, Chemistry
</TABLE>
- --------------
* Member of the Executive Committee which is authorized when the Board
of Directors is not meeting to act on behalf of the Board on all
matters, subject to limitations imposed by the Business Corporation
Law of New York.
In February 1997 the following officers and directors of the Company
resigned from their positions with the Company: Dr. Armen L. Takhtajan as
Chairman of the Board, Mr. Norman Eisner as Vice President, Chief Financial
Officer, Treasurer, Secretary and director and Mr. David Zaretsky as a
director. Mr. Robert D. Krell resigned effective May 9, 1997 as Senior Vice
President, Research and Development. None of the officers are related to one
another.
TAFFY JAMES WILLIAMS, PH.D., President, Chief Executive Officer and a
Director since 1995 and Chairman of the Board since February 1997, holds a
Ph.D. degree from the University of South Carolina. He had been from May 1992
until he entered the employ of the Company in June 1995, Vice President,
Research of Magainin Pharmaceuticals, Inc., where he directed research on new
classes of pharmacological agents for topical and systemic use. Prior thereto
he had been for approximately 14 years employed by the Naval Medical Research
Institute, initially as a principal investigator and then Director of its
Septic Shock Research Program. His duties included the direction and
supervision of basic and applied research in gram-negative sepsis and septic
shock research in surgery, pulmonology, critical care, pathology,
microbiology, biochemistry, immunology and molecular biology. Dr.
Williams served on the Institute's Scientific Advisory Board.
TANYA G. AKIMOVA, PH.D., Vice President, Administration and Business
Development, and a Director since July 1993 and Secretary since February 1997,
holds a Ph.D. Degree in Linguistics from St. Petersburg University in Russia
and an M.S. degree in Management and Policy from W. Averell Harriman School for
Management and Policy, SUNY at Stony Brook. Since moving to the United States
in 1990, she had been, until becoming an officer of the Company, employed
part-time as an interpreter and translator for a joint venture. She had been a
Senior Researcher in the Institute of Linguistics at the
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Russian Academy of Sciences in St. Petersburg from 1979 to 1990, and a
Professor of Linguistics at St. Petersburg University from 1977 to 1980.
J. R. LESHUFY, Vice President since September 1994, Investor
Relations and a Director since December 1995, has been an independent investor
and business consultant for more than five years and has been an officer of
Amercom Funding Ltd. ("Amercom") since January 1992. Since 1995, Mr. LeShufy
also has been President of Trilenium Corporation, a company involved in
Internet related technology.
BERNARD NAGELBERG, Vice President, Finances, and a Director since May
1993 and Treasurer since February 1997, has been, since 1983, an independent
investor and business consultant. He has been also an officer of several
privately held corporations, including International Business Partners Limited
("IBP") since 1990 and Amercom since January 1992.
LEONID S. SHPILENYA, M.D., PH.D., Vice-President, Russian Operations
and a Director since August 1993, holds a medical degree and a Ph.D. degree in
Psychopharmacology from the Medical Military Academy, St. Petersburg. Dr.
Shpilenya is the Head of the St. Petersburg Hospital for Drug Abuse and member
of the City Healthcare Committee on Drug and Alcohol Abuse. He is also
Professor of Psychiatry at the St. Petersburg School for Postgraduate Medical
Education. Prior to that, Dr. Shpilenya was for ten years Professor of
Psychiatry at the Medical Military Academy in St. Petersburg. Dr. Shpilenya is
the author of more than 140 scientific publications related to
psychopharmacology, psychosomatic disorders, and disaster psychiatry and holds
a number of patents in the area of psychopharmacology. He is a member of
various professional societies and has participated in and organized several
international conferences on drug abuse.
ALEXEY L. SHAVARDA, PH.D., Vice-President, Chemistry since August
1993, holds a Ph.D. in Biological Sciences from the Komarov Botanical
Institute, St. Petersburg, Russia, where he has been employed since 1977,
currently as the head of the Laboratory of Analytical Phytochemistry. He has
contributed to and authored numerous publications concerning the medicinal
qualities of Russian plants. He is affiliated with the Russian Chemical
Society of Mendeleev and the Russian Physiological Society.
Dr. Akimova and Dr. Williams devote his or her full time to the
Company's operations. Other executive officers devote a material portion of
their time to the Company's affairs.
In view of their recognition that the Board of Directors should
reflect the principal focus of the Company's efforts and at the same time not
be unwieldy because of its size, Dr. Akimova who is involved in the securing of
chemical service contracts, and Dr. Shpilenya, who is involved in the natural
product discovery activities, have advised the Company that if the acquisitions
are successfully consummated they will resign as directors of the Company.
Mr. Bernard Nagelberg who has no business experience in the pharmaceutical drug
development business other than through his association with the Company has
advised the Company that for the same reasons he would resign as an officer
and director if the acquisitions were effected. Dr. Leonard S. Jacob will then
be appointed as Chairman of the Board and Chief Executive Officer, Dr.
Williams will remain as President and become Chief Operating Officer, and
Jerry Weisbach, Ph.D and Mr. Thomas Stagnaro will be appointed as directors.
Dr. Jacob, age 48, the President and Chief Executive Officer of
Sangen, has been since June 1996 a consultant to various biotechnology
companies. From 1989 to 1996, Dr. Jacob, as a co-founder of Magainin
Pharmaceuticals Inc., was employed as Chief Operating Officer and was
responsible for setting Magainin's technical and operational strategy. From
1980 to 1988, Dr. Jacob was employed by SmithKline and French Laboratories
where he served as Worldwide Vice President and a member of SmithKline
Beacham's Corporate Management Committee. Dr. Jacob had responsibility for 500
physicians, scientists and other technical personnel and managed a budget of
$50 million per year. Under his leadership, 17 IND's were successfully
submitted and 4 NDA's were approved. Dr. Jacob received his medical degree
from the Medical College of Pennsylvania and his Ph.D. in molecular
pharmacology from the Temple University School of Medicine. He is an elected
member of
17
<PAGE>
Alpha Omega Alpha, the National Medical Honor Society. Dr. Jacob has served on
the Board of Directors of Endorex Pharmaceutical Corp., MacroMed Corp. and
Orasomal Technologies, Inc. He also serves on the Board of Directors of AUHS
where he is an Adjunct Professor.
Jerry Weisbach, Ph.D, age 63, is a former Vice President of the
Warner Lambert Company and President of its Pharmaceutical Research Division,
where, from 1979 to 1987, he was responsible for all pharmaceutical research
and development activities of that company. Prior to joining Warner Lambert in
1979, Dr. Weisbach was employed at SmithKline and French Laboratories from
1960 to 1979, where he was Vice President, Research from 1977 to 1979. From
1988 to 1994, he was Director of Technology Transfer at the Rockefeller
University. Currently, Dr. Weisbach is a member of the Board of Directors at
Neose Technologies, Cima Labs, Pacific Pharmaceuticals, Synthon, Foodex, Strong
Pharmaceuticals, Encore and Exponential Biotherapies. He also consults in the
area of licensing and technology and serves on a number of scientific advisory
boards. Dr. Weisbach received his Ph.D. in Organic Chemistry from Harvard
University.
Mr. Stagnaro, age 54, has served as President and Chief Executive
Officer of 3-Dimensional Pharmaceuticals, Inc since 1995, where he has been
instrumental in securing financing and obtaining significant corporate
partnerships. Prior to that Mr. Stagnaro was, for more than six years, the
President and Chief Executive Officer of Univax Biologics where he was
responsible for numerous financings and successfully completed three corporate
partnerships. In 1995, under the direction of Mr. Stagnaro, Univax was sold to
NABI. Mr. Stagnaro also serves as Chairman of the Board of CARB (Center for
Advanced Research in Biotechnology) and is a member of the Board of Directors
of US Biomaterials and the Maryland Biotechnology Institute.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company under Rule 16a-3(d): during the year ended June 30,
1997, no person who was a director, officer or beneficial owner of more than
10% of the Common Stock of the Company ("10% owner") failed to file on a
timely basis reports required by Section 16(a) of the Securities & Exchange
Act of 1934 except Form 4 reports of Dr. Williams, Dr. Akimova and Dr. Robert
Krell, a former officer as to receipt of stock options.
ITEM 10. EXECUTIVE COMPENSATION
Dr. Williams is employed pursuant to an agreement, dated June 4, 1995
providing for his full time employment as President and Chief Executive
Officer of the Company at an annual salary of $165,000 for the first year with
the salary for each of the following years of the term to be determined by the
Board of Directors but to be not less than the salary for the preceding
12-month period. The agreement provides for a three year term, subject to
earlier termination by Dr. Williams either upon six months prior notice, or in
the event of a default by the Company upon 30 days prior notice if the default
remains uncured or, by the Company either upon three days prior notice with
the Company obligated for additional salary for a four month period or
immediately upon cause. Dr. Williams received a non-accountable expense
allowance of 10% of his base salary for the first 12 months of his employment.
Pursuant to the agreement, the Company granted Dr. Williams on June 9, 1995
five-year options under the Stock Option Plan to purchase 100,000 shares of
the Company's Common Stock at a price of $1.125 per share (the closing sales
price on NASDAQ on that date). The option is exercisable in installments -
with respect to 50,000 shares immediately, with respect to an additional
25,000 shares after June 9, 1996 and with respect to the balance, or 25,000
shares, after June 9, 1997. In June 1996, the Company's Board of Directors
increased Dr. Williams salary to $185,000 per annum effective June 15, 1996
and granted an additional option under the Stock Option Plan to purchase
60,000 shares of the Company's common stock at a price of $0.875 per share
(the closing price on NASDAQ on that date) exercisable in three installments -
20,000 shares on each of the first, second and third anniversaries of June 15,
1996. In December 1996 the Board granted him another option under the Plan to
purchase 40,000 shares at a price of $.50 per share exercisable at any time
during the ten year term.
If the proposed acquisition of Sangen is consummated, Dr. Williams
and Dr. Jacob, currently a consultant to the Company and Chief Executive
Officer and sole director and stockholder of Sangen, will each enter into
employment agreements with the Company. See "Item 1. Business - Proposed
Acquisitions." The Company will enter into a three-year
18
<PAGE>
employment agreement with Dr. Jacob under which he will serve as Chairman of
the Board and Chief Executive Officer of the Company at an annual base salary
of $225,000 for the first year with annual increases as determined by the
Board of Directors for subsequent years; the increases are to reflect no less
than the increase in the Consumer Price Index. In addition, Dr. Jacob will
receive an annual bonus, as declared by the Board of Directors, with the bonus
for the first year to be no less than $56,250.
In addition, the Company and Dr. Williams will enter into a
three-year employment agreement, pursuant to which he will serve as President
and Chief Operating Officer of the Company at an annual base salary of
$200,000 for the first year, with annual increases as determined by the Board
of Directors for subsequent years; the increases are to reflect no less than
the increase in the Consumer Price Index. In addition, Dr. Williams will
receive an annual bonus, as declared by the Board of Directors, with the bonus
for the first year to be no less than $34,000. See "Item 1. Business-Proposed
Acquisitions" for information as to the issuance of a ten year option to Dr.
Williams under the 1993 Stock Option Plan to purchase the greater of 500,000
shares or 5% of the "Fully Diluted Capitalization" of the Company and
issuance, upon consummation of the proposed Sangen Acquisition to Dr. Jacob of
a ten year warrant to purchase 1,200,000 shares of Common Stock and, if
applicable, a ten-year option to purchase such number of shares as equals the
difference between 1,200,000 shares of Common Stock or 7 1/2% of the Fully
Diluted Capitalized of the Company, each exercisable commencing with the date
of the acquisition of Sangen.
The Company's agreements with each of Drs. Williams and Jacob are to
continue for the three year period unless terminated by either party on
written notice of not less than 30 days. Each employment agreement may be
terminated by the Company with or without "cause". In the event the Company
terminates the officer's employment other than for cause, the Company is
required to pay as severance (i) if termination occurs during the first year,
a lump sum payment equal to one year's salary based on the annual rate in
effect on the date of termination; (ii) if termination occurs during the
second year, a lump sum payment equal to one and one-half year's salary based
on the annual rate in effect on the date of termination; or (iii) if
termination occurs during the third year or thereafter, a lump sum payment
equal to two year's salary based on the annual rate in effect on the date of
termination. "Cause" is defined as conviction for a crime involving moral
turpitude, material violation of a written directive of the Board of
Directors, or willful misconduct which has a material adverse effect of the
Company as determined by a majority of the Board including each independent
director.
Under a Management Services Agreement, dated December 31, 1993, and
amended as of September 30, 1994, Amercom has provided and is to provide for
the term of the Agreement advice with respect to strategic planning, financial
matters, merger and acquisition policies, executive employment and investor
relations and the performance of services as executive officers or comparable
services of Messrs. LeShufy and Nagelberg currently officers and directors and
Messrs. Eisner and Zaretsky, all four of whom are stockholders and officers or
directors of Amercom, or in the event any of the foregoing individuals is
unable to perform such duties, a reasonably capable replacement, subject to
the approval of a majority of the Company's directors. Each such officer may
be required under the agreement to provide services for up to 20 hours per
five consecutive business days and up to an aggregate of 75 hours per 20
consecutive business days. Amercom provided through February 1, 1995, the
initial closing date of the public sale of the Company's Units, certain
administrative services and executive offices and facilities in New York City.
For the period from February 1 through June 30, 1995, the years ended
June 30, 1996 and 1997 and through January 31, 1998 Amercom received and is to
receive a monthly fee of $8,333. In November 1996, the Company agreed to issue
to Amercom 165,441 shares of Common Stock in satisfaction of a fee of $112,500
for the year ended June 30, 1994 which was to be payable after, and subject
to, the Company achieving net income for fiscal year of at least $500,000 as
determined in accordance with generally accepted accounting principles.
The agreement which was to expire on February 1, 1998, was extended
on January 3, 1997 for an additional two year period with the fee for the
first year of the extended term to be $100,000 and the fee for the second year
to be a five year option which is to be subject to the 1993 Stock Option Plan
to purchase commencing February 1, 1998, 175,000 shares of the Company's
Common Stock at a price of $0.61 per share, representing the
19
<PAGE>
average of the closing sales prices of Common Stock of the Company on the
Nasdaq SmallCap Market for the 30 consecutive trading day period commencing on
the 45th trading day prior to January 3, 1997. The option also relates to
225,000 additional shares which are to become exercisable in the following
amounts and after the following events related to the services of Amercom to
relieve or reduce the Company's obligations under its sublease, which has a
term ending in April 2000, of its facilities at 425 Park Avenue, New York, New
York: 56,250 shares commencing on the date Amercom secures a return of the
Company's $150,000 security obligation and up to 168,750 shares based on the
date it secures a release of the Company from the sublease - all 168,000
shares if the release occurs on or prior to December 31, 1997; 112,500 shares
if effected thereafter but not later than December 31, 1998; 56,250 shares if
effected thereafter but not later than December 31, 1999 and no shares if the
release is not secured by the latter date. The Company intends to register the
shares subject to the option either through the 1993 Stock Option Plan or
independently.
Amercom and other affiliates of Messrs LeShufy, Nagelberg, Eisner and
Zaretsky occupy a portion of the Company's facilities at 425 Park Avenue, New
York City for which they reimburse the Company for the Company's costs for
making available such space.
In consideration of services in connection with the negotiations of
the proposed financing, the Company on June 24, 1997, forgave a debt of
$25,250 of Amercom arising from an advance by the Company.
During the term of the Management Services Agreement, the Company
will not pay any compensation or fees to Amercom or any officers, directors or
affiliates of Amercom who are also officers, directors or affiliates of the
Company except pursuant to the Management Services Agreement.
The Company's employment agreement with Dr. Akimova provided for her
employment originally through December 31, 1996 with compensation commencing
January 1, 1994 of $56,000 per annum subject to a cost-of-living adjustment on
July 1, 1996. The Company issued 41,176 shares of Common Stock to her in
November 1996 in payment of compensation of $28,000 for the six months ended
June 30, 1994 which was to be deferred until the Company achieves net income
for a fiscal year of at least $500,000 as determined in accordance with
generally accepted accounting principles. Dr. Akimova transferred 16,515 shares
to the Company in satisfaction of her obligation with respect to withholding
taxes arising from the payment. The Board of Directors increased Dr. Akimova's
compensation to $61,141 per annum effective June 15, 1996 and to $66,141
effective July 1, 1997. The Board also granted her under the Stock Option Plan
five year options in June 1996 to purchase 10,000 shares at a price of $0.875
per share (the closing price on NASDAQ on that day) exercisable in three equal
installments of one-third of the shares on each of the first, second and third
anniversaries of June 15, 1996 and in December 1996 to purchase 5,000 shares at
a price of $.50 per share.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued by
the Company during the fiscal years ended June 30, 1997, June 30, 1996 and
June 30, 1995 to the Company's Chief Executive Officer and President and the
only other executive officer who received compensation in excess of $100,000
during any of the three years.
<TABLE>
<CAPTION>
Annual Compensation
Long-Term
Compensation
Securities
Name and Principal Capacities Underlying
in which served Year Salary Bonus Other Compensation Options
<S> <C> <C> <C> <C> <C>
Taffy James Williams 1997 $185,000 $22,500 540,000(3)
President and CEO 1996 165,000 8,250 $16,600(2) 60,000
1995(1) 11,975 100,000
20
<PAGE>
Robert Krell, 1997 123,400 10,000
Executive Vice President(4) 1996 53,000 60,000
(1) Dr. Williams entered the Company's employ on June 5, 1995.
(2) Represents a nonaccountable expense allowance equal to 10% of the base salary through June 5, 1996.
(3) Exercise of options with respect to 500,000 shares are subject to consummation of the Sangen acquisition. See
"Item 1. Business-Proposed Acquisitions".
(4) Mr. Krell entered the Company's employ in 1996 and resigned effective May 9, 1997.
</TABLE>
The following two tables reflect information with respect to options
which have been granted to the executive officers named in the Summary
Compensation Table for the year ended June 30, 1997.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR
% OF TOTAL OPTIONS
NUMBER OF SHARES GRANTED TO
UNDERLYING OPTIONS EMPLOYEES EXPIRATION
NAME GRANTED IN FISCAL YEAR EXERCISE PRICE DATE
- ------------------------------- ----------------- ---------------- -------------- -----
<S> <C> <C> <C> <C>
Taffy James Williams........... 500,000(1) 81.3% $.61 1/3/2007
40,000 6.5% .50 12/10/2006
Robert Krell 60,000 9.8% .50 9/2001
</TABLE>
(1) See note (3) to Summary Compensation Table.
As of June 30, 1997 options have been exercised with respect to 30,700
shares of Common Stock. During the year ended June 30, 1997, options with
respect to 30,000 shares were exercised by Mr. Robert Krell, who resigned May
9, 1997 as Executive Vice President and options with respect to 700 shares
were exercised by a former non-executive employee for realized values of
$76,900 and $1,500, respectively, based on the market prices on dates of
exercise.
The following table sets forth the values of the options held by its
Chief Executive Officer as of June 30, 1997.
<TABLE>
<CAPTION>
OPTION VALUES
Name Number of Securities Underlying Options Value of Unexercised in-the-Money Options (1)
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Taffy James Williams 160,000 540,000 $180,000 $772,000
</TABLE>
(1) Based on the closing sales price on the Nasdaq SmallCap Market for the
Company's Common Stock on June 30, 1997 of $2.06.
21
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the shares of Common Stock as of August 15, 1997 of: (i) each
Director, (ii) all Directors and executive officers as a group, and (iii) each
person known to the Company to be the beneficial owner of more than 5% of the
shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS BENEFICIALLY OWNED(1) OUTSTANDING SHARES
- ---------------- --------------------- ------------------
<S> <C> <C>
Taffy James Williams* 170,000(2) 4.8%
Tanya G. Akimova* 222,994(3) 6.6
J.R. LeShufy* 120,000(4) 3.6
Bernard Nagelberg* 151,500(5) 4.5
Leonid S. Shpilenya 60,000 1.9
56 Kondratievsky Pr., Apt. 24
St. Petersburg, Russia
All Directors and Executive Officers as a 772,995(6) 21.9
group (5 persons)
</TABLE>
- --------------
* His or her address is c/o the Company, 425 Park Avenue, New York, New
York 10022.
(1) Unless otherwise indicated, the persons named in the table above have
sole voting and investment power with respect to all shares
beneficially owned by them, subject to applicable community property
laws.
(2) Includes 160,000 shares subject to options and 5,000 shares subject to
warrants which are exercisable within 60 days.
(3) Include 8,334 shares subject to options exercisable within 60 days and
40,000 shares owned by her husband. Dr. Akimova disclaims beneficial
ownership of the shares owned by her husband.
(4) Represents 120,000 shares owned by his wife, Colette LeShufy as to
which shares Mr. LeShufy disclaims beneficial ownership but does not
include 40,000 shares owned by her adult daughter.
(5) Includes 91,500 shares owned by his wife, as to which shares he
disclaims beneficial ownership, and 20,000 shares owned by each of two
minor children.
(6) Includes 173,334 shares subject to options and warrants exercisable
within 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the period May through July 1993, shortly following the
formation of the Company, the Company issued an aggregate of 1,800,000 shares
of its Common Stock at a price of $.0005 per shares as follows: (i) an
aggregate of 1,625,000 shares to the following persons, who are officers,
Directors, former Directors, or members
22
<PAGE>
of their respective families--Messrs. Eisner, Nagelberg, Francis Renkowicz and
Zaretsky, Drs. Akimova, Shavarda, Shpilenya and Armen Takhtajan and Drs.
Michael Gurvitch and Rudolf V. Kamelin; (ii) an aggregate of 65,000 shares to
Larry Scott Simon, Lorance Hockert and Michael Metz; (iii) 40,000 shares to
each of Dr. Walter H. Lewis and Dr. William Scott Chilton, formerly members of
the Company's Scientific Advisory Board; and (iv) 30,000 shares to
Dr. Konstantin Gurvitch. The Company sold at a price of $.0005 per share
100,000 shares in July 1993 to the Komarov Institute, with which Dr. Shavarda
is associated, and 100,000 shares in August 1993 to the Center for Efferent
Therapy (the "Center"), with which Dr. Shpilenya is associated, as part of
long term agreements employing their respective services and facilities.
See "Item 1 --Business."
From the proceeds of the IPO Closing, the Company in February 1995
repaid 4% demand loans aggregating $44,000 along with interest aggregating
$696 to Messrs. Eisner, LeShufy, Nagelberg, Renkowicz and Zaretsky, and Dr.
Michael Gurvitch, each of whom advanced $5,000, and IBP, which is an affiliate
of the foregoing individuals other than Dr. Gurvitch and which advanced
$14,000.
In December 1995 the Center returned to the Company 30,000 shares of
Common Stock upon termination of the related engagement agreement and in
February 1996 Dr. Kamelin returned 150,000 shares of Common Stock upon his
resignation and termination of his employment agreement.
Amercom provided office facilities and other general and administrative
services to the Company through July 26, 1995 under a management services
agreement. The related costs to the Company for the period from the IPO
Closing through July 26, 1995 aggregated $24,000. See "Item 10--Executive
Compensation" for information as to the management services agreement between
the Company and Amercom, with which certain officers and directors are
affiliated, and the amendment to the agreement, and the loan to and repayment
by Amercom.
On July 27, 1995, the Company moved its principal executives and
administrative offices to 425 Park Avenue, New York, New York under a sublease
expiring April 2000 which provides for a base rent of $195,300 per year plus
operating costs, insurance and taxes. A portion of the offices and facilities
and certain services of the Company's administrative personnel is made
available to Amercom and other companies affiliated with Messrs Eisner,
LeShufy, Nagelberg and Zaretsky (namely ProChem Ltd., Scentech Corp.,
Trilenium Corp., IBP, and ITD, Inc. which along with Amercom are hereinafter
referred to as the "Cost-Sharing Affiliates") pursuant to a cost-sharing
agreement with the Company. The agreement provides that the Company will make
available up to 50% of the office space to the Cost-Sharing Affiliates who are
to reimburse the Company for up to 60% of the rental obligation. Under the
agreement, the Cost-Sharing Affiliates bear a portion of the cost of providing
the furniture and equipment and administrative services to the Cost-Sharing
Affiliates based on a reasonable method of allocation determined by the
Company with any dispute as to the reasonableness of the method to be settled
by the auditors of the Company's financial statements for the year in which
the costs were incurred.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
3(a) Certificate of Incorporation and amendments
thereto.*
3(b) By-Laws, as amended*
10(a) Stock Option Plan*
(b) Form of Stock Option Agreement*
(c) Employment Agreement with Dr. Taffy J. Williams*
(d) Lease with respect to offices at 425 Park Avenue,
New York, New York.*
(e) Cost-Sharing Agreement between Company and
Affiliates*
(f) Management Services Agreement with Amercom
Funding Co., Ltd.*
(f)-1 Amendment to Management Service Agreement.
23
<PAGE>
(g) License Agreement with ALW Partnership.**
(g)-1 Form of Consultant Agreement.**
(g)-2 Form of Option granted to partners of ALW
Partnership.**
(h) Agreement with Komarov Botanical Institute, as
amended*
(i) Letter agreement with D.H. Blair & Co., Inc.*
(j) Warrant agreement with D.H. Blair & Co., Inc.*
23.1 Consent of Independent Auditors
* Filed as an exhibit to the Company's Annual
Report on Form 10-KSB for the year ended June 30,
1995 under the same exhibit number and incorporated
herein by reference thereto.
**Filed as an exhibit as to the Company's Report on
Form 8-K as of February 14, 1997 and incorporated by
reference thereto.
b. Reports on Form 8-K.
No report on Form 8-K was filed by the Company
during the three months ended June 30, 1997
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PANAX PHARMACEUTICAL COMPANY, LTD.
(Registrant)
/s/ Dr. Taffy James Williams
----------------------------
Dr. Taffy James Williams,
Chairman of the Board, President
and Chief Executive Officer
Dated: October 8, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Dr. Taffy James Williams Chairman of the Board, President October 8, 1997
- ------------------------------- and Chief Executive Officer and Director
Dr. Taffy James Williams
/s/ Dr. Tanya G. Akimova Vice President, Secretary and October 8, 1997
- ------------------------------- Director
Dr. Tanya G. Akimova
/s/ J.R. LeShufy Vice President and October 8, 1997
- ------------------------------- Director
J.R. LeShufy
/s/ Bernard Nagelberg Vice President, Treasurer (Principal October 8, 1997
- ------------------------------- Financial and Accounting Officer)
Bernard Nagelberg Director
- ------------------------------- Vice President and ____________, 1997
Dr. Leonid S. Shpilenya Director
</TABLE>
25
<PAGE>
PANAX PHARMACEUTICAL COMPANY, LTD.
(a development stage company)
- I N D E X -
PAGE
NUMBER
------
INDEPENDENT AUDITORS' REPORT F-1
BALANCE SHEET AS AT JUNE 30, 1997 F-2
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
JUNE 30, 1997 AND JUNE 30, 1996 AND FROM JULY 1, 1993
(COMMENCEMENT OF OPERATIONS) THROUGH JUNE 30, 1997 F-3
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY) FOR THE PERIOD FROM JULY 1, 1993
(COMMENCEMENT OF OPERATIONS) THROUGH JUNE 30, 1997 F-4
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
JUNE 30, 1997 AND JUNE 30, 1996 AND FOR THE PERIOD
FROM JULY 1, 1993 (COMMENCEMENT OF OPERATIONS)
THROUGH JUNE 30, 1997 F-5
NOTES TO FINANCIAL STATEMENTS F-6
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Panax Pharmaceutical Company Ltd.
New York, New York
We have audited the accompanying balance sheet of Panax
Pharmaceutical Company Ltd. (a development stage company) as at June 30, 1997,
and the related statements of operations, changes in stockholders' equity
(deficiency) and cash flows for each of the years in the two-year period ended
June 30, 1997 and for the period July 1, 1993 (commencement of operations)
through June 30, 1997. 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 financial statements enumerated above present
fairly, in all material respects, the financial position of Panax
Pharmaceutical Company Ltd. at June 30, 1997, and the results of its
operations and its cash flows for each of the years in the two-year period
ended June 30, 1997 and for the period July 1, 1993 (commencement of
operations) through June 30, 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as going concern. As discussed in Note A to the
financial statements, the Company has sustained recurring losses from
operations and will require additional financing. These factors raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note A.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Richard A. Eisner & Company, LLP
New York, New York
July 24, 1997
F-1
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
<TABLE>
<CAPTION>
BALANCE SHEET
AS AT JUNE 30, 1997
A S S E T S
<S> <C>
Current assets:
Cash and cash equivalents (Note B[3]) ............................................ $ 100,859
Investments to be held to maturity (Note C) ...................................... 1,074,738
Prepaid expenses and other current assets (including $8,221 prepaid to affiliates) 25,003
-----------
Total current assets ...................................................... 1,200,600
-----------
Equipment: (Note B[1])
Testing equipment ................................................................ 113,434
Computer equipment ............................................................... 15,872
-----------
129,306
Less accumulated depreciation .................................................... 99,323
-----------
29,983
-----------
Restricted certificate of deposit (Note G[3]) ....................................... 150,000
Deferred assets (Note I) ............................................................ 304,000
Other assets (Note I) ............................................................... 100,000
-----------
Total other assets ....................................................... 554,000
-----------
T O T A L ................................................................. $ 1,784,583
===========
L I A B I L I T I E S
Current liabilities:
Accounts payable and other accrued expenses ...................................... $ 186,390
-----------
Commitments (Note G)
STOCKHOLDERS' EQUITY
(NOTE F)
Common stock, $.0001 par value; authorized 10,000,000
shares; issued 3,373,027 shares .................................................. 337
Additional paid-in capital .......................................................... 5,760,119
Unearned portion of compensatory stock options/warrants ............................. (133,268)
Deficit accumulated during the development stage .................................... (3,992,351)
Less common stock held in treasury (16,515 shares) .................................. (36,644)
-----------
Total stockholders' equity ................................................ 1,598,193
-----------
T O T A L ................................................................. $ 1,784,583
===========
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to the financial statements.
F-2
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
PERIOD FROM
JULY 1, 1993
(COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) THROUGH
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997
------------- ------------- --------------
<S> <C> <C> <C>
Costs and expenses:
Research and development .... $ 742,539 $ 644,051 $ 1,907,981
General and administrative . 1,010,937 811,901 2,431,490
Write-off of debt discount .. 75,000
Interest expense ............ 6,160
----------- ----------- -----------
1,753,476 1,455,952 4,420,631
Interest (income) ............... (103,525) (239,022) (428,280)
----------- ----------- -----------
NET LOSS ........................ $ 1,649,951 $ 1,216,930 $ 3,992,351
=========== =========== ===========
Net loss per share (Note B[4]) .. $ 0.51 $ 0.38
=========== ===========
Weighted average number of common
shares outstanding ........... 3,259,640 3,231,038
=========== ===========
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to the financial statements.
F-3
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
UNEARNED
COMMON STOCK PORTION OF
--------------------- ADDITIONAL COMMON COMPENSATORY
NUMBER OF PAID-IN STOCK OPTIONS/
SHARES AMOUNT CAPITAL SUBSCRIPTION WARRANTS
--------- -------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Common stock subscription ........... 2,000,000 $200 $800 $(1,000)
Payment of common stock subscription
on June 23, 1994..................... 1,000
Issuance of stock rights in conjunction
with notes payable (Note F[1])....... 21,875
Capital contribution - expenses paid on
behalf of Company (Note E).......... 96,682
Net loss.............................
---------- ---- ---------- -------- ---------
Balance - June 30, 1994.............. 2,000,000 200 119,357 -- --
Issuance of stock rights in conjunction
with notes payable (Note F[1])....... 53,125
Initial public offering, net of expense of
$1,192,876 (Note F[2]).............. 1,235,710 123 4,985,551
Value of option granted (Note F[4]).. 80,000
Exercise of options and stock rights. 80,000 8 4,992
Net loss.............................
--------- ---- --------- -------- ---------
Balance - June 30, 1995.............. 3,315,710 331 5,243,025 -- --
Value of option and warrants granted
(Notes F[4] and F[5])................ 217,500 $(217,500)
Compensatory options/warrants earned 78,681
Common stock acquired (Note F[6]).... 18
Net loss.............................
--------- ---- ---------- -------- ---------
Balance - June 30, 1996.............. 3,315,710 331 5,460,543 -- (138,819)
Value of option and warrants granted
(Notes F[4].......................... 133,750 (133,750)
Compensatory options/warrants earned. 139,301
Exercise of options.................. 30,700 3 25,347
Common stock issued to settle debt
(Notes E and F[6])................... 112,483
Common stock issued to settle debt
(Notes E and F[6])................... 26,617 3 27,996
Common stock reacquisitions
(Note F[6]) .........................
Net loss.............................
--------- ---- ---------- -------- ---------
Balance - June 30, 1997............ . 3,373,027 $337 $5,760,119 $ 0 $(133,268)
========= ==== ========== ======== =========
<PAGE>
<CAPTION>
DEFICIT
ACCUMULATED TREASURY STOCK TOTAL
DURING THE -------------------- STOCKHOLDERS'
DEVELOPMENT NUMBER OF EQUITY
STAGE SHARES AMOUNT (DEFICIENCY)
------- ------ ------ ------------
<S> <C> <C> <C> <C>
Common stock subscription ...........
Payment of common stock subscription
on June 23, 1994..................... $ 1,000
Issuance of stock rights in conjunction
with notes payable (Note F[1])....... 21,875
Capital contribution - expenses paid on
behalf of Company (Note E).......... 96,682
Net loss............................. $(326,443) (326,443)
----------- -------- -------- ----------
Balance - June 30, 1994.............. (326,443) -- -- (206,886)
Issuance of stock rights in conjunction
with notes payable (Note F[1])....... 53,125
Initial public offering, net of expense of
$1,192,876 (Note F[2]).............. 4,985,674
Value of option granted (Note F[4]).. 80,000
Exercise of options and stock rights. 5,000
Net loss............................. (799,027) (799,027)
----------- -------- -------- ----------
Balance - June 30, 1995.............. (1,125,470) -- -- 4,117,886
Value of option and warrants granted
(Notes F[4] and F[5])................
Compensatory options/warrants earned 78,681
Common stock acquired (Note F[6]).... (180,000) (18)
Net loss............................. (1,216,930) (1,216,930)
----------- -------- -------- ----------
Balance - June 30, 1996.............. (2,342,400) (180,000) (18) 2,979,637
Value of option and warrants granted
(Notes F[4].......................... 0
Compensatory options/warrants earned. 139,301
Exercise of options.................. 25,350
Common stock issued to settle debt
(Notes E and F[6]).................. 165,441 17 112,500
Common stock issued to settle debt
(Notes E and F[6])................... 14,559 1 28,000
Common stock reacquisitions
(Note F[6]) ......................... (16,515) (36,644) (36,644)
Net loss............................. (1,649,951) (1,649,951)
----------- -------- -------- ----------
Balance - June 30, 1997............ . $(3,992,351) (16,515) $(36,644) $1,598,193
=========== ======== ========= ==========
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to the financial statements.
F-4
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
PERIOD FROM
JULY 1, 1993
(COMMENCEMENT
OF OPERATIONS)
YEAR END YEAR END THROUGH
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997
------------- ------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(1,649,951) $(1,216,930) $(3,992,351)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Depreciation and amortization.......................... 32,978 35,928 99,821
Write-off of debt discount............................. 75,000
Value of services paid by options and warrants......... 80,000
Accretion of compensatory options and warrants......... 139,301 78,681 217,982
(Increase) in prepaid expenses
and other assets.................................... (49,376) (51,072) (124,434)
Increase in accounts payable and accrued
expenses............................................ 114,971 6,807 214,390
Expenses paid by affiliate............................. 96,682
Increase in management fees payable.................... 112,500
------------ ----------- -----------
Net cash (used in) operating activities............ (1,412,077) (1,146,586) (3,220,410)
------------ ----------- -----------
Cash flows from investing activities:
Purchases of investments and certificates of deposit........ (2,157,134) (2,181,502) (8,125,113)
Redemption of investments and certificates of
deposit.................................................. 3,590,375 3,310,000 6,900,375
Acquisition of equipment.................................... (3,700) (41,757) (129,304)
Deferred acquisition costs - Sangen & CorBec............... (83,750) (83,750)
Organization costs.......................................... (1,069)
------------ ----------- -----------
Net cash provided by (used in) investing activities.. 1,345,791 1,086,741 (1,438,861)
------------ ----------- -----------
Cash flows from financing activities:
Issuance of common stock - net of expenses.................. 25,350 5,017,024
Cost of shares acquired .................................... (36,644) (36,644)
Proceeds from notes payable - affiliates.................... 14,000
Proceeds from notes payable - stockholders.................. 96,300
Proceeds from notes payable - other......................... 300,000
Deferred offering costs..................................... (220,250) (220,250)
Repayment of notes payable - stockholders and other......... (410,300)
------------ ----------- -----------
Net cash (used in) provided by financing activities.. (231,544) 4,760,130
------------ ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.................................................... (297,830) (59,845) 100,859
Cash and cash equivalents - beginning of period................ 398,689 458,534 - 0 -
------------ ----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD...................... $ 100,859 $ 398,689 $ 100,859
============ =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................... - 0 - - 0 - $ 6,160
See Note E for conversion of certain liabilities into Common Stock and Note F for options and warrants granted
for services.
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to the financial statements.
F-5
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and Basis of Presentation:
Panax Pharmaceutical Company Ltd. (the "Company") was incorporated
in May 1993 and commenced operations in July 1993. The Company was originally
formed to develop pharmaceutical products through bioassaying of plant
extracts, identifying, and isolating active compounds from plants with a
history of medicinal use. In early 1996, Panax modified its strategy, reducing
its natural product discovery activities and redirecting its principal efforts
toward expanding its pipeline of commercially viable pharmaceutical products
by licensing or acquiring specifically-targeted products developed for the
treatment of certain diseases.
In February 1997, Panax acquired the rights to develop and
commercialize a novel purgative tablet to clean the colon for any medical
purpose and for use as a laxative (the "Purgative Product"), with respect to
which a Phase IIb clinical trial for use prior to colonoscopy has been
completed (see Note I). The Company is seeking an equity investment and if it
is able to raise at least $8 million, expects to acquire the rights to develop
and commercialize two additional technologies: (i) technologies to down- or
up-regulate the Fc receptors on macrophages and other cells to treat serious
autoimmune disorders and other diseases, including asthma/allergy and certain
serious infectious diseases (the "CorBec Technology") and (ii) a
Thrombospondin Technology for the treatment of cancer, specifically, the
inhibition and prevention of tumor metastasis. The compounds and technologies
making up the CorBec Technology and the Thrombospondin Technology are, like
the Purgative Product, currently either in clinical trials or earlier stages
of development, and there can be no assurance that the Company will be able to
successfully develop or commercialize any of such technologies.
The Company is in the development stage and its efforts have been
principally devoted to research and development, raising capital and
recruiting personnel. The Company is subject to those risks associated with
development stage companies. As shown in the accompanying financial
statements, the Company has incurred losses from operations since inception
and substantial additional financing will be required by the Company to fund
its research and development activities. These factors raise substantial doubt
about the Company's ability to continue as a going concern. In order to fund
its operation the Company has signed a letter of intent with a placement agent
for a private placement equity offering (see Note I). Absent any additional
funding, management plans would be to curtail activities to a level which
would allow a portion of its technology to be exploited. However, there is no
assurance that such financing will be completed or that the Company's planned
products will be commercially successful. The financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
On June 24, 1997, the Board of Directors approved a change in the
name of the Company to InKine Pharmaceutical Company, Inc. subject to
stockholder approval.
(NOTE B) - Summary of Significant Accounting Policies:
[1] Equipment:
Equipment is stated at cost less accumulated depreciation.
Depreciation is computed using straight-line methods over the useful lives of
the assets (three years).
[2] Research and development:
Research and development costs are charged to operations as
incurred.
(continued)
F-6
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Summary of Significant Accounting Policies: (continued)
[3] Cash equivalents:
The Company considers investments with original maturity dates of
up to 90 days to be cash equivalents.
[4] Net loss per share:
Net loss per share is computed using the weighted average number of
shares of common stock outstanding during the period. Common equivalent
shares such as options and warrants are not included in the per share
calculation where the effect of their inclusion would be antidilutive.
[5] Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
[6] Stock-based compensation:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation". SFAS 123 encourages, but does not require,
companies to record compensation plans at fair value. The Company has elected
to continue to account for its stock-based compensation plans using the
intrinsic value method prescribed by Accounting Principles Board Opinion No.
25 ("APB 25"), "Accounting for Stock Issued to Employees" and disclose the pro
forma effects on net income and earnings per share had the fair value of
options been expensed. Under the provisions of APB 25, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's common stock at the date of the grant over the amount an
employee must pay to acquire the stock. (See Note F[4]).
The Company accounts for stock-based compensation granted to
non-employees based on the fair value of the consideration received or the
fair value of instrument issued, whichever is more reliably measurable. The
fair value is amortized over the period of the respective services provided.
[7] Recently Issued Accounting Pronouncements:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share". This new standard requires dual presentation of basic and diluted
earnings per share ("EPS") on the face of the statement of income and requires
reconciliation of the numerators and the denominators of the basic and diluted
EPS calculations. This statement will be effective for the second quarter of
the Company's 1998 fiscal year. The Company has not yet quantified what effect
the adoption of SFAS 128 will have on its earnings per share of common stock.
In addition, the Financial Accounting Standards Board has recently
issued Statements of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure," No. 130, "Reporting Comprehensive
Income," and No. 131, "Disclosures about Segments of an Enterprise and Related
Information."
(continued)
F-7
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
The above pronouncements will not have a significant effect on the information
presented in the financial statements.
(NOTE C) - Investments:
The Company classifies its investments as held-to-maturity,
available for sale, or trading securities. Investments at June 30, 1997
consisted of U.S. Treasury bills with maturities of one year or less and are
reported at amortized cost which approximates market.
(NOTE D) - Income Taxes:
At June 30, 1997, the Company has available for federal income tax
purposes net operating loss carry forwards of approximately $1,450,000,
expiring through 2012, that may be used to offset future taxable income. The
difference between the net loss for financial reporting purposes and the net
operating loss for tax purposes is primarily due to certain general and
administrative costs which are not currently deductible for tax purposes. The
Company has provided a valuation reserve of $1,622,000 against the full amount
of the net operating loss benefit of $652,000 and the benefit of $970,000 from
other temporary differences, principally general and administrative expenses,
since in the opinion of management based upon the earnings history of the
Company, it is more likely than not that the benefits will not be realized.
The difference between the federal statutory tax rate of 34% and the Company's
effective tax benefit rate of 0% is attributable to the nondeductible portion
of compensation expense for stock options issued of $140,000 and an increase
in valuation allowance of $675,000 in 1997 and nondeductible portion of
compensation expense for stock options issued of $79,000 and an increase in
valuation allowance of $507,000 in 1996.
(NOTE E) - Related Party Transactions:
During the years ended June 30, 1997 and June 30, 1996 the Company
paid $100,000 per year to Amercom Funding Ltd., ("Amercom"), a company owned
by certain of its officers, directors and stockholders, pursuant to a
management agreement ("Management Agreement") (see Note G[4]). In November
1996, the Company issued 165,441 shares of its Common Stock to Amercom, in
satisfaction of an obligation to pay Amercom $112,500 for consulting services
rendered through June 30, 1994.
Pursuant to employment and research agreements with various
stockholders, the Company incurred research and development expenses of
approximately $241,000 and $107,000 for the years ended June 30, 1997 and June
30, 1996, respectively. During the fiscal year ended June 30, 1994 Amercom
paid certain operating expenses on behalf of the Company aggregating $94,786,
which amount plus related interest of $1,896 was contributed to the Company as
capital.
In January 1997, the Company agreed to extend for two years the
term of the Management Agreement with Amercom, which would have expired on
February 1, 1998, upon the occurrence of a financing of at least $8,000,000.
Amercom is to receive compensation of $100,000 for services during the first
year of the extension and an option for 175,000 shares of Common Stock at an
exercise price of $.61 per share as compensation for the second year of
extension.
(continued)
F-8
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
In January 1997, the Company agreed to issue under the 1993 Stock
Option Plan, additional options to purchase up to 225,000 shares of Common
Stock at an exercise price of $0.61 per share, the exercise of which is to be
subject to the success of Amercom in securing the release of the Company from
its obligations under its current office lease in New York City. The options
are to become exercisable with respect to 56,250 shares upon the early return
of the Company's $150,000 security deposit, with the balance of 168,750 shares
to become exercisable depending on the date, if any, that the Company is
released from its lease obligations: 168,750 if the lease is terminated by the
end of 1997; 112,500 if the lease is terminated by the end of 1998; and 56,250
if the lease is terminated by the end of 1999.
On June 24, 1997, the Company forgave a debt of $25,250 of Amercom
in consideration of services conducted by Amercom in connection with the
proposed private placement of the Company's securities.
In November 1996, the Company issued 41,176 shares of the Common
Stock to a stockholder/officer in full satisfaction of accrued salary of
$28,000. Subsequent to the issuance 16,515 of such shares were returned to
the Company in connection with the payment of withholding tax relating to the
issuance. These returned shares are being held by the Company as treasury
shares.
(NOTE F) - Stockholders' Equity:
[1] Notes Payable:
During calendar 1994 the Company borrowed $300,000 pursuant to 4%
demand notes. The note holders received one share of the Company's common
stock for each ten dollars of notes outstanding (30,000 shares) upon
completion of a public offering of the Company's securities (Note F[2]). The
value of these stock rights was recorded as a discount on the notes and
expensed immediately. The notes were repaid in January and February 1995.
[2] Public offering:
In January 1995, the Company effected an initial public offering of
its securities. A total of 1,235,710 units, each comprised of one share of
common stock and one redeemable common stock purchase warrant, were sold
yielding net proceeds of approximately $4,986,000 after underwriting
commissions and expenses.
[3] Authorized shares:
On June 24, 1997 the Board of Directors approved an increase in the
authorized share capital to 50,000,000 shares of common stock and 5,000,000
shares of preferred stock, subject to stockholder approval. An increase in
authorized common shares is required to accommodate all prospective grants of
stock options and warrants under existing and proposed plans.
[4] Stock options:
The Company applies APB 25 and related interpretations in
accounting for its stock option and purchase plans. In October 1995, SFAS 123
was issued and requires the Company to elect either expense recognition or
disclosure-only alternative for stock-based employee compensation. The expense
recognition provision
(continued)
F-9
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
encouraged by SFAS 123 would require fair-value based financial accounting to
recognize compensation expense for the employee stock compensation plans. The
Company has elected the disclosure-only alternative.
The Company has computed the pro forma disclosures required under
SFAS 123 for employee stock options granted as of June 30, 1996 and June 30,
1997 using the Black Scholes option pricing model prescribed by SFAS 123.
The assumptions used and the weighted average information for the
years ended June 30, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
--------------- --------------
<S> <C> <C>
Risk-free interest rates................................... 5.84% - 6.21% 6.10 - 6.72%
Expected dividend yield.................................... - -
Expected lives............................................. 3 - 6 years 6 years
Expected volatility........................................ 85% 85%
Weighted-average grant-date fair value of options
granted during the period.................................. $0.38 $0.71
</TABLE>
Management has determined that accounting for stock-based
compensation under SFAS 123 would not have a significant effect on pro forma
net loss or pro forma net loss per share for the year ended June 30, 1997 and
1996. Accordingly such pro forma information is not presented herein.
The Black-Scholes option-pricing 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-pricing models require the
input of highly subjective assumptions including 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.
During 1993 the Board of Directors and the stockholders of the
Company approved a Stock Option Plan (the "1993 Plan") which as amended
provides for the granting of up to 800,000 shares of common stock, pursuant to
which directors, employees, non-employees, consultants and advisors are
eligible to receive stock options. On June 24, 1997 the Board of Directors
approved, subject to stockholder approval, an increase in the number of shares
under the 1993 Plan to 4,200,000. Options granted under the 1993 Plan are
exercisable for a period of up to 10 years from the date of grant at an
exercise price which is not less than the fair value on date of grant, except
that the exercise period of options granted to a stockholder owning more than
10% of the outstanding capital stock may not exceed five years and their
exercise price may not be less than 110% of the fair value of the common stock
at date of grant.
Stock option activity under the 1993 Plan in the years ending June
30, 1997 and 1996 is summarized as follows:
(continued)
F-10
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1997 1996
--------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year.............................. 418,000 $1.10 157,000 $1.17
Granted......................... 1,048,500 (1) 0.62 261,000 1.05
Exercised....................... (30,700) 0.50
Canceled........................ (41,300) 0.98
Outstanding at end of year.......... 1,394,500 (1) 0.75 418,000 1.10
Options exercisable at year-end..... 398,184 1.03 183,250 1.18
Options available for future
grant............................. 2,774,800 82,000
</TABLE>
(1) Including options granted for 594,500 shares of common stock
which are subject to approval by stockholders of an increase to
4,200,000 shares under the 1993 Plan.
Stock options outstanding under the 1993 Plan at June 30, 1997 have
an exercise price from $.50 to $1.25 and a weighted average remaining life of
7.02 years.
In April 1995, the Company granted a business consultant an option
outside the 1993 Plan to purchase 50,000 shares at $2.00 per share and 50,000
shares at $3.00 in lieu of payment for services rendered. At the date of grant
the Company recorded an expense of $45,000 for such services. The option
agreement was amended to reduce the option exercise price to $0.10 per share
for 50,000 shares (this option was exercised for 50,000 shares in May 1995)
resulting in an additional expense of $35,000. The remaining option for 50,000
shares was canceled.
During the year ended June 30, 1997 and 1996 the Company issued
options for 91,500 and 115,500 shares of common stock under the 1993 Plan to
consultants which were valued at $45,750 and $57,500, respectively and are
being amortized over the period of the related agreements.
On June 24, 1997 the Board of Directors approved the 1997
Consultant Stock Option Plan (the "1997 Plan") subject to stockholder approval
which provides for the granting of up to 2,500,000 shares of Common Stock,
pursuant to which consultants and advisors to the Company are eligible to
receive stock options. Options granted under the 1997 Plan are exercisable for
a period not to extend beyond February 14, 2007 and at an exercise price
determined by the Board or Plan Administrator. As of June 30, 1997, in
connection with the license of the Purgative Product, the Company granted
options for 750,000 shares to consultants exercisable at $0.61 per share. Of
the options for 750,000 shares, 250,000 options vest on the earlier of
November 14, 1997 or the completion of a debt or equity financing of at least
$2,000,000 with the remaining 500,000 options vesting upon the achievement of
certain development and sales milestones. In the year ended June 30, 1997, the
Company valued the 250,000 options at $88,000 which is being amortized over
the term of the consulting agreements. When the remaining
(continued)
F-11
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
500,000 options vest the Company will record a charge to operations based on
the difference between their market price and $.61. A stockholder meeting to
consider approval of the 1997 Plan and other matters has been scheduled.
[5] Warrants:
The Company has the following warrants outstanding at June 30, 1997
for the purchase of its common stock:
<TABLE>
<CAPTION>
NUMBER
OF WARRANTS EXERCISE
OUTSTANDING PRICE DESCRIPTION AND EXPIRATION DATE
----------- -------- -------------------------------
<S> <C> <C> <C>
Public 1,264,615 $6.84 Each warrant entitles the holder to purchase one share of
Warrants common stock at the exercise price subject to adjustment for
dilution through May 31, 1998. The warrants may be redeemed by the
Company at price of $.05 per warrant on 30 days prior written
notice if the closing bid price of common stock averages at least
$9.00 for the 20 consecutive trading day period ending within 15
days of the notice of redemption.
Underwriter's 107,500 $7.33 January 2000 - Each warrant entitles the holder to purchase
Warrant one share of stock and one warrant exercisable at $7.33.
Warrants 320,000 $1.00 October 2000 - The Company issued a warrant to purchase
Issued for 320,000 shares of common stock for financial and business
Services - services to be provided in accordance with an agreement with
1996 an investment banking firm. The Company valued the
warrants at $160,000 which is being amortized over the
period of the agreement.
</TABLE>
The weighted average exercise price for warrants exercisable into
one share of common stock was $5.86 as of June 30, 1997.
[6] Treasury Stock:
In December 1995, the Center of Efferent Therapy returned to the
Company 30,000 shares of the Company's common stock upon termination of an
agreement pursuant to which the shares were issued in 1993 in connection with
its agreement to perform certain testing services on behalf of the Company. In
February 1996, the Vice President of Ethnobotany resigned and returned 150,000
shares of common stock to the Company which he received in 1993 in connection
with an employment agreement. Such returns of shares have been accounted for
at their value when originally issued (par value). In November 1996, the
Company issued 165,441 shares to Amercom for certain consulting services and
41,176 shares to a stockholder/officer in settlement of certain obligations of
which 180,000 of such shares came from treasury (Note E). In May 1997, the
stockholder officer transferred to the Company 16,515 shares previously issued
to her in payment of accrued salary; such transfer was made in satisfaction of
her obligation to the Company arising from the payment of withholding tax
relating to the issuance. The repurchased shares are being held by the Company
as treasury shares.
F-12
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Commitments:
[1] Employment and consulting agreements:
The Company has entered into three to five-year employment and
consulting agreements with Russian and American botanists, ethnobotanists and
phytochemists, many of whom are stockholders. At June 30, 1997, future minimum
payments are as follows for employment and consulting agreements:
1998......................... $61,000
1999......................... 25,000
2000......................... 10,000
------------
Total........................ $ 96,000
===========
Effective June 5, 1995, the Company entered into a three year
employment agreement with the President and Chief Executive Officer for a base
annual salary of $165,000 subject to annual increases as determined by the
Board of Directors. The Board of Directors approved an increase to $185,000
per annum in June 1996.
[2] Research agreements:
The Company has entered into an agreement with the Komarov
Botanical Institute of the Russian Academy of Sciences in St. Petersburg,
Russia and other institutions of higher education, for the use of laboratories
and other facilities and for research services. At June 30, 1997, future
annual minimum payments under the agreements are as follows:
1998......................... 18,000
1999......................... 18,000
2000......................... 18,000
2001......................... 18,000
2002......................... 18,000
Thereafter................... 18,000
-----------
Total........................ $ 108,000
=========
[3] Lease commitment:
Prior to the closing of its initial public offering, nominal space
was provided at no charge by Amercom. In July 1995 the Company entered into a
lease agreement expiring April 2000, which provides for base rent of $195,300
per annum. In connection with its lease agreement, the Company opened an
irrevocable letter of credit of $150,000, as security for its rental
obligation. The letter of credit is secured by a $150,000 certificate of
deposit.
In conjunction with the lease agreement, the Company entered into a
month to month cost-sharing agreement with Amercom and its affiliates
("Amercom Affiliates") which provides for the use of a substantial portion of
the office space by Amercom Affiliates at the Company's approximate cost. The
agreement also provides for reimbursement by Amercom Affiliates for
furnishings, equipment and support services.
Rent expense was approximately $70,000 and $66,000 after
reimbursement by Amercom Affiliates for the years ended June 30, 1997 and June
30, 1996, respectively. In January 1997, the Company agreed to issue an option
to Amercom which is subject to the success of Amercom in securing the release
of the Company from its obligations under its current office lease in New York
City (Note E).
F-13
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
[4] Other:
Pursuant to a management agreement with Amercom, the Company was
required to pay $112,500 for services rendered through June 30, 1994 which in
November 1996, was satisfied in full with the issuance of 165,441 shares of
Common Stock (Note E). Effective February 1995 the Company is required to pay
$8,333.33 per month, for a three-year period, for management services through
January 31, 1998. The Company has agreed to extend the Management Agreement by
two years. (See Note E).
(NOTE H) - Fair Value of Financial Instruments:
Financial instruments consist of cash and cash equivalents, U.S.
Treasury Bills and accounts payable. The carrying amount of these instruments
approximate fair value due to their short term nature.
(NOTE I) - Proposed Acquisitions and Private Placement
When it commenced operations, Panax focused on the discovery and
development of new pharmaceutical compounds identified in and isolated from
plants. In early 1996, Panax modified its strategy, reducing its natural
product discovery activities and redirecting its principal efforts toward
expanding its pipeline of commercially viable pharmaceutical products by
licensing or acquiring specifically-targeted products developed for the
treatment of certain diseases.
Purgative Product. In February 1997, the Company entered into an
exclusive world-wide license agreement with ALW Partnership ("ALW") to
develop, use, market, sell, manufacture, have manufactured and sub-license in
the field of colonic purgative or laxatives a solid dosage form of sodium
phosphate salt for use as a colonic purgative or laxative. The Company paid
ALW $100,000 as a licence fee upon execution of the agreement and is obligated
to pay an additional $150,000 upon consummation of $2,000,000 of financing.
Pursuant to the ALW License and certain three-year consulting
agreements with the partners of the ALW Partnership the Company is obligated
for: (i) additional cash payments of $250,000 upon receipt of FDA approval of
a product developed using the technology, (ii) royalties of 2% to 6% based on
net sales as defined and minimum royalties of $100,000 per annum after
February 2003 and (iii) options as to an aggregate of up to 750,000 shares of
Company Common Stock issuable to partners of the ALW Partnership upon the
achievement, if any, of certain milestones and targets pertaining to FDA
approval of compounds and achievement of net sales targets.
The License is terminable by ALW if the Company: (i) fails to
commit at least $1,000,000 of funding to the development of the Purgative
Product for the first two years following consummation of the $2,000,000
financing, (ii) has not paid royalties by February 2003 of at least $100,000
per year, (iii) has failed to conclude a $2,000,000 financing by November 14,
1997 or (iv) if no commercial sales of the product or "improvement" as defined
have commenced by February 2005. If the license is terminated by ALW, the
Company would be required to write off all amounts capitalized in connection
therewith.
In connection with Panax's acquisition in February 1997 of rights
to the Purgative Product pursuant to the ALW License, and in connection with
the acquisitions of CorBec and Sangen to be consummated on the date when the
Company completes an initial closing of an equity investment of at least
$8,000,000 ("Initial Closing"), the Company will be obligated to pay
acquisition consideration as follows:
CorBec. In May 1997, the Company entered into a letter of intent to
acquire the outstanding capital stock of CorBec Pharmaceuticals, Inc.
("CorBec"), a company involved in research and development. In connection with
the CorBec acquisition, the Company shall be obligated, upon consummation of
the Initial Closing, to pay to CorBec's shareholders $750,000 in cash and to
issue to such shareholders 750,000 shares of the Company's
F-14
<PAGE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
Common Stock. Additional cash payments in the aggregate amount of $16,580,000,
and issuances of Company Common Stock in the aggregate amount of 720,000
shares shall be due from the Company to CorBec's shareholders upon the
achievement, if any, of certain milestones and targets as defined. In
addition, Panax has agreed to enter into three-year consulting agreements with
a consultant and the Chief Executive Officer of CorBec, providing for
aggregate consulting fees over three years equal to $510,000, and for the
grant of options with respect to an aggregate of 170,000 shares of Common
Stock with an option for an additional 200,000 shares to be granted to a
consultant upon the achievement of certain development milestones. The Company
is also to fund up to $240,000 of sponsored research over the course of three
years.
Sangen and Thrombospondin Technology. In January 1997, the Company
entered into a letter of understanding to acquire the outstanding capital
stock of Sangen Pharmaceutical Company ("Sangen"), a company, the sole asset
of which is the right to acquire by license the rights to the Thrombospondin
Technology. In connection with the acquisition of Sangen, the Company has
granted Dr. Leonard S. Jacob, the sole stockholder of Sangen, who is to become
Chairman of the Board and Chief Executive Officer of the Company upon
consummation of the Initial Closing, options to purchase the greater of
1,200,000 shares of Common Stock (900,000 options to be granted in connection
with employment) or such number of shares as will equal 7.5% of the "Fully
Diluted Capitalization" of the Company as defined. In connection with the
acquisition of Sangen and its licensed rights to the Thrombospondin
Technology, the Company will issue 125,000 shares of Common Stock to Allegheny
University of the Health Sciences ("AUHS") upon consummation of the Initial
Closing; in addition, royalties based on net sales and options as to an
aggregate of up to 375,000 shares of Company Common Stock shall be payable and
issuable, as the case may be, by the Company to AUHS and Dr. Tuszynski, upon
the achievement of certain development and sales milestones. Finally, the
Company is to pay AUHS an aggregate of between $450,000 (over the course of
two years) and $850,000 (over the course of four years) to fund sponsored
research, depending on achievement of certain development milestones.
In connection with the proposed acquisitions and a proposed private
placement for the equity investment, the Company has incurred $304,000 of
expenses at June 30, 1997 which have been classified as deferred expenses. If
the proposed acquisitions and private placement are not consummated these
costs will be expensed.
F-15
<PAGE>
AMENDMENT
TO
RESTATED AND AMENDED MANAGEMENT SERVICES AGREEMENT
This Amendment, dated as of the 3rd day of January 1997, to the
Restated and Amended Management Services Agreement (the "Agreement") between
Panax Pharmaceutical Company Ltd. (the "Company") and Amercom Funding Ltd.
("Amercom") it is hereby agreed as follows:
1. The term of the Agreement is hereby extended to January 31, 2000;
2. The fee payable to Amercom for the extended period is:
(a) $100,000 payable in 12 equal monthly installments of $8,333
commencing February 1, 1998; and
(b) the issuance of a ten year option under the Company's Stock
Option Plan to purchase 400,000 shares of the Company at a price of $.61 per
share in the form as attached to this Agreement of which 175,000 shares may be
exercised during the term but not earlier than February 1, 1998 and the
remaining 225,000 shares shall be purchasable subject to the success of Amercom
in mitigation the obligations of the Company under its Assignment Agreement
pursuant to which it was assigned and assumed the obligations of the Sublessee
under the Sublease dated August 6, 1993 between Buckeye Communication Inc. (the
"Sublessee") and Finneccamica, an Italian corporation (the "Sublessor") under
the Overlease dated July 25, 1989 between 425 Park Avenue Company as Landlord
and Sublessor as Tenant with respect to the offices and facilities of the
Company at 425 Park Avenue, New York, New York as follows:
1
<PAGE>
(i) to the extent of 56,250 shares commencing on such date prior
to the expiration date of the sublease that the $150,000 letter of
credit provided as security under the lease is returned to the Company
or canceled;
(ii) to the extent of 168,750 shares commencing with the first
date that the Company is released from its rental obligations under
the sublease provided that such release occur on or prior to December
31, 1997;
(iii) to the extent of 112,500 shares commencing the first date
that the Company is released from its rental obligation under the
sublease, provided that such release occurs after December 31, 1997
but not later than December 31, 1998; and
(iv) to the extent of 56,250 shares commencing the first date
that the Company is released from its rental obligation under the
sublease, provided that such release is effected after December 31,
1998 but not later than December 31, 1999.
3. Amercom shall no longer be required to furnish the part-time
services of Mr. David Zaretsky and Norman Eisner under the Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto has executed the amendments as
of the day and year first above written.
AMERCOM FUNDING LTD.
By
--------------------------------------
PANAX PHARMACEUTICAL COMPANY LTD.
By
--------------------------------------
Taffy James Williams
Chairman of the Board and President
3
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statements (No. 333-00922 and No. 333-29809) on Form S-8 of Panax Pharmaceutical
Company, Ltd. of our report dated July 24, 1997 relating to the balance sheet
of Panax Pharmaceutical Company, Ltd. as of June 30, 1997 and the related
statements of operations, changes in stockholders' equity (deficiency) and
cash flows for each of the years in the two-year period ended June 30, 1997
and for the period July 1, 1993 (commencement of operations) through June 30,
1997 which report is included in the annual report of Panax Pharmaceutical
Company, Ltd. on Form 10-KSB for the year ended June 30, 1997.
Our report dated July 24, 1997, contains an explanatory paragraph that
states that the Company has sustained recurring losses from opeations and will
require additional financing, which raises substantial doubt about its ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainly.
/s/ Richard A. Eisner & Company, LLP
- ------------------------------------
New York, New York
October 13, 1997
