SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1999
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
0-25828
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(Commission File No.)
ELECTROPHARMACOLOGY, INC.
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(Exact name of Small Business Issuer as specified in its charter)
Delaware 954315412
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
12085 Research Drive, Alachua, Florida 32615
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(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (904)462-2249
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes /X / No //
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 III of this Form
10-KSB or any amendment to this Form 10-KSB. / /
The issuer's revenues for the fiscal year ended December 31, 1999 are
$513,021.
The aggregate market value of the registrant's common stock held by non-
affiliates as of April 11, 2000, was approximately $936,994. As of
April 11, 2000, there were 17,268,325 shares of the registrant's common
stock outstanding.
Documents Incorporated by Reference:
None
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<PAGE>
Item 1. Description of Business.
General
OUR BUSINESS
Our business is to create novel products for the improved treatment
of complex human diseases such as cancer, wounds, chronic infections,
inflammation and tissue degeneration associated with aging or
autoimmune disorders. Our primary focus is on products for diseases
that affect superficial tissues such as skin, breasts, brain, prostate
and joints. Our goal is to develop products that combine commercially
feasible developments of two proprietary technologies:
DRUG DELIVERY - delivering drugs preferentially to diseased
tissues; and
DRUG DESIGN - creating drugs to target specific disease-related
genes and proteins.
Our drug delivery technologies can be applied from the outside to
deliver more drugs to superficial tissues without the use of needles and
pumps or the need to reformulate a drug into a slow release capsule,
an implant or an inhaler. We exclusively licensed from Elan
Corporation a flexible patch technology that applies a mild electrical
current (iontophoresis) to increase the local delivery of dermatology
drugs through and into the skin. We also developed and commercially
marketed proprietary devices that deliver pulsed electromagnetic
signals (PEMS) to increase local blood flow in superficial tissues.
Since orally taken or injected drugs travel through the
bloodstream increased blood caused by PEMS treatment should deliver more
drug to the treated tissues. Our drug design focuses on small molecule drugs
created from proprietary modifications of the building blocks of genes ("gene
base modifications"). We are building a proprietary library of small molecule
drugs that are designed to look like or bind to selected
portions of those genes and proteins that are being identified by
genomics research as drug targets. We are in a unique position to
generate large proprietary drug libraries using a combination of
natural gene bases and propriety gene base modifications. We are also
designing gene base modifications that resemble currently used cancer
and antiviral drugs that are derived from natural gene bases. While
our small molecule drug library is expected to have broad applications
against most of the drug targets identified by genomics research, we will
initially focus on drug targets that are identified by clinical
research through collaborations.
Our ultimate goal is to develop products that not only contain
proprietary drugs targeted at disease-causing genes or proteins to
achieve specific clinical effects but also deliver the drugs to
diseased tissues in order to achieve increased efficacy and reduced
side effects. These products should address large and growing market
needs for diseases that affect superficial tissues: dermatology
(cancer, ulcers, acne, herpes, psoriasis, wrinkles, aging- and
sunlight-damage); cancer of the breast, brain or prostate;
degeneration of the brain; and inflammatory or degenerative diseases
of joints (arthritis, osteoporosis).
<PAGE>
Our near-term revenues are expected to be derived from selected
applications of our core technologies and related expertise:
- We are generating revenues by using our drug design capabilities
to make and sell custom products for genomics research and drug
discovery markets through a Web-based business -
www.geminibio.com. We intend to expand this business
internationally as an e-business and through strategic
alliances. We plan to form partnerships with researchers to
develop genomic databases with commercial applications in drug
discovery for selected rare diseases.
- We intend to enter into corporate partnerships to generate
license fees and R&D funds as well as future royalty payments
based on potential near-term commercial applications of our core
technologies:
- application of our drug delivery technologies to improve
the delivery of drugs developed and/or marketed by our
partners; and
- use of our small molecule drug library for research
involving diseases and as product candidates targeted disease-
causing at genes selected by our partners.
Industry Overview
As the population ages, the provision of care for patients who
suffer from complex diseases in a cost-effective manner is becoming
a growing challenge worldwide. With the evolution of managed care,
health care providers are searching for new drugs and more
effective methods to deliver drugs to reduce the need for hospital
facilities or skilled staff. More effective drugs with predictable
therapeutic outcomes and side effects and without complex shipment
or storage requirements are expected to increase patient compliance
and reduce the cost of patient care related to monitoring for
unanticipated clinical outcomes. The availability of superior and
controlled delivery technologies is expected to allow ambulatory
patients to receive long-term treatment without the need to be
hospitalized for chronic intravenous delivery of drugs. The ability
to deliver a drug directly to diseased tissue is expected to
increase the efficacy and reduce the toxicity, thus reducing the
overall cost of patient care by using less drug and by avoiding
patient monitoring for side effects.
<PAGE>
Based on the needs of patients with complex diseases, the
emerging trend in the managed care system is "disease management"
to achieve acceptable clinical outcomes at a reasonable cost since
a total cure for most chronic/complex diseases is unlikely. For
example, the treatment of a young diabetic patient will be
different from treating a seventy year old diabetic patient with a
chronic ulcer. Similarly, a young patient with malignant prostate
cancer will require a different treatment scheme than an eighty
year old individual with benign prostate hypertrophy. In the near-
term, the ability to improve the delivery of available drugs to
the diseased tissues is expected to improve patient outcomes at lower
costs. In the long-term, we expect that the rapidly emerging
knowledge about the genes and biochemical processes implicated in
will enable us to design safer new drugs for cost-effective patient
care by reducing the cost of disease management.
Drug Delivery. A number of biotechnology as well as
traditional pharmaceutical drugs can be made more effective and
less toxic if they can be directed at the tissues affected by the
disease being treated. Standard injection or oral administration
usually leads to a sharp rise in concentration of hte drug in the
blood level followed by its clearance from the blood stream within a few
hours for most pharmaceutical drugs (that are small molecules) or a couple
of days for most biotechnology drugs (that are large protein molecules).
The amount of the drug delivered to the diseased tissue during any
time period is a function of its concentration in blood multiplied
by the total amount of blood flowing through the tissue while the
substance is in the blood stream. As the substance is cleared from
the blood stream over time, the rate of deposition of the substance
into the tissue also drops. A drug that clears rapidly from the
blood stream (commonly, the traditional small molecule
pharmaceutical drugs) must be taken in large quantities in order
for sufficient drug to be delivered to the diseased tissues within
the time period that the drug is in the blood stream. Such high
levels in the blood stream may be toxic to other tissues that are
disease-free. A drug that persists in the blood stream for a long
time (the large molecule biotechnology protein drugs) may be
injected in smaller amounts. However, these large molecule drugs
are usually inefficient in their ability to diffuse through the
walls of the blood vessels and deposit in the tissues.
Additionally, disease-free tissues are exposed for longer periods
of time to such drugs and may experience toxic effects. Controlled
slow release capsules, inhalers, slowly biodegradable
implants, skin patches and programmable pumps have been used to
extend the duration of small molecule pharmaceutical drugs in the
blood stream and avoid the need for high doses.
In recent years, drug delivery technologies have moved beyond
the traditional extended or controlled release pills and metered
dose inhalers. Drug delivery is being increasingly used to allow
a desired dose of an active pharmaceutical ingredient to be
delivered at the right time - and more increasingly, at the right
target tissue site. Some analysts estimate that there are more than
200 products in the pipeline of the drug delivery industry. The
approaches to achieve better delivery include biodegradable
implants, injectable microparticles, pumps, aerosols and electric
fields. Traditional drugs have also been chemically linked to
large biotechnology proteins and then injected into patients in
order to increase the duration of these small molecules in the
blood stream and the delivery to a target tissue recognized by the
protein (for example, antibody-chemotherapeutic drug conjugates).
The principal routes of administration for the
delivery of drugs are oral, injection into the bloodstream, the
respiratory system (nasal and lungs) and the skin. Different drug
delivery technologies are being developed to address the specific
needs arising from the nature of the drugs and the preferred routes
of delivery for the drug to reach the diseased tissue.
<PAGE>
The value of drug delivery technologies arises from increasing
the effectiveness of drugs, reducing the toxicity to disease-free
tissues and reducing the cost of drugs by lowering the dosage
administered to the patient. As a result, there is likely to be
increased patient compliance and improved patient outcome. An
efficient drug delivery technology is especially beneficial to the
highly potent (and frequently, more toxic) drugs and the high value
biotechnology products that are large molecules, are expensive to
manufacture and are inefficiently delivered into tissue sites.
Drug Design. Traditionally, pharmaceutical products have been
discovered through the screening of thousands of compounds, either
from existing chemical libraries (such as aspirin) or compounds
produced in a fermentation broth (such as penicillin). The advent
of genetic engineering founded the biotechnology industry where
naturally occurring biological molecules (primarily, protein drugs
and most recently, the gene therapy drugs) are produced by
monoclonal antibody and recombinant DNA technologies. While the
traditional pharmaceutical approach is a random and inefficient
process, the biotechnology products are large molecules that are
expensive to produce, store, ship and administer. Emerging knowledge
about the genes, the proteins encoded by these genes and the genetic
elements that regulate the activities ("expression") of genes various in
normal and diseased tissues has created the opportunity to "design" novel
small molecule drugs.
Genes, Proteins and Diseases. Most normal functions carried
out by a cell are dependent on a well controlled production
and action of various proteins that either perform a
structural function (for example, the cell membrane and the
organelles such as the nucleus and mitochondria inside the
cell) or a catalytic function (such as enzymes that synthesize
vitamins or reproduce the genetic material of the cell). The
blueprint for the production of proteins is encoded in the
genetic material, DNA, that constitutes the chromosomes of a
cell. In addition to containing the information needed to
encode the proteins (the "coding sequences"), the genetic
material of all cells contains genetic sequences (the
"regulatory sequences") that regulate the activity of the
coding sequences. Each coding sequence is read ("transcribed")
by various enzymes to create an instructional template
("messenger RNA") that represents a different form of nucleic
acid and that is used by the protein synthesis machinery of
the cell to assemble the correct amino acids into the
functional polymer, a protein, the workhorse of a cell's
activities. Regulatory sequences customarily interact with
certain proteins and regulate the activity of coding sequences
and thus affect the levels of the proteins encoded by such
coding sequence in a cell. Information related to the proteins
and genes and their involvement in maintaining the healthy
state of a cell or organ or in causing or exacerbating a
disease process provides new tools for effective and accurate
diagnosis and safe and efficacious therapy.
Gene Mutation and Activity (expression). A defect (a genetic
mutation) in a coding sequence can alter the encoded protein
resulting in an alteration of the function of the protein. A
defect in a regulatory sequence can alter the activity of the
coding sequence it regulates. A defect in a coding sequence
that encodes a protein which interacts with a regulatory
sequence can also affect the activity of the coding sequence
regulated by the regulatory sequence. These minor
perturbations in genes or proteins that perform critical
functions can lead to the malfunctioning of a cell, which is
the basis of a disease. Even without a genetic mutation,
various substances (such as chemicals, pollutants, diet) or
conditions (such as infection, aging, degenerative diseases,
hormonal changes) can alter the physiology of a cell and cause
changes in the activities of genes (and thus the levels of
proteins encoded by them) or proteins.
Genetics and Biochemistry of Complex Diseases. Unlike acute
diseases (such as an acute infection, an acute burn wound, or a bone
fracture caused by an accident), complex diseases (such as cancer,
or a bone fracture resulting from chronic bone degeneration in
osteoporosis, chronic infection) may result from and/or involve a multi-
tude of genes or proteins. Often a mutation in a single gene or a change
in the activity of a gene or a protein encoded by the gene can
initiate a cascade of events that, in turn, affect other genes
and proteins and lead to the progression or exacerbation of a
disease condition. In many cases, the disease is not diagnosed
until the cascade has already been in progress (such as cancer
metastasis, arthritis, Alzheimer's disease, osteoporosis and
many other diseases) well beyond the initial alteration.
Also, a drug or a treatment method that can counteract the
initial alteration may have significant unwanted or adverse
side effects since the initial gene or protein may be required
for certain normal "housekeeping" activities of the unaffected
healthy cells (such as in the case of many autoimmune
diseases, chronic wounds and aging-related diseases that cause
tissue degeneration). Biomedical research, especially the
emerging genomics research, and the knowledge developed
through the use of biotechnology products (naturally occurring
proteins) are leading to a better understanding of the various
stages of complex diseases and the roles of various genes (or
their protein products) in the different stages.
Small molecule drugs that are designed based on the knowledge
of the functions of the protein or gene targets implicated in
complex diseases have the advantages of traditional pharmaceuticals
(easy to produce, store/ship and administer/deliver) as well as of
biotechnology products (specific, predictable action that mimics
natural cellular processes). In addition, the design of these drugs
is expected to reduce the disadvantages of either the traditional
pharmaceuticals (as far as the unpredictable safety and efficacy
profile are concerned) or the biotechnology products (especially,
their expensive manufacturing and storage/shipment difficulties).
Small molecule drugs can be designed to specifically target the
individual gene or protein target responsible for each of the different
stages in the progression of complex diseases and thus
revolutionize patient care. The success of the small molecule drug
design approach is dependent on:
<PAGE>
- correctly identifying the protein/gene target(s),
validating the role of the target (the mechanism of
action of the target) in the specific stage of a complex
disease, and
- designing compounds that effectively and predictably
affect the production or the function of the protein target.
Gene bases (the building blocks of the genetic material) and amino
acids (the building blocks of proteins) are naturally occurring
small molecules. These can be chemically synthesized less
expensively than biotechnology drugs, can be modified or used to build small
molecules (oligonucleotides and peptides) with novel biological activities
that affect the function of a disease-linked gene and/or its
protein product. Alternatively, these small molecules can affect
the regulation of a gene's activity in a cell by affecting the
molecular processes required in expressing the product of a gene.
In addition to the potential to be used as drugs, these small
molecules are being extensively used in research and drug discovery
in the rapidly growing fields of genomics.
Our Technologies
Background. Our technology selection and product
development strategy are based on the growing realization that
effective products for complex human diseases should
- deliver the active drug preferentially to the diseased
tissue(s) in order to reduce side effects (on normal
tissues) and the dose required to achieve clinical
benefit; and/or
- be designed based on their ability to affect the
specific biochemical process(es) that is (are)
responsible for the stage of the disease being treated.
There has been a growing appreciation for the need to deliver
drugs more effectively or selectively to the diseased tissues. The
current practice of prescribing large doses of anti-herpes drugs to
treat localized herpes lesions (oral or genital), steroids or
NSAIDs to treat a single arthritic joint, and chemotherapeutic
drugs to treat localized cancers of breast, brain, prostate or skin
are only a few examples of situations where effective means to
deliver the drug to the diseased tissue are highly desirable. The
results would include increased patient compliance, improved
patient outcome and lower cost of drugs. An efficient drug
delivery technology is especially beneficial to the highly potent
(and frequently, more toxic) drugs and the biotechnology products
that are large molecules, expensive to manufacture and
inefficiently delivered through the blood stream into the diseased
tissues.
Based on a better understanding of the biochemical and
cellular processes, novel drugs have been created during the past
decade to treat specific stages or subsets of complex diseases.
Examples include (i) viral genome reproduction blockers (such as
AZT) and viral protein production blockers (such as the protease
inhibitors) to treat different stages of AIDS, (ii) antibody
protein product (herceptin) and specific chemical molecule
(tamoxifen) to treat distinct subsets of breast cancers, and (iii)
steroid hormone (estrogen) and peptide hormone (calcitonin) to
treat bone degeneration in patients at different stages of
osteoporosis.
<PAGE>
The past five years has experienced an explosion in genomics
research - determining the complete genetic blueprint of humans
(and other living organisms) and studying the expression pattern of
genetic elements (genes and expression tag sequences). It is
expected that genomics research will substantially contribute to
the discovery and development of future pharmaceutical drugs. The
two primary outcomes expected from the genomics efforts are (i)
hundreds of thousands of cloned genetic sequences, including
sequences that contain the information to encode whole functional
proteins or their fragments; and (ii) large bodies of information
on the activity ("expression") and sequence variations (mutation
and population diversity) of genes related to disease conditions.
Large genomics efforts in the public and the private sectors are
pursuing massive searches on the entire genetic blueprint (the
"genome") of humans and other living organisms. The sequence
information is being used to
- develop gene chips/arrays that can monitor tens of
thousands of genes simultaneously in normal or diseased
tissues and enable screening of the effects of large
numbers of potential drug candidates; and
- create databases to store and/or software to process
massive amounts of information (bioinformatics) on the
sequences and activities of genes with the hope of
identifying better points of attack on a particular
disease process and superior drug candidates that target
the relevant genes.
In addition to identifying potential gene targets for the design
and discovery of new drugs, the genomic technologies are also
expected to yield new information (safety, drug-drug interaction)
on existing drugs. As more information from various genomics
projects comes into the public domain as recently announced by U.S.
President Clinton and UK Premier Blair, the participation in
genomics is expected to experience significant growth. More
academic researchers and companies without large data
generating/processing capabilities will engage in verifying the
accuracy of available genomics data and using the information.
These activities will greatly increase the demand for the design of
novel small molecules with unique gene targeting properties as
research tools and product (diagnostic or therapeutic) candidates.
Product Rationale. We believe that safe and effective
treatments for complex diseases will be best achieved by drugs
designed to target specific disease-linked genes (or their
products) and delivered to the tissue where the action of the gene
or its product is actually responsible for the type or the stage of
the disease. It is also desirable that the delivery of the drug to
the target tissue be started and stopped based on the manner (topical
application for local action versus reach the diseased tissue through the
bloodstream) in which the drug travels from the site of administration to
the diseased tissue. Our strategy to combine commercially feasible drug
delivery and drug design technologies is intended to create two broad classes
of products:
<PAGE>
I. A drug designed to act locally on disease-linked genes or
proteins in tissues and delivered by a device that promotes
drug transfer across the skin in a controlled manner.
II. A drug administered through the bloodstream to act on disease-
linked genes or proteins in superficial tissues, and used with a
delivery device that increases local blood flow in the diseased
superficial skin tissue in a controlled manner.
Non-Invasive Drug Delivery Technologies. Many of the drug
delivery devices that are either in use or under development are
invasive such as an injection or implantation in the bloodstream or
the diseased tissue. Also, almost all drug delivery technologies
(injection, implantation, inhalation and ingestion) require that
the drug is mixed, chemically combined or incorporated into the
delivery vehicle and that the delivery vehicle is non-toxic to the
site of application and/or human tissues. These requirements limit
the applicability of most drug delivery technologies to selected
types of drugs, especially for approved formulations of drugs or
new drugs that are sensitive to many of the substances used to
control drug delivery. Our drug delivery is based on the
application of either (i) a mild electrical current
("iontophoresis") to the skin surface from a flexible patch and/or
(ii) pulses of electromagnetic energy in the radio frequency range
("PEMS") that can be broadcast to superficial tissues such as the
breast, brain, prostate and joints. These non-invasive means to
increase drug delivery to superficial tissues may not need any
reformulation of the drug or chang to its route of administration
(oral, injection or topical).
Iontophoresis is based on the application of a mild
electrical current to facilitate the transport of drugs across the
charge gradient through the layers of skin. It is a non-invasive
means that takes advantage of the electrical charge of a drug
molecule and the largest available delivery surface (the skin) of
the body. PEMS broadcast increases local blood flow in tissues. It
is a non-invasive means that is potentially applicable to
facilitate the delivery of any systemic drug (a drug carried by the
bloodstream) following an injection or an oral administration, to a
superficial organ (such as breast, brain, prostate and joints) into
which the PEMS can penetrate. Both of these modalities have been
used in various human applications and have not shown demonstrable
adverse effects. Recent advances in engineering have led to the
ability to design novel non-invasive products based on these
modalities to target specific tissues in a human body.
IONTOPHORESIS FLEXIBLE PATCH. For the local delivery of
drugs to treat skin diseases, we licensed from Elan Corporation
a technology that enables the application of a mild electric
current from a fabric-like material in a controlled manner to
facilitate the transfer of drugs across the skin. It has been
reported in the scientific literature that iontophoresis of
ionic drugs (drug molecules that carry an electrical charge)
can provide between a 20 to 60 fold increase in penetration
over traditional topical application. The most significant
advantages of our iontophoresis patch are:
<PAGE>
- eliminating or reducing general toxic effects of a drug
by limiting the release of only a small quantity of the
drug into the bloodstream,
- delivering a relatively high concentration of a drug at
the diseased tissue site where the drug will potentially
achieve the maximum benefit,
- improving the delivery of a broad range of drugs - any
drug with an electrical charge or that can be easily
formulated or modified to acquire an electrical charge,
- starting, stopping and controlling the delivery of a
drug with our proprietary microelectronic controls,
- facilitating uniform delivery of a drug over a skin
surface area regardless of the anatomical location or
the size and contour of the treatment site, and
- eliminating any cleaning and maintenance requirements
with respect to the patches (disposable and sterilizable
skin-compatible materials).
Dermatologists are well aware of the shortcomings of current
methods of topical application and have begun to study and
adopt advanced drug delivery technologies. Studies have shown
that iontophoresis may become an important new, safe and
effective technique for enhancing drug delivery in such
diverse applications as local neuralgia and anesthesia;
antiviral, anticancer and anti-inflammatory therapies; and the
application of various other dermatology drugs for infections
as well as wounds. We intend to first focus on the use of the
iontophoresis patch technology in delivering approved drugs
for inflammation (psoriasis), cancer and infection of the
skin. Our flexible iontophoretic patch licensed from Elan is
applicable to an entire family of unique products that we hope
will be distinguished as the leading iontophoretic delivery
system for the multi-billion dollar dermatology drug market.
The development of the iontophoresis patch into the first
product prototype for dermatology is essentially complete. We
believe that we may be able to initiate clinical studies
within nine months for some of the approved dermatology drugs
that would not require any substantive changes in formulation.
<PAGE>
PEMS - SOFPULSE. PEMS is expected to increase the
delivery of drugs in the blood stream by increasing local
blood flow to superficial tissues treated with these energy
fields. Almost all drugs taken orally or by injection are
carried to the tissues through the blood stream. The amount of
a drug delivered to a tissue depends on the level of the drug
in blood, the length of time that the drug is present in the
blood stream the level of the drug in blood and the amount of
blood flowing through a tissue. As a result, the more vascular
tissues receive more drugs. In prior years, we developed and
commercially marketed the SofPulse device for the reduction of
pain and edema in superficial soft tissues (for example, in
surgical, chronic and burn wounds) by delivering PEMS.
Extensive clinical use of SofPulse during the past seven years
showed PEMS to be a unique noninvasive approach with no known
adverse effects in humans as the pulsing of energy fields are
designed to avoid tissue heating. In addition, studies
conducted at the Miami Heart Institute showed that PEMS
increases the local blood flow in treated superficial soft
tissues. Upon cessation of PEMS treatment, the blood flow
returned to the original level. This reversible increase in
blood flow should facilitate the delivery of not only products
to treat or diagnose cancer and lesions to superficial
tissues, but anti-inflammatory drugs to joints affected by
rheumatoid arthritis or osteoarthritis. Some of the
significant advantages of our PEMS technology are:
- PEMS increases local blood flow at a desired time when a
drug is in the blood stream and thus directs more of the
blood-borne drug to a superficial soft tissue,
- PEMS can be delivered through clothing and bandages by
broadcast without any direct contact and PEMS travels
uniformly through superficial tissues,
- Increasing local blood flow should improve the delivery
of
- a drug without requiring changes in the
formulation or the route of administration of the
drug,
- both traditional pharmaceutical drugs as well as
large molecule biotechnology products such as
proteins and genes
- Our commercially marketed product, the SofPulse, has
been shown to be safe in humans for the initial
evaluation of clinical benefits, and
We have the ability to optimize PEMS profiles (strength,
duration and energy spectrum) for molecular size and
pharmacokinetics of products carried in the blood
stream.
PEMS is distinct from other similar technologies based on
electromagnetic and/or electrotherapeutic signals - namely,
low frequency pulsed electromagnetic fields ("PEMF"), direct
Electrical Stimulation ("E-Stim") and pulsed radio frequency
("PRF") diathermy. Although these other technologies have
been reported to facilitate wound healing or tissue repair,
these technologies are not suitable for drug delivery.
PEMS may be used to enhance the delivery of anti-cancer drugs
or contrast imaging agents to superficial tissues (such as
breast, brain, skin, prostate), anti-inflammatory drugs to
arthritic joint cartilage, and anti-infective or
growth-promoting products to skin diseases. PEMS may also be
used in combination with other drug delivery approaches such
as "transdermal patches" and "controlled release implants".
We own three issued U.S. patents claiming certain uses of PEMS
and devices that can be used to deliver PEMS.
Our first PEMS device, SofPulse, can deliver one of 36
potential PEMS fields. The safety information with our
SofPulse should enable us to expedite clinical studies on the
ability of PEMS to increase and measure the extent of such
increase in the delivery of biotechnology and pharmaceutical
drugs to superficial tissues. We also intend to leverage the
fact that PEMS technology does not require any changes in the
formulation or the mode of administration of a drug. This
feature is expected to facilitate the formation of corporate
partnerships to use PEMS as an adjunct to enhance the delivery of the
partners' drugs to superficial soft tissues. PEMS may also complement
some of the other drug delivery approaches such as "transdermal" and
biodegradable implant-based local release.
Small Molecule Drug Design Technologies. During the past
five years, biomedical discoveries have focused on understanding the
mechanisms of action of genes and proteins in controlling or
carrying out biochemical processes that underlie diseases. More
recently, the Human Genome Project and commercial efforts in the
field of genomics-based drug discovery ("pharmacogenomics") have
been providing scientists with new information on the functions of genes
(including gene mutations and genetic diversity or polymorphism). This
information applies both to disease processes as well as responses to drug
treatments. These advances are facilitating the design and use of novel drug
candidates that are "small molecules" (unlike the biotechnology products) and
can be designed (unlike traditional pharmaceuticals) to have predictable
actions. Our small molecule drugs may be designed to have predetermined
features with exquisite specificity and potency for protein or gene targets
that are implicated in the onset or progression of a wide variety of diseases.
The action of such a small molecule drug may be brought about by its binding to,
and thus causing a change in the activity of, a disease-linked protein
or gene target to achieve a therapeutic activity. Alternatively,
the binding of the small molecule to the disease-linked gene or
protein target may be used in sensitive and rapid diagnosis of
diseases.
We specialize in the design and synthesis of novel gene base
modifications ("GBM"). These are used to create novel small polymer
molecules - "oligonucleotides". Our gene base modifications are
chemical variants of the five building blocks (two "purine" bases
called A and G and three "pyrimidine" bases called T, C and U) of
natural genetic materials. The structural diversity and functional
attributes of gene base modifications and small molecules made from
these far exceed those achievable with traditional pharmaceuticals.
Compared to the efforts in creating natural gene base derived drugs,
our proprietary position in GBM's are expected to allow the
creation of as many as 1024-times more compounds than that
achievable with only the natural gene bases.
Our small molecule drugs made from GBM's are uniquely suitable
for a range of potential applications that previously had been
attained using natural gene bases and attaching various chemical
modifications, such as 5-FU (a cancer drug), AZT (an HIV drug) and
acyclovir (a herpes drug). The unique feature of our GBM's is that
we have changed the atomic composition of the base itself. As a result,
previously successful chemical modifications may be attached to
create a whole new family of patented drugs. These include:
- anti-infective drugs targeted at genes/proteins that
control the reproduction or the activity of the genes of
bacteria, virus, yeast, or fungus;
<PAGE>
- anti-cancer or anti-inflammation drugs targeted at
proteins that reproduce the genetic material during the
reproduction of living cells;
- anti-inflammation, anti-cancer or tissue regeneration
drugs targeted at proteins that regulate gene activity
("expression");
- anti-cancer or anti-inflammatory drugs targeted at
proteins that control energy transfer in biochemical
processes; and
- anti-cancer, tissue regeneration or anti-inflammatory
drugs targeted at genes that undergo changes in
structure (mutation or amplification) or activity
(expression);
- molecular diagnostics based on their ability to
recognize the above gene or protein targets.
Our initial focus has been on GBM drugs from the "purine bases", namely,
(adenine) and G (guanine). Preliminary tests conducted in the
laboratories of our collaborators show that our current library of
proprietary GBM's contain candidate small molecule drugs that:
- target genes/proteins involved in the deleterious
effects of tumor necrosis factors on cells in laboratory
tissue culture,
- attack "polymerase" enzymes that reproduce the genomes
of a number of viruses such as cytomegalovirus and
hepatitis virus,
- target the effects, in cells in laboratory culture, of
selected "transcription factors" on the expression of
genes that have been implicated in disease processes,
and
- can be used to design novel probes to detect minute
changes in DNA for use in gene chips (i) for high
throughput drug discovery and drug toxicology, (ii) to
detect mutations in diseases such as cancer, tissue
degeneration and heart diseases; and (iii) to analyze
genetic diversity (gene polymorphisms) underlying the
predisposition to complex diseases or the effectiveness
of emerging drugs that are designed to target specific
genes.
Our near-term strategy for the commercial application of our
small molecule drug design technologies is based on the use of
"clinically validated drug targets" i.e., genes and/or proteins
that have been shown to be linked to clinical outcomes in specific
disease conditions. In the future, we will target new targets that are
expected to be suggested by the genomics research and hopefully
validated in animal models or by clinical research. We have used colla-
borations with academic researchers to gather the know-how on these targets
that would be relevant in small molecule drug design. We believe that this
early strategy will expedite the use of our small molecule drugs and
related design expertise into early products, at least for selected
clinical applications. Clinical development of small molecule drugs
designed for these drug targets also will provide us with valuable
information in designing and developing second generation products.
At the present time we have two specific targets:
- a protein that is found on some cancerous cells and that
appears to make these cells more "metastatic", i.e.,
make the tumors more malignant; and
- an enzyme that is attacked by a small molecule drug and
is involved in brain damage in children with a rare
genetic defect.
<PAGE>
We are designing small molecules that look like selected portions
of the cancer target, and would thus interfere with the action of
the target and provide us with a novel class of drugs that prevent
metastasis, the primary cause of death from cancer. We are in
advanced stages of negotiating a license to the small molecule drug
targeting the enzyme implicated in the brain damage condition and
all know-how related to the clinical outcomes of attacking this
enzyme. Both of these "clinically validated targets" represent
promising candidates for second generation GBM products.
Products and Commercialization Plan
We are pursuing the initial commercial applications of our
drug delivery and drug design technologies through partnerships.
A. Drug delivery: We intend to develop applications of
our flexible iontophoresis patches in combination with corporate
partners' dermatology drugs:
- steroids for psoriasis,
- antibiotics for wounds or acne,
- anti-virals for local herpes blisters,
- anti-proliferation drugs for cancer or actinic
keratosis, and
- agents to treat wrinkles or aging/sunlight damages.
Similarly, we will use our know-how related to the SofPulse product
to design braces that deliver PEMS to facilitate the delivery of
our corporate partners' products:
- anti-inflammatory drugs to joints,
- anti-cancer drugs to breast and brain, and
- contrast imaging agents to brain and breast.
B. Drug design: In collaboration with scientists at medical
research institutions, we have conducted initial tests on several
of our small molecule GBM drugs using human and animal cells in
tissue culture. Our plans are to form partnerships or
collaborations to screen our existing library of GBM drugs against
disease-linked gene or protein targets identified by our partners.
The results are expected to provide us with information for further
design and/or development of one or more small molecule drugs for
various disease targets:
- anti-viral drugs - targeted at enzymes in viruses (HIV,
herpes, CMV);
- anti-cancer drugs - targeted at genes or their products
responsible for deleterious action of tumor necrosis
factors; and
- anti-inflammatory drugs - targeted at genes triggered
by specific transcription factors in inflammatory cells.
<PAGE>
Our scientists cloned the gene for the cancer metastasis
protein and developed a laboratory test system that we can use to
quickly evaluate drugs which would potentially prevent the
spreading of cancer cells caused by this protein. Our current
library consists of two types of small molecule peptide drugs
against this protein target:
- interfere with the action of the protein on cancer
cells, or
- trigger an immune response that destroys the protein.
We are negotiating to acquire rights to a small molecule drug
in a Phase II/III clinical trial for the congenital defect (lactic
acidosis) that causes debilitating brain damage in children with a
genetic birth defect. Based on the results of the ongoing trial, we
expect to design a pivotal trial for the registration of this
initial product in an "orphan" indication. We also plan to use the
information to design GBM drugs as second generation products that
would have expanded applications in brain and heart damage in
conditions of oxygen deprivation where this enzyme target is
involved.
We intend to form corporate partnerships to support the
ongoing development of initial applications of all of our small
molecule drug candidates described above. We expect to receive
near-term revenues (licensing fees, research and development
contracts, and milestone fees) from our partners in exchange for
marketing and manufacturing rights. We intend to use some of these
funds to expand our small molecule drug library and use the results
to gain insights into strategies for the design of future small
molecule drug candidates.
Our long-term goal is to create safe and innovative products
by combining our technologies. Our products will incorporate our
small molecule drugs in iontophoresis patches to achieve effective
local delivery to target diseases affecting the skin:
- Products for skin herpes lesions, wounds and acne by
targeting reproduction of viral or bacterial genetic
material;
- Products to treat psoriasis and local allergic reactions
by targeting gene activity regulators implicated in
inflammation;
- Products to treat cancers of skin as well as head and
neck, actinic keratosis, and ulcers by targeting genes
implicated in cell growth and/or metabolism.
We also will design drug delivery devices as tissue coverings
programmed to deliver PEMS to increase local blood flow for
predetermined time periods that can be adjusted according to the
pharmacologic properties of drugs:
- Coverings for breast and brain for use with proprietary
gene base modifications targeted at genes and their
products implicated in breast/brain cancers;
- Coverings for knee, elbow and other joints for use with
proprietary gene base modifications targeted at gene
activity regulators implicated in
arthritis/inflammation.
<PAGE>
"www.geminibio.com" We have established a Web-based
e-business that generates revenues by selling custom products that
are used in research and drug discovery in the emerging fields of
molecular biology and genomics. This e-business leverages our drug
design technology and is focusing first on the design and custom
synthesis of (i) DNA snippets ("oligonucleotides") designed for use
in gene sequencing, activity and polymorphism analyses (functional
genomics/pharmacogenomics), (ii) complete genes used to produce and
study the products encoded by these genes, and (iii) peptides as
well as antibodies against selected peptide portions of
disease-linked proteins. The client base for the custom products
produced by e-business is potentially large and worldwide - from an
academic researcher studying the role of a gene or protein in a
rare disease to pharmaceutical companies developing comprehensive
arrays of drugs to treat complex diseases involving multiple genes
and affecting millions of people. The two primary markets for our
custom products are
- Genomics - elucidating the sequence of genes and
understanding their roles in disease processes; and
- Proteomics - characterizing the structure and function
of protein products of disease-linked genes.
Large bodies of information are being rapidly generated in
genomics and proteomics. A new discipline called bioinformatics is
emerging to integrate databases that may be used to identify new
gene or protein targets for drug discovery. We use a proprietary
software platform to manage and link the design of custom products
with the information generated from their use. We intend to create
value from this business through partnerships/collaborations that
provide us with commercial rights in genomic databases for drug
targets for selected diseases.
Patents and Proprietary Position
We have exclusive licenses to and/or ownership of certain
patents and pending patent applications relating to our core
technologies. We actively seek, when appropriate, protection of our
products and proprietary information by means of United States and
foreign patents, trademarks and contractual arrangements. We also
rely upon trade secrets and contractual agreements to protect
certain of our proprietary information and products.
Drug Delivery Intellectual Property. In the area of the
flexible iontophoretic patch technology, we licensed from Elan
certain rights to several patent applications pending in the U.S.
and certain foreign countries. In the PEMS field, we have been
granted three patents by the U.S. Patents and Trademark Office on
our PEMS technology (i) #5,370,680 dated December 6, 1994 entitled
"Athermapeutic Apparatus Employing Electromagnetic Fields", (ii)
#5,584,863 dated December 17, 1996 entitled "Pulsed Radio Frequency
Electrotherapeutic System"; and (iii) #5,723,001 dated March 3,
1998 entitled "Apparatus and Method for Treating Human Body Tissue
with Electromagnetic Radiation". We have one issued patent in
Canada and pending applications in some foreign countries on our
PEMS technology.
<PAGE>
We are the assignee of one U.S. patent application number
08/381,769 (filing date February 1, 1995) entitled "Calcium
Phosphate Precipitate Formulations and Uses Therefor" related to
controlled delivery of biological and drug substances with
potential use in tissue regeneration.
Drug Design Intellectual Property. We are the exclusive
licensee of Aronex Pharmaceutical under two patent applications
pending in the U.S. entitled "Phosphazole Compounds" and "Methods
for making Phosphazole Compounds" and all corresponding foreign
counterparts of these applications. These applications claim
certain families of gene base modifications and the method of
producing them. We were recently notified by the United States
Patents and Trademark Office that one group of claims on these gene
base modifications has been allowed for issuance.
With respect to proprietary know-how that is not patentable and
for processes for which patents are difficult to enforce, we have chosen
to rely on trade secret protection and confidentiality agreements to
protect our interests. We believe that several elements of our product
development and research involve proprietary know-how, technology or
data which are not covered by patents or patent applications. Some of
this data will be the subject of patent applications whereas other data
will be maintained as proprietary trade secret information. We have
taken security measures to protect our proprietary know-how and
technologies and confidential data and continue to explore further
methods of protection. While we require all employees, consultants and
collaborators to enter into confidentiality agreements, there can be no
assurance that proprietary information will not be disclosed, that
others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our
trade secrets, or that we can meaningfully protect our trade secrets. In
the case of a strategic partnership or other collaborative arrangement
which requires the sharing of data, our policy is to make available to
our partner only such data as are relevant to the partnership or
arrangement, under controlled circumstances, and only during the
contractual term of the strategic partnership or collaborative
arrangement, and subject to a duty of confidentiality on the part of our
partner or collaborator. There can be no assurance, however, that such
measures will adequately protect our data.
Operating Plan & Key Milestones
A. Near-term Objectives: We will first focus on advancing the
commercial feasibility of our core technologies - noninvasive drug
delivery and small molecule drug design - through corporate
partnerships that exploit potential near-term applications for, and
generate certain revenues from, each of our technologies. The
specific tasks we will focus on are:
Drug Delivery: Measure changes in the local delivery of
approved dermatology drugs (anti-inflammatory,
anti-viral and anti-cancer) using the
iontophoresis patch in laboratory and animal
test systems.
Drug Design: Test our growing library of small molecule
drugs first against known gene/protein targets
implicated in cancer and viral infection to
identify lead compounds for animal testing.
<PAGE>
Continue our Web-based business
(www.geminibio.com) to make custom products for
the growing genomics (and proteomics) research
market(s) and form collaborations with academic
researchers to acquire certain rights to
selected disease-related genomic databases.
Drug delivery: We have concluded the design of initial
flexible patches for iontophoresis. Prototype control units have
been designed for laboratory experiments that will test a wide
variety of electrical current parameters. Prototype miniature
control units have been designed that will be used to encase the
electronic circuit for the electric current parameters selected
from the results of laboratory experiments. Initial experiments
using human cadaver skin or fresh surgical skin from different
anatomical locations of the body are under way to develop a
standardized system for rapidly screening a number of drug
compounds and formulations. We expect that the results will predict
the potential effectiveness of our iontophoresis patches in actual
clinical situations. Our initial focus will be on anti-inflammatory
(steroid and non-steroid) and anti-metabolite (anti-cancer or
anti-viral) compounds. We anticipate that within nine months we
will identify the lead classes of drugs and the current parameters
needed to achieve significant augmentation of delivery by the
application of our iontophoresis patch that would be likely to
cause clinical benefit. Based on these results, we will first
pursue licensing agreements with corporate partners for the
improved delivery of approved drugs that are already marketed.
Drug design: We have initially focused on two groups of
proprietary small molecule drugs. The first group is a family of
proprietary gene base modifications, called phosphazoles (created
by our scientists by replacing a nitrogen atom in the natural gene
base molecule with a phosphorus atom). The phosphazoles can be used
to design small molecule drugs that look like ("mimic") and/or
bind to selected portions of genes and proteins with a high degree
of specificity. We have initially started laboratory tests on
individual phosphazoles as drug candidates against biochemical
processes in cancer cells and enzymes involved in reproducing
genomes of viruses (such as HIV, CMV and herpes). The second group
of small molecule drugs consists of a family of proprietary small
peptides. These peptides have been designed to mimic selected
segments of a protein that is found on cancer cells and appear to
promote their spread - a phenomenon called metastasis that is
characteristic of malignant cancers. We believe that sufficient
laboratory tests can be completed in approximately twelve months to
enable us to select a lead compound from each group of small
molecule drugs for animal testing.
<PAGE>
We are in advanced stages of negotiations for an agreement
relating to a small molecule drug that is currently in a Phase
II/III clinical trial to treat a rare brain damage condition
(lactic acidosis) caused by lactic acid build up in the brain in
children with a genetic defect. Successful completion of the
clinical trial will provide us with our first approved drug, albeit
for a limited market - an "orphan" indication, in three to four
years. We intend to seek a marketing partner for this product for
the initial indication and to expand the use of this drug in
treating brain and heart damage caused by ischemia (oxygen
deprivation). The licensed small molecule drug may also be coupled
with our gene base modifications to provide an improved drug
covered under our patents. A major contribution of this drug to our
product development strategy is that the ongoing development
program will clinically validate the importance of the enzyme
targeted by the licensed drug as a disease-linked protein target.
This protein target then becomes the target for the design of
proprietary gene base modifications as second generation drugs with
improved characteristics and patent protection.
During 1999, we used our drug design capabilities through
www.geminibio.com to make and sell custom DNA and peptide products
to scientists engaged in research and drug discovery in the field
of genomics. Our next goal is to exploit the custom product design
capability and the software we developed for this Web-based
business to facilitate growth of our business internationally in
the near future. More importantly, we are leveraging this business
to form strategic partnerships that would allow us to participate
in the development and commercialization of high value genomics
databases related to selected diseases and drug discovery programs.
B. Mid-term Objectives: We will focus on growing our
revenues from corporate partnerships for early applications of our
technologies with the goal to achieve a break-even operation by the
end of the third year. Toward this goal, our primary tasks in the
second and the third years are anticipated to be as follows:
Drug Delivery: Expand licensing agreements for iontophoresis
patch for additional approved drugs as well as
locally acting dermatology drugs that are under
development;
Quantify the improvement in the delivery of
injected drugs to breast cancer and brain
lesions or cancer degeneration using PEMS.
Drug Design: Conduct pivotal trial for the childhood brain
damage drug to seek product registration;
Initiate Phase I/II clinical trials on at least
two small molecule drugs and form corporate
partnerships for their development and
marketing;
Use www.geminibio.com to identify and acquire
rights to drug targets and product candidates
through collaborative projects funded through
grants.
<PAGE>
Drug Delivery: We believe that our work during the first year
will provide us with information that would enable us to start
designing our own products where a drug formulation is directly
incorporated in iontophoresis flexible patches. These products are
expected to be developed and commercialized through business
arrangements that provide us with a larger participation in the
commercial success of products than that resulting from initial
license agreements in narrow fields of use we grant during the
first year. We expect that additional laboratory data and animal as
well as clinical data from work conducted under our initial
licensing agreement(s) for the inotophoresis flexible patch will be
available in the second year. These data will be used to expand the
applications of the patch to cell-modulating (hormone and vitamin),
wound healing (growth factors and antibiotics), additional
anti-cancer as well as anti-infective (virus, bacteria and fungus)
dugs and other dermatology products (such as for wrinkle,
photodamaged skin).
We intend to conclude certain preliminary studies on the
effects of PEMS through academic collaborations and using federal grants.
These studies are intended to extend our prior studies to quantify
local blood flow in superficial tissues by PEMS delivered by
SofPulse. We also intend to conclude the design of
small electromagnetic coils in flexible material that can fit target tissues
such as breast, brain and joints (knee, elbow, wrist). During the second year,
we plan to design PEMS treatment methods to improve the delivery of contrast
imaging agents to the brain, anti-inflammatory agents to joints and cancer
treatment agents to the breast. Based on the results of these
studies, we believe that we will be able to initiate licensing and
other corporate partnership agreements by the third year. In
general, these agreements are expected to provide us with certain
license fees and production contracts.
Drug design: We believe that, in the second year, we will
select at least one GBM drug and one peptide as our first two lead small
molecule drug candidates for cancer treatment based on the results
of laboratory tissue culture and animal model tests.
These drugs are expected to be advanced into Phase I clinical trial upon
completion of formulation and animal toxicology studies that are conducted
during the second year prior to filing an IND to initiate clinical studies.
Assuming that we are able to conclude the agreement regarding the
small molecule drug for the brain damage in children, then we will be engaged
in conducting a pivotal trial.
We expect that the data obtained and analyzed during the second year from
the current Phase II/III trial should facilitate the design of an effective
pivotal trial for the initial orphan indication. We also expect to initiate
clinical studies in other tissue damage conditions using this drug or its
second generation modification created using our drug design technologies.
In addition to these drug candidates in various stages of clinical trial,
our small molecule drug library is expected to continue its growth at a rate of
several dozen new drug candidates per month and will be designed to target
disease-linked molecules that are expected to be identified from
genomics research. We also expect to initiate commercial applications of
genomic databases created through collaborations with our Web-based custom
products business.
<PAGE>
C. Summary and Long-term Objectives: Our objective is to
generate early revenue from corporate partnerships and grants for
initial applications of our drug delivery technologies and small
molecule drug library. These funds will be used to not only conduct
the research and development work needed to support the development
of the product candidates for which a corporate partner is licensed
but also pursue new applications in potential products for which we
expect to retain all rights. We are implementing a program to
collaborate with academic researchers pursuing commercially
feasible technologies related to the design of drugs or
disease-linked gene/protein targets. We will participate in Small
Business Innovations Research (SBIR) grants that are expected to
provide the primary initial funding for these collaborations. In
exchange for providing the laboratory facilities and management, we
expect to acquire an exclusive license to selected commercial
applications relevant to our business focus. We are in discussions
with basic science and clinical research faculty at the University
of Florida to start our SBIR Collaboration program.
We anticipate that initial applications of the iontophoresis
patch technology will be commercialized by its early licensees
within four or five years and provide us with revenues for which we
will incur no additional operating expense. Ongoing licensing
revenues and other fees are expected from various licenses and/or
joint venture arrangements for expanded applications of
iontophoresis and PEMS technologies in improving the delivery of
dermatology, oncology and inflammation drugs. These funds and other
grant funded collaborations will be used to find the development of
proprietary products where our own small molecule drugs for
inflammation or cancer will be incorporated in the flexible
patches. We also intend to design and screen new PEMS based on
their effects on cells for potential application in the repair and
regeneration of damaged tissues. Anecdotal human and animal
experiments reported in the literature suggest that PEMS may
promote the regeneration of skin in wounds, fractured bones and
nerve fibers.
Our initial small molecule drugs for cancer comprise small
peptides for the prevention of cancer spread (following surgical
removal of tumor masses) and GBMs that interfere with biochemical
processes involving tumor necrosis factor alpha. It is anticipated
that commercially feasible drug formulations based on either or
both of these will be in advanced clinical trials (Phase II/III) by
year four under corporate partnership agreements. Second generation
improvements upon these compounds will be developed under these
partnerships also. Our continuing work on small molecule drugs will
focus on proprietary GBMs and peptides that target some of the
enzymes (called "kinases" and "transferases") that control or
modulate disease-linked biochemical processes. These enzymes are
desirable targets for our future products since our GBMs may be
designed to compete with natural molecules that serve as energy
donors in the biochemical processes controlled by these enzymes.
We believe that there is a window of opportunity to grow the
revenues of www.geminibio.com as a provider of novel molecular
tools to a growing number of pharmaceutical companies that are
pursuing genomics-based drug design and basic research as well as
clinical researchers studying disease genomics. In addition, the
DNA diagnostics industry is expected to introduce chips and arrays
made of custom DNA probes designed to monitor both the genetic
diversity in human population a well as its effect on
predisposition to diseases. We intend to pursue alliances and
partnerships to target these growing markets and thus expand our
small molecule drug production capabilities that will support the
discovery, production and molecular testing of our small molecule
drugs at substantially reduced costs.
<PAGE>
Potential Markets for Company's Products
Drug Delivery. The segment of the drug delivery market that is
being targeted as a field of application for our non-invasive drug
delivery technologies was estimated to be more than $10 billion and
growing at an annual rate of about 20% for the past five years. An attr-
active aspect of the emerging drug delivery technologies is that their
commercial value can be demonstrated by improving the utility of available
approved products. In addition, regulatory approval for commercial marketing
for such value enhancement application is expected to be less time consuming
than the development of a new drug. A number of technologies are being devel-
oped and evaluated by different companies for various clinical indications.
The potential for noninvasively achieving increased local blood flow by
PEMS to organs such as the breast and brain may have significant advantage
over other methods in delivering cancer drugs, especially the highly toxic
chemotherapeutic agents or the biotechnology products that are large
molecules with limited tissue delivery. Additional applications of PREMS
include the delivery of anti-inflammatory drugs for the treatment of
arthritis and tissue repair drugs in wound care and osteoporosis. The
market for iontophoresis for prescription dermatology drugs includes
severe acne, psoriasis, dermatitis, aging-associated wrinkling,
pigmentation disorders, baldness and localized viral, bacterial and fungal
infections. The prescription dermatology drug market is estimated to be
more than $3 billion annually.
Drug Design - Small Molecule Drugs. The small molecule drugs being
initially designed by our scientists target biochemical pathways inside of
cancer cells or on enzyme molecules released by cancer cells for growth
and spread. Our drug delivery technology based on PEMS is expected to
improve the delivery of cancer imaging and treatment drugs. The global
market for cancer drugs exceeds $4 billion annually and over $5 billion is
spent annually for cancer diagnosis. Approximately 1.4 million new cases
of cancer are diagnosed each year. In addition, millions of cancer
patients who underwent remission following traditional treatments during
the past three to five years will relapse with a higher mortality rate.
Cancer is the second leading cause of death in the U.S., and approximately
one of every three Americans will get cancer. The National Cancer
Advisory Board reports that more than 8 million people in the U.S. have
cancer. The most difficult aspect of effectively treating cancer is the
treatment of cancer spread, or "metastasis", since it requires high and
toxic dosages of chemotherapy or available biotechnology drugs and cannot
be treated by radiation or surgery.
In addition to cancer, the proteins and genes that are expected to
be targeted by our small molecule drugs are implicated in inflammation
(such as arthritis), other chronic diseases (such as Alzheimer's and
osteoporosis) and certain infections (such as warts and acne) with
potential combined markets of several billion dollars. The flexible
iontophoretic patch technology is expected to improve the efficacy of our
anti-infective small molecule drugs.
www.geminibio.com. The market for custom products used as molecular tools
in genomics research and genomics-based drug delivery is growing rapidly. The
market for custom DNA products alone has been estimated at over $100 million
annually. As human genome sequence information becomes available in the
public domain the market for custom products will likely exceeds $200 million
annually worldwide.
<PAGE>
Potential Future Markets. Potential long-term markets for our core
technologies include:
- Application of our PEMS electromagnetic signals or
iontophoretic electric fields in tissue repair; and
- Genomic databases related to selected rare diseases
that are difficult to treat.
Analysts estimate that the market for products used in the repair
and regeneration of skin and cartilage from wounds, inflammatory diseases
and arthritis exceeds $5 billion annually, based on the number of
procedures performed to repair tissue damage from trauma and degenerative
diseases. The potential market size for products or treatment modalities
for peripheral nerve damage and degenerative brain disease such as
Alzheimer's disease is also in the multibillion dollar range. Genomic
databases being developed by the gene sequencing companies ("functional
genomics" and "pharmacogenomics") are being used by pharmaceutical and
biotechnology companies to screen new drug candidates and create
diagnostic gene probes.
Within the past few years, the licensing and other
revenues paid to "genomics" companies for the use of these databases have
exceeded $200 million. We intend to pursue licensing agreements with
corporate partners for genomic databases for selected rare diseases that we
develop through www.geiminibio.com.
Manufacturing and Marketing
We will rely, at least in part, on third party manufacturers and
corporate partners to produce our drugs or other products for preclinical
and clinical studies, and also for commercial production of most of our
products that are approved for marketing and sales in various territories
of the world. We have not yet established a quality assurance program,
including a set of standard operating procedures, intended to ensure that
third party manufacturers under contract produce our compounds in
accordance with the FDA's current Good Manufacturing Practices and other
applicable regulations.
We believe that all of our existing product candidates can be
produced using available methods, primarily through standard techniques of
pharmaceutical synthesis. We currently do not have the capacity to
manufacture our potential products, are dependent on third party
manufacturers or collaborative partners for such production for
preclinical research and clinical trial purposes and expect to be
dependent on such manufacturers or collaborative partners for some or all
commercial production of any of our products that are approved for
marketing. We believe that we will be able to continue to negotiate
arrangements on commercially reasonable terms and that it will not be
necessary for us to develop internal production capability in order to
develop our products successfully. In the event that we are unable to
obtain contract manufacturing, or obtain such manufacturing on
commercially reasonable terms, we may not be able to commercialize our
products as planned. Our objective is to maintain flexibility in deciding
whether to develop internal manufacturing capabilities for certain of our
potential products. We have only a limited expertise in the manufacture of
class III medical devices and no experience in manufacturing
pharmaceutical or biotechnology products or in conducting manufacturing
testing programs required to obtain FDA and other regulatory approvals. We
can not assure that we will develop such capabilities successfully.
Since our potential products are at an early stage of development,
we will need to improve or modify our existing processes and capabilities
to produce any product for clinical trials or commercial marketing. We
cannot quantify the time or expense that may ultimately be required to
improve or modify our existing process technologies, but it is possible
that such time or expense could be substantial.
The production of our products is expected to be based in part on
technology that we believe will be proprietary. We may license this
technology to contract manufacturers to enable them to manufacture
compounds for our product development programs. We can not assure that
such manufacturers will abide by any limitations or confidentiality
restrictions in licenses with us. In addition, any such manufacturer may
develop process technology related to the manufacture of our products that
such manufacturer owns either independently or jointly with us. This would
increase our reliance on such manufacturer or require us to obtain a
license from such manufacturer in order to have our products manufactured.
We can not be sure that any such license would be available on terms
acceptable to us, if at all.
Our plans for the foreseeable future do not include an investment in
sales and marketing of our products. Our www.geminibio.com currently
promotes custom products through an e-business.
Competition
We are engaged in biopharmaceutical fields characterized by
extensive research efforts, rapid technological progress and intense
competition. There are many public and private companies, including
pharmaceutical companies, chemical companies and biotechnology companies,
engaged in developing products for the human therapeutic applications
targeted by us. Further, we believe that interest in the application of
drug design and related technologies may continue and may accelerate as
the technologies become more widely understood. We are aware of efforts by
others to develop products in each of the areas in which we have products
in development. In order for us to compete successfully in these areas, we
must demonstrate improved safety, efficacy, ease of manufacturing and
market acceptance over our competitors, who have received regulatory
approval and are currently marketing. Furthermore, academic institutions,
governmental agencies and other public and private research organizations
are conducting research to develop technologies and products that may
compete with those under development by us. In addition, other
technologies are, or may in the future become, the basis for competing
products. We can not be certain that our competitors will not succeed in
developing technologies and products that are more effective than the ones
we are developing or that would render our technology and products
obsolete or noncompetitive. We also can not be sure that our products will
be able to compete effectively with products which are currently on the
market.
Many of our competitors have substantially greater financial,
technical and human resources than we do. In addition, many of our
competitors have significantly greater experience than our staff in
conducting preclinical testing and human clinical trials of new
pharmaceutical products, and in obtaining FDA and other regulatory
approvals of products. Accordingly, certain of our competitors may succeed
in obtaining regulatory approval for products more rapidly than we would.
If we obtain regulatory approval and commence commercial sales of our
products, we will also compete with respect to manufacturing efficiency
and sales and marketing capabilities, areas in which we currently have no
experience.
<PAGE>
Product Pricing and Reimbursement
Our ability, with or without corporate partners, to commercialize
our products successfully will depend in part on the extent to which
appropriate reimbursement levels for the cost of such products and related
treatment are obtained from government authorities, private health
insurers and other organizations, such as health maintenance organization
or HMOs. Third party payors and government authorities are continuing
efforts to contain or reduce the cost of health care. For example, in
certain foreign markets, pricing and/or profitability of prescription
pharmaceuticals are subject to government control. There can be no
assurance that similar controls will not be implemented in the United
States. Also, the trend toward managed health care in the United States
and the concurrent growth of organizations such as HMOs, which could
control or significantly influence the purchase of health care services
and products, may result in lower prices for our products. The cost
containment measures that health care providers and third party payors are
instituting and any proposed or future health care reform measures,
including any reductions in Government reimbursement programs such as
Medicaid and Medicare, could affect our or our partners' ability to sell
our products.
The success of our products in the United States and other
significant markets will depend, in part, upon the extent to which a
consumer will be able to obtain reimbursement for the cost of such
products from government health administration authorities, third-party
payors and other organizations. Significant uncertainty exists as to the
reimbursement status of newly approved therapeutic products. Even if a
product is approved for marketing, there can be no assurance that adequate
reimbursement will be available. We are unable to predict what additional
legislation or regulation relating to the health care industry or
third-party coverage and reimbursement may be enacted in the future or
what effect the legislation or regulation would have on our business.
Employees
As of April 11, 2000, we had seven full-time employees, two
of whom hold doctorate degrees while others hold advanced business or
technical degrees. Of the Company's seven full-time employees on that
date, two were engaged in research and development, two in custom products
and three general administration. Our future success depends in significant
part upon the continued service of its key technical and senior management
personnel and its continuing ability to attract and retain highly qualified
technical and managerial personnel. None of our employees are represented by
a labor union and the Company considers its relations with its employees
to be good.
Item 2. Description of Property.
We maintain leased administrative, manufacturing and
research office space, which consists of approximately 3,506 square feet
of useable space, and is located at the Sid Martin Biotechnology Institute
at 12085 Research Drive, Alachua, Florida. This facility is leased to our
Company until September 2000.
Item 3. Legal Proceedings.
<PAGE>
In August 1994, Diapulse Corporation of America, a former competitor
of the Company, filed a lawsuit against the Company and certain of its
present and former directors and officers alleging the defendants had
engaged in deceptive acts and practices, false advertising, unfair
competition, breach of contracts of fiduciary duties between the plaintiff
and certain Company employees. They also alleged the Company was involved
in facilitating or participating in the breach of contracts. The plaintiff
is seeking an injunction to rectify the effects of the misconduct, an
unspecified amount of compensatory damages, disgorgement of profits,
treble damages, punitive damages and attorney's fees. The plaintiff also
seeks unspecified injunctive relief prohibiting the Company from engaging
in the alleged acts and ordering the defendants to take remedial action to
rectify the effects on consumers and the plaintiff caused by the alleged
acts. The Company believes it has meritorious defenses, which it will
pursue vigorously and has filed a counterclaim against the plaintiff and
its President. The parties are currently in settlement negotiations and
have reached a settlement in principal whereby the Company would pay
Plaintiff the amount of $50,000 plus interest in monthly payments over a
thirty year period; however, a definitive settlement agreement has not
been executed. The Company's future product development, including the
development of the technology underlying the SofPulse product is not
likely to be adversely affected by the outcome. However, if the
anticipated settlement does not occur, there can be no assurance the
ultimate outcome of such action will not have a material adverse effect
on the Company's liquidity, financial condition and results of
operations.
In July 1999, Copelco Credit Corporation filed suit against the
Company alleging breach of lease agreement in connection with an equipment
lease on a copier. The Plaintiff is seeking to accelerate all sums due
under the lease agreement in the approximate amount of $60,000. The
Company believes that the ultimate outcome of such action, even if
unfavorable to the Company, will not have a material adverse effect on the
Company's liquidity, financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of 1999.
Part II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters
<PAGE>
From May 12, 1995 to September 23, 1997, our Common Stock
was traded on the Nasdaq Small Cap Market under the symbol "EPHI." On
September 23, 1997, Nasdaq notified our Company that our stock would be
delisted from the Nasdaq SmallCap Market as of the close of business on
September 23, 1997 due to noncompliance with the minimum capital and
surplus requirement and minimum value of the public market float and
trading price of our shares. Our stock is now trading on the OTC Bulletin
Board under the symbol "EPHI". The following table sets forth, for the
periods indicated, the range of high and low bid quotations for our Common
Stock as reported by Nasdaq. However, our Company's Common Stock
generally is not actively traded or is traded in low volumes. Therefore,
we cannot be sure that market quotations for our Common Stock are
indicative of prices at which actual sales of these shares will occur.
These quotations represent inter-dealer prices, without retail markup,
markdown or commissions, and do not necessarily represent actual
transactions. Further, we cannot be sure that a public trading market for
the Company's Common Stock will continue to exist.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal year ended December 31, 1997:
First Quarter $6.50 $2.00
Second Quarter $3.50 $1.72
Third Quarter $2.00 $ .38
Fourth Quarter $1.19 $ .23
Fiscal year ended December 31, 1998:
First Quarter $ .47 $ .26
Second Quarter $ .80 $ .29
Third Quarter $1.32 $ .58
Fourth Quarter $ .97 $ .33
Fiscal year ended December 31, 1999:
First Quarter $ .30 $ .34
Second Quarter (through May 17) $ .95 $ .30
Third Quarter $ .41 $ .22
Fourth Quarter $ .25 $ .07
Fiscal year ended December 31, 2000:
First Quarter $3.00 $ .09
Second Quarter (through Apr 11) $ .71 $ .53
</TABLE>
On April 11, 2000, the closing price of the Common Stock on the OTC
Bulletin Board was $.53 per share. As of such date, there were
approximately 92 registered stockholders of record of our Common Stock.
To date, we have not declared or paid any cash dividends on our Common
Stock.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operation
<PAGE>
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward - looking
statements about our plans and business. Actual events and results may
differ materially from those anticipated in these forward- looking
statements. The ability to achieve our projections and business
objectives is dependent on a variety of factors, many of which are
outside of management's control. Some of the most significant factors,
alone or in combination, would be the failure to obtain additional
equity financing to fund research and development activities and
projected losses from operations; the inability to grow the revenues and
improve the financial performance from Gemini's custom products
business; the failure to successfully restructure a defaulted loan from
Gemini's major creditor, a life insurance company, in the principal
amount of $1,163,090; unanticipated disagreements with prospective
corporate partners, if any; an unanticipated slowdown in the health care
industry (as a result of cost containment measures, changes in
governmental regulation or other factors), or an unanticipated failure
in the commercialization of our technologies or potential products
developed from these drug delivery technologies or small molecule drug
candidates. Accordingly, there can be no
assurances that we will achieve our business objectives.
General
We are a biotechnology company engaged in developing products based on
our proprietary drug delivery and drug design technologies to treat
complex diseases that are not effectively treated by available drugs or
treatment methods. We also generate revenues from a Web-based service
business that uses our drug design expertise to design and sell custom
products for research and drug discovery based on genomics.
All of our technologies are under development and not commercially
marketed. In addition, our Web-based custom service business currently
is not profitable. Accordingly, we need additional capital from
financing, corporate partnerships or federal grants in order to advance
our technologies toward commercial feasibility. If we are unable to
obtain sufficient additional funds in a timely manner, the development
of our technologies and our financial condition will be materially
adversely affected.
Our company was originally incorporated under the laws of the State of
California in August 1990 under the name Magnetic Resonance
Therapeutics, Inc. that was reorganized through a merger with and into
Electropharmacology, Inc., a Delaware corporation, in February 1995.
During 1998, we concluded a corporate reorganization into a
biotechnology company that included a series of transactions, including
(i) the acquisition of two privately held business entities engaged in
developing new molecular technologies for drugs for cancer and
inflammation and (ii) the divestiture of our past business related to
the manufacturing and renting of our SofPulse device in the nursing home
and physical therapy markets to focus on the biopharmaceutical
applications of the underlying PREMS technology. We also acquired in
1998 an iontophoresis flexible patch technology for topical dermatology
applications and an equity investment from Elan Corporation, plc.
Pending shareholder approval, we will change our name to Gemini Health
Technologies Inc. Our executive offices are located at 12085 Research
Drive, Alachua, Florida 32615 and our telephone number is (904) 462-
2249.
Financial Condition
<PAGE>
Current assets declined from $2,687,186 at December 31, 1998 to $348,128
at December 31, 1999, primarily as a result of the Company's use of
available current assets to fund its operating losses. Minority interest
declined from $2,031,429 at December 31, 1998 to $0 at September 30,
1999, due to the acquisition by the Company in September 1999 of the
minority interest of Gemini Health Technologies Limited Partnership (the
"Partnership") as part of a litigation settlement with the minority
partners, resulting in the Company recording a gain on settlement of
litigation of $1,150,177 in 1999.
Results of Operations
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
The Company's revenue for the year ended December 31, 1999 was $513,021,
as compared to $620,484 for the year ended December 31, 1998. This
variance was attributable to the Company's change in business in 1998. In
May 1998, the Company sold its SofPulse assets, which had generated sales
and rental revenue in the first five months of 1998. In August 1998, the
Company acquired Gemini which generated revenue from the synthesis and
sale of custom molecular products starting in August 1998.
Cost of revenue for the year ended December 31, 1999 increased to
$565,101, as compared to $410,087 for the year ended December 31, 1998,
due to increased costs associated with supporting growth in Gemini's
custom products business in the first six months of 1999, as compared to
the winding down of the previous SofPulse marketing business in 1998.
Research and development expenses increased to $298,355 in 1999, as
compared to $53,823 in 1998, due to the lack of funds available for
basic scientific research during 1998, and the availability of such
funds during 1999.
The primary contributors to expenses in the year ended December 31, 1998
were a $8,811,114 permanent impairment loss on intangible assets
incurred in connection with the acquisition of HTD and Gemini and
certain licensing rights to Elan's flexible iontophoresis patch
technology; a $6,000,000 impairment loss on purchased research and
development in connection with the acquisition of the Elan technology;
and a 731,493 write-down of Gemini's inventory of reagents due to
obsolescence in connection with the acquisition of Gemini. No such
losses were recorded in 1999.
Interest income of $12,634 for the year ended December 31, 1999 and
was primarily attributable to interest earned on amounts received by the
Company from Elan's purchase of the Company's common stock and other
equity securities.
<PAGE>
Interest expense increased to $147,010 for the year ended December 31,
1999, as compared to $108,892 for the year ended December 31, 1998,
primarily due to the recording by the Company in its acquisition of Gemini
in August 1998 of a note payable to finance Gemini's operations in the
approximate amount of $1.2 million.
Loss on sale of securities of $106,935 in the year ended December 31, 1999
relates to the difference in the carrying value and the market value of
shares of ADM Tronics stock sold by the Company during the year.
Loss on disposal of equipment of $82,978 in the year ended December 31,
1999 primarily relates to the $73,008 write-down of obsolete and/or
surplus office and laboratory equipment, including computers that could
not be upgraded to Year 2000 compliance standards, acquired in the Gemini
transaction. In the year ended December 31, 1998, the Company recognized
a one-time $780,724 gain on sale of the SofPulse devices assets to ADM
Tronics, offset in part by a $64,500 loss on disposal of excess or
obsolete office equipment in the move of the administrative offices to
Gainesville, Florida.
The Company recorded a one-time gain on settlement of litigation in the
year ending December 31, 1999 in the amount of $1,150,577. As a result of
litigation initiated by the Company in September 1999 against Dr.
Jayaraman, a former Company Vice Chairman and President of Gemini,
regarding the Company's acquisition of Gemini, the Company and Dr.
Jayaraman entered into a settlement agreement in September 1999 in which,
among other things, Dr. Jayaraman agreed to resign and the Company agreed
to pay Dr. Jayaraman certain amounts in order to secure a release of all
the Company's obligations to him, including those agreements entered into
as part of the Gemini acquisition. Among other payments, the settlement
agreement provided for the issuance of 950,000 shares of common stock of
the Company to the Former Vice President in exchange for the minority
interests in the Partnership, resulting in a gain to the Company. The
Company also recorded a $282,000 compensation expense in connection with
cash payments and the future issuance of Company stock to Jayaraman in
settlement of certain obligations under Dr. Jayaraman's employment
agreement. See "Item 12. Certain Relationship and Related Transactions".
In the year ended December 31, 1999, minority interest of $671,582 was
recorded as a reduction to the Company's net loss and relates to the
former minority shareholders' 32% interest in the Partnership, an
operating subsidiary that is 68% controlled by the Company prior to
September 1999. In September 1999, the Company acquired the minority
interests in the Partnership as part of a litigation settlement. Minority
interest of $2,040,000 also was recorded in the year ended December 31,
1998.
<PAGE>
The above resulted in a net loss available to common stockholders of
$1,710,947 for the year ended December 31, 1999, as compared to a net loss
available to common stockholders of $15,490,504 for the year ended
December 31, 1998. Losses from the Gemini operations have consumed
significant cash resources from the Company. While the custom business of
Gemini grew during the first six months of 1999, the operation continued
to require additional investment in personnel, materials, facilities and
equipment to support the growth, and resulted in substantially higher
operating expenses. Since July 1999, the Company has been implementing
plans to significantly reduce these operating losses and cash outflows
while retaining the value of Gemini's custom products business. In
accordance with these plans, the Company downsized Gemini's operations,
including a significant reduction in salaries and personnel. The Company
also initiated litigation against Dr. Jayaraman, resulting in the
settlement of certain employment and other contractual obligations of the
Company to this individual that were entered into by the Company in
connection with the Gemini acquisition transaction. The Company is also
attempting to restructure Gemini's balance sheet, including the compromise
and settlement of certain other Gemini liabilities, including the secured
note to a life insurance company in the approximate principal amount of
$1.16 million, trade payables and an equipment lease obligation in the
approximate amount of $52,000.
In order to reduce its occupancy expenses, in August 1999, the Company
relocated the Gemini operations from The Woodlands, Texas and its
executive offices from Gainesville, Florida to the Sid Martin
Biotechnology Development Institute in Alachua, Florida. The Company's
Florida-based research laboratories have been located at the Alachua
site since December 1998. In connection with settlement of the Gemini
office lease obligation in the Woodlands, Texas, on November 16, 1999,
Gemini executed a $35,000 note payable bearing an annual interest rate
of 10%, with $1,500 monthly payments payable over 26 months, beginning
December 1, 1999. Other strategies being evaluated for the Gemini
operations include strategic alliances, including mergers and
acquisitions of related or complementary custom molecular businesses and
raising additional investment capital in order to sustain continuing
operations.
Liquidity and Capital Resources
The Company's cash requirements have been and will continue to be
significant. Since its inception, the Company has satisfied its operating
requirements primarily through the issuance of equity and debt securities
and loans from stockholders, revenues from rental and sale of SofPulse
devices, and, to a lesser extent, limited revenues from Gemini's custom
business. At December 31, 1999, the Company had a working capital deficit
of $1,809,490 and a net capital deficiency of $10,442,326.
Net cash used in operating activities for the year ended December 31, 1999
was $1,509,463, as compared to $816,806 for the same period in 1998. Net
cash was used primarily to fund the losses from operations. Net cash
provided by investing activities for the year ended December 31, 1999 was
$115,426, provided primarily by the sale of ADM Tronics common stock,
offset in part by the purchase of laboratory equipment for research
related to the Elan technology. In comparison, $7,030,454 was used by
investing activities in the comparable period in 1998, primarily to
acquire certain technologies from Elan totaling $7,500,000. This use of
cash was partially offset by the proceeds of $164,420 from the sale of
equipment ($150,000 from the sale of the SofPulse devices to ADM Tronics)
and $346,820 of cash acquired in the Gemini acquisition. At December 31,
1999, the Company did not have any material commitments for capital
expenditures.
Net cash provided by financing activities of $1,240,603 for the year
ended December 31, 1999 is primarily attributable to an investment of
$1,400,000 in common stock and other equity securities by Elan,
partially offset by repayments of $155,682 on notes payable. Under the
licensing agreement with Elan, a substantial portion of the proceeds
from Elan's investment must be used by the Company to fund further
development of certain products. The Company is currently in violation
of its license agreement with Elan because it has not made the minimum
investment required by Elan for research and development activities as
specified by the agreement. Elan has not exercised any of its rights
regarding the violation. Net cash provided in financing activities in
the year ended December 31, 1998 of $7,895,775 was primarily due to the
$8,100,000 investment in redeemable convertible preferred stock, common
stock and other equity securities by Elan.
The Company expects its cash needs will continue to increase in future
periods, primarily because it will incur additional expenses related to
the development, production and marketing of small molecule drugs and the
iontophoresis flexible patch technology licensed from Elan, in addition to
its efforts to develop novel medical applications for its core PEMS
technology. The Company will need to raise substantial additional funds
to continue the development and commercialization of these technologies
and products. The future cash needs of the Company will depend
significantly on many factors that relate to the development of drug
delivery and small molecule drug products, including, but not limited to,
continued scientific progress in the research and development programs;
the results of research and development; preclinical studies and clinical
trials; acquisition of products and technologies, if any; relationships
with corporate partners, if any; competing technological and market
developments; the time and costs involved in obtaining regulatory
approvals; the costs involved in filing, prosecuting and enforcing patent
claims; the time and costs of manufacturing scale-up and commercialization
activities and other factors.
<PAGE>
In connection with the Gemini acquisition, the Company guaranteed Gemini's
secured loan to an insurance company in the current principal amount of
$1,163,090. In addition to the Company's guarantee, other collateral for
the loan includes Gemini's assets, including accounts receivable,
inventory, and property and equipment owned now or acquired in the future,
as well as 65 SofPulse devices owned by the Company. The former
President of Gemini and his wife also have personally guaranteed the
repayment of the indebtedness. The terms of the loan include maintaining
certain financial covenants, principally relating to working capital
liquidity and net working capital ratios, and permitted purchases and
expenses. The covenants also include a limitation on compensation and
distributions. All of the amounts outstanding under the loan become due
and payable if an event of default occurs. Gemini has not been in
compliance with the financial covenants of the loan principally relating
to net worth and working capital. In addition, the Company had ceased
making the required payments as of April 1999. The loan is currently in
default and the lender has the right to accelerate payment of the loan
although it has not yet notified the Company of its intent to accelerate.
The Company believes that this loan must be restructured in order for
Gemini's operations to remain commercially viable. Management is currently
conducting settlement negotiations with the lender in an attempt to reach
a mutually acceptable restructuring of this loan obligation. However,
there can be no assurances that the lender will not accelerate payment on
the loan or will agree to a restructuring of the loan.
Under the present circumstances, the Company's ability to continue as a
going concern depends on its ability to obtain additional financing. The
Company is exploring alternative sources of additional financing,
including the raising of additional investment capital through a private
placement and a follow-on public offering, and seeking federal grants
directly (such as Small business Innovation Research Grants) or through
collaborations. However, no definitive sources of additional financing has
been identified at this time, nor can there be any assurance that
additional financing will be obtained on favorable terms. The Company's
ability to obtain financing through the issuance of its common stock was
materially adversely affected when the Company's stock was de-listed from
the Nasdaq SmallCap Market as of the close of business on September 23,
1997 due to noncompliance with the requirements related to minimum working
capital, minimum surplus and minimum value of the Company's public market
float. The Company is now quoted on the OTC Bulletin Board, but there can
be no assurance a public trading market for the Company's common stock
will continue to exist.
The Company cannot predict whether the operating and financing strategies
and plans described above, if implemented by the Company, will be
successful. If the Company is unable to, improve its operations and
ultimately obtain additional financing, it may be forced to discontinue
further development of its technologies, marketing of Gemini's custom
business or to sell its assets.
As of December 31, 1999, the Company had net operating loss carryforwards
of approximately $4,288,000 available to offset future taxable income.
Such carryforwards, which may provide future tax benefits, expire in the
years 2008 through 2019. Research tax credits of $187,000 expire in the
years 2008 through 2018. During the years 1993, 1995 and 1998 changes in
ownership of greater than 50% occurred as a result of the Company issuing
equity securities. As a result, a substantial limitation may be imposed
upon the future utilization of its net operating loss carryforwards.
<PAGE>
Item 7. Financial Statements.
ELECTROPHARMACOLOGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
OR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
AND
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
TABLE OF CONTENTS
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheet F-2
Consolidated Statement of Operations F-4
Consolidated Statement of Stockholders' Deficit F-5
Consolidated Statement of Cash Flows F-7
Notes to the Consolidated Financial Statements F-9
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Electropharmacology, Inc.
We have audited the accompanying consolidated balance sheet of
Electropharmacology, Inc. as of December 31, 1999 and the related
consolidated statements of operations, stockholders' deficit and cash
flows for the two years ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Electropharmacology, Inc. as of December 31, 1999, and the results of
its consolidated operations and its consolidated cash flows for the two
years ended December 31, 1999, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the
Company has suffered recurring losses from operations that 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
2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Sweeney, Gates & Co.
Fort Lauderdale, Florida
April 7, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
ELECTROPHARMACOLOGY, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
<S> <C>
Current assets:
Cash $6,577
Accounts receivable, net of
allowance for doubtful
accounts of $30,203 61,554
Other receivable 32,612
Inventory 7,172
Investment 210,182
Prepaid expenses 30,031
Total current assets 348,128
Property and equipment, net of
accumulated depreciation
of $255,012 265,956
Patents, net of accumulated
amortization of $26,385 76,969
Other assets 400
-------
691,453
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
ELECTROPHARMACOLOGY, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C>
Current liabilities:
Current portion of long term debt $1,280,890
Current portion of capital leases 54,504
Accounts payable 403,964
Accrued expenses 354,606
Accrued expenses - related party 63,654
------
Total current liabilities 2,157,618
Long term debt, less current portion 15,503
Long term capital leases, less current portion 8,188
Notes payable - related parties 65,926
Mandatorily redeemable convertible preferred stock,
"$.01 par value, 7,887 shares authorized, issued
and outstanding 8,886,544
Stockholders' deficit:
Convertible preferred stock, $.01 par value, 9,990,113 shares
authorized, no shares issued and outstanding -
Common stock, $.01 par value; 30,000,000 shares authorized;
17,268,325 issued and outstanding 172,683
Additional paid-in capital 21,738,152
Accumulated other comprehensive loss (88,399)
Retained deficit (32,506,762)
============
(10,684,326)
Common stock reserved 242,000
---------
Total stockholders' deficit (10,442,326)
------------
$691,453
========
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
ELECTROPHARMACOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
<S> <C> <C>
Revenue:
Rentals $- $359,143
Sales 513,021 261,341
------- -------
Total revenue 513,021 620,484
------- -------
Expenses:
Cost of revenue 565,101 410,087
Selling, general and administrative 2,027,908 1,962,403
Research and development 298,354 53,823
Inventory obsolescence - 731,493
Impairment loss on intangible assets - 8,811,114
Impairment loss on in-process research
and development - 6,000,000
-------- ---------
Total operating expenses 2,891,363 17,968,920
--------- ---------
Operating loss (2,378,342) (17,348,436)
--------- ----------
Other income (expense):
Gain on settlement of litigation 1,150,577 -
Loss on sale of securities (106,935) -
Gain (loss) on disposal of equipment (94,502) 716,223
Interest and other income 12,634 31,882
Interest expense (147,010) (108,892)
Other expense (6,844) (6,210)
-------- --------
Total other income (expense) 807,920 633,003
-------- --------
Loss before minority interest (1,570,422) (16,715,433)
Minority interest 671,852 2,040,000
------- ---------
Net loss (898,570) (14,675,433)
Preferred stock dividends (812,377) (815,071)
--------- ---------
Net loss available to common stockholders $(1,710,947) $(15,490,504)
============ ============
Net loss per share - basic and diluted $(0.11) $(2.15)
======= =======
Weighted average number of common shares
outstanding - basic and diluted 16,101,254 7,214,469
========== =========
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
ELECTROPHARMACOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Preferred Stock Common Stock Additional
$.01 par value $.01 par value paid-in Deferred
Shares Amount Shares Amount capital compensation
------ ------ ------ ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1998 242,950 $2,430 4,071,194 $40,711 $15,254,912 $(67,678)
Issuance of common stock for services - - 67,610 676 24,041 -
Induced conversion of preferred stock (242,950) (2,430) 1,872,000 18,720 730,081 -
Issuance of stock in settlement
of accounts payable - - 322,581 3,226 124,940 -
Issuance of common stock
for acquisition - - 6,172,100 61,721 3,253,576 -
Issuance of common stock and
stock subscription receivable - - 777,202 32,126 1,967,875 -
Issuance of warrants with convertible
mandatorily redeemable
preferred stock - - - - 400,000 -
Dividend on convertible
preferred stock - - - - - -
Amortization and cancellation of
deferred compensation - - - - (28,496) 67,678
Comprehensive loss:
Unrealized gain on securities - - - - - -
Net loss - - - - - -
Total comprehensive loss - - - - - -
-----------------------------------------------------------------------------------------
Balance, December 31, 1998 - - 13,282,687 $157,180 $21,726,929 $-
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
ELECTROPHARMACOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Accumulated
other Common Total
comprehensive Retained Subscription stock stockholders'
income (loss) deficit receivable reserved deficit
------------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1998 $- $(15,305,311) $- $ - $(74,936)
Issuance of common stock for services - - - - 24,717
Induced conversion of preferred stock - (627,571) - - 118,800
Issuance of stock in settlement
of accounts payable - - - - 128,166
Issuance of common stock
for acquisition - - - - 3,315,297
Issuance of common stock and
stock subscription receivable - - (500,000) - 1,500,001
Issuance of warrants with convertible
mandatorily redeemable
preferred stock - - - - 400,000
Dividend on convertible
preferred stock - (187,500) - - (187,500)
Amortization and cancellation of
deferred compensation - - - - 39,182
Comprehensive loss:
Unrealized gain on securities 803,279 - - - -
Net loss - (14,675,433) - - -
Total comprehensive loss - - - - (13,872,154)
--------- ------------- ---------- ------ ------------
Balance, December 31, 1998 $803,279 $(30,795,815) (500,000) $ - $ (8,608,427)
</TABLE>
F-5(cont)
<PAGE>
<TABLE>
<CAPTION>
ELECTROPHARMACOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Preferred Stock Common Stock Additional
$.01 par value $.01 par value paid-in Deferred
Shares Amount Shares Amount Capital Compensation
------ ------ ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 - $- $13,282,687 $157,180 $21,726,929 $-
Issuance of stock on collection of
subscription receivables - - 2,435,320 - (386,667) -
Issuance of common stock for services - - 600,318 6,003 190,025 -
LINE REMOVED
Issuance of stock options for services - - - - 8,365 -
Dividend on convertible
preferred stock - - - - - -
Issuance of stock for settlement
of litigation - - 950,000 9,500 199,500 -
Reserve for stock to be issued
in settlement of litigation - - - - - -
Comprehensive loss:
Net change in unrealized loss
on available-for-sale securities - - - - - -
Net loss - - - - - -
Total comprehensive loss - - - - - -
--------------------------------------------------------------------------------------
Balance, December 31, 1999 - $- $17,268,325 $172,683 $21,738,152 $-
</TABLE>
F-6
<TABLE>
<CAPTION>
ELECTROPHARMACOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Accumulated
other Common Total
comprehensive Retained Subscription stock stockholders'
income deficit receivable reserved deficit
--------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $803,279 $(30,795,815) $(500,000) $- $(8,608,427)
Issuance of stock on collection of
subscription receivable - - 500,000 - 113,333
Issuance of common stock for services - - - - 196,028
LINE REMOVED
Issuance of stock options for services - - - - 8,365
Dividend on convertible
preferred stock - (812,377) - - (812,377)
Issuance of stock for settlement
of litigation - - - - 209,000
Reserve for stock to be issued
in settlement of litigation - - - 242,000 242,000
Comprehensive loss:
Net change in unrealized loss
on available-for-sale
securities (891,678) - - - (891,678)
Net loss - (898,570) - - -
Total comprehensive loss - - - - (1,790,248)
--------------------------------------------------------------------------
Balance, December 31, 1999 $(88,399) $(32,506,762) $- $242,000 $(10,442,326)
==========================================================================
</TABLE>
F-6 (cont)
<PAGE>
<TABLE>
<CAPTION>
ELECTROPHARMACOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(898,570) $(14,675,433)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 90,236 167,865
Issuance of common stock and warrants for service 176,029 37,217
Issuance of stock options to purchase common stock 8,365 -
Reserve for stock to be issued in settlement of litigation 242,000 -
Issuance of notes payable for services - 63,654
Gain on settlement of litigation (1,150,577) -
Loss on sale of available for sale securities 106,935 -
(Gain) loss on disposal of equipment 94,502 (716,223)
Increase in inventory obsolescence allowance - 731,493
Issuance of common stock in settlement of accounts payable - 128,166
Induced conversion of warrants - 118,800
Amortization of deferred compensation - 67,678
Accretion of redeemable convertible preferred stock 228,571 171,429
Impairment loss of in-process research and development 6,000,000 -
Impairment loss of purchased intangible assets - 8,811,114
Loss attributable to minority interest (671,852) (2,040,000)
Changes in operating assets and liabilities
Decrease in accounts receivable 21,943 85,907
Decrease in other receivables 2,769 29,979
Decrease in inventory - 145,061
Decrease in prepaid expenses 103,706 23,328
Decrease in other assets 8,350 9,251
(Increase) decrease in accounts payable (79,838) 102,329
Increase in notes payable for services 35,000 -
Increase (decrease) in accrued expenses 172,968 (78,421)
-------- ---------
Net cash used in operating activities (1,509,463) (816,806)
----------- ---------
Cash flows from investing activities:
Purchases of property and equipment (42,747) (41,694)
Proceeds from sale of property and equipment - 164,420
Cash paid for licensing and technology - (7,500,000)
Sale of available for sale securities 158,173 -
Net cash acquired from acquisitions - 346,820
--------- -----------
Net cash provided by (used in) investing activities $115,426 $(7,030,454)
--------- -----------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
ELECTROPHARMACOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
<S> <C> <C>
Cash flows from financing activities:
Proceeds from the issuance of mandatorily redeemable,
convertible preferred stock $ - $7,500,000
Proceeds from issuance of common stock, net
of subscription receivables - 600,000
Proceeds from notes payable 7,106 -
Proceeds from receipt of stock subscription receivable 1,400,000 -
Proceeds from issuance of common stock - -
Proceeds from capital leases 1,340 -
Repayment of notes payable (155,682) (192,193)
Repayment of capital leases (12,161) (12,032)
--------- ---------
Net cash used in financing activities 1,240,603 7,895,775
--------- ---------
Net increase (decrease) in cash (153,434) 48,515
Cash at the beginning of year 160,011 111,496
--------- ---------
Cash at end of year $6,577 $160,011
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $35,428 $69,153
========= =========
Cash paid during the period for income taxes $ - $ -
========= =========
Supplemental disclosure on non-cash investing and
financing activities:
Issuance of common stock for services $196,029 $37,217
Issuance of notes payable for service 35,000 63,654
Reserve for stock to be issued in settlement
of litigation 242,000 -
Issuance of notes payable for audit fees, net - 118,430
Notes payable for prepaid insurance 7,716 137,268
Purchase of assets under capital lease financing 1,340 28,343
Conversion of preferred stock to common stock - 627,571
Conversion of warrants to common stock - 118,800
Common stock subscriptions receivable - 1,400,000
Sale of a business - 1,865,673
Issuance of common stock in settlement with
President of Gemini 209,000 -
Settlement with outside legal counsel - 778,166
Issuance of common stock for an acquisition - 3,315,297
Net value of partnership units acquired in an acquisition - 4,071,429
</TABLE>
F-8
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business and major suppliers - Electropharmacology, Inc., a
Delaware corporation (the "Company") was incorporated on August 31,
1990 in California under the name Magnetic Resonance Therapeutics,
Inc., and reorganized through a merger in February 1995 with
Electropharmacology, Inc. Until August 24, 1998, the Company
manufactured and marketed, primarily to nursing homes and plastic
surgeons, SofPulse devices that deliver pulsed electromagnetic
signals in the radio frequency range ("PEMS").
The Company consummated a corporate reorganization on August 24,
1998 when it became a biotechnology company through a series of
transactions, including (i) the acquisition of two privately held business
entities engaged in developing molecular technologies for the design of
drugs to combat cancer and arthritis, infection and other complex
diseases of humans, and (ii) the sale of the past business operations
related to the manufacturing and leasing of SofPulse devices in order to
focus on potential applications of the underlying PEMS technology in
drug delivery and tissue regeneration. Since the reorganization, the
Company has been engaged in developing drug delivery technologies to deliver
pharmaceutical drugs and biotechnology products more effectively to
diseased tissues, and drug design technologies to create new drugs aimed
at the genes and proteins that cause or control complex diseases. The
Company has used its drug design technologies to make and sell custom
products for molecular biology and genomics research.
The research activities of the Company focus on the design and
discovery of therapeutic drugs and diagnostic agents using modifications
of the building blocks of the genetic material, namely gene bases. The
Company has built a library of proprietary and exclusively licensed
compounds that target genes or proteins implicated in cancer and
rheumatoid arthritis. The Company, through Gemini Biotech, Ltd.
("Gemini" and "Gemini Division"), also makes and sells custom
products for genomics research and drug discovery to academic researchers
and biopharmaceutical companies.
Principles of consolidation - The accompanying consolidated financial
statements include the accounts of the Company, its wholly owned
subsidiaries and partnerships. All material intercompany accounts and
transactions have been eliminated in consolidation. Minority interest
consists of the ownership interest of the minority partners of Gemini
Health Technologies, L.P. (the "Partnership") through September 17,
1999. On that date the minority partners exchanged their partnership
interests in Gemini for common shares of the Company (see Note 14).
Revenue recognition - Rental revenue during 1998 was recognized over
the period in which the related equipment was under lease to a customer,
primarily on a per use basis (see Note 3). Sales revenue was recognized
upon shipment and the transfer of ownership of the product.
Cost of Revenue - Cost of revenue for the year ended December 31,
1998 included costs associated with rental of the SofPulse units of
approximately $169,380 (see Note 3).
F-9
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments - The Company accounts for marketable securities in
accordance with the provisions of Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). Securities held are classified as
"available for sale" and are carried in the financial statements at fair
value. Realized gains and losses are included in earnings, while
unrealized gains and losses are excluded from earnings and reported as
comprehensive income (loss), a component of stockholders' deficit.
Inventory - Inventory at December 31, 1999, consisted primarily of
chemicals used in the Company's custom products business, and is
valued at the lower of cost or market.
Patents - Patents are amortized using the straight-line method over 17
years from the date of issuance of the patents, or over the remaining
useful lives.
Property and equipment - Property and equipment are stated at cost.
Major improvements are capitalized, while maintenance and repairs are
expensed when incurred. The cost and accumulated depreciation for
property and equipment sold, retired, or otherwise disposed of are
relieved from the accounts, and resulting gains or losses are reflected in
income.
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. The cost of leasehold improvements is
amortized over the lesser of the length of the related leases or the
estimated useful lives of the improvements. Depreciation is computed
on the straight-line method for financial reporting purposes, and on the
declining balance method for income tax purposes.
Asset impairment - The Company periodically evaluates the
recoverability of its long-lived assets, comparing the respective carrying
values to the current and expected future cash flows to be generated from
such assets. In accordance with Statements of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-lived
Assets" ("SFAS 121"), the recoverability of property and equipment,
intangible assets and goodwill are evaluated on a separate basis for the
Company and each acquisition.
Stock based compensation - The Company elected to follow Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25"), and related interpretations in accounting for its
employee stock options. Accordingly, no compensation expense was
recognized for its stock options granted to employees because the
exercise price is equal to or greater than the market value of the
underlying stock at the date of the grant. The Company provides
additional pro forma disclosures as required under Statement of Financial
Accounting Standard, No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123").
F-10
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred Compensation - Deferred compensation related to stock
options is amortized over the period during which the options become
exercisable. Deferred compensation was fully amortized during the year
ended December 31, 1998.
Income taxes - The Company provides for income taxes under the
provisions of Statement of Financial Accounting Standard, No. 109,
"Accounting For Income Taxes" ("SFAS 109"), which requires the asset
and liability method of accounting for income taxes in which deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. A
valuation allowance is recognized if, based on the weight of available
evidence, it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
Advertising costs - Advertising costs included in selling, general and
administrative expenses are expensed as incurred and were $11,633 and
$4,086 for 1999 and 1998, respectively.
Net loss per share - The Company adopted the Financial Accounting
Standards Board No. 128, "Earnings Per Share" ("SFAS No. 128"),
which established standards for computing and presenting earnings per
share. SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share.
All loss per share amounts are presented to conform to SFAS No. 128.
For the years ended December 31, 1999 and 1998, options and warrants
were excluded from the computation of net loss per share because the
effect of inclusion would be anti-dilutive due to the Company's net
operating losses.
Reclassifications - Certain items presented during the year ended
December 31, 1998 have been reclassified to conform with the
presentation for the year ended December 31, 1999.
Use of estimates and concentration of credit risk - 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 revenue and expenses during the reporting
period. Actual results could differ significantly from those estimates.
The Company provides credit to customers based on an evaluation of the
customer's financial condition, generally without requiring collateral.
Exposure to losses on receivables is principally dependent upon each
customer's financial condition. The Company monitors its exposure for
credit losses and maintains an allowance for anticipated losses.
Sales to two customers during the years ended December 31, 1999 and
1998, consisted of approximately 17% and 10%, respectively, of total
sales. The accounts receivable balances of these customers at December
31, 1999 and 1998 were $13,740 and $9,243, respectively.
F-11
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value of financial instruments - The fair value of the Company's
financial instruments such as accounts receivable, accounts payable,
notes payable and capital leases approximate their carrying value.
Business segment - The Company operates principally in one business
segment that develops technology and development stage products for
the health care industry.
Organizational costs - In April 1998, the Accounting Standards
Executive Committee released Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5 requires that
start-up costs, including organizational costs, be expensed as incurred.
The Company accepted early adoption of SOP 98-5 and expensed all
start-up costs during the year ended December 31, 1998.
2. LIQUIDITY AND GOING CONCERN
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of
business.
The Company reported a net loss of $656,570 and $14,675,433 for the
years ended December 31, 1999 and 1998, respectively, and cumulative
net operating losses aggregating $32,264,762 through December 31,
1999. In addition, at December 31, 1999, the Company had a net capital
deficiency of $10,442,326, and a working capital deficiency of
$1,809,490. Delinquent accounts payable over 90 days past due were
approximately $400,000 at December 31, 1999. The Company was also
in default on a note for $1,163,090 to an insurance company, a note
payable of $98,430 to an accounting firm, and capital leases totaling
approximately 52,000 (see Notes 7 and 9). The holders of the Company's
defaulted debt have not exercised their rights and remedies in the
respective agreements, but there is no assurance that the holders of the
debt will not pursue the defaults and exercise all of their rights and
remedies.
On August 24, 1998, the Company reorganized to better enable the
Company to focus its efforts on research and development activities in
the field of biotechnology. On August 24, 1998, the Company sold
substantially all of the assets and certain liabilities related to the
manufacturing, sales and marketing of its SofPulse device while
retaining rights to uses of the underlying PEMS technology in
biotechnology applications such as drug delivery and tissue regeneration.
This transaction resulted in receipt of cash of $150,000, marketable
securities with a value of $596,721 and the satisfaction of $778,166 of
notes payable, accrued interest and accounts payable (see Note 3). Also,
as more fully described in Note 3, on September 30, 1998, the Company
received a commitment from Elan International Services, Ltd. ("Elan
International"), a subsidiary of Elan Corporation plc, to invest
$2,000,000 in shares of the Company's common stock. The Company
received $600,000 during 1998 and $1,400,000 during 1999.
F-12
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
2. LIQUIDITY AND GOING CONCERN (continued)
During 1999, the losses from the Gemini operations consumed
significant cash resources from the Company. While the custom
products business of Gemini grew during 1999, the operation continued
to require additional investment in personnel, materials, facilities and
equipment, resulting in substantially higher operating expenses.
Beginning in July 1999, the Company implemented a plan to
significantly reduce the operating expenses and cash outflows while
retaining the value of the custom product business. In accordance with
the plan, the Company closed the Gemini facility in The Woodlands,
Texas, and substantially reduced personnel and salaries. The Company
also reached an agreement with a former Vice Chairman of the Company
and President of Gemini, resulting in a settlement of certain employment
and other contractual obligations of the Company to this individual
that had been entered into by the Company in connection with the
Gemini acquisition transaction (see Note 14). The Company is
attempting to restructure Gemini's balance sheet, including settlement of
certain Gemini liabilities, principally the secured note to an insurance
company in the amount of $1,163,090, and equipment lease obligations
totaling approximately $52,000.
In order to reduce its occupancy expenses, the Company relocated the
Gemini operations from Texas and its executive offices from Gainesville,
Florida to Alachua, Florida where the Florida-based research laboratories
have been located since 1998. In connection with the settlement of the
Gemini office lease obligation in Texas, Gemini executed a $35,000 note
payable bearing interest at 10% with payments of $1,500 monthly over
26 months, beginning December 1, 1999 (see Note 7).
At December 31, 1999, the Company was in violation of its license
agreement with Elan Pharma International Ltd. ("Elan Pharma") because
it did not make the minimum investment required by Elan Pharma for research
and development activities as specified by the investment agreement. Elan
Pharma has not exercised any of its rights regarding the violation.
The Company's 2000 operating plan contemplates stringent cost controls
and postponement of research and development activities until additional
funds are obtained. Strategies include alliances, including mergers and
acquisitions of related or complementary custom product businesses for
the genomic research market for Gemini, the raising of additional
investment capital by the Company through a private placement and a
follow-on public offering, and seeking federal grants directly (such as
Small Business Innovation Research Grants) or through collaborations.
Until a private placement or a follow-on public offering occur, the
Company intends to supplement its revenues from the custom products
business of Gemini by selling the remainder of its ADMT stock (see Note
4) and from loans from its President and CEO.
F-13
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
2. LIQUIDITY AND GOING CONCERN (continued)
The Company cannot predict whether the operating and financing plans
described above will be successful. If the Company is unable to
successfully obtain additional financing, it may not be able to continue as
a going concern and may be unable to meet its obligations. The financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
3. CORPORATE REORGANIZATION
On August 24, 1998, the Company consummated a corporate
reorganization, consisting of five steps. First, the Company contributed
all its assets and liabilities (other than those assets and liabilities related
to its business of manufacturing and distributing the SofPulse device)
(the "SofPulse Business") to its wholly-owned subsidiary, EPI
HealthTech Inc. ("EPI Sub"), a Delaware corporation in exchange for
100 shares of EPI Sub's common stock. Second, HealthTech
Development Inc. ("HTD"), a privately held Company, was merged into
EPI Sub, with the stockholders of HTD receiving 6,172,100 shares of the
Company's common stock (the number of shares being substantially
equivalent to the number of shares of the Company's common stock
outstanding). Third, EPI Sub contributed all its assets and liabilities
(including both the assets and liabilities contributed to it by the Company
and the assets and liabilities of HTD) to Gemini Health Technologies,
L.P., a newly formed Delaware limited partnership (the "Partnership") in
exchange for 12,505,480 partnership units of the Partnership (such
number of partnership units corresponding to the number of shares of the
Company's common stock issued and outstanding following the issuance
of shares of the Company's common stock to the shareholders of HTD).
Simultaneously with the contribution of EPI Sub's assets and liabilities to
the Partnership, the partners of Gemini, a privately held Texas limited
partnership, transferred all of their limited partnership interests in Gemini
Biotech, Ltd., and all the stock of Gemini's general partner, Gemini
Biotech, Inc. ("GBI"), to the Partnership in exchange for 6,000,000
partnership units in the Partnership. The partnership units were
exchangeable, subject to certain restrictions, for shares of the Company's
common stock, on the basis of one share of the Company's common
stock for each partnership unit (see Note 14 for the settlement of
litigation regarding this transaction). Fourth, the Company issued
1,872,000 shares of its common stock to holders of certain warrants and
all outstanding preferred stock of the Company in exchange for such
warrants and preferred stock. Fifth, the Company sold substantially all
its assets and specified liabilities relating to the SofPulse Business to a
wholly-owned subsidiary of ADM Tronics Unlimited, Inc. ("ADMT"), a
publicly traded company.
F-14
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
3. CORPORATE REORGANIZATION (continued)
Sale of operation
- ------------------
On August 24, 1998, the Company completed the sale of its SofPulse
business as part of the corporate reorganization. Prior to completion of
the transaction, management and operation of the SofPulse business were
assumed by ADMT on May 27, 1998. The assets sold consisted of
inventory, supplies and SofPulse units. The Company was paid
$1,396,721 for the SofPulse assets; $150,000 in cash and 2,925,000
shares of ADMT stock valued at $1,246,721, the market value of ADMT
shares on August 24, 1998 (see Note 4). The Company transferred
1,525,000 shares to a law firm to satisfy a note payable, accrued interest
thereon and certain accounts payable. The Company retained 1,400,000 of the
shares and sold some of the shares during the year ended December 31, 1999
(see Note 4).
Conversion of preferred stock and exchange of warrants
- ------------------------------------------------------
On August 24, 1998, in connection with the merger of HTD, the
Company issued 1,575,000 common shares, valued at $627,571 for the
conversion of 242,950 shares of preferred stock. The preferred stock
was convertible at a price of $4.74 per share which was at a discount
from the market price of $6.50 per share, at the option of the holder, into
one share of common stock, subject to adjustment in certain
circumstances, at any time until November 13, 2000 at which time the
preferred stock would have automatically converted to common stock.
Additionally, on August 24, 1998, the Company issued 297,000 common
shares, valued at $118,800, in exchange for 1,961,107 of outstanding
warrants. These warrants were exercisable at prices between $5.42 and
$9.00 per warrant and expired on various dates through November 2005.
As a result of the conversion of the preferred shares, the Company
recorded a dividend of $627,571, and as a result of the conversion of the
warrants, the Company recorded consulting expense of approximately
$118,800, as costs to induce both conversions.
Elan investment in the Company
- ------------------------------
On September 30, 1998, Elan International, invested $7,500,000 in the
Company to acquire 7,500 shares of redeemable, convertible preferred
stock (at a conversion ratio of one share of common stock for each $1.20
of preferred stock investment), and warrants to acquire up to 1,000,000
shares of common stock of the Company at an exercise price of $2.50 per
share. The preferred stock accrues a mandatory dividend of 10%,
payable semi-annually, in cash or in-kind, at the Company's option.
Using the Black-Scholes option-pricing model, the warrants were valued
at $400,000 as of the date of issuance. Accordingly, in 1998 the
Company recorded a value of $7,100,000 for the mandatorily
redeemable, convertible preferred stock, and $400,000 for the warrants,
which was recorded as additional paid-in capital. The $400,000 was
amortized over the term of the warrants (seven months) and increased the
value of the mandatorily redeemable, convertible preferred stock as it
was amortized. At December 31, 1999, $999,877 of mandatory
dividends not paid in cash or in-kind had been accrued.
F-15
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
3. CORPORATE REORGANIZATION (continued)
On September 30, 1998, Elan International committed to invest
$2,000,000 to acquire shares of the Company's common stock at the 20-
day average closing price preceding each such investment, at a maximum
purchase price of $1.375 per share. On October 30, 1998, Elan acquired
777,202 shares of common stock for $600,000. On January 4, 1999,
Elan International acquired an additional 2,057,143 shares of common
stock for $900,000. On May 14, 1999, Elan was issued warrants to
acquire 1,520,821 shares of common stock at a purchase price of $.75
per share. On May 15, 1999, Elan acquired an additional 378,177 shares
of common stock and 387 shares of mandatorily redeemable, convertible
preferred stock in return for $500,000 to complete its commitment to
invest $2,000,000.
Elan Pharma license agreement with the Company
- ----------------------------------------------
On September 30, 1998, the Company acquired a worldwide license to
certain drug discovery technology for non-cosmetic dermatology and wound
care applications from Elan Pharma. The Company made a
payment of $7,500,000 to Elan Pharma for licenses to utilize pending
patent applications, product design and know-how related to the
development and approval of products for transdermal drug delivery, and
certain in-process research and development. The cost was allocated
$6,000,000 to in-process research and development and $1,500,000 to
goodwill. The Company will also pay royalties and license fees to Elan
Pharma based on the Company's future revenues relating to the
technology. The Company paid no royalties or license fees during the
years ended December 31, 1999 and 1998.
The Company's management determined the licensed technology had
various ascertainable long-term requirements for additional substantial
costs in order to realize economic benefits. As a result of the long-term
development requirements and uncertainties related to the technological
feasibility and commercialization of the licensed technology, the
Company recorded a one-time charge of $6,000,000 to write off in-
process research and development.
Concurrently, in accordance with SFAS 121, management evaluated the
goodwill of $1,500,000 and determined that the asset was permanently
impaired due to the Company's current period operating loss combined
with a history of operating losses. Therefore, an impairment loss for the
$1,500,000 was recognized in 1998.
F-16
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
4. MARKETABLE SECURITIES
As discussed in Note 3, the Company acquired 2,925,000 common
shares of ADMT as part of its sale of the SofPulse business on August
24, 1998. The shares of ADMT were valued at approximately $0.426
per share on the date of acquisition. As part of the agreement, 1,525,000
of the common shares of ADMT were transferred to a creditor in partial
settlement of a note payable due a law firm on August 24, 1998. The
remaining 1,400,000 shares were restricted as to sale both by ADMT and
the law firm through August 24, 1999. The Company carries the ADMT
common stock as available for sale. During 1999, the Company sold
699,530 shares of the ADMT shares and realized a loss on the sales of
$106,935.
Any unrealized gains and losses are recorded as comprehensive income,
a component of stockholders' deficit. At December 31, 1999, the number
of unsold shares totaled 700,470 and the gross unrealized loss recorded
in stockholders' deficit was $88,399, and the fair market value was
$210,182 for these shares.
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 was as follows:
<TABLE>
<CAPTION>
Estimated
Useful life
-----------
<S> <C> <C>
Office equipment, computers
and software $77,125 3 to 7 years
Lab equipment 443,843 5 to 7 years
---------
520,968
Less: accumulated
depreciation (255,012)
---------
Total $265,956
========
</TABLE>
Depreciation charged to income for the years ended December 31, 1999
and 1998 was $90,236 and $161,559, respectively.
F-17
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
6. ACCRUED EXPENSES
At December 31, 1999, accrued expenses consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Interest expense $124,070
Litigation settlements 125,000
Board of director fees 42,500
Commissions 18,912
Property and sales tax 13,383
Vacation and sick leave 12,541
Other 18,200
---------
$354,606
=========
</TABLE>
7. NOTES PAYABLE
Notes payable at December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Variable rate note payable to an insurance
company, due July 1, 2006 (in default) $1,163,090
Note payable to an accounting firm with interest
at 12%, due August 31, 1999 (in default) 98,430
Note payable for termination of operating leases,
with interest at 10%, due January 2002 32,279
Note payable to finance insurance premiums with
interest at 11%,due April 21, 2000 2,594
----------
1,296,393
Less: current portion (1,280,890)
-------------
Long term portion of notes payable $15,503
==============
</TABLE>
On June 27, 1997, Gemini entered into a loan agreement (the "Loan")
with an insurance company in the amount of $1,315,000. The loan
amortizes over 101 payments ending July 1, 2006. Interest is two points
over prime. At December 31, 1999, the rate was 10.5%. Collateral for
the Loan is Gemini's assets, including accounts receivable, inventory,
and property and equipment owned now or acquired in the future by
Gemini. On December 22, 1998, the Loan was modified to add as
additional collateral the Company's corporate guarantee and 65
SofPulse devices owned by the Company. The former President of Gemini,
and his wife, personally guaranteed the repayment of the indebtedness.
In addition, repayment of the Loan is guaranteed in part by the Rural
Biological Science Department of the U.S. Department of Agriculture.
F-18
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
7. NOTES PAYABLE (continued)
The terms of the Loan include maintaining certain financial covenants,
principally relating to working capital liquidity and net working capital
ratios, and permitted purchases and expenses. The covenants also
include a limitation on compensation and distributions. All of the
amounts outstanding under the agreement become due and payable if an
event of default occurs. As of December 31, 1999, Gemini was not in
compliance with the financial covenants of the loan principally relating
to net worth and working capital, and additionally, the Company had
ceased making the required payments as of April 1999. The Company
also abandoned some of Gemini's assets when it moved the Gemini
operations from Texas to Florida due to the lack of ability to sell and the
high cost of shipping these assets. Therefore, the note is in default. The
insurance company has not exercised its rights under the loan agreement,
including acceleration of the amount due. Negotiations are underway to
reach a settlement on the payment of the loan. Accordingly, the entire
amount has been shown as a current liability at December 31, 1999.
On October 28, 1998, the Company executed a promissory note to its
former independent certified public accountants ("Accountants") for
audit fees. The note was renegotiated on May 13, 1999 and totaled
$98,430, with interest at 12 %. The note was due on August 31, 1999,
and is in default at December 31, 1999, but the accountants have not
exercised any of their rights and remedies as of that date.
On December 1, 1999, the Company entered into a note payable in the
amount of $35,000 with interest at 10% due in 26 equal monthly
installments. This note was in settlement of the Company's lease obligations
for the Gemini facility, which was closed in the Woodlands, Texas.
8. NOTES PAYABLE AND ACCRUED EXPENSES DUE RELATED PARTIES
During October 1997, the Company issued three notes payable to two
officers and a member of the board of directors in exchange for cash
advances of $45,000, and non-payment of salaries of $20,926. The notes
bear interest at prime plus 1% (9.5% at December 31, 1999) and are due
on demand. The balances due at December 31, 1999 were $65,926.
Effective as of August 24, 1998, as a result of the merger with HTD and
the acquisition of Gemini and in conjunction with certain change of
control provisions in the employment contract of the Company's Chief
Executive Officer, the Company recorded an accrued expense due the
Chief Executive Officer for $63,654 to be used for his exercise of
244,823 options to purchase common stock at $.26 per share. As of
December 31, 1999, the amount had not been paid, nor had the stock
options been exercised (see Note 3).
F-19
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
9. CAPITAL LEASES
The Company is the lessee of office and laboratory equipment under
capital leases expiring in various years through 2001. The assets and
liabilities under capital leases are recorded at the lower of the present
value of the minimum lease payments, or the fair value of the asset. The
assets are depreciated over their estimated useful lives. Depreciation of
assets under capital leases is included in depreciation expense for 1999
and 1998.
Depreciation on assets under capital leases charged to expense in 1999
and 1998 was $15,028 and $20,773, respectively.
Following is a summary of property held under capital leases at December
31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Lab equipment $72,852
Less: accumulated depreciation (18,247)
--------
$54,605
========
</TABLE>
Interest rates on capitalized leases vary from 8% to 12%, and are
imputed based on the lessor's implicit rate of return.
Certain equipment used in Gemini's custom products business is collateral
on capital lease with a remaining balance of $40,622 at December 31, 1999.
The lease is in default due to non-payment, but the lessor has not
exercised its rights and remedies in default under the capital lease. Two
pieces of equipment on two different capital leases, totaling approximately
$11,500, were returned to the lessors when Gemini was closed. At December 31,
1999, the $11,500 is listed as a liability under current portion of capital
leases. Management is awaiting settlement of these leases, but is unable to
estimate a settlement amount at this time.
Minimum future lease payments as of December 31, 1999, under capital
leases, including a lease in default which is carried as all payments being
due in the year 2000, for each of the next four years and in the aggregate
are:
<TABLE>
<CAPTION>
Year ended:
<S> <C>
2000 $3,366
2001 3,366
2002 3,366
2003 2,859
Thereafter -
------
12,957
Less: amount representing interest (2,456)
--------
Present value of net minimum lease payments $10,501
========
</TABLE>
F-20
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
10. EQUITY TRANSACTIONS
During 1998, the Company issued 40,823 shares of common stock and
expensed $17,217 for payment of outstanding employment-related
liabilities to officers of the Company.
Effective January 1, 1996, the Company established the
Electropharmacology, Inc. 1996 Non-Employee Directors' Equity
Compensation Plan (the "Compensation Plan"). The Compensation Plan
provides for the issuance of common stock as compensation for serving
as a director of the Company. During 1999 and 1998, the Company
issued 52,083 and 26,787 shares of common stock, respectively, under
the Compensation Plan and expensed approximately $22,500 and $7,500,
respectively, relative to the issued common stock.
As more fully described in Note 3, during August 1998, the Company
issued 1,872,000 shares of common stock in return for the conversion of
242,950 preferred shares and 1,961,107 warrants. As a result of these
transactions, the Company recorded a dividend of $627,571 and an
expense of $118,800 in 1998, as inducement related charges.
On August 24, 1998, the Company issued 322,581 shares of common
stock in settlement of an accounts payable totaling $128,166. Further, as
more fully detailed in Note 3, the Company issued 6,172,100 shares of
common stock on August 24, 1998, to stockholders of HTD to complete
the merger of EPI Sub and HTD.
On September 30, 1998, the Company and Elan International entered
into a stock subscription agreement whereby Elan International would
invest $2,000,000 in the Company. On that same date, Elan paid the
Company $600,000 and was issued 777,702 shares of common stock. At
the same time the Company recorded the stock subscription, par value
and additional paid-in capital. On January 4, 1999, Elan International
paid the Company $900,000 and received 2,057,143 shares of common
stock. At December 31, 1998, a receivable of $900,000 was recorded as
an asset since the money was received four days after the end of the year,
and a subscription receivable of $500,000 was recorded in the equity
section of the balance sheet. On May 15, 1999, Elan International
completed its obligation by paying $500,000 to the Company. However,
instead of receiving common stock for the full payment, Elan
International was issued 387 shares of additional mandatorily
redeemable, convertible preferred stock, 378,177 shares of common
stock and a warrant to purchase 1,520,821 shares of common stock at
$.75 per share. In order to record the transaction, $386,667 previously
recorded as additional paid-in capital in 1998, was reclassified as
mandatorily redeemable, convertible preferred stock.
During 1999, the Company issued 600,318 shares of common stock to
directors, financial consultants and a law firm and recorded $196,028 as
compensation expense under SFAS 123. The compensation expense is
included as part of selling, general and administrative expense.
Additionally during 1999, the Company issued 25,000 stock options to
non-employees. Under SFAS 123, the stock options were valued at
$8,365 on the date of grant and that amount was recorded as additional
paid-in capital.
On September 17, 1999, the Company issued 950,000 shares of common
stock valued at $209,000 as partial settlement of litigation with the
former President of Gemini (see Note 14).
F-21
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
11. WARRANTS
On September 30, 1998, the Company granted warrants to Elan
International to purchase 1,000,000 shares of common stock at $2.50 per
share. The warrants expire August 31, 2006. On May 14, 1999, the
Company granted warrants to Elan International to purchase 1,520,821
shares of common stock at $.75 per share. These warrants expire on
November 14, 2005.
The following table summarizes information relative to the Company's
warrants that are exercisable through August 31, 2006:
<TABLE>
<CAPTION>
Shares Price range
------ -----------
<S> <C> <C>
Outstanding January 1, 1998 3,052,707 $1.00 to $9.00
Exchanged (1,961,107) $5.42 to $9.00
Canceled (782,946) $5.03 to $6.00
Granted 1,000,000 $2.50
---------
Outstanding December 31, 1998 1,308,654 $1.00 to $5.50
Expired 76,654 $5.03 to $5.25
Canceled -
Granted 1,520,821 $.75
----------
Outstanding December 31, 1999 2,752,821 $.75 to $5.50
===========
</TABLE>
The Company's authorized but unissued common shares reserved for
issuance were as follows:
<TABLE>
<CAPTION>
Number of shares
------------------
December 31,
1999 1998
---- ----
<S> <C> <C>
Exercise of warrants 2,752,821 1,308,654
Stock option plans 1,266,988 975,488
Convertible preferred stock 6,572,223 6,250,000
---------- ---------
10,592,032 8,534,142
=========== =========
</TABLE>
F-22
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
12. STOCK OPTIONS
In April 1993, the Company adopted a stock option plan (the "Plan")
that was amended on November 1, 1996, for directors, employees and
consultants. The options granted may be either "incentive stock
options" (for officers and employees only) within the meaning
of Section 422A of the Internal Revenue Code, and/or nonqualified
stock options (for officers, employees, directors and consultants).
The exercise price of incentive stock options may not be less
than 100% of the fair market value of the Company's common stock
as of the date of grant (110% of the fair market value if the grant is to an
employee who owns more than 10% of the outstanding common stock of
the Company). As of December 31, 1999, only the Chief Executive
Officer of the Company owns more than 10% of the Company's
common stock. Nonqualified stock options may be granted under the
Plan at an exercise price less than the fair market value of the common
stock on the date of the grant. If nonqualified stock options are granted
for less than the market value, the Company must record compensation
expense for the difference between fair market value and the option price
per SFAS 123.
As of December 31, 1997, the board of directors authorized the granting
of options for up to 1,500,000 shares of common stock. Grants for
options to purchase 1,308,988 common shares, (823,752 were considered
incentive stock options), have been formalized under the Plan. The
options generally vest immediately or ratably up to ten years on differing
vesting schedules. The options expire at dates ranging from two to ten
years after date of grant.
During 1997, the Company granted stock options to consultants for the
purchase of 72,500 shares of common stock at exercise prices ranging
from $3.38 to $5.75 per share. During 1998, these options either fully
vested due to the reorganization in August 1998, or were cancelled.
During 1998, the Company granted stock options to a consultant for the
purchase of 25,000 shares of common stock at the exercise price of $.51.
Compensation expense relating to these stock options recorded for 1999
and 1998 was $8,365 and $67,678, respectively. The following table
summarizes information about stock options at December 31, 1999:
<TABLE>
<CAPTION>
Outstanding stock options Exercisable stock options
------------------------- -------------------------
Weighted Weighted
average Weighted average Weighted
Exercise remaining average remaining average
price contractual exercise contractual exercise
range Shares life price Shares life price
- --------- ------ ---------- ----- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$ .25-.35 583,752 6.56 $ .28 568,752 6.51 $ .29
.51-.85 365,000 8.84 .74 298,000 9.01 .79
1.81-3.06 69,500 4.37 2.53 69,500 4.37 2.53
4.75-5.50 290,736 6.27 5.30 290,736 6.27 5.30
- --------- ------- ---- ---- -------- ---- ----
$.25-5.50 1,308,988 7.02 $1.64 1,226,988 6.94 1.72
========= ========= ==== ===== ========= ==== =====
</TABLE>
F-23
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
12. STOCK OPTIONS (continued)
The following table summarizes activity for the years ended December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
Weighted Weighted
average average
exercise exercise
Shares price Shares price
------ ----- ------ -------
<S> <C> <C> <C> <C>
Outstanding on January 1, 1,288,988 $ 1.71 590,778 $ 4.73
Exercised - - - -
Expired - - (22,424) 3.20
Forfeited - - - -
Canceled (250,000) 1.06 (205,618) 3.30
Granted 270,000 .78 926,252 .53
--------- ----- -------- ------
Outstanding on December 31, 1,308,988 $1.64 1,288,988 $1.71
========= ===== ======== ======
Exercisable on December 31, 1,266,988 $1.72 975,488 $ 1.98
Shares available on December ========= ===== ======== ======
31, for options that may
be granted 191,012 211,012
======= =======
Weighted average fair value
of options granted $ .15 $ .43
======= =======
</TABLE>
As required by SFAS 123, pro forma information regarding net income and
earnings per share was determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value for these
options was estimated at the date of grant using the Black-Scholes option-
pricing model with the following assumptions used for grants in 1999 and
1998:
<TABLE>
<CAPTION>
For the year ended December 31,
1999 1998
---- ----
<S> <C> <C>
Risk free interest rate 5.92% 4.58%
Expected lives (years) 10 2.9-10
Expected volatility 3.395 1.72
Expected dividend yield - -
</TABLE>
F-24
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
12. STOCK OPTIONS (continued)
The Company's pro forma information under SFAS 123 for the years ended
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
As Pro As Pro
reported forma reported forma
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Net loss $ (631,569) $(727,352) $(14,675,433) $(14,841,336)
Preferred stock dividends (812,377) (812,377) (815,071) (815,071)
--------- --------- --------- ---------
Net loss available
to common stockholders $(1,443,946) $(1,539,729)$(15,490,504) $(15,656,407)
=========== ========= ========== ==========
Net loss per share:
Basic and diluted $ (.09) $(.09) $ (2.15) $ (2.17)
======= ===== ======= =======
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from traded options,
and because changes in the subjective input assumptions can materially
affect the fair value estimate, the existing models, in management's
opinion, do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. The effect of
compensation expense from stock option awards on pro forma net loss
reflects only the vesting of 1995 through 1999 awards in 1999 and the
vesting of 1995 through 1998 awards in 1998, in accordance with SFAS
123. Because compensation expense associated with a stock option
award is recognized over the vesting period, the initial impact of
applying Statement 123 may not be indicative of compensation expense
in future years, when the effect of the amortization of multiple awards
will be reflected in pro forma net loss.
F-25
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
13. INCOME TAXES
As of December 31, 1999, the Company had net operating loss
carryforwards of approximately $4,288,000 available to offset future
taxable income. Such carryforwards, which may provide future tax
benefits, expire in the years 2008 through 2019. Research tax credits of
$187,000 expire in the years 2008 through 2018. During the years 1993,
1995 and 1998 changes in ownership of greater than 50% occurred as a
result of the Company issuing equity securities. As a result, a substantial
limitation may be imposed upon the future utilization of its net operating
loss carryforwards.
For financial reporting purposes, a valuation allowance of $4,288,000
has been recognized to offset the net deferred tax asset related to these
carryforwards because realization of the benefit is considered unlikely.
Significant components of the Company's deferred income taxes are as
follows at December 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net operating loss carryforwards $4,172,000 $3,751,000
Other 148,000 148,000
---------- ----------
Deferred tax assets 4,320,000 3,899,000
Deferred tax liabilities - equipment (32,000) (4,000)
--------- ---------
4,288,000 3,895,000
Less: valuation allowance (4,288,000 (3,895,000)
--------- ---------
Net deferred tax assets $ - $ -
========= =========
</TABLE>
The net change in the valuation allowance for the years ended December
31, 1999 and 1998 was an increase of approximately $421,000, and a
decrease of approximately $261,000, respectively.
The difference between the benefit for income taxes and the amount,
which results from applying the federal statutory tax rate of 34% to the
loss, is due primarily to the non-deductible items and increases in the
valuation allowance in 1999 and 1998, resulting in no tax benefit
reported in any of those years.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Tax at statutory rate (34.00)% (34.00)%
State taxes, net of federal benefit (3.63)% (3.63)%
Non-deductible items (18.00)% 35.53 %
Change in valuation allowance 60.47 % .67 %
Other (4.80)% (2.77)%
-------- --------
- -
======== ========
</TABLE>
F-26
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
14. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its office and lab facility and certain equipment
under operating leases or a license agreement with remaining terms as of
December 31, 1999, ranging from three to eight months at an average
monthly rate of $1,788. All leases have remaining terms of less than one
year.
Rent expense under operating leases was $120,868 and $66,319 for the
years ended December 31, 1999 and 1998, respectively.
Employment Agreements
On August 25, 1998, the board of directors issued a memorandum to the
Chief Executive Officer, President and Chief Financial Officer of the
Company ("CEO"), outlining, in general, the terms of his employment
effective as of September 1, 1998. The memorandum provides for an
initial base salary of $130,000, which subsequently increased to
$150,000, and may increase up to $200,000 in a series of stepped
increments upon the achievement of specified milestones. In May 1999,
the CEO voluntarily reduced his base annual salary to $126,000 in order
to reduce the Company's expenses. The memorandum also provides for
the grant to the CEO of a ten-year option to purchase 500,000 shares of
the Company's common stock at the stock price at the close of trading on
August 25, 1998, which vested based on the achievement of specific
milestones set by the board of directors. The grant was subject to an
increase in the number of shares available for issuance under the
Company's stock option plan sufficient to cover the grant, which
occurred in the year ending December 31, 1999. In the event that the
CEO's employment is terminated without "cause" before three years, he
is entitled to severance of six months' salary, subject to his mitigation of
such payment by seeking other employment. All of his stock options will
vest immediately and will remain exercisable for the original term of the
option in the event his employment is terminated due to an acquisition by
merger with a third party that he has not recommended and/or approved.
F-28
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
12. COMMITMENTS AND CONTINGENCIES (continued)
As part of the reorganization transactions, the Company entered into an
employment agreement with the former Chief Executive Officer and
President (the "President") of Gemini, in August of 1998, for a term
expiring in August of 2001. This agreement was cancelled during the
year ended December 31, 1999 (see below).
Contingencies and Litigation
In August 1994, a competitor of the Company filed a lawsuit against the
Company and certain of its present and former directors and officers
alleging the defendants had engaged in deceptive acts and practices, false
advertising, unfair competition, breach of contracts of fiduciary duties
between the plaintiff and certain Company employees. They also alleged
the Company was involved in facilitating or participating in the breach
of contracts. The plaintiff is seeking an injunction to rectify the effects of
the misconduct, an unspecified amount of compensatory damages,
disengorgement of profits, treble damages, punitive damages and
attorney's fees. The plaintiff also seeks unspecified injunctive relief
prohibiting the Company from engaging in the alleged acts and ordering
the defendants to take remedial action to rectify the effects on consumers
and the plaintiff caused by the alleged acts. The Company and its
competitor have negotiated a settlement in principle. While no formal
settlement agreement has been executed, the Company has recorded a
liability of $50,000 in connection with this litigation.
On July 14, 1998, a former employee of the Company filed a complaint
alleging failure by the Company to make payments of $20,000 due to
him under an agreement pursuant to which the former employee and the
Company had agreed to the terms of the termination of their
employer-employee relationship. In December 1998, the former
employee and the Company entered into a settlement agreement under
which the Company is obligated to pay $16,500 in monthly installments
of $1,500 beginning on December 1, 1998. At December 31, 1999, the
settlement agreement had been paid in full.
On September 17, 1999, the Company settled pending litigation instituted
by the Company against the former President of Gemini (the former
"President"). As part of the settlement agreement, 950,000 shares were
issued with a market value of $209,000 in exchange for 6,000,000
partnership units in Gemini. As settlement on the former President's
employment agreement, payments totalling $40,000 were to be made in
monthly installments of $5,000 each, commencing with the signing of
the settlement agreement and continuing through June 1, 2000.
Additionally, two issuance of stock are to be made on May 14, 2000 and
May 16, 2001. The two issuance will have a total value of $242,000.
The number of shares issued will be based on the higher of $.5022 per
share (the average blended per share price paid by Elan International for
its common stock investment, or the average bid market price at the close
of business on the 20 consecutive trading days immediately preceding
each issuance date, minus any amounts earned by the former President from
other employment or third party consulting services performed during
the period from the date of the agreement until May 16, 2000 and from
May 17, 2000 to May 16, 2001. The Company recorded compensation
expense to account for this transaction at December 31, 1999, and
additionally reserved 481,879 shares for issuance.
F-29
<PAGE>
ELECTROPHARMACOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
14. COMMITMENTS AND CONTINGENCIES (continued)
In July 1999, Copelco Credit Corporation filed suit against the Company
alleging breach of lease agreement in connection with a copier. The
plaintiff is seeking to accelerate all sums due under the lease agreement.
Management estimates that the loss that could result from an unfavorable
outcome of this litigation is approximately $50,000, and a liability in that
amount was accrued for the year ended December 31, 1999.
F-30
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On March 12, 1999, the Company advised representatives of Ernst &
Young LLP that Ernst & Young would no longer be engaged as the independent
accountants to audit the Company's financial statements for the fiscal
year ending December 31, 1998 and terminated the relationship. The
Company's decision to change accountants was based on the amount of
professional fees charged by Ernst & Young in the previous two years. The
decision to change the accountants was recommended by the Audit Committee
of the Board of Directors and approved by the Board of Directors of the
Company.
<PAGE>
Ernst & Young's audit reports on the Company's financial statements
for the past two fiscal years ending December 31, 1997 were qualified as
to uncertainty due to the Company's significant recurring operating
losses, working capital deficit and net capital deficiency which raised
substantial doubt about the Company's ability to continue as a going
concern. In connection with its audits for the two most recent fiscal
years ended December 31, 1997 and during the subsequent interim periods,
there have been no disagreements with Ernst & Young on any matter of
accounting principles or practices, financial statement disclosures, or
auditing scope or procedure which disagreement, if not resolved to the
satisfaction of Ernst & Young, would have caused it to make a reference to
the subject matter of the disagreement in connection with its report. The
Company engaged Sweeney, Gates & Company as its new independent
accountants effective March 16, 1999.
Item 9. Directors and Executive Officers; Compliance with Section 16(b)
of the Exchange Act.
The current directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION
NAME AGE POSITION
- ----- --- --------
<S> <C> <C>
Arup Sen, Ph.D. 48 Chairman of the Board, Chief
Executive Officer, President,
Chief Financial Officer and
Secretary
Richard Kneipper 56 Vice Chairman of the Board
Stephen Seiler 44 Director
Murray Feldman 64 Director
Bernard V. Carrico 54 Director
</TABLE>
DR. ARUP SEN has been Chairman of the Board of Directors, Chief
Executive Officer and President of the Company since April 1997 and prior
thereto was Executive Vice President since November 1996. He was
appointed Chief Financial Officer of the Company in January 2000. He co-
founded HealthTech Development Inc., a biotechnology commercialization
company, in December 1993 and served as its Chairman and Chief Executive
Officer until November 1996 and thereafter was Chairman until HealthTech's
merger with the Company in August 1998. From April, 1995 until November
1996 he also served as Vice Chairman of HealthTech Diagnostics
Corporation, a specialty clinical testing laboratory with multiple
locations throughout the U.S. Dr. Sen was President of Dallas Biomedical,
Inc., a medical technology venture capital fund in Dallas, Texas, from
July 1992 until August, 1993. Dr. Sen received a Ph.D. in biochemistry
in from Princeton University and has served on the staff of the National
Cancer Institute and the Research Institute of Scripps Clinic. He is an
inventor in more than 20 U.S. and foreign patents related to the diagnosis
and treatment of cancer, osteoporosis, atherosclerosis, immune diseases
and AIDS. Dr. Sen serves on the board of directors of Aquagene, Inc., a
development stage biotechnology company developing transgenic fish for
human pharmaceutical production, and is a courtesy professor at
University of Florida, Gainesville Biotechnology Program.
<PAGE>
RICHARD K. KNEIPPER has been Vice Chairman of the Board of Directors
since August 1998. Mr. Kneipper was the co-founder and served as
President and Chief Executive Officer of HealthTech Development Inc. from
1996 until its merger into the Company in August 1998. He co-founded in
1995 and served as the Chairman of the Board of HealthTech Diagnostics
Corporation, a specialty clinical testing laboratory with multiple
locations throughout the U.S., where he led its mergers and acquisitions,
private financing and a sale of substantially all assets to a public
company in January 1997. Mr. Kneipper was a senior partner at the law
firm of Jones, Day, Reavis & Pogue from 1982 until 1996, when he elected
to become Of Counsel in order to devote a significant portion of his time
to various business activities. He received his Bachelors of Science
degree from Washington & Lee University and his J.D. degree from Cornell
University. Mr. Kneipper is Chief Administrative Officer and a director
of Provider HealthNet Services, Inc., a healthcare information services
company, a director of International Sourcing Ltd., an information
services company, and Genopath Technologies Inc., which provides
phenotyping services for genetically engineered animals.
STEPHEN SEILER has been a director of the Company since December 1998.
Since 1995, he has been Executive Vice President of Planning, Investment
& Development for Elan Corporation plc., a pharmaceutical company. Prior
to joining Elan, Mr. Seiler was an investment banker with Paribas
Capital Markets in New York and London from 1991 to 1995. Mr. Seiler
previously practiced corporate law with Paul, Weiss, Rifkind, Wharton &
Garrison. Elan Corporation, plc, is entitled to nominate one director to
serve on the Company's Board of Directors pursuant to an agreement between
the Company and Elan. Stephen Seiler is Elan's current nominee for
director.
MURRAY FELDMAN has been a director of the company since September 1996.
Since June 1982, Mr. Feldman has been President of Murray Financial
Associates, Inc., a company primarily engaged in originating, selling and
servicing residential mortgages.
BERNARD V. CARRICO, JR. has been a Director of the Company since August
1998. Since March 1998, he has been a co-founder, President and Chief
Executive Officer of Argo Funding Company, LLC, a private investment firm.
From 1995 to August, 1997, he co-founded The Heartland Capital
Appreciation Fund, LP with Ms. Alice Walton and served as the President
and Chief Executive Officer of this $52 million investment fund. Prior
thereto, Mr. Carrico served as First Vice President of Drexel Burnham
Lambert in Dallas from 1987 to 1990; President and Chief Operating Officer
of Western Capital Corporation, a privately owned investment company in
Dallas, Texas from 1985 to 1987; and Chief Operating Officer of Christiana
Company, a Western Capital Corporation affiliate in Dallas, Texas; and as
Chief Financial Officer of Texas Federal Financial Corporation of Dallas.
Mr. Carrico received a B.S. from St. Joseph's College, Indiana
and an M.B.A. from Wayne State University, Detroit, Michigan.
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
<PAGE>
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than 10%
of the Company's common stock, to file with the Securities and Exchange
Commission ("SEC") initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the Company.
Officers, directors and greater than 10% shareholders are required by the
SEC regulation to furnish the Company with copies of all Section 16(a)
reports they file. The Company undertakes to file on behalf of its
directors, executive officers, and certain of its greater than 10%
shareholders all such required Section 16(a) Reports. To the Company's
knowledge, based solely on review of the copies of such reports furnished
to or filed by the Company or written representations from its officers
and directors or advice that no filings were required, during the 1999
fiscal year all officers, directors and greater than 10% beneficial owners
have complied with the Section 16(a) filing requirements except for one
late filing with respect to one acqusition transaction by Arup Sen, one
late filing with respect to one acquisition transaction by Jim Kaput,one
late filing with respect to one acquisition transaction by Richard
Kneipper, and one late filing with respect
to one dispostion transaction by Murray Feldman.
Item 10. Executive Compensation.
The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to
the Company's, Chief Executive Officer, President and Chief Financial
Officer (the "Named Executive Officer"). No other executive officer who
was employed by the Company in 1999 had a total annual salary and bonus in
excess of $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-term Compensation
----------------------
Annual Compensation Awards Payout
------------------- ------ ------
Securities
Other Annual Restricted
Name and Fiscal Compensation Stock Options/ LTIP Underlying
Principal Position Year Salary($) Bonus($) ($) Awards($) Sars(#) Payout($) ($) Compensation All Other
- ------------------ ---- --------- -------- --- ------------ ------- --------- ----- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arup Sen, Chairman 1999 131,295 - - 0 0 200,000 - - -
President & Chief 1998 132,981 - - 500(1) 0 261,966 63,654(3) - -
Financial Officer 1997 123,604 - - 6,000(1) 152,446(2) 25,000 - - -
</TABLE>
___________________________________
(1) Represents a car allowance.
(2) Represents the value on the various dates of grant of 116,047 shares
of Common Stock received by Dr. Sen in lieu of cash compensation.
(3) Represents amount payable to Dr. Sen representing the aggregate
exercise price of 244,823 options to purchase common stock pursuant
to Dr. Sen's prior employment agreement under which the Company's
obligated to pay Dr. Sen the exercise price of the options upon a
change in control. See "Employment Contracts, Termination of
Employment, and Change of Control Agreements."
(4) Aggregate restricted stock holdings at December 31, 1999 for Dr. Sen
were 2,385,087 shares of Common Stock valued at $166,956 on December
31,1999. All restricted stock awards vest immediately and are
entitled to receive dividends paid on the Common Stock, if any.
COMPENSATION OF DIRECTORS
<PAGE>
Pursuant to the Company's Non-Employee Directors' Equity
Compensation Plan, the Company pays each non-employee director $2,500 per
fiscal quarter in Common Stock priced at the closing on the last business
day of trading in such quarter, payable after January 1 of the following
year. At the time that a non-employee director joins the Board of
Directors, the director is granted a stock option of 15,000 shares of
Common Stock, which option is granted upon the director's attendance at
the first meeting of the Board of Directors, vests immediately with
respect to 20% of the underlying shares and with respect to the remaining
shares vests an additional 20% of the shares upon each anniversary year
thereafter. The option granted to the non-employee director is priced at
the fair market value on the date of grant determined by the average of
the last trading price on the 20 business days prior to the date of grant.
Directors who are also employees of the Company do not receive
compensation for their participation as members of the Board of Directors
of the Company.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE OF CONTROL
AGREEMENTS
In August 1998, the Board of Directors issued a memorandum to Arup
Sen, outlining in general the terms of employment of Dr. Sen as Chief
Executive Officer of EPI, effective as of September 1, 1998. The
memorandum provides for an initial base salary of $130,000, which was
increased to $150,000 and may further increase up to $200,000 in a series
of stepped increments upon the achievement of specified milestones. In
May 1999, Dr. Sen voluntarily decreased his annual base salary to $126,000
in order to reduce Company expenses. The memorandum also provides that
the Company will grant to Dr. Sen a ten- year option to purchase 500,000
shares at the stock price at close of trading on the date of grant (August
25, 1998), 200,000 of which have vested based on the achievement of
specific milestones set by the Board of Directors, with the remainder to
vest upon the achievement of other such milestones. The grant of these
options is subject to an increase in the number of shares available for
issuance under the Company's stock option plan sufficient to cover such
grant. In 1999, shares became available to cover 200,000 shares under the
grant. Stock and cash bonuses are to be at the sole discretion of the
Board of Directors. In the event that Dr. Sen's employment is terminated
without "cause" before three years, Dr. Sen is entitled to a severance of
six months' base salary subject to his mitigation of such payment by
seeking other employment. All his stock options will vest immediately and
will remain exercisable for the original term of the option in the event
his employment is terminated due to an acquisition by or merger with a
third party not recommended and/or approved by Dr. Sen, or without
"cause".
Prior to the reorganization of the Company in August 1998, Dr. Sen
had previously been a party to an employment agreement which granted him
certain options in lieu of cash salary the exercise price of which was to
be paid by the Company upon a change of control. On August 24, 1998, the
Company recorded a related party payable to Dr. Sen for $63,654 related
to the exercise of these options.
In August 1998, the Board of Directors also issued a memorandum to
David Saloff, a former director and executive vice president of the
Company outlining in general the terms of employment of Mr. Saloff as
Executive Vice President, Sales and Marketing of the Company, effective as
of September 1, 1998. Mr. Saloff resigned as an executive officer and
employee of the Company on October 1, 1999 and as a director of the
Company on March 23, 2000.
For a description of the employment agreement entered into between
the Company and Krishna Jayaraman, the former President and Chief
Executive Officer of Gemini Biotech and a former Vice Chairman of the
Company in September 1999, see "--Certain Relationship and Related
Transactions".
<PAGE>
STOCK OPTIONS
Option Grants During 1999 Fiscal Year
The following table provides information related to options granted
to the Named Executives during fiscal 1999.
<TABLE>
<CAPTION>
Individual Grants
Number of % of Total
Securities Options/SARS Exer-
Underlying Granted to cise
Options/SARS Employees in or Exp.
Name Granted Fiscal Year Base Date
- ---- --------- ----------- ----- ----
<S> <C> <C> <C> <C>
Arup Sen 200,000(1) 74.1% $.85 08/25/08
</TABLE>
(1) Shares vested immediately on the grant date.
Option Exercises During 1999 Fiscal Year and Fiscal Year End Option Values
The following table provides information related to options held by
the Named Executive. No stock options were exercised by the Named
Executive during fiscal 1999. The Company does not have any outstanding
stock appreciation rights.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options/SARS at FY-End(#) Options/SAR at FY-End ($)(1)
------------------------- ----------------------------
Shares Acquired Value
on Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
--------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Arup Sen 0 0 561,966 0 0 0
</TABLE>
<PAGE>
(1) The closing price for the Company's Common Stock as reported through
the OTC Bulletin Board on December 31, 1999, the last trading day of
the 1999 fiscal year, was $.07. Value is calculated on the basis of
the excess of the option exercise price over the product of $.07
multiplied by the number of shares of Common Stock underlying the
option.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 11, 2000,
regarding the beneficial ownership of Common Stock by each person known by
the Company to own beneficially 5% or more of the outstanding shares of
Common Stock, each director and executive officers of the Company, and the
directors and executive officers of the Company as a group. The persons
named in the table have sole voting and investment power with respect to
all shares of Common Stock owned by them, unless otherwise noted. The
address for each person below listed is c/o the Company, 12085 Research Drive
Gainesville, Florida 32601, unless otherwise noted.
<PAGE>
<TABLE>
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class
- ------------------------ -------------------- ----------
<S> <C> <C>
Arup Sen, Chairman of the
Board, Chief Executive Officer 2,947,053 (1)(2) 16.53%
and President
Richard K. Kneipper, Vice 1,475,193 (2) (3) 8.51%
Chairman and Director
Murray Feldman, Director 685,546 (2)(4)(5) 3.95%
Bernard Carrico, Director 78,191 (3)(5) *
Stephen Seiler, Director 75,350 (3)(5) *
Elan International Services,
Ltd.
102 St James Court
Flatts, Smith Parish, Bermuda,
FL04 13,303,237 (6) 48.62%
Norton Herrick
2295 Corporate Blvd., NW
Suite 222
Boca Raton, FL 33431 1,623,950 (2)(7) 9.40%
James Kaput
1424 Florence Ave
Evanston, Il 60201 1,422,002 (2) 8.23%
Paragon Capital Corporation
Spear, Leeds, Kellogg, LLC
c/o George Levine
1250 E. Hallandale Beach Blvd.
Suite 300
Hallandale, FL 33309 (2) 540,774 3.13%
All directors and executive
officers as a group (7 persons) 4,350,562 (9) 28.46%
</TABLE>
* Less than one percent (1%)
<PAGE>
(1) Includes 561,966 shares subject to presently exercisable options.
(2) In connection with the reorganization of the Company on August 24,
1998, a Master Agreement dated June 28, 1998 was entered into
among (i) the Company (ii) Norton Herrick, David Saloff, Murray
Feldman, George Levine, and Paragon Capital Corporation at Spear,
Leeds & Kellogg, LLC (collectively, the "EPHI Group"), (iii) Arup
Sen, James Kaput and Richard Kneipper (collectively, the "HTD
Group") and (iv) Krishna Jayaraman and his wife, Shashikala
Jayaraman (collectively, the "Gemini Group"). Pursuant to the
Master Agreement, the EPHI Group, the HTD Group and the Gemini
Group agreed that following the consummation of the
reorganization, in connection with the election of directors of
the Board of Directors of the Company, they, their transferees and
assigns, would each vote their shares of Common Stock in favor of
a seven-person board of directors, consisting of two persons
nominated by the EPHI Group, two person nominated by the HTD
Group, two persons nominated by the Gemini Group and one person
who is the Chief Executive Officer.In addition, in connection with
the election of the EPHI Group's nominees, Mr. Herrick and Mr.
Feldman have agreed with each other to support the nomination of,
and vote their shares in favor of a person selected by the other.
In connection with a litigation settlement in September 1999
between the Company and the Gemini Group, the Master Agreement was
terminated as to the Gemini Group's rights and obligations as to
the election directors. The Master Agreement will terminate on
the earliest to occur of (i) two years from the effective date of
the reorganization, or (ii) the date on which the market
capitalization of the Company equals or exceeds $40,000,000 for
any period of 20 trading days within any six-month period. To the
extent that this person or persons shares voting power pursuant to
the Master Agreement, such person or persons may be deemed to be a
member of a "group" with the EPHI Group and the HTD Group pursuant
to Rule 13d-5 under the Securities Exchange Act of 1934, (the
"Exchange Act") and this person or persons is deemed to
beneficially own the shares of Common Stock currently beneficially
owned by each of the other members of the group with which this
person or persons shares such voting power, namely, Mr. Herrick
(1,623,950 shares of Common Stock held by Mr. Herrick and 270,000
shares transferred to his sons), Mr. Saloff (259,199 shares of
Common Stock and 35,715 presently issuable shares as outside
directors' compensation), Mr. Feldman (601,389 shares of Common
Stock held by Mr. Feldman, 370,000 shares of Common Stock Mr.
Feldman sold to a third party, presently exercisable options to
purchase 22,500 shares of Common Stock, and 61,657 presently
issuable shares as directors' compensation), Mr. Levine and
Paragon Capital Corporation at Spear, Leeds & Kellogg, LLC
(540,774 shares of Common Stock), Dr. Sen (2,385,087 shares of
Common stock and presently exercisable options to purchase 561,966
shares of Common Stock), Mr. Kneipper (1,407,536 shares of Common
Stock, presently exercisable options to purchase 6,000 shares of
common stock, and 61,657 presently issuable shares of Common Stock
as directors' compensation) and Mr. Kaput (1,422,002 shares of
Common Stock). As of April 11, 2000, the shares of Common Stock
beneficially owned by the EPHI Group and the HTD Group represented
approximately 53.59% of the issued and outstanding shares of
Common Stock, calculated in accordance with Rule 13d-3 under the
Exchange Act (based on 17,268,325 shares of Common Stock issued
and outstanding at May 17, 1999, plus the 67,657, 35,715, 83,657
and 561,966 shares of Common Stock, respectively, issuable to
Messrs. Kneipper, Saloff, Feldman and Sen, respectively, upon
exercise of certain options or otherwise in each case which may be
deemed to be beneficially owned by such persons and which are
deemed outstanding for purposes of this computation). Each such
person or persons shares voting power of the shares of Common
Stock beneficially owned by the respective group to which he
belongs as described above, but has no other rights with respect
to such shares and disclaims beneficial ownership of such shares.
(3) Includes 6,000 shares subject to presently exercisable options.
(4) Includes 22,500 shares subject to presently exercisable options.
(5) Includes 61,657 shares presently issuable as outside directors'
compensation.
(6) Includes 7,886.7 shares and right to receive 1,197 shares of
Series A Convertible Preferred Stock convertible into 6,572,223
and 997,691 shares, respectively, of common stock, and currently
exercisable warrants to purchase 2,520,821 shares of Common
Stock.
(7) Mr. Herrick disclaims beneficial ownership of 60,000 shares of
Common Stock owned by Rozel International Holdings, which shares
are pledged to Mr. Herrick as security for a loan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Company Reorganization in August 1998, Mr.
Herrick, a greater than 5% beneficial owner of the Company, and the
Company agreed that upon consummation of the reorganization all shares of
preferred stock and all warrants held by Mr. Herrick (242,950 and
1,300,000, respectively) would be redeemed and exchanged for an aggregate
of 1,575,000 shares of Common Stock. In addition, each of Mr. Feldman, a
director and greater than 5% beneficial owner of the Company, and Paragon,
a greater than 5% beneficial owner of the Company, agreed with the Company
that upon consummation of the Reorganization, all warrants owned by each
of them (373,607 and 187,500, respectively), would be redeemed and
exchanged for 160,000 shares and 90,000 shares of Common Stock,
respectively. These exchanges resulted in a 1.872 million, or approximate
45% increase in the number of shares of then outstanding stock of the
Company.
In connection with the sale of the SofPulse assets to ADM Tronics in
August 1998, the Company used 1.525 million shares of ADM Tronics common
stock received to satisfy $650,000 of a $709,379 secured note payable for
previously incurred legal expenses owed to Jones, Day, Reavis and Pogue
("Jones, Day"), the Company's former legal counsel. The Company also
entered into an agreement with Jones, Day to allow Jones, Day to liquidate
its ADM Tronics stock prior to the Company liquidating the Company's ADM
Tronics stock holdingsuntil August 1999. In addition, in connection with
the reorganization, the Company issued to Jones, Day 322,831 shares of
common stock valued at $128,166 to satisfy the remaining portion of the
note payable and other past due payables to Jones, Day for legal services
previously rendered. Richard Kneipper, Vice Chairman of the Company and
a greater than 5% beneficial owner of the Company, serves as of counsel to
Jones, Day.
In connection with the merger of HealthTech into the Company in
August 1998, the Company issued an aggregate of 6,172,095 shares of common
stock of the Company to the shareholders of HealthTech, including Arup
Sen, Chairman of the Board, President and Chief Executive Officer of the
Company (2,250,203), Richard Kneipper (1,350,228) and James Kaput
(1,422,002). The HealthTech stockholders have the right to earn up to an
additional 1.65 million shares through December 31, 1999 upon the
occurrence of certain milestones with respect to HealthTech technologies.
In its second acquisition, the Company bought Gemini Biotech, Ltd.,
a privately held biotechnology limited partnership. The purchase was a
complex transaction in which 6 million shares of the Company common stock
were to be issued to Krishna Jayaraman, Vice Chairman and Chief Executive
Officer and President of the Biotech Division, and his wife, Shashikala
Jayaraman, in June 1999. Prior to the time that the common stock was to
be issued to the Jayaramans, the Jayaramans was to serve as the limited
partners and minority interest in the Company's operating entity, Gemini
Health Technologies L.P. The Jayaramans also had the right, ending in
<PAGE>
December 1999, to earn up to an additional 2.05 million shares of the
Company common stock upon the achievement of certain milestones with
respect to Gemini services and technologies.
On September 23, 1999, as a result of litigation initiated by the
Company in September 1999 in state court in Gainesville, Florida against
Dr. Jayaraman alleging certain misrepresentations and omissions in
connection with the Company's acquisition of Gemini, the Company and the
Dr. Jayaraman entered into a settlement agreement in which, among other
things, Dr. Jayaraman agreed to resign and the Company agreed to pay Dr.
Jayaraman certain amounts in order to secure a release of all the
Company's obligations to him, including those agreements entered into as
part of the Gemini acquisition. The settlement agreement provides the
following payments to the Former Gemini President: the sum of $40,000
payable over eight months, the issuance of 950,000 shares of common stock
of the Company in exchange for the Dr. Jayaraman's minority interests in
the Partnership, and the issuance of up to an additional $242,000 in value
of shares of common stock of the Company (priced at the greater of $.5022
per share or the average market price 20 days prior to issuance), payable
in two annual installments, beginning on May 16, 2000, to be reduced by
any amounts earned by Dr. Jayaraman from other employment or third party
consulting services from the date of the agreement through May 16, 2001.
In September 1998, Elan International Services invested $7.5 million
in convertible preferred stock of the Company, and agreed to invest an
aggregate of $2 million to buy the Company's common stock or other equity
securities at the average share price for 20 trading days prior to the
date of investment. In return for is $2 million investment, Elan
International acquired 3,212,522 shares of common stock, $386,667 of
convertible preferred stock and 2,520,821 warrants to purchase common
stock of the Company. Under the agreement with Elan International, a
substantial portion of the proceeds from Elan International's investment
must be used by the Company to fund further development of iontophoresis
products under the license agreement.
The Company acquired from Elan Pharma International, a company under
common control with Elan International Services, a worldwide license to
a new flexible iontophoresis patch technology in September 1998. The
Company made a total payment of $7.5 million for the acquisition of the
Elan technology and product prototype design. The Company is required to
make future payments of prescribed license fees and royalties payable from
the revenues from product sales and/or sublicensing to future corporate
partners.
In February 1999, Arup Sen, Chairman of the Board, President and
Chief Executive Officer of the Company, borrowed $85,000 from the Company,
evidenced by a demand promissory note bearing interest at the prime rate
plus 1% (currently 8.75%) per annum. The loan was repaid in full in 1999.
Item 13. Exhibits and Reports on Form 10-KSB
(a) The following exhibits are filed as part of this Annual Report
on Form 10-KSB:
Exhibit
Number Description of Exhibit
2.1 Asset Purchase Agreement among Electropharmacology, Inc. and
ADM Tronics Unlimited, Inc. ("ADM") and AA Northvale Medical
Associates, Inc. dated May 27, 1998 ("ADM Agreement") (1)
<PAGE>
2.1.1 Letter Amendment to ADM Agreement dated August 18, 1998 (2)
2.1.2 Warrant to EPI to purchase up to 1,500,000 shares of ADM
Common Stock dated August 18, 1998 (2)
2.1.3 Voting Trust Agreement between Jones, Day, Reavis & Pogue,
Andre DeMino and EPI dated August 18, 1998 (2)
2.1.4 Letter Agreement between Jones, Day, Reavis & Pogue and EPI
dated June 2, 1998 (2)
2.2 Agreement of Merger and Plan of Reorganization among Electro-
pharmacology, Inc., EPI Sub., Inc. and HealthTech Development,
Inc. ("HealthTech") dated June 11, 1998 ("HealthTech
Agreement") (3)
2.3 Capital Contribution Agreement between EPI HealthTech, Inc.
("EPI Sub"), Gemini Biotech, Ltd. ("Gemini"), Krishna and
Shashikala Jayaraman and Gemini Biotech, Inc., dated June 18,\
1998 (4)
2.4 Master Agreement dated as of June 28, 1998 among HealthTech,
Gemini, EPI, EPI Sub, and each of David Saloff, George Levine,
Paragon Capital at Spear, Leeds & Kellogg, Norton Herrick,
Murray Feldman and 20th Century Associates ("the Pre-Closing
EPI Stockholders"); Arup Sen, Richard Kneipper, James Kaput
("the HealthTech Stockholders"); Krishna Jayaraman, Shaskikala
Jayaraman, and Gemini Biotech, Inc.("the Gemini Partners") and
other EPI stockholders (4)
2.4.2 First Amendment to Master Agreement dated August 3, 1998
between EPI, EPI Sub, Gemini and the Gemini Partners (2)
2.4.3 Letter Agreement dated as of July 27, 1998 by and between
Messrs. Herrick and Feldman (2)
2.4.4 Form of Amendment to Master Agreement between Pre-Closing Epi
stockholders and the HealthTech Stockholders (5)
2.5 Registration Rights Agreement dated as of June 28, 1998 among
EPI, certain of the Pre-Closing EPI Stockholders, the HealthTech
Stockholders and the Gemini Partners (4)
2.6 Agreement of Limited Partnership of Gemini Health Technologies
L.P.dated June 18, 1998 by and between Krishna and Shaskikala
Jayaraman and EPI HealthTech Inc.(2)
2.7 Unit Exchange Agreement by and between EPI, Krishna and
Shaskikala Jayaraman, and Gemini Health Technologies L.P. dated
June 18, 1998 (4)
2.8 Contribution Agreement between EPI Sub and EPI dated August
18, 1998 (2)
2.9 Settlement Agreement between Electropharmacology, Inc. and
Krishna and Shashikala Jayaraman dated September 23, 1999 (6)
<PAGE>
3.1 Certificate of Incorporation, as amended (7)
3.2 Amendment to Bylaws dated June 24, 1997 (2)
3.2.1 Revised and Restated Bylaws of EPI (2)
3.3 Letter Agreement dated August 27, 1998 between Elan
International Services, Ltd., Elan Pharma International Limited
("EPIL") and Electropharmacology, Inc. (8)
3.4 Securities Purchase Agreement between EPI and Elan
International Services, Ltd. dated September 30, 1998 (9)
3.5 License Agreement between EPI and EPIL dated September 30,
1998 (10)
4.2 Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock (2)
4.3 Warrant to Elan International Services, Ltd. to purchase up to
1,000,000 shares of EPI Common Stock (2)
4.4 Registration Rights Agreement between EPI and EPIL dated
September 30, 1998 (2)
4.5 Form of Warrant to Elan International Services, Ltd. to
purchase up to 1,520,821 shares of common stock dated May 14,
1999 (5)
10.1 Employment Agreement between EPI and Krishna Jayaraman dated
August 18,1998 (2)
10.2 Memorandum to Arup Sen from EPI Board of Directors regarding
terms of employment dated August 25, 1998 (10)
10.2.1 Employment Agreement, dated November 11, 1996 between EPI and
Arup Sen ("Sen Employment Agreement") (11)
10.2.2 First Amendment, dated June 15, 1997 to Sen Employment
Agreement (12)
10.2.3 Revised and Restated Second Amendment, dated April 21, 1998,
to Sen Employment Agreement (2)
10.3 Memorandum to David Saloff from EPI Board of Directors, dated
August 25, 1998 regarding terms of employment (10)
10.4 Employee Nondisclosure, Confidentiality and Noncompetition
Agree-ment, dated August 24, 1998 between EPI and Arup Sen (2)
10.5 Form of Consulting Advisory and Non-Competition Agreement
between EPI and each of James Kaput and Richard Kneipper (2)
10.5.1 Form of Consulting Advisor Confidentiality Agreement between
EPI and each of James Kaput and Richard Kneipper (2)
<PAGE>
10.6 Benefit Life Insurance Loan Agreement between Delargen
Corp.dba Gemini Biotech, Ltd. and Benefit Life Insurance Company
dated June 25, 1997 (2)
10.6.1 Modification of Benefit Life Insurance Company Loan
Agreement, Note (Adjustable Rate Note) and Other Loan
Documents dated January 6, 1999 (2)
10.7 Promissory Note to Dr. Arup Sen from the Company dated October
10, 1997. (11)
10.8 Promissory Note to Murray Feldman from the Company dated
October 10, 1997. (11)
10.9 Promissory Note to David Saloff from the Company dated October
10, 1997. (11)
10.10 Form of Non-Employee Directors' Equity Compensation Plan,
effective as of January 1, 1996. (7)
10.11 The Company's 1993 Stock Option Plan, as amended November 1,
1996. (11)
10.12 Agreement between the Company, Arup Sen and Conceptua, Inc.
dated February 29, 2000 (5)
10.13.1 Incubator License Agreement between the University of Florida
Research Foundation, Inc. and the Company dated October 29,
1998 (the "License Agreement") (5)
10.13.2 Amendment No. 1 to the License Agreement dated July 23, 1999 (5)
10.13.3 Amendment No. 2 to the License Agreement dated October 13,
1999 (5)
10.14 Promissory Note to the Company from Dr. Arup Sen dated
February 1, 1999 (13)
16.2 Letter from Ernst & Young, LLP regarding response to Change in
Certifying Accountants, dated March 23, 1999 (12)
24.1 Power of Attorney (5)
27.1 Financial Data Schedule (5)
- -----------
<PAGE>
(1) Previously filed as an exhibit to the Company's current Report
on Form 8-K dated June 15, 1998 and incorporated by reference
herein.
(2) Previously filed as an exhibit to Amendment No. 1 to the
Company's Quarterly Report on Form 10-QSB dated March 31, 1999 for
the quarter ended September 30, 1998 and incorporated
by reference herein.
(3) Previously filed as an exhibit to the Company's Current Report
on Form 8-K dated June 26, 1998 and incorporated by reference
herein.
(4) Previously filed as an exhibit to the Company's Current Report
on Form 8-K dated July 6, 1998 and incorporated by reference
herein.
(5) Filed herewith.
(6) Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1999 and
incorporated by reference herein.
(7) Previously filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1996 and
incorporated by reference herein.
<PAGE>
(8) Previously filed as an exhibit to the Company's Current Report
on Form 8-K dated September 4, 1998 and incorporated by reference
herein.
(9) Previously filed as an Exhibit to Amendment No. 6 to the
Company's Quarterly Report on Form 10-QSB dated March 29,
2000 for the quarter ended September 30, 1998 and
incorporated by reference herein.
(10) Previously filed as an Exhibit to Amendment No. 5 to the
Company's Quarterly Report on Form 10-QSB dated January 26,
2000 for the quarter ended September 30, 1998 and incorporated
by reference herein.
(11) Previously filed as an Exhibit to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1997 and
incorporated by reference herein.
(12) Previously filed as an Exhibit to the Company's Current Report
on Form 8-K dated March 31, 1999 and incorporated by
reference herein.
(13) Previously filed as an Exhibit to the Company's Quarterly
Report on Form 10-QSB for the quarter ended March 31, 1999
and incorporated by reference herein.
(b) Reports on Form 8-K
None.
<PAGE>
Electropharmacology, Inc.
In accordance with the Exchange Act, this Annual Report on Form 10-KSB has
been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
ELECTROPHARMACOLOGY, INC.
BY: /S/ Arup Sen
Arup Sen
Chairman of the Board, Chief
Executive Officer, President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Registrant
Statement has been signed by the following persons in the capacities indicated
on April 17, 2000.
Signatures Title
---------- -----
/s/ Arup Sen Chairman of the Board
______________________________ Chief Executive Officer, Chief
Arup Sen Financial Officer and President
__________*___________________ Director
Murray Feldman
_____________________________ Vice Chairman of the Board
Richard Kneipper
______________________________ Director
Bernard Carrico
______________________________ Director
Stephen Seiler
* The undersigned, by signing his or her name hereto, does sign and
execute this Form 10-KSB pursuant to the Powers of Attorney executed on
behalf of the above-named officers and directors and contemporaneously
filed herewith with the Securities and Exchange Commission.
By: /s/ Arup Sen
Arup Sen
Attorney-in-fact
<PAGE>
Exhibit 2.4.4
To. Mr. Murray Feldman1
Mr. Norton Herrick
Dr. James Kaput
Mr. David Saloff1
Mr. John Banas
Mr. Richard Kneipper1
From: Arup Sen
Date: March 14, 2000
Re: Amendment to the Master Agreement dated as of June 28, 1998
by and between each of the addressee above and
Electropharmacology, Inc. (the "Master Agreement").
A number of requests have been received by the Company from some of
you desiring to sell your shares that either carry a restrictive legend or
are otherwise subject to the voting provisions of the Master Agreement.
At the next scheduled meeting of the Board of Directors of the Company,
I will present the request to the Board. The meeting is expected to be
held on or about March 23. The Company will then inform each of you as
to the Board's recommendation.
It is important for you to understand that all available energy of the
limited staff of the Company must be devoted to running the Company's
business. At this time of the year, the Company has to conclude its
annual audit and file its annual report with the Securities and Exchange
Commission. In addition, as you all know, the Company needs additional
financing to continue its business. This requires full attention of the
Company's management.
I will sincerely appreciate it if each of you as significant shareholders
of the Company refrain from calling the Company or its counsel until such
time as the Board has made a recommendation regarding the Master
Agreement.
Sincerely,
Arup Sen
President & Chief Executive Officer
cc: Mr. Steve Seiler, Director
Mr. Bernard Carrico, Director
Michael Francis, Esq., Ackerman, Senterfeit (counsel to Mr. Norton
Herrick)
Also, members of the Company's Board of Directors
<PAGE>
Exhibit 4.5
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OR OTHER JURISDICTION. WITHOUT SUCH
REGISTRATION, NO TRANSFER OF THESE SHARES OR ANY
INTEREST THEREIN MAY BE MADE UNLESS THE
CORPORATION HAS RECEIVED AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE CORPORATION
THAT SUCH TRANSFER DOES NOT REQUIRE SUCH
REGISTRATION.
ELECTROPHARMACOLOGY, INC.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
THIS CERTIFIES THAT, for value received, Elan
International Services, Ltd., a Bermuda corporation, or its permitted
assigns (each, a "Holder"), is entitled to subscribe for and purchase up to
1,520,821 shares (as adjusted pursuant to Section 4 hereof, the "Shares")
of the fully paid and nonassessable common stock, par value $.01 (the
"Common Stock"), of Electropharmacology, Inc., a Delaware
corporation (the "Company"), at the price of $0.75 per share (such price,
and such other prices as shall result from time to time, from the
adjustments specified in Section 4 below, the "Warrant Price"), subject to
the provisions and upon the terms and conditions hereinafter set forth.
1. Term. Subject to the limitations set forth in Section 3
and 4 below, the purchase right represented by this Warrant is exercisable,
in whole or in part, at any time, and from time to time, from and after the
date that is 210 days after the date hereof and until 5:00 p.m. Eastern
Daylight Time November 14, 2005. To the extent not exercised at 5:00
p.m. Eastern Daylight Time on November 14, 2005, this Warrant shall
completely and automatically terminate and expire, and thereafter it shall
be of no force or effect whatsoever.
2. Method of Exercise; Payment; Issuance of New Warrant.
(a) The purchase right represented by this Warrant may be exercised by
the Holder, in whole or in part and from time to time, by the surrender of
this Warrant (with the notice of exercise form attached hereto as Annex A
duly executed) at the principal office of the Company and by the payment
to the Company of an amount, in cash or other immediately available
funds, equal to the then applicable Warrant Price per share multiplied by
the number of Shares then being purchased.
(b) The person or persons in whose name(s) any
certificate(s) representing shares of Common Stock shall be issuable upon
exercise of this Warrant shall be deemed to have become the holder(s) of
record of, and shall be treated for all purposes as the record holder(s) of,
the Shares represented thereby (and such Shares shall be deemed to have
<PAGE>
been issued) immediately prior to the close of business on the date or dates
upon which this Warrant is properly exercised and full payment for the
Shares acquired pursuant to such exercise is made. Upon any exercise of
the rights represented by this Warrant, certificates for the Shares
purchased shall be delivered to the holder hereof as soon as possible and
in any event within 30 days of receipt of such notice and payment, and
unless this Warrant has been fully exercised or expired, a new Warrant
representing the portion of Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the
holder hereof as soon as possible and in any event within such 30-day
period.
3. Stock Fully Paid, Reservation of Shares. All Shares that
may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be duly authorized, fully paid and nonassessable, and
will be free from all taxes, liens and charges with respect to the issue
thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized,
and reserved for the purpose of the issue upon the exercise of the purchase
rights evidenced by this Warrant, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. Adjustment of Warrant Price and Number of Shares.
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to the adjustment from
time to time upon the occurrence of certain events, as follows:
(a) Reclassification, Etc. In case of any reclassification,
reorganization, change or conversion of securities of the class issuable
upon exercise of this Warrant (other than a change in par value, or from
par value to no par value) of other shares or securities of the Company, or
(ii) any consolidation of the Company with or into another corporation
(other than a merger or consolidation with another corporation in which
the Company is the acquiring and the surviving corporation and which
does not result in any reclassification or change of outstanding securities
issuable upon exercise of this Warrant), or (iii) any sale of all or
substantially all of the assets of the Company, then the Company, or such
successor or purchasing corporation, as the case may be, shall duly
execute and deliver to the holder of this Warrant a new Warrant or a
supplement hereto (in form and substance reasonably satisfactory to the
holder of this Warrant), so that the holder of this Warrant shall have the
right to receive, at a total purchase price not to exceed that payable upon
the exercise of the unexercised portion of this Warrant, and in lieu of the
shares of Common Stock theretofore issuable upon the exercise of this
Warrant, the kind and amount of shares of stock and other securities,
receivable upon such reclassification, reorganization, change or
conversion by a holder of the number of shares of Common Stock then
purchasable under this Warrant. Such new Warrant shall provide for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4. The provisions of this Section
4(a) shall similarly attach to successive reclassifications, reorganizations,
changes, and conversions.
(b) Subdivision or Combination of Shares. If the
Company at any time during which this Warrant remains outstanding and
unexpired shall subdivide or combine its Common Stock, (i) in the case of
a subdivision, the Warrant Price shall be proportionately decreased and the
number of Shares purchasable hereunder shall be proportionately
increased, and (ii) in the case of a combination, the Warrant Price shall be
proportionately increased and the number of Shares purchasable hereunder
shall be proportionately decreased.
<PAGE>
(c) Below Market Issuance; Stock Dividends; Etc. If the
Company at any time while this Warrant is outstanding and unexpired
shall (i) issue or sell any shares of Common Stock at a price below
average of the closing bid prices for the Common Stock, as reported by the
principal exchange upon which the Common Stock trades, for the 20
consecutive trading days ending with the day which is two trading days
prior to the date of issuance (the "Market Price"), other than shares issued
pursuant to the exercise of warrants outstanding as of the date hereof, (ii)
issue, sell or fix a record date for the issuance of rights, options, warrants
or other securities exercisable, convertible or exchangeable into Common
Stock (collectively, "Options"), at a price per share (or exercise,
conversion or exchange price per share) which is below Market Price, (iii)
pay a dividend with respect to Common Stock payable in Common Stock
or Options, (iv) issue any Options to officers, directors, employees or
consultants to the Company, other than up to 2,250,000 shares of Common
Stock pursuant to a duly authorized and constituted stock option plan,
having an exercise price (on a per-share basis) below the Market Price, or
(v) make any other distribution with respect to Common Stock (except any
distribution specifically provided for in Sections 4(a) and (b) above), the
price at which the holder of this Warrant shall be able to purchase Shares
shall be adjusted by multiplying the Warrant Price in effect immediately
prior to such date of determination of the holders of securities entitled to
receive such distribution, by a fraction (A) the numerator of which shall be
the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (B) the denominator of which
shall be the total number of shares of Common Stock outstanding
immediately after such dividend or distribution, as if all of such Options
had been exercised and the Company received the consideration payable
in respect thereof. Upon each adjustment in the Warrant Price pursuant to
this Section 4(c), the number of Shares of Common Stock purchasable
hereunder shall be adjusted, to the nearest whole share, to the product
obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Warrant Price by a fraction, the numerator
of which shall be the Warrant Price immediately prior to such adjustment
and the denominator of which shall be the Warrant Price immediately
thereafter.
(d) Repurchases or Redemptions of Common Stock or
Options. If the Company at any time while this Warrant is outstanding
and unexpired shall repurchase or redeem any outstanding shares of
Common Stock, or any Options, the Warrant Price shall thereupon be
adjusted by multiplying the Warrant Price in effect immediately prior to
such repurchase or redemption by a fraction (i) the numerator of which
shall be Warrant Price in effect immediately prior to such repurchase or
redemption and (ii) the denominator of which shall be the per share fair
market value of the consideration paid for each of the shares of Common
Stock and/or Options at the time of purchase or redemption. Upon each
adjustment in the Warrant Price pursuant to this Section 4(d), the number
of Shares of Common Stock purchasable hereunder shall be adjusted, to
the nearest whole share, to the product obtained by multiplying the
number of Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant
Price immediately prior to such adjustment and the denominator of which
shall be the Warrant Price immediately thereafter. For purposes of this
section, "Market Price" shall mean the average of the closing bid prices of
the Common Stock for 10 consecutive trading days, ending with the
<PAGE>
trading day which is two days prior to the date of the relevant Repurchase
or Redemption, as reported by the principal exchange or over the counter
market upon which the Common Stock is traded; or if not so reported, a
price per share determined in good faith by the Board of Directors of the
Company as being equal to the fair market value of a share of Common
Stock.
(e) No Impairment. The Company will not, by
amendment of its charter or bylaws or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of this Warrant against impairment.
(f) Notice of Adjustments. Whenever the Warrant Price
or the number of Shares purchasable hereunder shall be adjusted pursuant
to this Section 4, the Company shall prepare a certificate setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated. Such
certificate shall be signed by its chief financial officer and shall be
delivered to the holder of this Warrant.
(g) Fractional Shares. No fractional shares of Common
Stock will be issued in connection with any exercise hereunder, but in lieu
of such fractional shares the Company shall make a cash payment therefor
based on the fair market value of the Common Stock on the date of
exercise as reasonably determined in good faith by the Company's Board
of Directors.
(h) Cumulative Adjustments. No adjustment in the
Warrant Price shall be required under this Section 4 until cumulative
adjustments result in a concomitant change of 1% or more of the Warrant
Price or in the number of shares of Common Stock purchasable upon
exercise of this Warrant as in effect prior to the last such adjustment;
provided, however, that any adjustments which by reason of this Section 4
are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section
4 shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
5. Compliance with Securities Act; Disposition of Warrant
or Shares of Common Stock. (a) The holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the Shares to be issued
upon exercise hereof are being acquired for investment and that such
holder will not offer, sell or otherwise dispose of this Warrant or any
Shares to be issued upon exercise hereof except under circumstances
which will not result in a violation of applicable securities laws. Upon
exercise of this Warrant, unless the Shares being acquired are registered
under the Securities Act of 1933, as amended (the "Act"), or an
exemption from the registration requirements of such Act is available, the
holder hereof shall confirm in writing, by executing an instrument in form
reasonably satisfactory to the Company, that the Shares so purchased are
being acquired for investment and not with a view toward distribution or
resale. This Warrant and all Shares issued upon exercise of this Warrant
(unless registered under the Act) shall be stamped or imprinted with a
legend in substantially the following form:
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OR OTHER JURISDICTION. WITHOUT SUCH
REGISTRATION, NO TRANSFER OF THESE SHARES OR ANY
INTEREST THEREIN MAY BE MADE UNLESS THE
CORPORATION HAS RECEIVED AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE CORPORATION
THAT SUCH TRANSFER DOES NOT REQUIRE SUCH
REGISTRATION.
(b) (i) With respect to any offer, sale or other disposition of
this Warrant or any Shares acquired pursuant to the exercise of this
Warrant prior to registration of such Shares, the holder hereof and each
subsequent holder of this Warrant agrees to give written notice to the
Company prior thereto, describing briefly the manner thereof, together
with a written opinion of such holders counsel, if requested by the
Company, to the effect that such offer, sale or other disposition may be
effected without registration or qualification (under the Act as then in
effect or any federal or state law then in effect) of this Warrant or such
Shares and indicating whether or not under the Act certificates for this
Warrant or such Shares to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
ensure compliance with the Act. Promptly upon receiving such written
notice and reasonably satisfactory opinion, if so requested, the Company,
as promptly as practicable, shall notify such holder that such holder may
sell or otherwise dispose of this Warrant or such Shares, all in accordance
with the terms of the notice delivered to the Company. Notwithstanding
the foregoing, this Warrant or such Shares may be offered, sold or
otherwise disposed of in accordance with Rule 144 as promulgated under
the Act ("Rule 144"), provided that the Company shall have been
furnished with such information as the Company may reasonably request
to provide a reasonable assurance that the provisions of Rule 144 have
been satisfied. Each certificate representing this Warrant or the Shares
thus transferred (except a transfer pursuant to Rule 144) shall bear a
legend as to the applicable restrictions on transferability in order to insure
compliance with the Act, unless in the aforesaid opinion of counsel for
the holder such legend is not required in order to insure compliance with
the Act. The Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions.
(ii) The shares of Common Stock underlying this Warrant
are entitled to the benefit of certain registration rights as set forth in a
Registration Rights Agreement dated as of the date hereof between the
Company and the initial Holder named herein.
(c) Notwithstanding any other provision in this Warrant,
the Holder may transfer this Warrant in whole and only if the transferee is
an affiliate of the Holder.
6. Rights as Shareholders. No holder of this Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder
of Shares or any other securities of the Company which may at any time
<PAGE>
be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the holder of this Warrant, as
such, any right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until
this Warrant shall have been exercised and the Shares purchasable upon
the exercise hereof shall have become deliverable, as provided herein.
7. Representations and Warranties. The Company
represents and warrants to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by
the Company and is a valid and binding obligation of the Company
enforceable in accordance with its terms;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable; and
(c) The execution and delivery of this Warrant are not, and
the issuance of the Shares upon exercise of this Warrant in accordance
with the terms hereof will not be, inconsistent with the Company's charter
or bylaws, as amended, and do not and will not constitute a default under,
any indenture, mortgage, contract or other instrument of which the
Company is a party or by which it is bound.
8. Miscellaneous. (a) This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by an
instrument in writing signed by both the Company and the holder of this
Warrant.
(b) Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company
shall (i) be in writing, (ii) be delivered personally or sent by mail or
overnight courier to the intended recipient to each such holder at its
address as shown on the books of the Company or to the Company at the
address indicated therefor on the signature page of this Warrant, unless the
recipient has given notice of another address, and (iii) be effective on
receipt if delivered personally, two business days after dispatch if mailed,
and one business day after dispatch if sent by overnight courier service.
(c) The Company covenants to the holder hereof that upon
receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon receipt of a bond or indemnity
reasonably satisfactory to the Company, or in the case of any such
mutilation upon surrender and cancellation of such Warrant, the Company
will make and deliver a new Warrant, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant.
(d) The descriptive headings of the several sections and
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
(e) This Warrant shall be governed by and construed and
enforced in accordance with, and the rights of the parties shall be
governed by, the laws of the State of New York, without giving effect to
the choice of law rules thereof.
[Signature page follows]
<PAGE>
IN WITNESS WHEREOF, Electropharmacology, Inc. has
executed this Warrant as of the date set forth below.
Electropharmacology, Inc.
By:______________________
Arup Sen
Chairman, President
and Chief Executive Officer
Dated: May __, 1999
<PAGE>
Annex A
NOTICE OF EXERCISE
To: Electropharmacology, Inc.
1. The undersigned hereby elects to purchase _____ shares of
Common Stock of Electropharmacology, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith full payment of the purchase price
of such shares, in cash or other immediately available funds.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are
specified below:
_____________________________________(Name)
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that
the undersigned has no present intention of distributing or reselling such
shares.
Signature:
Name: ______________________________
Address:___________________________
___________________________
___________________________
Social Security or taxpayer identification
number:
__________________________________
<PAGE>
Exhibit 10.12
AGREEMENT
This agreement (the "Agreement") dated as of February 29, 2000 is entered into
by and between Electropharmacology, Inc. with its offices at 12085 Research
Drive, Alachua, Florida (the "Company"), Arup Sen ("Executive") and Conceptua,
Inc. with offices at 9 Doharty Lane, Hilton Head, South Carolina 29910
("Conceptua").
WHEREAS, Conceptua has agreed to furnish certain marketing assistance
services to the Company as set forth in the agreement by and between the Company
and Conceptua dated as of January 27, 2000 ("Conceptua Agreement") attached
hereto as Exhibit 1; and
WHEREAS, the Company does not have the funds available to pay Conceptua
for its services or to timely file a Registration Statement on Form S-8 as
provided in Section 4 of the Conceptua Agreement; and
WHEREAS, the Board of Directors of the Company and Executive have
determined that it is essential to the Company to obtain Conceptua's services as
soon as possible; and
WHEREAS, Executive, in his capacity as the Executive and one of the
largest stockholders of the Company, is motivated to act in the best interest
of the Company and to advance the Company monies from the sale of restricted
Company common stock held by Executive in order to pay for Conceptua's services;
and
WHEREAS, Executive has agreed to liquidate certain restricted Company
common stock owned by Executive in Rule 144 transactions and to assign the cash
proceeds of those transactions to Conceptua; and
WHEREAS, the Company has agreed to issue to Executive additional shares
of restricted Company common stock as repayment of (i) Executive's advance to
the Company as well as (ii) adverse tax consequences incurred by Executive as a
result of any such sale and/or issue of the common stock;
NOW, THEREFORE, IT IS HEREBY AGREED:
1. Executive agrees to deposit certificates representing an aggregate
of 128,520 shares of the Company's Common Stock with Equitrade Securities
("Equitrade") a registered broker/dealer, with instructions to Equitrade to sell
the shares pursuant to Rule 144 and the following paragraph.
<PAGE>
2. Furthermore, Executive and the Company agree to provide security for
the Company's contractual obligation to Conceptua pursuant to the terms of this
Agreement as follows:
(a) Executive shall open an account with Equitrade for the sale of
Executive's shares as set forth above; and
(b) Executive shall hereby direct Equitrade to sell in Rule 144
transactions that number of shares on a monthly basis as required by
Paragraph 4 of Exhibit 1 or such greater number directed by Executive
up to an aggregate of 128,520 shares; and
(c) Executive hereby directs Equitrade to assign all proceeds from the
sale of such shares to Conceptua and to deposit all proceeds to
Conceptua in an account to be established by Conceptua or Equitrade for
the purpose of receiving said proceeds.
3. The Company agrees to reimburse Executive for Executive's advances
to the Company as follows:
<PAGE>
(a) No later than 30 days after the end of each month following the
effective date of this Agreement, the Company agrees to issue to
Executive that number of shares of restricted stock of the Company that
is equal to the gross proceeds from that number of shares sold by
Equitrade on Executive's behalf for the previous month, divided by the
average closing price of the shares for that month, as well as any
additional shares required to reimburse Executive for any adverse
federal income tax effect resulting from his sale and assignment of the
restricted shares for the month. This formula any/or timing of the
issuance of shares to Executive may be changed by the Board of Directors
of the Company, after due consideration, in its discretion.
In witness hereof the undersigned have executed this Agreement on the
29 day of February, 2000.
CONCEPTUA, INC. ELECTROPHARMACOLOGY, INC.
/s/ Michael Swader /s/ Arup Sen
Conceptua, Inc. Electropharmacology, Inc.
9 Doharty Lane 12085 Research Drive
Hilton Head, SC 29910 Alachua, Florida 32615.
/s/ Arup Sen
Arup Sen
12085 Research Drive
Alachua, Florida 32615
<PAGE>
MARKETING ASSISTANCE SERVICES AGREEMENT
This agreement (the "Agreement") dated as of January 27, 2000 by and between
Electropharmacology, Inc. with its offices at 12085 Research Drive, Alachua,
Florida (the "Company") and Conceptua, Inc. with offices at 9 Doharty Lane,
Hilton Head, SC 29910 ("Conceptua") relates to the design, updating, and
hosting of the Company's homepage and the home page as well as the electronic
sales and marketing of the custom services provided by the Company's Gemini
Biotech division.
1. Conceptua hereby agrees to perform the following services for the period
from January 1, 2000 through July 31, 2000, unless extended by mutual
agreement thereafter:
1.1. Complete the design of the home page for the Company, doing business
as Gemini Health Technologies, Inc., including the design of the
Company's new logo, all agreed upon artwork, product and technology
information and other materials reasonably requested by the Company.
1.2. Assist the Company is the design of a home page for the Company's
Gemini Biotech division, including the design of custom services and
product information and a web-based ordering system supported by a
database of a nature to be mutually agreed upon.
1.3. Perform regular updates as requested by the Company from time to time
on both of the home pages set forth in Sections 1.1 and 1.2 above.
1.4. Maintain the database containing the customers, including the services
or products ordered, pricing, technical information and the like.
1.5. Provide, at no additional cost to the Company, necessary capacity and
support for hosting the home page for the term of this Agreement.
1.6. Provide the Company with such other related services as may be
reasonably requested by the Company in connection with the promotion,
via the web, of the Company's services, products and technologies now
owned or hereinafter acquired.
2. This Agreement may be terminated by the Company with a thirty day written
notice any time after April 1, 2000. Upon termination pursuant to this
Section 4 or any other reason, Conceptua, at no additional cost to the
Company, shall transfer to the Company or a designee selected by the
Company, all codes and other information necessary for the Company to
transfer the home pages and the database, including all updates and control.
3. The Company agrees to provide Conceptua with correct and up to date
information regarding the Company's business information, including
services, products and technologies. In connection therewith the Company
may disclose information that it deems is proprietary and not available to
general public. Conceptua agrees to keep all such Company information, so
long as designated "Confidential" by the Company, confidential until such
time as the information becomes public through no fault of Conceptua or the
Company has given Conceptua the permission to disclose to the public and use
such Company information solely for the services provided hereunder.
Exhibit 1 of Exhibit 10.12
<PAGE>
4. In consideration for the provision of the services set forth above, the
Company agrees to issue to Conceptua an aggregate total of 128,520, newly
issued shares of the Company's common stock and deliver to Conceptua, 18,360
shares of such common stock for each month's services, such shares to be
delivered on or before the 8th day of each month from January through July
2000, both inclusive. Notwithstanding the preceding sentence, if the
Company terminates this Agreement pursuant to Section 2 above, then the
Company's obligation to issue its common stock to Conceptua shall be limited
to an aggregate number that is equal to the number derived by multiplying
18,360 by the number of months during which Conceptua provides services
contemplated in Section 1.
The Company agrees to promptly register all shares set forth herein at no
expense to Conceptua under a Registration Statement on Form S-8 with the
Securities and Exchange Commission in order that such shares may be traded
by qualified entities or individuals. Conceptua and the Company agree that
the issuance and trading of shares issued hereunder shall be governed by
and be in compliance with all applicable regulations promulgated by the
Securities and Exchange Commission and other corporate governance
regulations applicable to a publicly traded corporation.
5. The Company acknowledges that Conceptua will rely solely on the Company and
shall undertake no responsibility for the accuracy of the information
regarding the Company that will be used in performing the services set forth
herein. The Company further understands that Conceptua does not implicitly
or explicitly provide any assurance as to the outcome or benefit to the
Company arising out of the services provided by Conceptua hereunder.
6. Conceptua agrees and understands that it is an independent contractor and
not an affiliate or joint venturer of the Company. Accordingly, Conceptua
shall not have the authority to bind or obligate the Company in any manner
whatsoever to a third party.
7. This is the only agreement by and between the parties hereunder and
supersedes all prior agreements, verbal or written, including the agreement
dated as of January 31, 2000 by and between the parties, which agreement is
hereby terminated.
8. Any notice shall be considered duly given if delivered by U.S. Mail or
express mail to the addresses shown below or by facsimile with receipt
confirmation:
if to the Company: if to Conceptua:
Office of President Office of President
Electropharmacology, Inc. Conceptua, Inc.
12085 Research Drive 9 Doharty Lane
Alachua, FL 32615 Hilton Head, SC 29910
9. This Agreement shall be governed by and construed in accordance with the
laws of the State of Florida.
<PAGE>
10. Any controversy or claim arising out of or related to this Agreement shall
be settled by arbitration in accordance with the rules and under the
auspices of the American Arbitration Association and all arbitration shall
be conducted in the State of Florida.
11. This Agreement may be executed in duplicate facsimile counterparts, each
of which shall be deemed an original and together shall constitute one and
the same binding agreement.
In witness hereof the undersigned have executed this Agreement on the 27th day
of January, 2000.
CONCEPTUA, INC. ELECTROPHARMACOLOGY, INC.
/s/ Michael Swader /s/ Arup Sen
Conceptua, Inc. Electropharmacology, Inc.
9 Dohart Lane 12085 Research Drive
Hilton Head, SC 29910 Alachua, Florida 32615.
<PAGE>
Exhibit 10.13.1
Sid Martin
Biotechnology Development Institute
INCUBATOR LICENSE AGREEMENT
THIS AGREEMENT, made this 29th day of October, 1998,
between ElectroPharmacology, Inc., doing business as Gemini Health
Technologies ("Licensee"), and the University of Florida Research
Foundation, Inc., a Florida not-for-profit corporation ("UFRFI") in
Gainesville, Florida.
WHEREAS, the University of Florida ("University") has
established the Biotechnology Development Institute ("BDI") which
seeks to encourage the development of early-stage companies whose
technology relates to the molecular life sciences by providing incubator
resources which will foster that development ("the Incubator
Program"); and
WHEREAS, the BDI Building has been constructed at the
Progress Park in Alachua, Florida, to provide facilities for the Incubator
Program; and
WHEREAS, UFRFI has agreed to manage certain activities of
the Incubator Program, including licensing and managing space in the
BDI building, and other services as more particularly described herein;
and
WHEREAS, Licensee has submitted an application for
admission to the BDI Incubator Program and has submitted or is
developing a business plan in support of that application; and
WHEREAS, UFRFI, upon review of Licensee's application
and supporting documentation, has accepted Licensee's application for
participation in the BDI Incubator Program; and
WHEREAS, Licensee is desirous of being the recipient of
resources to be made available to the participants in the BDI Incubator
Program;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements in this Agreement, the parties agree as follows:
1. License Grant. UFRFI grants to Licensee and Licensee see
hereby accepts a license to use the space or spaces located within the
BDI Building, the exact location and area allowances of which are as
indicated in Attachment A (the "Licensed Space"). UFRFI shall also
make available the following resources and facilities:
(a) Shared Facilities. UFRFI will provide a centralized reception
and administrative support suite and limited secretarial services. Other
services and facilities will include access to centralized mail handling,
certain library and reference materials, a copying machine, a fax
machine, and limited transportation between the BDI Building and the
University campus. In addition, the BDI Building will contain a central
instrumentation lab for common equipment usage, common use cold
rooms, autoclaves, a dark room, a 600 sq. ft. greenhouse, support
facilities for media preparation, small-scale fermentation experiments,
and glassware washing. Such services and facilities will be made
available to Licensee on a shared basis with other occupants of the BDI
Building and others, and, as such, Licensee understands that UFRFI will
make such services available on a reasonable, best efforts basis, as
determined at the sole discretion of the Incubator Manager. The
"Incubator Manager" is defined as the appointed representative of the
University's Biotechnology Program, or his or her designee.
<PAGE>
(b) "If Available" Shared Facilities. UFRFI will provide Licensee
on an "if available" basis the use of a conference room within the BDI
Building, together with certain audio visual equipment.
(c) Communications Connections. UFRFI shall provide wiring
and jacks for one (1) telephone and one (1) computer and network
hook-up within each office or lab in the Licensed Space. Licensee shall
pay any additional costs associated with telephone(s) including, but not
limited to, service initiation charges, monthly service charges, voice
mail charges, long distance charges, and e-mail or connect time charges.
Any replacement or upgrading of equipment or service shall be at the
expense of Licensee and only with the prior written approval of the
Incubator Manager. UFRFI will provide the wiring for computer
network link-up to the wall outlet at no charge. However, a
communications circuit accessory linecord to the T-1 connection is
required to access network services and can be provided by UFRFI to
the licensee for an additional charge. This charge will be added to the
monthly invoice following its installation.
(d) Utilities. UFRFI shall provide Licensee with electric, gas,
water, analytical grade de-ionized water, and sewer service for seven
days per week of normal office or laboratory use. BDI shall also supply
normal refuse (paper, cardboard, aluminum, etc.) disposal during
business days. Normal and reasonable janitorial service shall be
provided by UFRFI. If Licensee makes excessive use of the facilities as
determined by the Incubator Manager in his or her sole discretion, the
costs of such excessive use shall be borne by Licensee as additional cash
license fees as described in paragraph 3(c) below.
(e) Lab and Office Equipment. Upon request of Licensee, UFRFI
shall use its best efforts to provide for use within the Licensed Space
such lab and office equipment as set forth on Attachment A. Such
furnishings and equipment shall be selected by UFRFI. Any changes in
carpet, installed equipment, or furnishings, or any structural changes in
the Licensed Space shall be implemented only with the prior written
approval of the Incubator Manager, and at the exclusive expense of
Licensee.
(f) Core Laboratories and other Resources. UFRFI will use its
best efforts, but does not guarantee, to provide Licensee with access to
certain Biotechnology Program resources upon request by Licensee,
including access to the Biotechnology Program Core Laboratory
Services, and transportation for samples and reagents between campus-
based laboratories and facilities and the BDI Building. Licensee may, at
UFRFI's discretion, have access to disclosure, patent, or technology
transfer training. Payment of service fees relating to such resources, if
any, shall be the sole responsibility of Licensee.
(g) Damage to Facilities. In the event that any licensed facilities,
equipment, or any other UFRFI or University property is damaged or
destroyed through use, misuse, or negligence by Licensee, UFRFI may
make the required repairs or replacement of damaged property and shall
provide Licensee with an invoice representing the loss to UFRFI or the
University (whether replaced or repaired or otherwise), said invoice to
be due and payable by Licensee in accordance with its terms. In the
event that normal maintenance is required for said facilities, equipment,
or UFRFI or University property, Licensee shall notify the Incubator
Manager, who is the sole person authorized to arrange for such service.
The cost for any unauthorized repairs ordered by Licensee shall be
borne exclusively by Licensee.
2. Scheduling of Use of University Campus Facilities. The
Incubator Manager will assist the Licensee to identify and access
University of Florida facilities on the main campus as needed.
3. License Fees; Term. The term of this Agreement and
Licensee's obligation to pay a license fee (consisting of monthly cash
payments, additional license fees, if any, and a supplementary license
fee) are as provided below.
(a) License Fees. Cash payments shall commence on the 16th day
of November, 1998, (the "Effective Date"), and thereafter the license fee
shall be paid in equal monthly installments on the first day of each
month during the term, in advance, to the UFRFI at its offices at 109
Grinter Hall, Gainesville, Florida 32611-2037, unless UFRFI designates
another place. The license fee shall be paid without abatement,
deduction, or set off for any reason.
<PAGE>
The cash license fee during the term of this license shall be payable
by Licensee in equal monthly installments, on or before the first day of
each month and shall be as follows:
Initial Term:
From November 16th, 1998, to November 15th, 1999: $ 949.17
per month.
Renewal years:
To be negotiated.
(b) Term. The initial term of the license shall be for 12 months
following the commencement of the term as noted above and shall
terminate on November 15th, 1999, or on the last day of the month
which is 12 months after the Effective Date, whichever is later.
Licensee shall have the option of two additional one-year renewal terms,
provided written notice of the exercise of said option is furnished to
UFRFI at least 60 days prior to the expiration of the current term.
Licensee's right to exercise such options is subject to satisfactory
progress on meeting its R&D milestones and business plan objectives,
such progress to be determined in the sole discretion of the University
after reasonable consultation with Licensee. In the event this
Agreement is extended, all of the terms and conditions contained herein
shall apply to the renewal terms.
(c) Additional License Fees. Unless otherwise agreed to, the cost
of any services or resources provided by BDI or the University not
indicated in Section 1 above shall be borne by Licensee. Licensee shall
be billed separately for said additional services or resources as
additional cash license fees, payment for which shall be due and payable
in accordance with the terms of the invoice therefor.
4. Supplementary License Fee. In further consideration for
UFRFI's entering into this Agreement, Licensee shall pay a
supplementary license fee to UFRFI for the use of space in the BDI.
The supplementary license fee shall be calculated at the rate of $8.00 per
square foot of Licensed Space per year of licensed occupancy. The
supplementary license fee shall be paid as follows: Licensee shall enter
into a royalty agreement with UFRFI in accordance with the Royalty
Agreement attached as Attachment B. The Royalty Agreement shall
remain in full force and effect without regard to whether this Agreement
is terminated by either party for any reason.
5. Termination. Nothing herein shall relieve either party of any
outstanding obligation incurred pursuant to this Agreement prior to any
termination except as expressly set forth in Section 5(c) herein. The
facilities, equipment, and Licensed Space licensed hereunder are
licensed for the purpose of furthering Licensee's business objectives as
approved by UFRFI. Pertinent portions of Licensee's business plan,
including its business objectives and financial progress reports are
attached as Attachment C.
(a) Not a Lease; Right to Terminate. The parties understand that
this Agreement constitutes a license, not a lease, and that the
relationship of the parties hereunder is that of licenser and licensee, and
not that of landlord and tenant. As such, UFRFI reserves the right to
change space assignments or to terminate this Agreement by written
notice if the assigned space does not function as a place of business for
more than one week, or if Licensee in UFRFI's sole discretion no
longer meets the criteria for participation in the Incubator Program.
Notwithstanding Section 15 below, if UFRFI has reason to believe at
any time that Licensee is no longer following its business plan as
approved by UFRFI, UFRFI, in its sole discretion, may review
Licensee's status. If, in UFRFI's sole discretion, Licensee's current
status is not in material accord with its business plan, UFRFI may
terminate this Agreement.
(b) Default; Notice of Termination. Should either party be in
default in connection with any material terms or conditions stated
within this Agreement, including but not limited to those stated in
Section 5(a), then the other party shall have the right to terminate this
Agreement upon twenty (20) business days written notice, if the other
party does not correct such situation within the said twenty (20) day
period. Further, either party may terminate this Agreement, with or
without cause, upon 60 days written notice. This Section 5 does not
relieve either party of any outstanding obligations incurred pursuant to
this Agreement.
<PAGE>
(c) Termination Without Cause. Either party may terminate this
agreement without cause upon sixty (60) calendar days written notice.
If this Agreement is terminated by UFRFI, through no fault of Licensee,
at any time during the initial or any renewal term then the royalty shall
apply only to technologies developed or enhanced by Licensee during
the initial term or any renewal terms prior to the date of such
termination.
6. Indemnification. Licensee shall at all times during the term of
this Agreement and thereafter, indemnify, defend, and hold the
University of Florida Research Foundation, Inc., the University, The
Board of Regents of the State of Florida, the State of Florida and the
board members, officers, employees, and affiliates of any of these
entities (hereinafter "Indemnities"), harmless against all claims and
expenses, including legal expenses and reasonable attorneys' fees,
whether arising from a third party claim or resulting from UFRFI's
enforcing this indemnification clause against Licensee, or arising out of
the death of or injury to any person or persons or out of any damage to
property and against any other claim, proceeding, demand, expense, or
liability of any kind whatsoever resulting from the Licensee's
occupancy of the Licensed Space, the use of any University services or
resources, arising from any right or obligation of Licensee hereunder, or
arising out of Licensee's business plan, or research involving, without
limitation, the use of animals, human subjects, or biohazardous
materials. This indemnification shall not apply to any liability, damage,
loss, or expense to the extent that it is attributable to the negligence or
intentional wrongdoing of the Indemnities. Licensee shall, at its own
expense, provide attorneys reasonably acceptable to UFRFI to defend
against any actions brought or filed against any party indemnified
hereunder with respect to the subject of indemnity contained herein,
whether or not such actions are rightfully brought.
7. Insurance. During the term of this Agreement, Licensee shall,
at its sole cost and expense, procure and maintain policies of
comprehensive general liability insurance naming the Indemnities as
additional insureds.
(aaaa) Comprehensive General Liability. The comprehensive
general liability insurance shall provide broad form contractual liability
coverage for Licensee's indemnification under this Section 6 in the
following minimum amounts:
(i) comprehensive liability (personal injury, including
death):$500,000 per occurrence and $1,000,000 per claim
and ;
(ii) property damage: $500,000 per occurrence and $1,000,000
per claim.
(b) Self-Insurance. If Licensee elects to self-insure, such self-
insurance program must be acceptable to UFRFI.
(c) Other Insurance. Licensee shall obtain and keep in force all
worker's compensation insurance required under the laws of the State of
Florida, and such other insurance as may be necessary to protect
Indemnities against any other liability of person or property arising
hereunder by operations of law, whether such law is now in force or is
adopted subsequent to the Effective Date.
(d) Cancellation; Replacement Insurance. Licensee shall provide
UFRFI with written evidence of such insurance upon request, and shall
provide UFRFI with written notice at least 45 days prior to the
cancellation, non-renewal, or material change in such comprehensive
general liability insurance; if Licensee does not obtain replacement
insurance providing comparable coverage within such 45 day period, or
provide self-insurance satisfactory to UFRFI, UFRFI shall have the right
to terminate this Agreement.
8. Destruction of Space. If the Licensed Space is totally destroyed
(or so substantially damaged as to be inhabitable) by storm, fire,
earthquake, or other casualty, this Agreement shall terminate as of the
date of such destruction or damage, and license fees shall be accounted
for as between UFRFI and Licensee as of that date. If the Licensed
Space is damaged but not rendered wholly inhabitable by any such
casualty or casualties, license fees shall abate in such proportion as the
use of the Licensed Space has been destroyed until UFRFI has restored
the Licensed Space to substantially the same condition as before
damage, whereupon full license fees shall commence. Nothing
contained herein shall require UFRFI to make such restoration,
however, if not deemed advisable in its judgment. UFRFI shall make
its intentions to restore or not to restore said Licensed Space to original
<PAGE>
condition known to Licensee in writing, within ninety (90) days of such
occurrence. If UFRFI decides against such reconstruction or fails to
provide such notice, Licensee may, at its option, cancel this Agreement.
9. Maintenance; Survey. The Licensed Space shall be maintained
in its original condition to the satisfaction of UFRFI, normal wear and
tear excepted. Prior to the Effective Date, a joint survey of the Licensed
Space and equipment, indicating its exact condition, shall be made by
representatives of both Licensee and UFRFI. A written report of said
survey shall be attached hereto and be made also upon termination of
this Agreement. In the event that the facilities incur any loss or damage,
Licensee shall return the Licensed Space to its original condition to the
satisfaction of UFRFI. Otherwise, UFRFI shall make the required
repairs or replacement of damaged property, and shall provide Licensee
with an invoice due and payable in accordance with its terms. Licensee,
under this Section, is deemed to have accepted the Licensed Space in the
condition existing on the Effective Date. Licensee is not liable for
losses or damage to the License Space, furnishings, or equipment due to
the sole negligence of UFRFI or the University.
10. Occupancy Fee. Licensee shall pay to UFRFI a non-
refundable sum of $200.00 to cover key lock changes, minor adaptations
and other incidental expenses related to the occupancy of the Licensee.
The Occupancy Fee shall be paid as an addition to the first month's
payment.
(a) Additional Occupancy Fee(s). If, at any time, Licensee fails to
fully, faithfully, and punctually perform any of the terms, covenants, and
conditions contained herein, UFRFI shall in no way be precluded from
recovering in addition to the said occupancy fee, any other damages or
expenses that UFRFI may suffer by reason of any violation by Licensee
of Licensee's terms, covenants, and conditions contained herein.
11. Interruption of Business. Except as specified in Section 8,
neither the University nor UFRFI shall be responsible to Licensee for
any damages or inconvenience caused by interruption of business or
inability to occupy the Licensed Space for any reason whatsoever,
providing that, Licensee shall be credited with the cash license fee on a
pro rata basis for any working day period, if the business interruption is
due to circumstances caused by UFRFI that are not in the normal course
of business or that are not a part of normal operating procedures at the
BDI Building.
12. No Assignment. This Agreement is not assignable without the
prior written consent of UFRFI, and any attempt to do so shall be void.
13. Qualification for Incubator; Non-Interference; Animal or
Human Research; Toxic Materials. Licensee's admittance to the
Incubator Program is based, in part, on UFRFI's review of Licensee's
business concept, objectives, and plans as presented in the BDI license
application and related documents. Use of the Licensed Space and other
facilities, furnishings, equipment, and services made available to
Licensee by UFRFI or the University shall be in furtherance of
Licensee's business concept, objectives, and plans, and shall not be in
furtherance of any illicit or illegal purposes, or purposes not consistent
with Licensee's business concept, objectives, and plans. Licensee's use
of the Licensed Space and the equipment, furnishings, and services
available under this Agreement shall not interfere, in any manner, with
use by other licensees or occupants of nearby facilities and equipment.
Research involving the use of animals, human subjects, or the use of
hazardous or toxic materials by Licensee is not permitted unless
consented to in writing by BDI, and then only in the manner prescribed
by UFRFI. UFRFI reserves the right to approve in its sole discretion
Licensee's use of the Licensed Space and available equipment and
services.
14. Compliance with University and UFRFI Policies;
Requirements. Licensee shall comply with all applicable UFRFI and
University rules and policies, including policies relating to human and
animal subjects, recombinant DNA/RNA practices, biohazards, and
radiation safety, as well as federal, state, or local laws, ordinances,
codes, rules, permits, licensing conditions, and regulations, including
any amendments thereto (collectively, the "Requirements"), in its use of
the Licensed Space, and shall procure, at its expense, any licenses,
permits, insurance, and government approvals necessary to the operation
of its business. The discussion hereunder of specific rules, regulations
and laws shall not be construed to lessen in any way the obligation of
the Licensee to follow all applicable rules, regulations and laws,
including without limitation, the guidelines and policies of the
University Division of Environmental Health and Safety.
<PAGE>
(a) Certain Federal Statutes. "Hazardous substance" as used
herein includes any hazardous substance as defined by the
Comprehensive Environmental Response, Compensation, and Liability
Act, 42 U.S.C. ' 9601, et seq., including any amendments thereto
("CERCLA"), any substance, waste, or other material considered
hazardous, dangerous, or toxic under any of the Requirements,
petroleum and petroleum products, and natural gas. "Release" as used
herein means any intentional or unintentional spilling, pumping,
emitting, emptying, discharging, escaping, leading, dumping, disposing,
or abandonment of any hazardous substance. Licensee shall comply
with all Requirements governing the discharge, release, emission, or
disposal of any hazardous substance and prescribing methods for or
other limitations on storing, handling, or otherwise managing hazardous
substances including, but not limited to, the then-current versions of the
following federal statutes, any Florida analogs, and the regulations
implementing them: the Resource Conservation and Recovery Act (42
U.S.C. ' 6901, et seq.); CERCLA; the Clean Water Act (33 U.S.C. '
1251, et seq.); the Clean Air Act (42 U.S.C. ' 7401, et seq.); and the
Toxic Substances Control Act (15 U.S.C. ' 2601, et seq.). Licensee shall
comply with all requirements of the Animal Welfare Act (7 U.S.C. Section
2131, et seq.) as the same may be amended, and all similar federal, state,
and local laws, codes, ordinances, and regulations.
(b) Hazardous Substances; Disposal. Licensee covenants and
agrees that it will not use or allow the Licensed Space to be used for the
storage, use, treatment, disposal, or other handling of any hazardous
substance without the prior written consent of UFRFI. Attached to the
License as Attachment D is a list prepared by Licensee identifying the
hazardous substances which Licensee intends to use and store in the
premises, and setting forth the quantity, use, and location thereof.
UFRFI hereby permits Licensee to use and store the hazardous
substances set forth on Attachment D within the Licensed Space,
provided that Licensee complies in all respects with the Requirements
and this Section and that such hazardous substances are not disposed of
in the sanitary sewer system of the BDI building unless the
Requirements permit and the UFRFI has consented to such method of
disposal in writing, having determined in UFRFI's sole and absolute
discretion that such disposal will not harm the sanitary sewer piping.
Licensee shall request in writing UFRFI's written approval before the
introduction of any additional hazardous substance or biological use,
handling, treatment, storage, or disposal in the Licensed Space is
undertaken. Such request shall set forth a description of the hazardous
substance or biological involved, the maximum quantity to be present in
the Licensed Space at any time, its location within the Licensed Space,
and its use in Licensee's business. The Incubator Manager or his or her
designee will expedite the request for the introduction of hazardous
substances to the office of Environmental Health and Safety for
approval and will inform the licensee of the outcome for approval as
soon as the Incubator Manager and his or her designee receives
notification. Licensee covenants and agrees to assume the responsibility
for the cost and disposal of hazardous chemicals created by their
research during their tenancy at the BDI building, within 180 days of
their initial storage. Designated storage areas will be provided by
UFRFI within the BDI building. Chemicals for disposal must be labeled
and packaged in accordance and compliance with University
Environmental Health and Safety regulations and guidelines for storage
and disposal of hazardous chemicals. UFRFI assumes no liability for
hazards or spills created by the licensees inside or outside of the BDI
building, or during the storage of hazardous chemicals with a private
firm or entity after such chemicals are removed from the BDI building.
(c) Violations. Licensee shall take all steps necessary to remedy
any violation of any Requirements by the Licensee whether or not a
citation or other notice of violation has been issued by a governmental
authority. Licensee shall at its own expense, promptly contain and
remediate any release of hazardous substances arising from or related to
Licensee's hazardous substance activity to the Licensed Space, the BDI
Building, or the environment and remediate any resultant damage to the
property, persons, or the environment.
(d) Environmental Inspections. UFRFI reserves the right to
periodically conduct an environmental and safety inspection of the
Licensed Space and areas beyond such space, where necessary, such as
the HVAC system and the laboratory exhaust venting system. The
scope of such inspection may include, but not be limited to, having the
fume hoods tested and inspected. Licensee shall give prompt written
notice to UFRFI of any release of any hazardous substance in the
Licensed Space, the BDI Building or the environment not made in
conformance with the Requirements, including a description of
remediation measures and any resulting damage to persons, property, or
the environment. Licensee shall upon expiration or termination of this
License, surrender the Licensed Space to UFRFI free from the presence
and contamination of any hazardous substance. Following any breach
<PAGE>
by Licensee of the Requirements of this Section, or any reasonable
safety or environmental concern by UFRFI, UFRFI may withdraw its
consent to Licensee's hazardous substance activity (or any portion
thereof) by written notice to Licensee. Licensee shall terminate its
hazardous substance activity immediately upon notice and remove all
hazardous substances from the Licensed Space within 15 days from the
date of such notice unless such breach or concern is promptly addressed
and corrected by Licensee to UFRFI's sole satisfaction. Licensee shall
indemnify, hold harmless and (at UFRFI's option) defend the University
or UFRFI, their agents and employees, from and against all claims,
actions, losses, costs and expenses (including attorney's and other
professional fees), judgments, settlement payments, and, whether or not
reduced to final judgment, all liabilities, damages, or fines paid,
incurred, or suffered by such parties in connection with loss of life,
personal injury, or damage to property of the environment arising,
directly or indirectly, wholly or in part from any conduct, activity, act,
omission, or operation involving the use, handling, generation,
treatment, storage, disposal, other management or release of any
hazardous substance at, from, or to the Licensed Space, whether or not
Licensee has acted negligently with respect to such hazardous substance.
Licensee's obligations and liabilities hereunder shall survive the
expiration or other termination of this License.
15. UFRFI's Control of Facilities. Notwithstanding anything to
the contrary herein, UFRFI reserves the right at all times to control all
facilities licensed hereunder, and to enforce all applicable necessary
laws, rules, and regulations, including but not limited to, the rules and
guidelines of the University of Florida Division of Environmental
Health and Safety.
16. Business Plan and R&D Review. At the request of UFRFI, but
not more frequently than at six month intervals, Licensee agrees to
review its current and prospective business plan and R&D program
status with UFRFI. Progress may be monitored in relation to the
previous most recent plans which have been reviewed and approved by
both Licensee and UFRFI. If, in UFRFI's sole discretion, the
Licensee's current status is not sufficiently in accord with the most
recent previously reviewed plans, UFRFI may give written notice of
default in accordance with Section 5 above.
17. Locks. UFRFI will install all locks attached to the Licensed
Space and provide two keys for each lock to Licensee. UFRFI and the
University will have keys to all locks, and may enter the Licensed Space
at reasonable times, for inspection, maintenance or repair, or for any
other necessary reason. Entry for other than normal maintenance and
inspection activities shall be preceded by appropriate notice to Licensee.
In the event of an emergency, notice will be given at the first reasonable
opportunity, even after the fact.
18. Right to Remove Property. Unless in default of contract,
Licensee shall have the right to remove any equipment, goods, fixtures,
and other property which it has placed or affixed within or to the
Licensed Space, provided Licensee repairs damage caused by such
removal. Licensee shall not remove improvements made to the facilities
or Licensed Space by UFRFI or on behalf of UFRFI during this
Agreement.
19. Use of Names. Licensee shall not use the names of BDI, the
University, or UFRFI nor of their employees or agents, nor any
adaptation thereof, in any advertising, promotional, or sales literature
without prior written consent obtained from UFRFI in each case, except
that Licensee may state that it is a licensee of UFRFI pursuant to this
Agreement, that it is a participant in the Incubator Program, and, where
relevant, that UFRFI is the owner of warrants for, or shares of, its
common stock. Licensee will cooperate fully with UFRFI to publicize
the Incubator Program and Licensee's participation in such program.
(a) Request for Consent to Use of Names. Requests for consent to
use of names of BDI, the University, or UFRFI or any of their
employees or agents shall be sent to the Incubator Manager.
Notwithstanding the foregoing, the University and UFRFI consent to
references to them pursuant to any requirements of applicable law or
governmental regulations, provided that, in the event of any such
disclosure, Licensee shall afford UFRFI the prior opportunity to review
the text of such disclosure. Licensee shall use its best efforts to comply
with any reasonable requests by UFRFI regarding changes.
(b) Consent Deemed Granted. Where consent of a party is
required under this Section, such consent shall be deemed granted if no
written objection (or oral objection, confirmed immediately in writing)
is received by the requesting party on or before the twentieth calendar
day following the date a written request for consent was received by the
<PAGE>
requested party. For the purposes of this Section only, a item shall be
deemed received as follows: (i) if hand delivered, upon delivery; (ii) if
sent by electronic mail, upon confirmation by the sending carrier that the
message was deposited to the addressee's mailbox; (iii) if sent by
registered mail, return receipt requested, upon signing by the receiving
party; or (iv) if sent by ordinary mail in the United States, postage
prepaid, and addressed as set forth below, on the fifth calendar day after
deposit in the mail.
20. No Partnership. Nothing contained in this Agreement shall
create any partnership or joint venture between the parties. Neither
party may pledge the credit of the other or make any binding
commitment on the part of the other.
21. Miscellaneous. The parties hereto acknowledge that this
Agreement sets forth the entire agreement and understanding of the
parties hereto as to the subject matter hereof, and shall not be subject to
any change or modification except by the execution of a written
instrument subscribed to by the parties hereto. The provisions of this
Agreement are severable, and in the event that any provisions of this
Agreement shall be determined to be invalid or unenforceable under any
controlling body of the law, such invalidity or unenforceability shall not
in any way affect the validity or enforceability of the remaining
provisions hereof. The titles herein are for convenience only. This
Agreement shall be construed, governed, interpreted, and applied in
accordance with the laws of the State of Florida.
22. Notices. Any payment, notice or other communication
pursuant to this Agreement shall be sufficiently made or given on the
date of mailing if sent to such party by certified first class mail, postage
prepaid, addressed to it at its address below or as it shall designate by
written notice given to the other party:
In the case of UFRFI:
President, University of Florida Research Foundation, Inc.
University of Florida
109 Grinter Hall
Gainesville, Florida 32611
PLEASE MAKE ALL CHECKS PAYABLE TO:
University of Florida Research Foundation, Inc.
University of Florida
109 Grinter Hall
Gainesville, Florida 32611
In the case of Licensee:
Arup Sen, Ph.D., Chairman & Executive Officer
ElectroPharmacology, Inc.
1109 N.W. 13th Street
Gainesville, FL 32601
23. Inventions, Improvements, and Discoveries. Any inventions,
improvements, or discoveries patentable or unpatentable, which are
conceived or made solely by one or more employees of Licensee,
whether developed in the BDI Building or through the use of other
facilities, equipment, or services, access to which is provided under this
Agreement, shall be the sole property of Licensee. All rights and title to
all inventions, improvements, or discoveries, which are generated jointly
by one or more employees of the University and one or more employees
of Licensee shall belong to the University unless subject to the terms
and conditions of a superseding agreement.
24. Confidentiality. UFRFI will use its best efforts to prevent the
dissemination of any proprietary information related to work of the
Licensee unless authorized to do so in writing by Licensee. UFRFI shall
have, however, the right to disclose Licensee's activities in a general,
descriptive manner.
<PAGE>
IN WITNESS THEREOF, the parties have executed this License
Agreement as of the date first above written.
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
By: __________________________________________
Dr. M. Jack Ohanian, President, UFRFI
Date_________________________________________
ELECTROPHARMACOLOGY, INC.
By: __________________________________________
Arup Sen, Ph.D., Chairman & Executive Officer
Date_________________________________________
<PAGE>
ATTACHMENT A
LICENSED SPACE
See attached highlighted Floor Plan for office and laboratory location
Address: Biotechnology Development Institute
12085 Research Drive
Alachua, Fl 32615-6831
Lab/Office Space: Room # 174/174a Square feet 951
Entrepreneurial Office : Room # 126 Square feet 188
Total: Square Feet 1139
Lab & Office Furniture and Equipment:
Standard office desks(s) 3
Standard office chair(s) 3
File cabinet(s) 1
Bookcase (1)
Biological hood 1
Chemical fume hood 1.
<PAGE>
ROYALTY
TERM SHEET
1. Agreement is to pay a 1.0% royalty on net sales as that term is
defined in the agreement regarding any product or process sold or
licensed that is based upon a technology or know-how whether
patented or patentable or not, which is developed, enhanced, or
discovered during the term of the Incubator License Agreement
while Licensee is occupying Licensed Space in the BDI building..
2. Such royalties shall continue until necessary to pay the
Supplementary License Fee which is $8.00 square foot per year,
plus an annual rate of 12%, compounded on December 31 of the
initial year of the Incubator License Agreement, and annually
thereafter on the unpaid balance.
3. Licensee must make reasonable efforts to commercialize such
technology or know-how.
<PAGE>
ATTACHMENT B
TO
INCUBATOR LICENSE AGREEMENT
AGREEMENT TO PAY ROYALTIES, dated as of November
16, 1998, among ElectroPharmacology, Inc., Inc. a Delaware
corporation ("Licensee") and the University of Florida
Research Foundation, Inc., a Florida not-for-profit corporation
in Gainesville, Florida ("UFRFI")
WHEREAS, Licensee has agreed to pay a supplementary license
fee to UFRFI pursuant to an Incubator License Agreement dated as of
October 29th, 1998; and
WHEREAS, Licensee has elected to pay such supplementary
license fee upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
For the purposes of this Agreement, the following words and
phrases shall have the meaning set forth in the Incubator License
Agreement or the following meanings:
1.1 "Licensee" shall mean the Licensee under the Incubator License
Agreement, and shall also include the following for the purposes of this
agreement to pay royalties:
(a) a related company of Licensee, the voting stock
of which is directly or indirectly at least fifty
percent (50%) owned or controlled by
Licensee;
(b) an organization which directly or indirectly
controls more than fifty percent (50%) of the
voting stock of Licensee;
(c) an organization, the majority ownership of
which is directly or indirectly common to the
ownership of Licensee.
1.2 "Product Rights" shall mean all of the following Licensee
intellectual property:
(a) the technologies and know-how listed in
Appendix A, whether patented or patentable; or
(b) any development or enhancement of any item
listed in Appendix A or any new technology or
know-how on which research or development
is accomplished in the Licensed Space at the
BDI during the term of the Incubator License
Agreement prior to termination thereof.
1.3 A "Royalty Product" shall mean any product or part thereof
which:
(a) makes use in whole or in part any intellectual
property in the Product Rights;
(b) is manufactured using a process which makes
use in whole or in part any intellectual property
in the Product Rights ; or
(c) is derived from Product Rights, know-how,
and/or trade secrets related to or described in
Product Rights.
<PAGE>
1.4 A "Royalty Process" shall mean:
(a) any process which makes use in whole or in
part any intellectual property covered in whole
or in part in the Product Rights; or
(b) is derived from Product Rights, know-how,
and/or trade secrets related to or described in
Product Rights.
1.5 "Net Sales" shall mean Licensee's, and its sublicensee's billings
for Royalty Products and Royalty Processes and shall include licensing
and sublicensing fees less the sum of the following:
(a) discounts allowed in amounts customary in the
trade,
(b) sales taxes, tariff duties, and/or use taxes which
are directly imposed and are with reference to
particular sales;
(c) outbound transportation prepaid or allowed;
and
(d) amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals
whether they be with independent sales agencies or regularly employed
by Licensee and on its payroll, or for cost of collections. Royalty
Products shall be considered "sold" when billed out or invoiced.
1.6 "Know-How" shall mean any and all technical data,
information, or knowledge which relate to the Royalty Product, the
Royalty Process or the manufacture, marketing, registration, purity,
quality, potency, safety, and efficacy of the Royalty Product or Royalty
Process.
1.7 "Royalty Cap" shall mean the amount of the supplementary
license fees as set forth in the Incubator License Agreement with interest
at an annual rate of twelve percent (12.0%), compounded on December
31 of the initial year of this Agreement, and annually thereafter on the
unpaid balance thereof.
ARTICLE II - GRANT
2.1 Licensee hereby grants to UFRFI a royalty on the sale, use,
license, or lease of the Royalty Products, and the practice of Royalty
Processes until the royalty cap is reached.
2.2 The royalty granted hereunder shall not be construed to confer
any other rights upon UFRFI by implication, estoppel, or otherwise.
ARTICLE III - DUE DILIGENCE
3.1 Licensee shall use reasonable efforts to bring one or more
Royalty Products or Royalty Processes to market through a program for
exploitation of the Product Rights to attain reasonable
commercialization of Royalty Products and Royalty Processes.
ARTICLE IV - ROYALTIES
4.1 For the supplementary license fee referred to in the Incubator
License Agreement, Licensee shall pay to UFRFI a running royalty in an
amount equal to one percent (1.0 %) of the Net Sales of the Royalty
Products or Royalty Processes used, leased licensed, or sold by or for
Licensee or its sublicensees until the reaching of the Royalty Cap.
4.2 Royalty payments shall be paid in United States dollars in
Gainesville, Florida or at such other place as UFRFI may reasonably
designate consistent with the laws and regulations controlling in any
foreign country. If any currency conversion shall be required in
connection with the payment of royalties hereunder, such conversion
shall be made by using the exchange rate prevailing at the Chase
Manhattan Bank (N.A.) on the last business day of the calendar
quarterly reporting period to which such royalty payments relate.
4.3 In the event the royalties set forth herein are higher than the
maximum royalties permitted by the law or regulations of a particular
country, the royalty payable for sales in such country shall be equal to
the maximum permitted royalty under such law or regulations. Notice
of said event shall be provided to UFRFI. An authorized representative
<PAGE>
of Licensee shall notify UFRFI, in writing, within thirty (30) days of
discovering that such royalties are approaching or have reached the
maximum amount, and shall provide UFRFI with written documentation
regarding the laws or regulations establishing such maximum.
4.4 In the event that any taxes, withholding or otherwise, are levied
by any taxing authority in connection with accrual or payment of any
royalties payable by Licensee under this Agreement, and Licensee
determines in good faith that it must pay such taxes, Licensee shall have
the right to pay such taxes to the local tax authorities on behalf of
UFRFI and payment of the net amount due after reduction by the
amount of such taxes, shall fully satisfy Licensee's royalty obligations
under this Agreement. Licensee shall provide UFRFI with appropriate
receipts or other documentation supporting such payment. Licensee
shall inform UFRFI in writing, within thirty (30) days of notification
that taxes will or have been levied by a taxing authority.
ARTICLE V - REPORTS AND RECORDS
5.1 Licensee shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of
showing the amounts payable to UFRFI hereunder. Said books of
account shall be kept at Licensee's principal place of business or the
principal place of business of the appropriate division of Licensee to
which this Agreement relates. Said books and the supporting data shall
be open at all reasonable times for five (5) years following the end of the
calendar year to which they pertain, to the inspection of UFRFI or its
agents for the purpose of verifying Licensee's royalty statement or
compliance in other respects with this Agreement.
5.2 Licensee, within forty-five (45) days after December 31 of each
year, shall deliver to UFRFI true and accurate reports, giving such
particulars of the business conducted by Licensee and its sublicensees
during the preceding year under this Agreement as shall be pertinent to a
royalty accounting hereunder. These shall include at least the following;
(a) number of Royalty Products manufactured and sold.
(b) total billings for Royalty Products sold.
(c) accounting for all Royalty Processes used or sold.
(d) deductions applicable as provided in Paragraph 1.5.
(e) any licensing or sublicensing fees relating to the
Royalty Products or Royalty Processes.
(f) total royalty due.
5.3 With each such report submitted, Licensee shall pay to UFRFI
the royalties due and payable under this Agreement. If no royalties shall
be due, Licensee shall so report.
5.4 The royalty payments set forth in this Agreement shall, if
overdue, bear interest until payment at the monthly rate of one percent
(1%). The payment of such interest shall not foreclose UFRFI from
exercising any other rights it may have as a consequence of the lateness
of any payment.
ARTICLE VI - PRODUCT LIABILITY
Licensee shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold UFRFI and the University of
Florida, their trustees, officers, employees and affiliates, harmless
against all claims and expenses, including legal expenses and
reasonable attorneys' fees, whether arising from a third party claim or
resulting from UFRFI's enforcing this indemnification clause against
Licensee, or arising out of the death of or injury to any person or
persons or out of any damage to property and against any other claim,
proceeding, demand, expense and liability of any kind whatsoever
resulting from the production, manufacture, sale, use, lease,
consumption or advertisement of the Royalty Product(s) and/or Royalty
Process (es) or arising from any obligation of Licensee hereunder.
ARTICLE VII - ASSIGNMENT
<PAGE>
This Agreement is not assignable and any attempt to do so shall be
void.
ARTICLE VIII - TERMINATION
Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that
matured prior to the effective date of such termination.
ARTICLE IX- PAYMENTS, NOTICES AND OTHER
COMMUNICATIONS
Any payment, notice or other communication pursuant to this
Agreement shall be sufficiently made or given on the date of mailing if
sent to such party by certified first class mail, postage prepaid,
addressed to it at its address below or as it shall designate by written
notice given to the other party:
In the case of UFRFI:
President
University of Florida Research Foundation, Inc.
University of Florida
223 Grinter Hall
Gainesville, Florida 32611
With a copy to:
Director
Biotechnology Program
All payments to:
UFRFI
University of Florida
223 Grinter Hall
Gainesville, Florida 32611
PLEASE MAKE ALL CHECKS PAYABLE TO:
University of Florida Research Foundation, Inc.
In the case of Licensee:
Arup Sen, Ph.D., Chairman & Executive Officer
ElectroPharmacology, Inc.
1109 N.W. 13th Street
Gainesville, FL 32601
ARTICLE X - MISCELLANEOUS PROVISIONS
10.1 This Agreement shall be construed, governed, interpreted and
applied in accordance with the laws of the State of Florida.
10.2 The parties hereto acknowledge that this Agreement and the
Incubator License Agreement set forth the entire Agreement and
understanding of the parties hereto as to the subject matter hereof, and
shall not be subject to any change or modification except by the
execution of a written instrument subscribed to by the parties hereto.
10.3 The provisions of this Agreement are severable, and in the
event that any provisions of this Agreement shall be determined to be
invalid or unenforceable under any controlling body of the law, such
invalidity or unenforceability shall not in any way affect the validity or
enforceability of the remaining provisions hereof.
<PAGE>
10.4 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
IN WITNESS WHEREOF, the parties have hereunto set their hands
and seals and duly executed this Agreement the day and year set forth
below.
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
By: /s/ Dr. M. Jack Ohanian
Dr. M. Jack Ohanian, President, UFRFI
Date 12/10/98
ELECTROPHARMACOLOGY, INC.
By: /s/ Arup Sen
Arup Sen, Ph.D., Chairman & Executive Officer
Date 12/10/98
<PAGE>
APPENDIX A
TECHNOLOGY KNOW-HOW AND RESEARCH DEVELOPMENT
<PAGE>
ATTACHMENT C
EXTRACTS FROM BUSINESS PLAN
Reference is made to the business plan of ElectroPharmacology, Inc.,
dated August 20, 1998.
<PAGE>
ATTACHMENT D
LIST OF HAZARDOUS SUBSTANCES
<PAGE>
ATTACHMENT E
ANIMAL SAFETY AND COMPLIANCE
<PAGE>
ATTACHMENT F
SUPPLEMENTAL NOTES
<PAGE>
ATTACHMENT G
GUIDELINE COMPLIANCE LETTERS
<PAGE>
Exhibit 10.13.2
AMENDMENT NO.1
CHANGE IN LICENSED SPACE
This Amendment No. 1, dated July 23, 1999, is between University of Florida
Research Foundation, Inc., a not-for-profit corporation duly organized and
existing under the laws of the State of Florida and having its office in 223
Grinter Hall, Gainesville, FL 32611-2037 ("UFRFI"), and Gemini Health
Technologies, Inc., a company duly organized under the laws of Delaware, and
having its principle office at 12085 Research Drive, Alachua, Florida 32615
("Gemini").
WITNESSETH
WHEREAS, UFRFI and Gemini entered into an Incubator License Agreement
relating to licensed space at the Sid Martin Biotechnology Development Institute
in Alachua, Florida, dated 29th day of October, 1998 (the "ILA"), and
WHEREAS, Gemini desires a change in licensed space;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein the parties agree as follows:
1. Beginning July 30, 1999, ("Effective Date") and for the balance of
the initial term of Gemini's Incubator License Agreement, Gemini shall
license lab space 146 and 148, auxiliary space 151 and 183, and shall
continue licensing entrepreneurial office 126. Gemini shall vacate lab
174/174a.
Entrepreneurial office 126 188 sq. ft.
Lab/Office 146/146a 951 sq. ft.
Lab/Office 148/148a 963 sq. ft.
Auxiliary Space 151 230 sq. ft.
Auxiliary Office 183 84 sq. ft.
Total 2416 sq. ft.
Monthly License Fee @ $10/sq ft/yr + 6% Florida Sales Tax is $2134.13
2. The cash license fee, plus 6% Florida sales tax, shall be payable by
Licensee in equal monthly installments, in advance, on or before the
first day of each month. For any change of space, cash payments are due
prior to the effective date for use of the new space. However, if the
effective date falls after the first of any month, Licensee may elect
to accrue the obligation and have it included in the following month's
invoice.
3. The option selected (ILA, Section 4) for satisfaction of the
Supplementary License Fee shall be recalculated to reflect the new
square footage agreed to in this amendment and shall take effect on the
effective date of this amendment. Supplementary License Fee (Royalty) @
$8/sq. ft./yr + 6% Florida Sales Tax is $1707.31.
5. Attachment A, "Licensed Space," to the ILA is amended in its
entirety as attached hereto.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
and duly executed this agreement as of the day and the year first set forth
above.
University of Florida Research Gemini, Inc.
Foundation
/s/ Dr. Winfred M. Phillips /s/ Arup Sen
Dr. Winfred M. Phillips Date 7/28/99 Dr. Arup Sen Date 7/23/99
President Chief Executive Officer
ATTACHMENT A
LICENSED SPACE
1. Address: 12085 Research Drive
Alachua, Fl 32615
2. Space:
Entrepreneurial office 126 188 sq. ft.
Lab/Office 146/146a 951 sq. ft.
Lab/Office 148/148a 963 sq. ft.
Auxiliary Space 151 230 sq. ft.
Auxiliary Office 183 84 sq. ft.
Total 2416 sq. ft.
Monthly License Fee @ $10/sq. ft./yr. + 6% Florida Sales Tax is $2134.13
3. Furnishings:
In the labs/lab offices: 1 - biological hood
1 - chemical fume hood
1 - computer desk
1 - desk chair
1 - bookcase
1 - file cabinet
In Entrepreneurial office 126: 1 - desk
1 - file cabinet
1 - bookcase
1 - chair
In Auxiliary Office 183: 1 - desk
1 - file cabinet
1 - bookcase
1 - chair
In Auxiliary Space 151: 1- biological hood
1- chair
<PAGE>
Exhibit 10.13.3
AMENDMENT NO. 2
CHANGE IN LICENSED SPACE
This Amendment No. 2, dated October 13, 1999, is between University of Florida
Research Foundation, Inc., a not-for-profit corporation duly organized and
existing under the laws of the State of Florida and having its office in 223
Grinter Hall, Gainesville, FL 32611-2037 ("UFRFI"), and Gemini Health
Technologies, Inc., a company duly organized under the laws of Delaware, and
having its principle office at 12085 Research Drive, Alachua, Florida 32615
("Gemini").
WITNESSETH
WHEREAS, UFRFI and Gemini entered into an Incubator License Agreement
relating to licensed space at the Sid Martin Biotechnology Development Institute
in Alachua, Florida, dated 29th day of October, 1998 (the "ILA"), and
WHEREAS, Gemini desires a change in licensed space;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein the parties agree as follows:
1. Beginning October 15, 1999, ("Effective Date") and for the balance
of the initial term of Gemini's Incubator License Agreement, Gemini
shall license lab space 146, 148, and 150, auxiliary space 151, 125,
and 183, and shall continue licensing entrepreneurial office 126.
Entrepreneurial office 126 188 sq. ft.
Lab/Office 146/146a 951 sq. ft.
Lab/Office 148/148a 963 sq. ft.
Lab/Office 150/150a 951 sq. ft.
Auxiliary Space 151 230 sq. ft.
Auxiliary Office 125 139 sq. ft.
Auxiliary Office 183 84 sq. ft.
Total 3506 sq. ft.
Monthly License Fee @ $10.00/sq. ft./yr. + 6% Florida Sales Tax
is $3096.97.
2. The cash license fee, plus 6% Florida sales tax, shall be payable
by Licensee in equal monthly installments, in advance, on or before the
first day of each month. For any change of space, cash payments are due
prior to the effective date for use of the new space. However, if the
effective date falls after the first of any month, Licensee may elect
to accrue the obligation and have it included in the following month's
invoice.
3. The option selected (ILA, Section 4) for satisfaction of the
Supplementary License Fee shall be recalculated to reflect the new
square footage agreed to in this amendment and shall take effect on the
effective date of this amendment. Supplementary License Fee (Royalty) @
$8.00/sq. ft./yr + 6% Florida Sales Tax is $2477.57 per month.
5. Attachment A, "Licensed Space," to the ILA is amended in its
entirety as attached hereto.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
and duly executed this agreement as of the day and the year first set forth
above.
University of Florida Research Gemini, Inc.
Foundation
/s/ Dr. Thomas Walsh /s/ Arup Sen
Dr. Thomas Walsh Date 10/20/99 Dr. Arup Sen Date 10/13/99
Secretary, UFRF Chief Executive Officer
ATTACHMENT A
LICENSED SPACE
1. Address: 12085 Research Drive
Alachua, Fl 32615
2. Space:
Entrepreneurial office 126 188 sq. ft.
Lab/Office 146/146a 951 sq. ft.
Lab/Office 148/148a 963 sq. ft.
Lab/Office 150/150a 951 sq. ft.
Auxiliary Space 151 230 sq. ft.
Auxiliary Office 125 139 sq. ft.
Auxiliary Office 183 84 sq. ft.
Total 3506 sq. ft.
Monthly License Fee @ $10.00/sq. ft./yr. + 6% Florida Sales Tax
is $3096.97.
3. Furnishings:
In the labs/lab offices: 1 - biological hood
1 - chemical fume hood
1 - desk
1 - chair
1 - bookcase
1 - file cabinet
In Entrepreneurial office 126: 1 - desk
1 - chair
1 - file cabinet
1 - bookcase
In Auxiliary Office 125: 1- desk
1- chair
1- bookcase
1- file cabinet
In Auxiliary Office 183: 1 - desk
1 - chair
1 - file cabinet
1 - bookcase
In Auxiliary Space 151: 1- biological hood
1- chair
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Arup Sen the true and lawful
attorney-in-fact, with full power of substitution and
resubstitution, for him or her and his or her name, place and
stead, to sign on his or her behalf., as a director or
officer, or both, as the case may be, of Electropharmacology,
Inc., a Delaware corporation (the "Corporation"), an Annual
Report on Form 10-KSB for the year ended December 31, 1999 and
to sign any or all amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact full power and authority
to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact
or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
Dated: April 17, 2000
-------------------------
Bernard Carrico
/s/ Murray Feldman
/s/ Richard K. Kneipper
------------------------
Stephen Seiler
<PAGE>
Exhibit 27.1
Financial Data Schedule
Article 5 of Regulation S-X
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-KSB AT DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
<S> <C>
PERIOD-TYPE 12 mos
FISCAL-YEAR-END DEC-31-1999
PERIOD-END DEC-31-1999
CASH 6,577
SECURITIES 210,182
RECEIVABLES 94,166
ALLOWANCES 30,203
INVENTORY 7,172
CURRENT-ASSETS 348,128
PP&E 265,956
DEPRECIATION (255,012)
TOTAL-ASSETS 691,453
CURRENT-LIABILITIES 2,157,618
BONDS 23,691
PREFERRED-MANDATORY 8,886,544
PREFERRED 0
COMMON 172,683
OTHER-SE (10,615,009)
TOTAL-LIABILITY-AND-EQUITY 691,453
SALES 513,021
TOTAL-REVENUES 513,021
CGS 565,101
TOTAL-COSTS 565,101
OTHER-EXPENSES 2,326,263
LOSS-PROVISION 0
INTEREST-EXPENSE 147,010
INCOME-PRETAX (1,570,422)
INCOME-TAX 0
INCOME-CONTINUING (898,570)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (898,570)
EPS-PRIMARY (.11)
EPS-DILUTED (.11)
</TABLE>
