SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date earliest event reported) January 22, 1999
-----------------
EMBRYO DEVELOPMENT CORPORATION
------------------------------------------
(exact name of registrant as specified in its charter)
DELAWARE
-------------------------------------
(State or other jurisdiction of incorporation)
0-27028 13-3832099
------- -----------
(Commission File Number) (IRS Employer Identification
Number)
750 Lexington Avenue, Suite 2750, New York, NY 10022
- ------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:(212) 355-8484
- -----------------------------------------------------------------------
(Former name or former address, if changed since last
report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
- ------- --------------------------------------
Between November 20, 1998 and January 31, 1999, Embryo
Development Corporation (the "Registrant") sold an aggregate of
710,000 shares of the common stock of Hydrogel Design Systems, Inc.
("HDS") for $710,000. The Company previously held a total
investment of 1,272,500 shares of HDS which represented 31.3%
common ownership. As a result of this transaction, the Company
presently holds 562,500 shares or 13.8% common ownership of HDS.
On January 31, 1999, as a result of this transaction, the ownership
dropped below 20% and the Company changed the accounting for this
investment from the equity method to the cost method.
The purchase price of the stock was determined as a result of
arms'-length negotiations with parties deemed to be the highest and
most likely purchasers of the HDS stock. These parties included
both unrelated parties and current shareholders of HDS.
The Company intends to use the proceeds for current working
capital needs and to continue with the development of its products.
Item 5. Other Events.
- ------- -------------
On January 22, 1999, Embryo Development Corporation (the
"Registrant") amended a certain Licensing Agreement dated March 31,
1995 by and between the Company and Lloyd A. Marks, M.D. for the
manufacture and marketing of the self-shielding needle. The
amendment eliminates the "Minimum Payment Obligation" as defined in
the original agreement. The last such payment which was due on
September 30, 1998 in the amount of $50,000 was paid on January 26,
1999 upon execution of the amendment.
In consideration for eliminating all future and any prior
minimum payment obligations on this invention and any other
products or inventions currently or previously licensed by the
Company from the licensor, the Company agreed to (a) increase the
royalty on future sales from 8% to 10%; (b) pay the licensor a
"cap" on minimum royalty payments of $450,000. Such payments shall
be payable at the rate of $2,500 per month plus 10% of the proceeds
received by the Company from any capital raised which exceeds
$600,000, and 10% of annual pre-tax income until the aggregate
"cap" payment is made. The aggregate royalty of $450,000 has been
charged to operations in the period ended January 31, 1999.
<PAGE>
In addition, if the Licensor terminates the agreement for any
reason, the maximum royalty shall be reduced by $125,000 and all
information with respect to the invention (the "Know-How") shall be
returned to the licensor free and clear of any liens. If the
Company terminates the agreement, the licensor may acquire the
Know-How for $125,000. If the Company does not obtain the
necessary government approval to market the self-sheilding needle
within (2) two years, the agreement shall terminate unless the
Company pays the licensor an additional $250,000, which will extend
the regulatory approval requirement by (2) two additional years.
<PAGE>
Item 7. Financial Statements and Exhibits
- ------- ---------------------------------
(a) Financial Statements of Business Acquired - Not applicable.
(b) Pro Forma Financial Information
The following unaudited pro forma condensed financial
statements are filed with this report:
Pro Forma Unaudited Condensed Balance Sheet
as of October 31, 1998.................................Page F-1
Pro Forma Unaudited Condensed Statements of Operations:
Six Months Ended October 31, 1998...................Page F-2
Year Ended April 30, 1998...........................Page F-3
The Pro Forma Condensed Balance Sheet of Registrant as at
October 31, 1998 reflects the financial position of Registrant
after giving effect to the Company's sale of 710,000 shares of HDS
common stock discussed in Item 2. for an aggregate of $710,000 and
assumes the transaction took place on October 31, 1998. The Pro
Forma Condensed Statements of Operations for the fiscal year ended
April 30, 1998 and the six months ended October 31, 1998 assume
that the disposition occurred on May 1, 1997, and are based on the
operations of the Registrant for the year ended April 30, 1998 and
the six months ended October 31, 1998. The Pro Forma Statements of
Operations do not include any gain from the sale of the investment.
The gain, which is not determinable at this time, will be included
in the historical statements of operations within the 12 months
following the transaction.
The unaudited pro forma condensed financial statements have
been prepared by the Registrant based upon the historical financial
statements of the Company and the assumptions deemed proper by it.
The unaudited pro forma condensed financial statements presented
herein are shown for illustrative purposes only and are not
necessarily indicative of the future financial position or future
results of operations of Registrant, or of the financial position
or results of operations of Registrant that would have actually
ocurred had the transaction been in effect as of the date or for
the periods presented. In addition, it should be noted that
Registrant's historical financial statements will reflect the
transaction only from the period November 20, 1998 through January
31, 1999, as the transactions occurred, and the reduction of
ownership of HDS under 20% which resulted in a change from the
equity method to the cost method of accounting for this investment
will be reflected in the historical financial statements as of
January 31, 1999, the Closing date which resulted in the reduction
of common ownership of less than 20%.
The unaudited pro forma condensed financial statements should
be read in conjunction with the historical financial statements and
related notes of Registrant.
<PAGE>
(c) Exhibits
10.1 Amendment No.1 to License Agreement of Safety Needle
by and between Dr. Lloyd Marks and the Company dated
January 22, 1999.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly authorized and caused the
undersigned to sign this Report on the Registrant's behalf.
EMBRYO DEVELOPMENT CORPORATION
By: /s/ Matthew Harriton
-----------------------
Matthew Harriton
President
Dated: February 12, 1999
<PAGE>
<TABLE>
PRO FORMA FINANCIAL INFORMATION
---------------------------------
EMBYRO DEVELOPMENT CORPORATION
(A Development Stage Company)
PRO FORMA CONDENSED BALANCE SHEET
AT OCTOBER 31, 1998
(Unaudited)
Pro Forma
Historical Adjustments Proforma
(a) (As Adjusted)
----------------------------------
<CAPTION>
Assets
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 54,963 $ 710,000 $ 764,963
Accounts and interest receivable 38,183 - 38,183
Inventories 58,404 - 58,404
Prepaid expenses and other
current assets 178,421 - 178,421
------- ------- ---------
Total current assets 329,971 710,000 1,039,971
PROPERTY, PLANT & EQUIPMENT, NET 14,158 - 14,158
LICENSED TECHNOLOGY, NET 393,333 - 393,333
INVESTMENT IN AND ADVANCES TO
AFFILIATE 850,991 (109,162) 741,829
OTHER ASSETS 114,734 - 114,734
------- --------- -------
$1,703,187 $ 600,838 $2,304,025
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued
expenses $ 263,243 $ - $ 263,243
------- -------- --------
Total current liabilities 263,243 - 263,243
Total stockholders' equity 1,439,944 600,838 2,040,782
--------- ------- ---------
$1,703,187 $ 600,838 $2,304,025
========== ========= ===========
</TABLE>
(a) To record the sale of 710,000 shares of HDS stock included in
the balance sheet as of October 31, 1998 and to reflect the
Company's reduction of investment in HDS from 31.3% to 13.8% as
of October 31, 1998 resulting in a change from the equity to the
cost method of accounting.
F-1
<PAGE>
<TABLE>
PRO FORMA FINANCIAL INFORMATION
-------------------------------
EMBYRO DEVELOPMENT CORPORATION
(A Development Stage Company)
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1998
(Unaudited)
Pro Forma
Historical Adjustments Proforma
(b) (As Adjusted)
-----------------------------------
<CAPTION>
<S> <C> <C> <C>
REVENUES $ 62,851 $ - $ 62,851
COSTS AND EXPENSES:
Cost of sales 47,787 - 47,787
General and administrative 478,322 - 478,322
Royalties 50,000 - 50,000
Research and development 125,579 - 125,579
Amortization 52,857 - 52,857
Equity loss in operations of
unconsolidated investee 186,933 (186,933) -
Interest (income) expense (35,509) - (35,509)
-------- --------- --------
905,969 (186,933) 719,036
LOSS BEFORE MINORITY INTEREST (843,118) 186,933 (656,185)
MINORITY INTEREST IN NET
LOSS OF SUBSIDIARY - - -
NET LOSS $ (843,118) $ 186,933 $ (656,185)
=========== ========= ============
NET LOSS PER SHARE $ (.13) $ (.10)
=========== ============
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK
OUTSTANDING 6,282,228 6,282,228
========= =========
</TABLE>
(b) To eliminate the equity loss of HDS for the entire period and
to reflect the Company's sale of 710,000 shares of HDS stock
resulting in a change from the equity to the cost method as if
the transaction had been completed on May 1, 1997.
F-2
<PAGE>
<TABLE>
PRO FORMA FINANCIAL INFORMATION
------------------------------
EMBYRO DEVELOPMENT CORPORATION
(A Development Stage Company)
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1998
(Unaudited)
Pro Forma
Historical Adjustments Proforma
(c) (As Adjusted)
---------------------------------
<CAPTION>
<S> <C> <C> <C>
REVENUES $ 800,494 $(620,441) $ 180,053
COSTS AND EXPENSES:
Cost of sales 750,734 (606,108) 144,626
General and administrative 1,947,356 (583,693) 1,363,663
Royalties 82,752 - 82,752
Research and development 199,251 - 199,251
Amortization 230,000 - 230,000
Equity loss for three months
of operations of
unconsolidated investee 366,744 (366,744) -
Loss on write-off of
licensed technology 486,785 - 486,785
Interest (income) expense 46,736 (130,710) (83,974)
--------- ----------- ----------
4,110,358 (1,687,255) 2,423,103
LOSS BEFORE MINORITY INTEREST (3,309,864) 1,066,814 (2,243,050)
MINORITY INTEREST IN NET
LOSS OF SUBSIDIARY 65,881 (65,881) -
---------- ---------- -----------
NET LOSS $(3,243,983)$1,000,933 $(2,243,050)
=========== ========== ============
NET LOSS PER SHARE $ (.67) $ (.46)
=========== ============
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK
OUTSTANDING 4,845,000 4,845,000
========= =========
</TABLE>
(c) To eliminate the equity and consolidated loss of HDS for the
entire period and to reflect the Company's sale of 710,000 shares
of HDS stock resulting in a change from the equity to the cost
method as if the transaction had been completed on May 1, 1997.
F-3
<PAGE>
AMENDMENT NO.1 TO LICENSING AGREEMENT
This Amendment No.1 dated as of January 22, 1999 to that certain Licensing
Agreement (this "Amendment"), dated as of March 31, 1995, by and between
EMBRYO DEVELOPMENT CORPORATION, a Delaware corporation (the "Company" or
"Licensee"), and LLOYD A. MARKS, M.D. (the "Licensor").
W I T N E S S E T H :
WHEREAS, the Company and the Licensor have entered into a Licensing
Agreement dated as of March 31, 1995 (the "Licensing Agreement"), whereby the
Licensor has licensed the exclusive rights to develop, manufacture and sell
products covered by U.S. Patent No. 5,256,152 (the "Patent") also known as
the Safety Needle and Method for Using Same (the "Invention").
WHEREAS, the Company and the Licensor desire to amend the Licensing
Agreement to effect changes provided for herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the receipt and sufficiency of which is hereby acknowledged ,
the parties hereto agree as follows:
1. Effective as of the date hereof, the Licensing Agreement is hereby
amended by eliminating the "Minimum Payment Obligation," as that term is defined
in the Licensing Agreement under Section 5. The last such payment due by
Licensee shall be the payment which was due in September 30,1998 in the
amount of $50,000. Such payment shall be made upon the execution of this
Amendment. If this payment is not made or the funds associated with this
payment are not available to Licensor within thirty days from the date of
this Amendment then this entire Amendment shall be null and void.
2. In consideration for eliminating Minimum Payment Obligation, the
parties hereto agree to the following:
a) An increase in the amount of the Royalty as defined in the
License Agreement under Section 4.2 to 10%;
b) The Company shall pay to Licensor, in lieu of any and all other
minimum Royalty obligations under the Licensing Agreement, a
maximum aggregate sum of four hundred and fifty thousand dollars
($450,000) to be paid as follows:
(i) $2,500 per month until no balance remains, the first
payment to be made in February 1, 1999. Subsequent payments shall
be made on the first of each month thereafter. If such payments
are not made the Company shall be deemed in breach of the Amendment if
such amounts are not made current within five (5) days of receipt
of written notice of breach by Licensor. Any such amount which are
past due shall bear an interest rate of 10% per annum;
(ii) 10% of the net proceeds received by the Company from any
Capital Raise by the Company subsequent to January 7, 1999
excluding the first $600,000 raised during the period January 7,
1999 through February 28, 1999. For purposes of this Amendment,
the term "Capital Raise" shall be defined as the sale of any equity
securities issued by the Company whether in a private or public
transaction, or the proceeds from any new long-term debt financing of
the Company, the sale of any of the remaining shares of HDS common
stock owned by the Company, or the sale of substantially all of
the Company's assets. Such amounts due under this section 2(b)(ii)
shall be due thirty days from the time such funds become available to
the Company and a schedule illustrating the calculation of any
amounts due hereunder shall be provided to the Licensor along with
any payments. The Company shall provide the Licensor with notice
of any such Capital Raise as soon as practicable;
(iii) 10% of the Net Income Before Taxes on a consolidated basis of
the Company (as defined using generally accepted accounting practices
typical of the medical device industry), to be paid within 90 days
after fiscal year-end; and
(iv) Payments made under the provisions of section 2(b) of this
Amendment shall not be applied to any amounts due under section 2(a)
of this Amendment; and
(v) Any failure by the Company to make any payment under section
2(b) of this Amendment if not cured within 30 days after receipt of
written notice by Licensor shall permit the Licensor to immediately
terminate this Amendment and the Licensing Agreement.
The aggregate sum of $450,000 shall not bear any interest.
c) If the Licensing Agreement is terminated for any reason by the
Licensor, the remaining balance due under section 2(b) above shall
be reduced by the lesser amount of $125,000 or the remaining balance
due and all possessions owned by the Company related to the Invention,
including but not limited to documents, engineering reports and
drawings, prototypes, molds, models, data, and other information
acquired by the Company with respect to the Invention (collectively
hereinafter referred to as the "Know How") shall be given to the
Licensor and become the Licensor's property free and clear of any
liens or encumbrances. If the Company terminates this Amendment or
the Licensing Agreement for any reason then the Licensor shall have
the option to acquire the Know-How for a reduction in the remaining
balance due under section 2(b) above equal to the lesser amount of
$125,000 or the remaining balance due.
d) If the Company does not obtain the necessary government approvals
to market the Invention within 24 months from the date hereof then the
License Agreement shall automatically terminate unless the Company is
current with all of its obligations under section 2(b) of this
Amendment and pays the Licensor an additional fee of $250,000, paid by
the last day of the 24th month of the date of this agreement, and
thereby extends this regulatory approval requirement by an
additional 24 months. If the Company extends this regulatory
approval requirement and the Company does not obtain the necessary
government approvals to market the Invention within 48 months from
the date hereof then the License Agreement shall automatically
terminate.
e) The Licensor acknowledges that this Amendment and the terms
contained herein fully satisfy any prior obligations owed to Licensor
by the Company including, but not limited to, the Minimum Payment
Obligations with respect to the Invention and any other products or
inventions currently or previously licensed by the Company from the
Licensor.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of conflicts of
law.
4. Except as otherwise specifically set forth herein, all of the terms
and provisions of the Licensing Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
EMBRYO DEVELOPMENT CORPORATION
By:/s/ Matthew Harriton
---------------------
Name: Matthew Harriton
Title: CEO
/s/ Lloyd Marks
_____________________________
Llyod A. Marks, M.D.
