U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
ROYCE BIOMEDICAL, INC.
(Exact name of registrant as specified in its charter)
Nevada 98-0206542
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.
1100-1200 West 73rd Avenue
Vancouver, British Columbia V6P 6G5, Canada
(Address of principal executive offices)
(Zip Code)
(604) 267-7080
(Registrant's telephone number, including area code)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which
to be so Registered Each Class is to be Registered
None
Securities to be registered under Section 12(g) of the Act:
Common Stock
(Title of Class)
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Royce Biomedical, Inc. (the "Company") was incorporated in the State of
Nevada on March 22, l995.
Health care around the world is divided into two segments, diagnosis
and treatment. This segmentation has given rise to two separate markets: the
pharmaceutical market for treatment and the medical diagnostic testing devices
market for diagnosis. There is a rapidly growing array of diagnostic testing
devices which have a high degree of accuracy, sensitivity, and specificity.
These testing devices, which provide accurate and cost effective results in
minutes, are part of what is often referred to as the "point of care" market.
Between August 1995 and April 1998, the Company manufactured and sold
diagnostic test kits used to detect pregnancy, thyroid disorders and other
medical conditions. Between August 1995 and January 1998 the Company assembled
its diagnostic testing kits at a laboratory in Irvine, California. The Company
closed this facility in April 1998.
At the present time the Company purchases medical diagnostic test
systems from American manufacturers. In September 1999 the Company signed an
agreement with Chembio Diagnostic Systems Inc. for the manufacture of H. Pylori
and other diagnostic testing kits. The H. Pylori diagnostic kit manufactured by
Chembio Diagnostics Systems Inc., is considered by the Company and independent
evaluators, to be very accurate and sensitive. It is a rapid two step test for
the detection of antibodies to H. Pylori in human serum, plasma or whole blood
and is used as an aid in the diagnosis of infection due to H. Pylori.
In April 1999 the Company signed an agreement with Xili Pharmaceutical
Group, Inc. ("Xili") of the People's Republic of China to market and distribute
H. Pylori diagnostic test kits supplied by the Company to Xili's customers in
China. In addition to supplying H. Pylori test kits to Xili, the Company
provides clinical data and in-person training to Xili personnel.
Reports indicate that H. Pylori has infected over 780 million people in
China. H. Pylori infection is a main cause of chronic gastritis (50-80%
detectable rate in China), chronic active gastritis (over 90%), duodenal ulcer
(95%), and gastric ulcer (80%). The early treatment of H. Pylori infection can
reduce the need for invasive endoscopy and long-term traditional therapy
associated with duodenal and gastric ulcers, as well as antral gastritis.
Xili has a large sales force in China that services the medical
purchasing needs of clinics, laboratories, hospitals, and consumers. Xili has
more than 60 branch offices throughout China. Xili has a strong working
relationship with over 2000 hospitals in China, the Chinese Medical Association
and several of the largest drug stores and test kit distributors in China. Xili
is controlled by Dr. Yan Xiao Wen, the Chairman of the Company's Board of
Directors..
In November 1999 Xili began distributing 20,000 H. Pylori test kits
supplied by the Company to 100 hospitals in China as samples. The Company
<PAGE>
believes that each hospital will use a minimum of 30 kits per day. The Company's
goal is to sell at least 10,000 test kits to each hospital during the year 2000.
The Company expects to receive approximately $2.60 (net of product and
distribution costs) from the sale of each H. Pylori testing kit.
During the twelve month period ending December 31, 2000 the Company,
through Xili, plans to market H. Pylori test kits to other hospitals in China. A
variety of other diagnostic test kits will be sampled in key hospitals in China.
The Company will analyze the results of first year sales of H. Pylori
test kits. If sales results are encouraging, the Company plans to assemble H.
Pylori test kit components in China to reduce costs. In this regard, Chembio
Diagnostic Systems has indicated a willingness to sell the Company the
components that would allow the assembly of H. Pylori and other diagnostic kits
in China. Xili has agreed to supply the required assembly space in one of their
pharmaceutical manufacturing plants.
The Company may also attempt to acquire the rights to manufacture H.
Pylori test kits in China. Rather than building its own manufacturing facility,
the Company would pursue the acquisition of a subsidiary of Xili that
manufactures pharmaceutical products.
Utilizing marketing research conducted by Xili, the Company, if it
believes suitable opportunities exists, will attempt to acquire the rights and
licenses necessary to distribute and/or manufacture additional diagnostic
testing kits which will detect the presence of various diseases, infections,
viruses and other medical conditions. There can be no assurance that the Company
will be successful in these efforts. The Company does not know, and at this time
cannot predict, the cost of acquiring the rights to any new products.
If the Company has success in the Chinese market, the Company may
explore marketing and sales opportunities in other countries.
All of the Company's sales have been to customers outside of the United
States. For the foreseeable future, the Company does not plan to sell any of its
products in the United States.
The Company's executive offices are located at 1100-1200 West 73rd
Avenue Vancouver, British Columbia V6P 6G5 CANADA. The Company's telephone
number is (604) 267-7080 and its facsimile number is (604) 267-7078.
See Part II, Item 4 of this registration statement for information
concerning sales of the Company's common stock to officers, directors, and
various third parties.
Competition
There are competitors presently operating in China but comparative
tests conducted by ImmunoReagent Products Inc. have shown the Company's products
to be superior. The field in which the Company operates is subject to rapid
technological change and there can be no assurance that the Company will be able
<PAGE>
to react and adapt to any such change or that developments by competitors will
not cause the products distributed by the Company to be obsolete.
Regulation
Foreign Regulation. The Company has licenses from the State Drug
Authority of the People's Republic of China for the import and distribution of
H. Pylori and TB test kits in China. The Company, if suitable opportunities
exist, will attempt to acquire the rights and licenses necessary to distribute
other types of diagnostic test kits in China. Although the process to secure a
license is relatively expensive and time consuming, the Company believes that
having Xili as a partner in China will assist the Company in future dealings
with Chinese regulatory agencies. There is no assurance however that the Company
will be successful in obtaining licenses for the sale of additional diagnostic
testing kits in China.
In order to be sold outside the United States, medical device,
manufactured in the United States, including diagnostic testing kits, are
subject to FDA permit requirements that are conditioned on clearance by the
importing country's appropriate regulatory authorities. Many countries further
require imported medical devices to comply with their own or international
standards. Although the Company believes its products can be produced in
compliance with the regulations, no assurance can be given that the Company's
products will continue to meet standards which may be established form time to
time by the Chinese or other foreign government.
Regulation in the United States. The sale of medical devices are
regulated in the United States under the Federal Food, Drug and Cosmetic Act,
the Public Health Service Act, and the laws of certain states. The Federal Food
and Drug Administration (FDA) exercises significant regulatory control over the
manufacture of medical devices.
Prior to the time a medical device can be marketed in the United
States, approval of the FDA must normally be obtained. Certain states however
have passed laws which allow a state agency having functions similar to the FDA
to approve the testing and use of medical devices within the state. In the case
of either FDA or state regulation, testing programs are typically required in
order to establish product safety and efficacy.
FDA regulations pertain not only to medical devices, but also to the
processes and facilities used to manufacture such products. Among the conditions
for marketing products cleared by the FDA is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to the FDA's Good Manufacturing Practice ("GMP") regulations, which must be
followed at all times. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, money and effort in the
areas of production and quality control to ensure full technical compliance. GMP
regulations require adherence to strict quality control procedures, including
documentation of all aspects of the manufacturing process, to demonstrate that
<PAGE>
products are made by a "controlled" process that ensures consistency and
reliability of the end product. Significant changes to the manufacturing process
require notification to the FDA, and all changes require documentation. The FDA
has the right to conduct inspections of the manufacturing facility at any time
at its discretion. To the extent all or a portion of the manufacturing process
for a product is handled by an entity other than the Company, the Company must
similarly receive FDA approval for the other entity's participation in the
manufacturing process. Domestic manufacturing establishments are subject to
inspections by the FDA and by other Federal, state and local agencies and must
comply with Good Manufacturing Practices ("GMP") as appropriate for production.
In complying with GMP regulations, manufacturers must continue to expend time,
money and effort in the area of production and quality control to ensure full
technical compliance.
Stock Splits
All information in this registration statement has been adjusted to reflect
a five-for-one reverse split of the Company's common stock which was effective
May 11, 1998 and a three-for-one reverse split of the Company's common stock
which was effective May 30, 1999.
Employees
As of December 31, 1999, the Company had no full-time employees. The
Company plans to hire employees as may be required by the level of the Company's
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATION
At the present time the Company purchases medical diagnostic test systems
from American manufacturers. In September 1999 the Company signed an agreement
with Chembio Diagnostic Systems Inc. for the manufacture of H. Pylori and other
diagnostic testing kits.
In April 1999 the Company signed an agreement with Xili Pharmaceutical
Group, Inc. ("Xili") of the People's Republic of China to market and distribute
H. Pylori diagnostic test kits supplied by the Company to Xili's customers in
China. In addition to supplying H. Pylori test kits to Xili, the Company
provides clinical data and in-person training to Xili personnel.
In November 1999 Xili began distributing 20,000 sample H. Pylori test kits
supplied by the Company to 100 hospitals in China. The Company believes that the
hospital will use a minimum of 30 kits per day. The Company's goal is to sell at
least 10,000 test kits to each hospital during 2000. The Company expects to
receive approximately $ 2.60 (net of product and distribution costs) from the
sale of each H. Pylori testing kit.
During the twelve month period ending December 31, 2000 the Company,
through Xili, plans to market H. Pylori test kits to other hospitals in China.
The Company will analyze the results of first year sales of H. Pylori test
kits. If sales results are encouraging, the Company plans to assemble H. Pylori
test kit components in China to reduce costs. In this regard Chembio Diagnostic
Systems Inc. has indicated a willingness to sell to the Company, components that
would allow the assembly of H. Pylori and other diagnostic kits in China. Xili
has agreed to supply the required assembly space in one of their pharmaceutical
manufacturing plants.
<PAGE>
The Company may also attempt to acquire the rights to manufacture H.
Pylori test kits in China. Rather than building its own manufacturing facility,
the Company would pursue the acquisition of a subsidiary of Xili that
manufactures pharmaceutical products.
Utilizing marketing research conducted by Xili, the Company, if it
believes suitable opportunities exists, will attempt to acquire the rights and
licenses necessary to distribute other types of diagnostic test kits in China.
During the year ended June 30, 1999 the Company's operations used $370,800
in cash. The Company funded its operating losses during this period through the
private sale of shares of the Company's common stock. See Part II, Item 4 of
this registration statement.
The Company does not have any available credit, bank financing or other
external sources of liquidity. Due to historical operating losses, the Company's
operations have not been a source of liquidity. In order to obtain capital, the
Company may need to sell additional shares of its common stock or borrow funds
from private lenders. During the year ending June 30, 2000 the Company will need
approximately $4,000,000 in additional capital for the acquisition of a
pharmaceutical manufacturing facility that will allow the Company to manufacture
H. Pylori test kits in China. In addition, if during the year ending June 30,
2000, the Company suffers additional losses, the Company will need to obtain
additional capital in order to continue operations. There can be no assurance
that the Company will be successful in obtaining additional funding.
ITEM 3. PROPERTIES
See Item 1 of this report.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of and percentage of
outstanding shares of common stock owned by the Company's officers, directors
and those shareholders owning more than 5% of the Company's Common Stock as of
December 31, 1999.
Shares of
Name and Address Common Stock (1) Percent of Class
Dr. Yan Xiao Wen 2,222,222 (2) 66%
#205 - 1057 S.E. 17th Street
Fort Lauderdale, FL 33316, USA.
Kathy Jiang -- --
7531 Francis Rd.
Richmond, B.C. Canada V6Y 1A1
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Gregory Sharpe 92,222 2.7%
954 Roche Point Drive
North Vancouver, British Columbia
Canada, V7H 2T7
Ken Pappas 96,666 (3) 2.9%
5940 Sandpiper Ct.
Richmond, British Columbia
CANADA V7E-2P7
All officers and directors as 2,411,110 71.7%
a group (4 persons).
(1) Excludes shares issuable prior to March 31, 2000 upon the exercise of
options or warrants granted to the following persons:
Name Options exercisable prior to March 31, 2000
Gregory Sharpe 66,666
(2) Represents shares held by Xili USA, Inc., a corporation controlled by Dr.
Yan Xiao Wen
(3) Includes shares held by Knight & Day Restaurant Corp. Mr. Pappas is a
Director of Knight & Day Restaurant Corp.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following sets forth certain information concerning the present
management of the Company:
Name Age Position with Company
Dr. Yan Xiao Wen 41 Chairman of the Board of Directors
Kathy Jiang 42 President
Gregory Sharpe 54 Vice President
Ken Pappas 39 Director
<PAGE>
Dr. Yan Xiao Wen has been a director of the Company since April 1999. Dr.
Yan has been the President of Xili Pharmaceutical (Group) Inc., (Xili Beijing,
Xili Hebei, Xili Zaozhuang, Xili Hezhe, Xili Chongqing, Xili Hubai) and Xili USA
Inc. since December 1993.
Kathy Jiang has been the President of the Company since April 1999. Ms.
Jiang was the Vice President of Shandong Canada Trading from March 1993 to
November 1998.
Gregory Sharpe has been the Company's Vice President since April 1999. From
August 1991 to April 1998 Mr. Sharpe was the President of Harbourside College.
Ken Pappas was the Company's President between August 1995 and June 1998.
Mr. Pappas has been a director of the Company since March 1995. Mr. Pappas has
been the president of the Knight and Day Restaurants and Hymark Foods since
1986.
Consultant
Dr. Robert Bohannon is an expert in the field of immunoreagents and
diagnostics and provides consulting services to the Company. Dr. Bohannon
identifies leading diagnostic test kits through independent clinical analysis.
Dr. Bohannon also provides training to Xili's marketing and sales force.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation
received by (i) the Chief Executive Officer of the Company and (ii) by each
other executive officer of the Company who received in excess of $100,000 during
the fiscal year ended June 30, 1999.
Annual Compensation Long Term Compensation
Re- All
Other stric- Other
Annual ted Com-
Name and Compen- Stock Options pensa-
Principal Fiscal Salary Bonus sation Awards Granted tion
Position Year (1) (2) (3) (4) (5) (6)
Kathy Jiang,
President and 1999 $12,000 -- -- -- --
Chief Executive
Officer since
April 1999
Ken Pappas, 199 $ -- -- -- -- -- --
President and 1998 $ -- -- -- 50,000 --
Chief Executive 1997 $ -- -- -- -- -- --
Officer prior to June 1998
<PAGE>
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary or bonus,
including perquisites and other personal benefits, securities or property.
Amount in the table represents automobile allowances.
(4) During the period covered by the foregoing table, the shares of restricted
stock issued as compensation for services. The table below shows the number of
shares of the Company's Common Stock owned by the officers listed above, and the
value of such shares as of June 30, 1999.
Name Shares Value
Kathy Jiang -- $ --
Ken Pappas 96,666 $5,900
(5) The shares of Common Stock to be received upon the exercise of all stock
options granted during the period covered by the table. In the case of Mr.
Pappas, includes options granted to Knight & Day Restaurant Corp. Mr. Pappas is
director of Knight & Day Restaurant Corp. All of the options in the table
expired without being exercised.
(6) All other compensation received that the Company could not properly report
in any other column of the table including annual Company contributions or other
allocations to vested and unvested defined contribution plans, and the dollar
value of any insurance premiums paid by, or on behalf of, the Company with
respect to term life insurance for the benefit of the named executive officer,
and the full dollar value of the remainder of the premiums paid by, or on behalf
of, the Company.
The following shows the amounts which the Company expects to pay its
officers and consultant during the year ending June 30, 2000 and the time which
the Company's executive officers and consultant plan to devote to the Company's
business. The Company does not have employment agreements with any of its
officers or its consultant.
Proposed Time to be Devoted
Name Compensation To Company's Business
Dr. Yan Xiao Wen -- As required
Kathy Jiang $50,000 35%
Gregory Sharpe $30,000 35%
Dr. Robert Bohannon Not known As required
<PAGE>
Options Granted During Fiscal Year Ending June 30, l999
The following tables set forth information concerning the options granted,
during the fiscal year ended June 30, 1999, to the Company's officers and
directors, and the fiscal year-end value of all unexercised options (regardless
of when granted) held by these persons. The options held by Mr. Sharpe were not
granted pursuant to the Company's stock option plans.
Individual Grants
% of Total
Options
Granted to Exercise
Options Employees in Price Per Expiration
Name Granted (#) Fiscal Year Share Date
Gregory Sharpe 33,333 $0.60 12-31-99
Gregory Sharpe 33,333 $1.50 12-31-00
Gregory Sharpe 33,333 $3.90 12-31-01
99,999 100%
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
June 30, 1999 June 30, 1999
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
Gregory Sharpe -- -- 66,666/-- -/-
Long Term Incentive Plans - Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
Except as provided in the Company's employment agreements with its
executive officers, the Company does not have a defined benefit, pension plan,
profit sharing or other retirement plan, although the Company may adopt one or
more of such plans in the future.
<PAGE>
Compensation of Directors
Standard Arrangements. At present the Company does not pay its
directors for attending meetings of the Board of Directors, although the Company
expects to adopt a director compensation policy in the future. The Company has
no standard arrangement pursuant to which directors of the Company are
compensated for any services provided as a director or for committee
participation or special assignments.
Other Arrangements. During the year ended June 30, 1999, and except as
disclosed elsewhere in this registration statement, no director of the Company
received any form of compensation from the Company.
See " Stock Option and Bonus Plans" below for information concerning
stock options and stock bonuses granted to the Company's officers and directors.
Stock Option and Bonus Plans
The Company has an Incentive Stock Option Plan, a Non-Qualified Stock
Option Plan and a Stock Bonus Plan. A summary description of each Plan follows.
In some cases these three Plans are collectively referred to as the "Plans".
Incentive Stock Option Plan. The Incentive Stock Option Plan authorizes
the issuance of options to purchase up to 300,000 shares of the Company's Common
Stock, less the number of shares already optioned under both this Plan and the
Non-Qualified Stock Option Plan. The Incentive Stock Option Plan became
effective on September 15, 1999 and will remain in effect until September 15,
2009 unless terminated earlier by action of the Board. Only officers, directors
and key employees of the Company may be granted options pursuant to the
Incentive Stock Option Plan.
In order to qualify for incentive stock option treatment under the
Internal Revenue Code, the following requirements must be complied with:
1. Options granted pursuant to the Plan must be exercised no later
than:
(a) The expiration of thirty (30) days after the date on which an
option holder's employment by the Company is terminated.
(b) The expiration of one year after the date on which an option
holder's employment by the Company is terminated, if such termination is due to
the Employee's disability or death.
2. In the event of an option holder's death while in the employ of the
Company, his legatees or distributees may exercise (prior to the option's
expiration) the option as to any of the shares not previously exercised.
<PAGE>
3. The total fair market value of the shares of Common Stock
(determined at the time of the grant of the option) for which any employee may
be granted options which are first exercisable in any calendar year may not
exceed $100,000.
4. Options may not be exercised until one year following the date of
grant. Options granted to an employee then owning more than 10% of the Common
Stock of the Company may not be exercisable by its terms after five years from
the date of grant.
5. The purchase price per share of Common Stock purchasable under an
option is determined by the Committee but cannot be less than the fair market
value of the Common Stock on the date of the grant of the option (or 110% of the
fair market value in the case of a person owning the Company's stock which
represents more than 10% of the total combined voting power of all classes of
stock).
Non-Qualified Stock Option Plan. The Non-Qualified Stock Option Plan
authorizes the issuance of options to purchase up to 300,000 shares of the
Company's Common Stock less the number of shares already optioned under both
this Plan and the Incentive Stock Option Plan. The Non-Qualified Stock Option
Plan became effective on September 9, 1997 and will remain in effect until
September 9, 2007 unless terminated earlier by the Board of Directors. The
Company's employees, directors, officers, consultants and advisors are eligible
to be granted options pursuant to the Plan, provided however that bona fide
services must be rendered by such consultants or advisors and such services must
not be in connection with the offer or sale of securities in a capital-raising
transaction. The option exercise price is determined by the Committee but cannot
be less than the market price of the Company's Common Stock on the date the
option is granted.
Options granted pursuant to the Plan not previously exercised terminate
upon the date specified when the option was granted.
Stock Bonus Plan. Up to 100,000 shares of Common Stock may be granted
under the Stock Bonus Plan. Such shares may consist, in whole or in part, of
authorized but unissued shares, or treasury shares. Under the Stock Bonus Plan,
the Company's employees, directors, officers, consultants and advisors are
eligible to receive a grant of the Company's shares; provided, however, that
bona fide services must be rendered by consultants or advisors and such services
must not be in connection with the offer or sale of securities in a
capital-raising transaction.
Other Information Regarding the Plans. The Plans are administered by
the Company's Board of Directors. The Board of Directors has the authority to
interpret the provisions of the Plans and supervise the administration of the
Plans. In addition, the Board of Directors is empowered to select those persons
to whom shares or options are to be granted, to determine the number of shares
subject to each grant of a stock bonus or an option and to determine when, and
upon what conditions, shares or options granted under the Plans will vest or
otherwise be subject to forfeiture and cancellation.
<PAGE>
In the discretion of the Board of Directors, any option granted
pursuant to the Plans may include installment exercise terms such that the
option becomes fully exercisable in a series of cumulating portions. The Board
of Directors may also accelerate the date upon which any option (or any part of
any options) is first exercisable. Any shares issued pursuant to the Stock Bonus
Plan and any options granted pursuant to the Incentive Stock Option Plan or the
Non-Qualified Stock Option Plan will be forfeited if the "vesting" schedule
established by the Board of Directors at the time of the grant is not met. For
this purpose, vesting means the period during which the employee must remain an
employee of the Company or the period of time a non-employee must provide
services to the Company. At the time an employee ceases working for the Company
(or at the time a non-employee ceases to perform services for the Company), any
shares or options not fully vested will be forfeited and cancelled. In the
discretion of the Board of Directors payment for the shares of Common Stock
underlying options may be paid through the delivery of shares of the Company's
Common Stock having an aggregate fair market value equal to the option price,
provided such shares have been owned by the option holder for at least one year
prior to such exercise. A combination of cash and shares of Common Stock may
also be permitted at the discretion of the Board of Directors.
Options are generally non-transferable except upon death of the option
holder. Shares issued pursuant to the Stock Bonus Plan will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Board of Directors when the shares were issued.
The Board of Directors of the Company may at any time, and from time to
time, amend, terminate, or suspend one or more of the Plans in any manner it
deems appropriate, provided that such amendment, termination or suspension
cannot adversely affect rights or obligations with respect to shares or options
previously granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the eligibility
requirements for the Plans; increase or decrease the total number of shares of
Common Stock which may be issued pursuant to the Plans except in the case of a
reclassification of the Company's capital stock or a consolidation or merger of
the Company; reduce the minimum option price per share; extend the period for
granting options; or materially increase in any other way the benefits accruing
to employees who are eligible to participate in the Plans.
The Plans are not qualified under Section 401(a) of the Internal
Revenue Code, nor are they subject to any provisions of the Employee Retirement
Income Security Act of 1974.
Summary. The following sets forth certain information as of December
31, 1999, concerning the stock options and stock bonuses granted by the Company.
Each option represents the right to purchase one share of the Company's Common
Stock.
<PAGE>
Total Shares Remaining
Shares Reserved for Shares Options/
Reserved Outstanding Issued As Shares
Name of Plan Under Plan Options Stock Bonus Under Plan
Incentive Stock Option Plan 300,000 -- N/A 300,000
Non-Qualified Stock Option
Plan 300,000 N/A 300,000
Stock Bonus Plans 150,000 N/A -- 150,000
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following table provides information concerning shares of the Company's
common stock issued to the Company's officers and directors since the inception
of the Company:
Date Shares hareholder Consideration
03-25-95 133,333 Ken Pappas $ 2,000
08-15-97 6,666 Ken Pappas Services Rendered
01-20-98 33,333 Knight & Day Restaurant Corp. $125,000
09-21-98 100,000 Knight & Day Restaurant Corp. $ 45,000
01-19-99 92,222 Gregory Sharpe Services Rendered
04-12-99 2,222,222 Xili USA, Inc. $300,000
In September 1997 Ken Pappas returned 33,333 shares of common stock to
the Company. These shares were cancelled and Mr. Pappas did not receive any
consideration for the return of these shares.
Ken Pappas, a director of the Company, is also a director of Knight & Day
Restaurant Corp.
Xili USA, Inc. is controlled by Dr. Yan Xiao Wen, a director of the Company.
ITEM 8. DESCRIPTION OF SECURITIES
The Company is authorized to issue 100,000,000 shares of Common Stock
(the "Common Stock"). As of the December 31, 1999 the Company had 3,364,138
shares of Common Stock issued and outstanding. Holders of Common Stock are each
entitled to cast one vote for each share held of record on all matters presented
to shareholders. Cumulative voting is not allowed; hence, the holders of a
majority of the outstanding Common Stock can elect all directors.
Holders of Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors out of funds legally available therefor
and, in the event of liquidation, to share pro rata in any distribution of the
<PAGE>
Company's assets after payment of liabilities. The Board of Directors is not
obligated to declare a dividend and it is not anticipated that dividends will be
paid until the Company is in profit.
Holders of Common Stock do not have preemptive rights to subscribe to
additional shares if issued by the Company. There are no conversion, redemption,
sinking fund or similar provisions regarding the Common Stock. All of the
outstanding shares of Common Stock are fully paid and non-assessable and all of
the shares of Common stock offered hereby will be, upon issuance, fully paid and
non-assessable.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
As of December 31, 1999, there were approximately 370 record owners of
the Company's Common Stock. The Company's Common Stock is traded on the National
Association of Securities Dealers OTC Bulletin Board under the symbol "RYBO".
Set forth below are the range of high and low bid quotations for the periods
indicated as reported by the NASD. The market quotations reflect interdealer
prices, without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
The share prices shown in the table have been adjusted to reflect a five-one
reverse stock effective May 11, 1998 and a three-for-one reverse stock split
effective May 30, 1999.
Quarter Ending High Low
9/30/97 $0.87 $0.35
12/31/97 $0.75 $0.34
3/31/98 $0.47 $0.24
6/30/98 $0.75 $0.13
9/30/98 $0.44 $0.07
12/31/98 $0.10 $0.02
3/31/99 $0.11 $0.04
6/30/99 $0.14 $0.06
Holders of Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors out of funds legally available therefor
and, in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The Board of Directors is not
obligated to declare a dividend. The Company has not paid any dividends and the
Company does not have any current plans to pay any dividends.
<PAGE>
ITEM 2. LEGAL PROCEEDINGS.
The Company is not engaged in any litigation, and the officers and
directors presently know of no threatened or pending litigation in which it is
contemplated that the Company will be made a party.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth certain information concerning all securities
issued by the Company since January 1, 1997 which have not been registered under
the Securities Act of 1933.
Shares Issued
Date Shares Shareholder Consideration
05-22-97 10,000 Richmor Properties Ltd. $75,000
08-15-97 20,000 Richmor Properties Ltd. $150,000
08-15-97 6,666 Ken Pappas Services Rendered
08-15-97 6,666 Angelo Dimitracopoulos Services Rendered
08-15-97 3,333 Charles F. Payne Services Rendered
08-15-97 1,333 Zhi Fen Jing Services Rendered
08-15-97 1,600 Krishan Sharma Services Rendered
09-15-97 16,666 Costas Stariopoulos Services Rendered
09-15-97 16,666 Angelo Spiliotis Services Rendered
01-20-98 33,333 Knight & Day Restaurant Corp. $125,00
01-20-98 20,000 Richmor Properties Ltd. $75,000
02-06-98 16,666 Angelo Dimitracopoulos $25,000
08-05-98 73,333 Raymond Law $66,000
09-21-98 111,111 Richmor Properties Ltd. Services rendered
09-21-98 100,000 Knight & Day Restaurants Corp. $ 45,000
09-21-98 100,000 Peter Kokinis $ 45,000
09-21-98 16,666 Darryl Frost $ 7,500
09-21-98 40,000 Greg Wong $ 18,000
09-30-98 16,666 Peter Kyriakides Services rendered
09-30-98 16,666 Peter Kerasiotis Services rendered
09-30-98 16,666 Angela Giannoulis Services rendered
09-30-98 66,666 Richmor Properties Ltd. Services rendered
01-19-99 92,222 Gregory Sharpe Services rendered
04-12-99 2,222,222 XI LI USA, Inc. $300,000
The sales of shares prior to January 20, 1999 were exempt from registration
pursuant to Rule 504 of the Securities and Exchange Commission. No underwriters
<PAGE>
were involved with the sale of these securities and no commissions or other
forms of remuneration were paid to any person in connection with such sales.
The sale of the shares to Xili USA, Inc. was an exempt transaction
under Section 4(2) of the Securities Act of 1933 as a transaction by an issuer
not involving a public offering. Xili USA, Inc. acquired the shares for
investment purposes only and without a view to distribution. At the time Xili
USA acquired the shares, Xili USA was fully informed and advised about matters
concerning the Company, including its business, financial affairs and other
matters. Xili USA, Inc. acquired the securities for its own account. The
certificates evidencing the securities purchased by Xili USA will bear a legend
stating that they may not be offered, sold or transferred other than pursuant to
an effective registration statement under the Securities Act of 1933, or
pursuant to an applicable exemption from registration. The shares purchased by
Xili USA are "restricted" securities as defined in Rule 144 of the Securities
and Exchange Commission. No underwriters were involved with the sale of these
securities and no commissions or other forms of remuneration were paid to any
person in connection with this sale.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws authorize indemnification of a director, officer,
employee or agent of the Company against expenses incurred by him in connection
with any action, suit, or proceeding to which he is named a party by reason of
his having acted or served in such capacity, except for liabilities arising from
his own misconduct or negligence in performance of his duty. In addition, even a
director, officer, employee, or agent of the Company who was found liable for
misconduct or negligence in the performance of his duty may obtain such
indemnification if, in view of all the circumstances in the case, a court of
competent jurisdiction determines such person is fairly and reason- ably
entitled to indemnification. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers, or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
<PAGE>
PART III
EXHIBITS
Exhibit
Number Exhibit Name Page Number
Exhibit 2 Plan of Acquisition, Reorganization, Arrangement,
Liquidation, etc. None
Exhibit 3 Articles of Incorporation, as amended, and Bylaws ____
Exhibit 4 Instruments Defining the Rights of Security Holders
Exhibit 4.1 Incentive Stock Option Plan ____
Exhibit 4.2 Non-Qualified Stock Option Plan ____
Exhibit 4.3 Stock Bonus Plan ____
Exhibit 5 Subscription Agreement None
Exhibit 9 Voting Trust Agreement None
Exhibit 10 Material Contracts None
Exhibit 27 Financial Data Schedules ____
<PAGE>
ROYCE BIOMEDICAL INC.
Vancouver, BC
FINANCIAL STATEMENTS
For the Year Ended June 30, 1999
<PAGE>
AUDITORS' REPORT
To The Shareholders of Royce Biomedical Inc.:
We have audited the balance sheets of Royce Biomedical Inc. as at June 30,
1999 and 1998 and the statements of loss and deficit, changes in shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 30, 1999 and 1998 and
the results of its operations and its cash flows for the years then ended in
accordance with generally accepted accounting principles.
Cinnamon Jang Willoughby & Company
Chartered Accountants
Burnaby, BC
November 15, 1999
Comments by Auditor for U.S. Readers on Canada-US Reporting Difference
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph when the financial statements are affected by
conditins and events that cast substantial doubt on the Company's ability to
continue as a going concern, such as those described in Note 6 to the financial
statements. Our report to the shareholders dated November 15, 1999 is expressed
in accordance with Canadian reporting standards which do not permit a reference
to such events and conditions in the auditors' report when these are adequately
disclosed in the financial statements.
Cinnamon Jang Willoughby & Company
Chartered Accountants
Burnaby, BC
November 15, 1999
<PAGE>
Exhibit "A"
ROYCE BIOMEDICAL INC.
Balance Sheet
June 30, 1999
(US Dollars)
Assets 1999 1998
- ----------------------------------------------------------------------------
Current:
Cash $ 37,400 $ 100
Prepaid expenses and deposits 200,500 --
- ----------------------------------------------------------------------------
237,900 100
Product licence fees (Note 3) -- --
- ----------------------------------------------------------------------------
$ 237,900 $ 100
- ----------------------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------------------
Current:
Bank loan $ -- $ 6,200
Accounts payable and accrued liabilities 83,000 89,400
- ----------------------------------------------------------------------------
83,000 95,600
Loan payable -- 30,000
Loan payable to a related party (Note 4) 37,900 111,000
- ----------------------------------------------------------------------------
120,900 236,600
- ----------------------------------------------------------------------------
Shareholders' Equity
- ----------------------------------------------------------------------------
Share Capital (Note 5) 14,000 5,700
Contributed Surplus (Note 5) 2,305,700 1,796,600
Deficit, per Exhibit "B" 2,202,700 2,038,800
- ----------------------------------------------------------------------------
117,000 (236,500)
Going Concern (Note 6)
Commitments (Note 7)
- ----------------------------------------------------------------------------
$ 237,900 $ 100
- ----------------------------------------------------------------------------
- See accompanying notes -
<PAGE>
Exhibit "B"
ROYCE BIOMEDICAL INC.
Statement of Loss and Deficit
For the Year Ended June 30, 1999
(US Dollars)
1999 1998
- ----------------------------------------------------------------------------
Income $ -- $ --
- ----------------------------------------------------------------------------
Expenses:
Amortization -- 32,300
Consulting fees 51,300 238,100
Foreign exchange gain -- (25,100)
Office and sundry 2,900 19,400
Professional fees 30,200 68,300
Rent 26,700 38,500
Stock transfer agents fees 1,900 1,200
Telephone 10,000 14,800
Travel and promotion 21,000 66,400
Wages and benefits 19,900 55,100
- ------------------------------------------------------------------------------
Loss before other item 163,900 509,000
Other item:
Write-down of assets -- 72,500
- ----------------------------------------------------------------------------
Net Loss 163,900 581,500
Deficit, beginning 2,038,800 1,457,300
- ----------------------------------------------------------------------------
Deficit, ending, to Exhibit "A" $2,202,700 $2,038,800
- ----------------------------------------------------------------------------
Loss per share $ 0.10 $ 0.55
- ----------------------------------------------------------------------------
- See accompanying notes -
<PAGE>
Exhibit "C"
ROYCE BIOMEDICAL INC.
Statement of Changes in Shareholders' Equity
For the Year Ended June 30, 1999
(US Dollars)
Common Shares Contributed
Shares Amount Surplus Deficit
- ----------------------------------------------------------------------------
Balance at June 30, 1997 3,644,932 $ 3,600 $1,101,200 $(1,457,300)
Shares issued for cash 290,000 300 44,700 --
Shares issued for services
rendered 194,000 200 147,300 --
Shares cancelled (100,000) (100) (99,900) --
Shares exchanged for debt to
related parties 1,650,000 1,700 603,300 --
Reduction due to consolidation
of 5 existing common shares
into 1 common share effective
May 8, 1998 (4,203,314) -- -- --
Net Loss, per Exhibit "B" -- -- -- (581,500)
- ----------------------------------------------------------------------------
Balance at June 30, 1998 1,475,618 5,700 1,796,600 (2,038,800)
Shares issued for cash 6,886,667 6,900 358,300 --
Shares exchanged for debt to
related parties 1,453,333 1,400 150,800 --
Reduction due to consolidatio
of 3 existing common shares
into 1 common share effective
May 10, 1999 (6,543,702) -- -- --
Net Loss, per Exhibit "B" -- -- -- (163,900)
- ----------------------------------------------------------------------------
Balance at June 30, 1999,
to Exhibit "A" 3,271,916 $14,000 $2,305,700 $(2,202,700)
- ----------------------------------------------------------------------------
- See accompanying notes -
<PAGE>
Exhibit "D"
ROYCE BIOMEDICAL INC.
Statement of Cash Flows
For the Year Ended June 30, 1999
(US Dollars)
1999 1998
- ----------------------------------------------------------------------------
Operating Activities:
Net Loss, per Exhibit "B" $(163,900) $(581,500)
Adjustments for -
Amortization -- 32,300
Write-down of assets -- 72,500
Incorporation costs written off -- 900
- ----------------------------------------------------------------------------
(163,900) (475,800)
Changes in non-cash working capital -
(Increase) Decrease in accounts receivable -- 8,500
(Increase) Decrease in prepaid expenses and
deposits (200,500) 20,400
Increase (Decrease) in accounts payabl
and accrued liabilities (6,400) (2,200)
- ----------------------------------------------------------------------------
Cash flows used in operating activities (370,800) (449,100)
- ----------------------------------------------------------------------------
Financing Activities:
Proceeds from issuance of common shares 517,400 697,500
Repayment of bank loan (6,200) (5,000)
Proceeds from loan payable -- 30,000
Repayment of loan payable (30,000) --
Repayment of loan payable to related party (73,100) (286,000)
- ----------------------------------------------------------------------------
Cash flows from financing activities 408,100 436,500
- ----------------------------------------------------------------------------
Net Increase (Decrease) in Cash 37,300 (12,600)
Cash, beginning 100 12,700
- ----------------------------------------------------------------------------
Cash, ending $ 37,400 $ 100
- ----------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 200 $ 5,200
Non-cash transaction -
1,453,333 common shares were issued in settlemen
of $152,300 debt to a related party.
- See accompanying notes -
<PAGE>
Exhibit "E"
ROYCE BIOMEDICAL INC.
Notes to Financial Statements
June 30, 1999
(US Dollars)
1. Principles of Accounting and General Information:
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States.
The company was incorporated on March 22, 1995 under the jurisdiction of the
State of Nevada.
During the year, the company remained inactive having closed it's US
production facility and laboratory in 1997.
2. Accounting Policies:
a) Financial Instruments -
Fair Values -
Unless otherwise noted, cash, accounts payable and accrued liabilities
and loan payable to a related party are stated at amounts that
approximate their book value.
Liability Risk -
The company does not have significant risk for the repayment of advances
from a related party because under agreements with other shareholders,
the related party has agreed not to demand repayment.
b) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying disclosures. Although these estimates are based on
management's best knowledge of current events and actions the company
may undertake in the future, actual results may differ from the
estimates.
c) Foreign Currency Translation -
Assets and liabilities of Canadian operations are translated into United
States currency at exchange rates prevailing at the balance sheet date
for monetary items and at rates prevailing at the transaction date for
non-monetary items. Revenue and expenses, except amortization, are
converted at the average exchange rates for the year. Amortization is
converted at the same rate as the related assets.
Foreign exchange gains or losses on monetary assets and liabilities are
included in operations.
d) Cash -
Cash consists of bank accounts and short-term deposits integral to the
company's cash management.
- See accompanying notes -
<PAGE>
Exhibit "E"
Continued
ROYCE BIOMEDICAL INC.
Notes to Financial Statements
June 30, 1999
(US Dollars)
3. Product Licence Fees: 1999 1998
- -----------------------------------------------------------------------
Product licence fees, at cost $10,000 $10,000
Less: Accumulated amortization 10,000 10,000
- -----------------------------------------------------------------------
$ -- $ --
- -----------------------------------------------------------------------
4. Loan Payable to a Related Party: 1999 1998
- -----------------------------------------------------------------------
Knight & Day Restaurants Ltd. -
The loan payable has no specific
repayment terms and is non-interest
bearing. (See Note 2(a)). $37,900 $111,000
- ----------------------------------------------------------------------
5. Share Capital:
Authorized -
100,000,000 Common shares with a par value of $.001 each
5,000,000 Preferred shares with a par value of $.001 each
Common Shares Contributed
Issued and Outstanding - # Shares Amount Surplus
- -----------------------------------------------------------------------
Balance at June 30, 1997 3,644,932 $ 3,600 $1,101,200
Shares issued for cash 290,000 300 44,700
Shares issued for services rendered 194,000 200 147,300
Shares cancelled (100,000) (100) (99,900)
Shares exchanged for debt to related
parties 1,650,000 1,700 603,300
Reduction due to consolidation of
5 existing common shares into
1 common share effective
May 8, 1998 (4,203,314) -- --
- -------------------------------------------------------------------------------
Balance at June 30,1998 1,475,618 5,700 1,796,600
Shares issued for cash 6,886,667 6,900 358,300
Shares exchanged for debt to
related parties 1,453,333 1,400 150,800
Reduction due to consolidation
of 3 existing common shares
into 1 common share effective
May 10, 1999 (6,543,702) -- --
- -------------------------------------------------------------------------------
Balance at June 30, 1999 3,271,916 $14,000 $2,305,700
- -------------------------------------------------------------------------------
- See accompanying notes -
<PAGE>
Exhibit "E
Continued
ROYCE BIOMEDICAL INC.
Notes to Financial Statements
June 30, 1999
(US Dollars)
5. Share Capital: (Continued)
The following options for the purchase of common shares are outstanding:
Number of Exercise Expiry
Warrants Price Date
- -----------------------------------------------------------------------
20,000 $ 9.75 August 15, 1999
16,666 1.50 December 31, 1999
33,333 .60 December 31, 1999
93,333 4.50 December 31, 1999
10,000 10.50 May 22, 2000
20,000 10.50 August 15, 2000
33,333 1.50 December 31, 2000
33,333 3.90 December 31, 2001
83,333 .30 December 31, 2001
Granting of stock options to employees and directors may give rise to a
charge to income for compensation. In accordance with APB 25 under which
stock options are measured by the intrinsic value method, employee and
director compensation cost is limited to the excess of the quoted market
price at date of grant over the option price. Alternatively, in accordance
with SFAS-123, stock options could be valued using a fair market value
method such as the Black-Scholes option pricing model. At the date the
options were granted, there were no available market prices, therefore, it
is not possible to determine the value of the options.
At June 30, 1999, 183,333 (1998 - 330,000) common shares were restricted
from trading.
6. Going Concern:
While the financial statements have been prepared on the basis of accounting
principles applicable to a going concern, the occurrence of significant
losses to date raises substantial doubt upon the validity of this
assumption.
The company has experienced significant losses over the past five years,
including $163,900 in the current year and has an accumulated deficit of
$2,202,700 at June 30, 1999. The company's continued existence as a going
concern is dependent upon its ability to continue to obtain adequate
financing arrangements and to achieve and maintain profitable operations.
If the going concern assumption was not appropriate for these financial
statements, then adjustments may be necessary in the carrying value of
assets and liabilities, the reported net loss and the balance sheet
classifications used.
The company has financed its activities primarily from the proceeds of
various share issues and loans from related companies. As a result of the
company being in the early stages of operations, the recoverability of
assets on the balance sheet will be dependent on the company's ability to
obtain additional financing and to attain a level of profitable operations
from the existing facilities in production and/or the disposition thereof.
<PAGE>
Exhibit "E"
Continued
ROYCE BIOMEDICAL INC.
Notes to Financial Statements
June 30, 1999
(US Dollars)
7. Commitments:
During the year ended June 30, 1997, the company issued shares to a number
of investors in British Columbia, Canada at $1.42 ($2.00 Canadian). Pursuant
to the British Columbia Securities Act, an Offering Memorandum should have
accompanied the issuance of these shares. As this did not occur, the
shareholders were offered the opportunity to rescind the purchase of the
shares for a refund of the entire purchase price. Requests from shareholders
to rescind 14,250 common shares were received within the required time
limit. The company is required to refund an amount of $20,357. At June 30,
1999, these amounts have not been repaid and are included in accounts
payable and accrued liabilities.
The company has leased premises until June 30, 2000 at an annual cost of
$9,000.
8. Related Party Transactions:
In addition to the transactions described elsewhere in the financial
statements, the company had the following transactions with an officer, a
the director of the company.
1999 1998
- ----------------------------------------------------------------------
Expenses -
Consulting fees $26,706 $ -
Wages 12,000 -
These transactions are in the normal course of operations and are measured
at the exchange amount, which is the amount of consideration established and
agreed to between the parties.
9. Income Taxes:
The company has net losses for income tax purposes totalling approximately
$2,192,920 which may be applied against future taxable income. The potential
benefit arising from these losses has been recognized as a deferred tax
asset. To the extent that those benefits may not be realized, a valuation
allowance is provided for. The company's deferred tax balances are as
follows:
1999 1998
- ----------------------------------------------------------------------
Deferred tax asset, beginning of year $710,185 $506,660
Benefit of current year's operating
loss carried forward 57,365 203,525
- ----------------------------------------------------------------------
Deferred tax asset, end of year 767,550 710,185
- ----------------------------------------------------------------------
Valuation allowance, beginning of year 710,185 506,660
Current year's provision 57,365 203,525
- ----------------------------------------------------------------------
Valuation allowance, end of year 767,550 710,185
- ----------------------------------------------------------------------
$ -- $ --
- ----------------------------------------------------------------------
<PAGE>
Exhibit "E"
Continued
ROYCE BIOMEDICAL INC.
Notes to Financial Statements
June 30, 1999
(US Dollars)
9. Income Taxes: (Continued)
As the company has no history of profits, management believes that it is
more likely than not some or all of the deferred tax asset will not be
realized and has provided a full valuation allowance against the deferred
tax asset. The right to claim these losses expire as follows:
2010 $173,000
2011 599,000
2012 748,000
2013 508,976
2014 163,944
10. Comparative Figures:
Certain of the 1998 comparative figures have been reclassified to comply
with the current year's presentation.
11. Uncertainty Due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect Royce
Biomedical Inc.'s ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting
Royce Biomedical Inc., including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
<PAGE>
ROYCE BIOMEDICAL INC.
Vancouver, BC
INTERIM FINANCIAL STATEMENTS
(Unaudited)
December 31, 1999
<PAGE>
Exhibit "A"
ROYCE BIOMEDICAL INC.
Interim Balance Sheet
(Unaudited)
December 31, 1999
(US Dollars)
Assets 1999 1998
- ----------------------------------------------------------------------
Current:
Cash $ 185,800 $ 400
Accounts receivable 52,000 --
Prepaid expenses and deposits 1,200 --
- ----------------------------------------------------------------------
239,000 400
Product licence fees (Note 4) -- --
- ----------------------------------------------------------------------
$ 239,000 $ 400
- ----------------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------------
Current:
Bank loan $ -- $ 4,700
Accounts payable and accrued liabilities 91,600 63,000
Loan payable 50,000 --
- ----------------------------------------------------------------------
141,600 67,700
Note payable to a related party (Note 5) 37,500 35,600
- ----------------------------------------------------------------------
179,100 103,300
- ----------------------------------------------------------------------
Shareholders' Equity
- ----------------------------------------------------------------------
Share Capital (Note 6) 14,300 7,100
Contributed Surplus (Note 6) 2,322,000 2,042,600
Deficit, per Exhibit "B" 2,276,400 2,152,600
- ----------------------------------------------------------------------
59,900 (102,900)
Going Concern (Note 7)
Commitments (Note 8)
- ----------------------------------------------------------------------
$ 239,000 $ 400
- ----------------------------------------------------------------------
Approved by the Directors:
- See accompanying notes -
<PAGE>
Exhibit "B"
ROYCE BIOMEDICAL INC.
Interim Statement of Loss and Deficit
(Unaudited)
For the Six Months Ended December 31, 1999
(US Dollars)
1999 1998
- ----------------------------------------------------------------------
Sales $ 52,000 $ --
Cost of sales 19,900 --
- ----------------------------------------------------------------------
Gross Margin 32,100 --
- ----------------------------------------------------------------------
Expenses:
Consulting fees 58,100 28,300
Foreign exchange loss 200 --
Office and sundry 1,000 4,500
Professional fees 15,500 15,800
Rent 3,700 26,400
Stock transfer agents fees 900 1,000
Telephone 400 11,400
Travel and promotion 7,400 13,500
Wages and benefits 18,600 12,900
- ----------------------------------------------------------------------
105,800 113,800
- ----------------------------------------------------------------------
Net Loss 73,700 113,800
Deficit, beginning 2,202,700 2,038,800
- ----------------------------------------------------------------------
Deficit, ending, to Exhibit "A" $2,276,400 $2,152,600
- ----------------------------------------------------------------------
Loss per share $ 0.02 $ 0.04
- ----------------------------------------------------------------------
- See accompanying notes -
<PAGE>
Exhibit "C"
ROYCE BIOMEDICAL INC.
Interim Statement of Changes in Shareholders' Equity
(Unaudited)
For the Six Months Ended December 31, 1999
(US Dollars)
Common Shares Contributed
Shares Amount Surplus Deficit
- ----------------------------------------------------------------------
Balance at June 30, 1998 1,475,618 $ 5,700 $1,796,600 $(2,038,800)
Shares issued for cash 220,000 200 95,200 --
Shares exchanged for debt
to related parties 1,453,333 1,200 150,800 --
Net Loss, per Exhibit "B" -- -- -- (113,800)
- ----------------------------------------------------------------------
Balance at December 31, 1998 3,148,951 $ 7,100 2,042,600 $(2,152,600)
- ----------------------------------------------------------------------
Balance at June 30, 1999 3,271,916 $14,000 2,305,700 ($2,202,700)
Shares issued for services
rendered 92,222 300 16,300 --
Net Loss, per Exhibit "B" -- -- -- (73,700)
- ----------------------------------------------------------------------
Balance at December 31,
1999, to Exhibit "A" 3,364,138 $14,300 $2,322,000 $(2,276,400)
- ----------------------------------------------------------------------
- See accompanying notes -
<PAGE>
Exhibit "D"
ROYCE BIOMEDICAL INC.
Interim Statement of Cash Flows
(Unaudited)
For the Six Months Ended December 31, 1999
(US Dollars)
1999 1998
- ----------------------------------------------------------------------
Operating Activities:
Net Loss, per Exhibit "B" $ (73,700) $(113,800)
Changes in non-cash working capital -
(Increase) Decrease in accounts receivable 52,000 --
(Increase) Decrease in prepaid expenses
and deposits 199,300 --
Increase (Decrease) in accounts payable
and accrued liabilities 8,600 (26,400)
Increase (Decrease) in loan payable 50,000 --
- ----------------------------------------------------------------------
Cash flows from (used in) operating activities 132,200 (140,200)
- ----------------------------------------------------------------------
Financing Activities:
Proceeds from issuance of common shares 16,600 172,000
Repayment of bank loan -- (1,500)
Repayment of loan payable -- (30,000)
Repayment of note to related party (400) --
- ----------------------------------------------------------------------
Cash flows from financing activities 16,200 140,500
- ----------------------------------------------------------------------
Net Increase in Cash 148,400 300
Cash, beginning 37,400 100
- ----------------------------------------------------------------------
Cash, ending $185,800 $ 400
- ----------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Interest $ 200 $ 700
- See accompanying notes -
<PAGE>
Exhibit "E"
ROYCE BIOMEDICAL INC.
Notes to Interim Financial Statements
(Unaudited)
December 31, 1999
(US Dollars)
1. Principles of Accounting and General Information:
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States.
The company was incorporated on March 22, 1995 under the jurisdiction of the
State of Nevada.
During the year, the company remained inactive having closed it's US
production facility and laboratory in 1997.
2. Accounting Policies:
a) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying disclosures. Although these estimates are based on
management's best knowledge of current events and actions the company
may undertake in the future, actual results may differ from the
estimates.
b) Foreign Currency Translation -
Assets and liabilities of Canadian operations are translated into United
States currency at exchange rates prevailing at the balance sheet date
for monetary items and at rates prevailing at the transaction date for
non-monetary items. Revenue and expenses, except amortization, are
converted at the average exchange rates for the year. Amortization is
converted at the same rate as the related assets.
Foreign exchange gains or losses on monetary assets and liabilities are
included in operations.
c) Cash -
Cash consists of bank accounts and short-term deposits integral to the
company's cash management.
3. Financial Instruments:
a) Fair Values -
Unless otherwise noted, cash, accounts payable and accrued liabilities,
loan payable and note payable to a related party are stated at amounts
that approximate their book value.
b) Liability Risk -
The company does not have significant risk for the repayment of advances
from a related party because under agreements with related party, they
have agreed not to demand repayment.
<PAGE>
Exhibit "E
Continued "
ROYCE BIOMEDICAL INC.
Notes to Interim Financial Statements
(Unaudited)
December 31, 1999
(US Dollars)
4. Product Licence Fees: 1999 1998
- ----------------------------------------------------------------------
Product licence fees, at cost $ 10,000 $ 10,000
Less: Accumulated amortization 10,000 10,000
- ----------------------------------------------------------------------
$ -- $ --
- ----------------------------------------------------------------------
5. Note Payable to a Related Party: 1999 1998
- ----------------------------------------------------------------------
Knight & Day Restaurants Ltd. -
The loan payable has no specific
repayment terms and is non-interest
bearing. (See Note 2(a)). $ 37,500 $ 35,600
- ----------------------------------------------------------------------
6. Share Capital:
Authorized -
100,000,000 Common shares with a par value of $.001 each
5,000,000 Preferred shares with a par value of $.001 each
Common
Shares Contributed
Issued and Outstanding - # Shares Amount Surplus
- -----------------------------------------------------------------------------
Balance at June 30, 1998 1,475,618 $ 5,700 $1,796,600
Shares issued for cash 220,000 200 95,200
Shares exchanged for debt to
related parties 1,453,333 1,200 150,800
- ----------------------------------------------------------------------
Balance December 31, 1998 3,148,951 7,100 2,042,600
Shares issued for cash 6,666,667 6,900 263,100
Reduction due to consolidation
of 3 existing common shares
into 1 common share effective
May 31, 1999 (6,543,702) -- --
- ----------------------------------------------------------------------
Balance at June 30,1999 3,271,916 14,000 2,305,700
Shares issued for services rendered 92,222 300 16,300
- ----------------------------------------------------------------------
Balance at December 31, 1999 3,364,138 $14,300 $2,322,000
- ----------------------------------------------------------------------
- See accompanying notes -
<PAGE>
Exhibit "E"
ROYCE BIOMEDICAL INC. Continued
Notes to Interim Financial Statements
(Unaudited)
December 31, 1999
(US Dollars)
6. Share Capital: (Continued)
The following options for the purchase of common shares are outstanding:
Number of Exercise Expiry
Shares Price Date
- ----------------------------------------------------------------------
10,000 $10.50 May 22, 2000
20,000 10.50 August 15, 2000
33,333 1.50 December 31, 2000
33,333 3.90 December 31, 2000
83,333 .30 December 31, 2000
At December 31, 1999, 183,333 common shares were restricted from trading.
Granting of stock options to employees and directors may give rise to a
charge to income for compensation. In accordance with APB 25 under which
stock options are measured by the intrinsic value method, employee and
director compensation cost is limited to the excess of the quoted market
price at date of grant over the option price. Alternatively, in accordance
with SFAS-123, stock options could be valued using a fair market value
method such as the Black-Scholes option pricing model. At the date the
options were granted, there were no available market prices, therefore, it
is not possible to determine the value of the options.
7. Going Concern:
While the financial statements have been prepared on the basis of accounting
principles applicable to a going concern, the occurrence of significant
losses to date raises substantial doubt upon the validity of this
assumption.
The company has experienced significant losses over the past five years,
including $73,700 in the current period and has an accumulated deficit of
$2,276,400 at December 31, 1999. The company's continued existence as a
going concern is dependent upon its ability to continue to obtain adequate
financing arrangements and to achieve and maintain profitable operations.
If the going concern assumption was not appropriate for these financial
statements, then adjustments may be necessary in the carrying value of
assets and liabilities, the reported net loss and the balance sheet
classifications used.
The company has financed its activities primarily from the proceeds of
various share issues and loans from related companies. As a result of the
company being in the early stages of operations, the recoverability of
assets on the balance sheet will be dependent on the company's ability to
obtain additional financing and to attain a level of profitable operations
from the existing facilities in production and/or the disposition thereof.
<PAGE>
Exhibit "E"
Continued
ROYCE BIOMEDICAL INC.
Notes to Interim Financial Statements
(Unaudited)
December 31, 1999
(US Dollars)
8. Commitments:
During the year ended June 30, 1997, the company issued shares to a number
of investors in British Columbia, Canada at $1.42 ($2.00 Canadian). Pursuant
to the British Columbia Securities Act, an Offering Memorandum should have
accompanied the issuance of these shares. As they were not, the shareholders
were offered the opportunity to rescind the purchase of the shares for a
refund of the entire purchase price. Requests from shareholders to rescind
14,250 common shares were received within the required time limit. The
company is required to refund an amount of $20,357. At December 31, 1999,
these amounts have not been repaid and are included in accounts payable and
accrued liabilities.
9. Related Party Transactions:
In addition to the transactions described elsewhere in the financial
statements, the company had the following transactions with an officer, a
the director of the company.
1999 1998
- -----------------------------------------------------------------------
Expenses -
Consulting fees $31,600 $ 4,800
Wages 18,600 --
These transactions are in the normal course of operations and are measured
at the exchange amount, which is the amount of consideration established and
agreed to between the parties.
10. Income Taxes:
The company has net losses for income tax purposes totalling approximately
$2,263,700 which may be applied against future taxable income. The potential
benefit arising from these losses has been recognized as a deferred tax
asset. To the extent that those benefits may not be realized, a valuation
allowance is provided for. The company's deferred tax balances are as
follows:
1999 1998
- ----------------------------------------------------------------------
Deferred tax asset, beginning of period $767,500 $710,200
Benefit of current year's operating loss
carried forward 26,500 39,800
- ----------------------------------------------------------------------
Deferred tax asset, end of period 794,000 750,000
- ----------------------------------------------------------------------
Valuation allowance, beginning of period 767,500 710,200
Current year's provision 26,500 39,800
- ----------------------------------------------------------------------
Valuation allowance, end of period 794,000 750,000
- ----------------------------------------------------------------------
$ -- $ --
- ----------------------------------------------------------------------
<PAGE>
Exhibit "E"
Continued
ROYCE BIOMEDICAL INC.
Notes to Interim Financial Statements
(Unaudited)
December 31, 1999
(US Dollars)
11. Income Taxes: (Continued)
As the company has no history of profits, management believes that it is
more likely than not some or all of the deferred tax asset will not be
realized and has provided a full valuation allowance against the deferred
tax asset. The right to claim these losses expire as follows:
2010 $173,000
2011 599,000
2012 748,000
2013 509,000
2014 163,900
2015 73,800
12. Uncertainty Due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect Royce
Biomedical Inc.'s ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting
Royce Biomedical Inc., including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant has caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATE: February 29, 2000 ROYCE BIOMEDICAL, INC.
By /s/ Kathy Jiang
Kathy Jiang, President
and Principal Financial Officer
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-SB
ROYCE BIOMEDICAL, INC.
1100-1200 West 73rd Avenue
Vancouver, British Columbia V6P 6G5
Canada
EXHIBITS
<PAGE>
Exhibit
Number Exhibit Name Page Number
Exhibit 2 Plan of Acquisition, Reorganization, Arrangement,
Liquidation, etc. None
Exhibit 3 Articles of Incorporation, as amended, and Bylaws ____
Exhibit 4 Instruments Defining the Rights of Security Holders
Exhibit 4.1 Incentive Stock Option Plan ____
Exhibit 4.2 Non-Qualified Stock Option Plan ____
Exhibit 4.3 Stock Bonus Plan ____
Exhibit 5 Subscription Agreement None
Exhibit 9 Voting Trust Agreement None
Exhibit 10 Material Contracts None
Exhibit 27 Financial Data Schedules ____
ARTICLES OF INCORPORATION
STATE OF NEVADA
IMPORTANT: Read instructions on reverse side before completing this form.
TYPE OR PRINT (BLACK INK ONLY)
1. NAME OF CORPORATION: ROYCE BIOMEDICAL, INC.
2. RESIDENT AGENT: (designated resident agent and his STREET ADDRESS in
Nevada where process may be served)
Name of Resident Agent: GEORGE ROTH
Street Address: 3535 Cambridge # 388, Las Vegas, NV 89109
Street No. Street Name City Zip
3. SHARES: (number of shares the corporation is authorized to issue)
Number of shares with par value: 25,000,000 Par value: $0.001
Number of shares without par value: _________
4. GOVERNING BOARD: shall be _________: XX Directors ________ Trustee
The FIRST BOARD OF DIRECTORS shall consist of 1 members and the names
and addresses are as follows:
PATRICIA A. CONTI 575 Anton Blvd. #300 Costa Mesa, CA 92626
Name Address City/State/Zip
5. PURPOSE (optional - see reverse side): The purpose of the Corporation
shall be: CONDUCT ANY LAWFUL BUSINESS
6. OTHER MATTERS: This form includes the minimal statutory requirements to
incorporate under NRS 75. You may attach additional information pursuant to NRS
78.037 or any other information you deem appropriate. If any of the additional
information is contradictory to this form it cannot be filed and will be
returned to you for correction. Number of pages attached NONE
7. SIGNATURES OF INCORPORATORS: The names and addresses of each of this
incorporators signing the articles:
PATRICIA A. CONTI
Name (print)
575 Anton Blvd., #300, Costa Mesa, CA 92626
Address City/State/Zip
/s/ Patricia A. Conti
Signature
This instrument was acknowledged before me on
March 21, 1995
Bessie Louise Sechrist
Name of Person
/s/ Bessie Louise Sechrist
Notary Public Signature
8. CERTIFICATE OF ACCEPTANCE OF APPOINTMENT OF REGISTERED AGENT
9. GEORGE ROTH hereby accepts appointment as Resident Agent for the above named
corporation.
/s/ George Roth
3/21/95
Signature of Resident Agent Date
<PAGE>
ROYCE BIOMEDICAL, INC.
AMENDMENT
to the
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Nevada Revised Statues, Royce Biomedical,
Inc. adopts the following Amendment to its Articles of Incorporation:
The following amendment was adopted to be effective May 8, 1998, pursuant
to Section 78.390 of the Nevada Revised Statues. Such amendment was adopted by a
vote of the shareholders as set forth below:
Designation Number of Shares Voted For
of Share Class Number of Shares or Against
Entitled Outstanding Entitled Amendment
to Vote Shares to Vote For Against
Common 5,378,167 5,378,167 2,938,000 --
The number of shares voted in favor of the amendment was sufficient for
approval.
Text of Amendment
The following paragraph is added to Article Three.
Effective May 11, 1998 each five shares of this Corporation's issued and
outstanding Common Stock shall automatically convert into one share of this
Corporation's Common Stock. Each fractional share resulting from this reverse
stock split will be rounded to the nearest whole share.
ROYCE BIOMEDICAL, INC.
By /s/ Ken Pappas
Ken Pappas, President and Secretary
On the 11 day of May, 1998, before me personally came Ken Pappas to me
known, who, being by me duly sworn, did depose and say that he is the President
and Secretary of Royce Biomedical, Inc., the corporation described in and which
executed the foregoing instrument by order of the Board of Directors of said
corporation, and that he signed his name thereto by like order.
Witness my hand and official seal.
Notary Public
My commission expires:
<PAGE>
ROYCE BIOMEDICAL, INC.
AMENDMENT
to the
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Nevada Revised Statues, Royce Biomedical,
Inc. adopts the following Amendment to its Articles of Incorporation:
The following amendment was adopted to be effective May 30, 1999, pursuant
to Section 78.390 of the Nevada Revised Statues. Such amendment was adopted by a
vote of the shareholders as set forth below:
Designation of Number of Shares Voted For
Share Class Outstanding Shares Entitled Amendment
Entitled to Vote Shares to Vote For Against
Common 9,815,618 9,815,618 6,666,667 --
The number of shares voted in favor of the amendment was sufficient for
approval.
Text of Amendment
The Company's authorized capital as set forth in Article Three, is amended
as follows:
The Corporation's authorized capital shall consist of 100,000,000 shares
of Common Stock, par value $0.001, and 5,000,000 shares of Preferred
Stock, par value $0.001. The preferred shares may be issued by this
Corporation's Board of Directors from time to time in one or more series
in the manner provided by Nevada law.
The following paragraph is added to Article Three.Effective May 30, 1999
each three shares of this Corporation's issued and outstanding Common
Stock shall automatically convert into one share of this Corporation's
Common Stock. Each fractional share resulting from this reverse stock
split will be rounded to the nearest whole share.
ROYCE BIOMEDICAL, INC.
By /s/ Kathy Jiang
Kathy Jiang, President
By /s/ Gregory C. Sharpe
Gregory C. Sharpe, Secretary
<PAGE>
)
)ss.
)
On the day of May, 1999, before me personally came Kathy Jiang to me known,
who, being by me duly sworn, did depose and say that she is the President of
Royce Biomedical, Inc., the corporation described in and which executed the
foregoing instrument by order of the Board of Directors of said corporation, and
that she signed her name thereto by like order.
Witness my hand and official seal.
Notary Public
My commission expires:
)
)ss.
)
On the day of May, 1999, before me personally came Gregory C. Sharpe to me
known, who, being by me duly sworn, did depose and say that he is the Secretary
of Royce Biomedical, Inc., the corporation described in and which executed the
foregoing instrument by order of the Board of Directors of said corporation, and
that he signed his name thereto by like order.
Witness my hand and official seal.
Notary Public
My commission expires:
BYLAWS
OF
ROYCE BIOMEDICAL, INC.
ARTICLE I
OFFICES
Section 1. Offices:
The principal office of the Corporation shall be at Suite 905, 475 Howe
Street, Vancouver, British Columbia V6C 2B3, CANADA, and the Corporation shall
have other offices at such places as the Board of Directors may from time to
time determine.
ARTICLE II
STOCKHOLDER'S MEETINGS
Section l. Place:
The place of stockholders' meetings shall be the principal office of
the Corporation unless some other place either within or without the State of
Nevada shall be determined and designated from time to time by the Board of
Directors.
Section 2. Annual Meeting:
The annual meeting of the stockholders of the Corporation for the
election of directors to succeed those whose terms expire, and for the
transaction of such other business as may properly come before the meeting,
shall be held each year on a date to be determined by the Board of Directors
beginning in the year 1996. If the annual meeting of the stockholders be not
held, or if held and directors shall not have been elected for any reason, then
the election of directors may be held at any meeting of stockholders thereafter
called pursuant to these Bylaws and the laws of Nevada.
Section 3. Special Meetings:
Special meetings of the stockholders for any purpose or purposes may be
called by the President, the Board of Directors, or the holders of ten percent
(l0%) or more of all the shares entitled to vote at such meeting, by the giving
of notice in writing as hereinafter described.
Section 4. Voting:
At all meetings of stockholders, voting may be viva voce; but any
qualified voter may demand a stock vote, whereupon such vote shall be taken by
ballot and the Secretary shall record the name of the stockholder voting, the
number of shares voted, and, if such vote shall be by proxy, the name of the
<PAGE>
proxy holder. Voting may be in person or by proxy appointed in writing, manually
signed by the stockholder or his duly authorized attorney-in-fact. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided therein.
Each stockholder shall have such rights to vote as the Articles of
Incorporation provide for each share of stock registered in his name on the
books of the Corporation, except where the transfer books of the Corporation
shall have been closed or a date shall have been fixed as a record date, not to
exceed, in any case, fifty (50) days preceding the meeting, for the
determination of stockholders entitled to vote. The Secretary of the Corporation
shall make, at least ten (l0) days before each meeting of stockholders, a
complete list of the stockholders entitled to vote at such meeting or any
adjournment thereof, arranged in alphabetical order, with the address of and the
number of shares held by each, which list, for a period of ten (l0) days prior
to such meeting, shall be kept on file at the principal office of the
Corporation and shall be subject to inspection by any stockholder at any time
during usual business hours. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
stockholder during the whole time of the meeting.
Section 5. Order of Business:
The order of business at any meeting of stockholders shall be as
follows:
l. Calling the meeting to order.
2. Calling of roll.
3. Proof of notice of meeting.
4. Report of the Secretary of the stock represented at the meeting and
the existence or lack of a quorum.
5. Reading of minutes of last previous meeting and disposal of any
unapproved minutes.
6. Reports of officers.
7. Reports of committees.
8. Election of directors, if appropriate.
9. Unfinished business.
10. New business.
11. Adjournment.
<PAGE>
12. To the extent that these Bylaws do not apply, Roberts' Rules of
Order shall prevail.
Section 6. Notices:
Written or printed notice stating the place, day, and hour of the
meeting and, in case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (l0) nor more than fifty
(50) days before the date of the meeting, either personally or by mail, by or at
the direction of the President, the Secretary, or the officer or persons calling
the meeting, to each stockholder of record entitled to vote at such meeting,
except that, if the authorized capital stock is to be increased, at least thirty
(30) days' notice shall be given. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the shareholder
at his address as it appears on the stock transfer books of the Corporation,
with postage thereon prepaid.
Section 7. Quorum:
A quorum at any annual or special meeting shall consist of the
representation in person or by proxy of a majority in number of shares of the
outstanding capital stock of the Corporation entitled to vote at such meeting.
In the event a quorum be not present, the meeting may be adjourned by those
present for a period not to exceed sixty (60) days at any one adjournment; and
no further notice of the meeting or its adjournment shall be required. The
stockholders entitled to vote, present either in person or by proxy at such
adjourned meeting, shall, if equal to a majority of the shares entitled to vote
at the meeting, constitute a quorum, and the votes of a majority of those
present in numbers of shares entitled to vote shall be deemed the act of the
shareholders at such adjourned meeting.
Section 8. Action by Shareholders Without a Meeting:
Any action required to be or which may be taken at a meeting of the
shareholders of the Corporation may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by shareholders
owning a majority of the shares entitled to vote with respect to the subject
matter thereof.
ARTICLE III
BOARD OF DIRECTORS
Section l. Organization and Powers:
The Board of Directors shall constitute the policy-making or
legislative authority of the Corporation. Management of the affairs, property,
and business of the Corporation shall be vested in the Board of Directors, which
shall consist of not less than one member, who shall be elected at the annual
meeting of stockholders by a plurality vote for a term of one (l) year, and
<PAGE>
shall hold office until his successors are elected and qualify. Directors need
not be stockholders. Directors shall have all powers with respect to the
management, control, and determination of policies of the Corporation that are
not limited by these Bylaws, the Articles of Incorporation, or the statutes of
the State of Nevada, and the enumeration of any power shall not be considered a
limitation thereof.
Section 2. Vacancies:
Any vacancy in the Board of Directors, however caused or created, shall
be filled by the affirmative vote of a majority of the remaining directors,
though less than a quorum of the Board, or at a special meeting of the
stockholders called for that purpose. The directors elected to fill vacancies
shall hold office for the unexpired term and until their successors are elected
and qualify.
Section 3. Regular Meetings:
A regular meeting of the Board of Directors shall be held, without
other notice than this Bylaw, immediately after and at the same place as the
annual meeting of stockholders or any special meeting of stockholders at which a
director or directors shall have been elected. The Board of Directors may
provide by resolution the time and place, either within or without the State of
Nevada, for the holding of additional regular meetings without other notice than
such resolution.
Section 4. Special Meetings:
Special meetings of the Board of Directors may be held at the principal
office of the Corporation, or such other place as may be fixed by resolution of
the Board of Directors for such purpose, at any time on call of the President or
of any member of the Board, or may be held at any time and place without notice,
by unanimous written consent of all the members, or with the presence and
participation of all members at such meeting. A resolution in writing signed by
all the directors shall be as valid and effectual as if it had been passed at a
meeting of the directors duly called, constituted, and held.
Section 5. Notices:
Notices of both regular and special meetings, save when held by
unanimous consent or participation, shall be mailed by the Secretary to each
member of the Board not less than five (5) days before any such meeting and
notices of special meetings may state the purposes thereof. No failure or
irregularity of notice of any regular meeting shall invalidate such meeting or
any proceeding thereat.
Section 6. Quorum and Manner of Acting:
A quorum for any meeting of the Board of Directors shall be a majority
of the Board of Directors as then constituted. Any act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. Any action of such majority, although not at a regularly
called meeting, and the record thereof, if assented to in writing by all of the
other members of the Board, shall always be as valid and effective in all
respects as if otherwise duly taken by the Board of Directors.
<PAGE>
Section 7. Executive Committee:
The Board of Directors may by resolution of a majority of the Board
designate two (2) or more directors to constitute an executive committee, which
committee, to the extent provided in such resolution, shall have and may
exercise all of the authority of the Board of Directors in the management of the
Corporation; but the designation of such committee and the delegation of
authority thereto shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility imposed on it or him by law.
Section 8. Order of Business:
The order of business at any regular or special meeting of the Board of
Directors, unless otherwise prescribed for any meeting by the Board, shall be as
follows:
l. Reading and disposal of any unapproved minutes.
2. Reports of officers and committees.
3. Unfinished business.
4. New business.
5. Adjournment.
6. To the extent that these Bylaws do not apply, Roberts' Rules of
Order shall prevail.
Section 9. Remuneration:
No stated salary shall be paid to directors for their services as such,
but, by resolution of the Board of Directors, a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board. Members of special or standing committees may be allowed
like compensation for attending meetings. Nothing herein contained shall be
construed to preclude any director from receiving compensation for serving the
Corporation in any other capacity, subject to such resolutions of the Board of
Directors as may then govern receipt of such compensation.
<PAGE>
ARTICLE IV
OFFICERS
Section l. Titles:
The officers of the Corporation shall consist of a President, one or
more Vice Presidents, a Secretary, and a Treasurer, the last two of which
offices may be combined and held by one person, who shall be elected for one (l)
year by the directors at their first meeting following the annual meeting of
stockholders. Such officers shall hold office until their successors are elected
and qualify. The Board of Directors may appoint from time to time such other
officers as it deems desirable who shall serve during such terms as may be fixed
by the Board at a duly held meeting. The Board, by resolution, shall specify the
titles, duties and responsibilities of such officers.
Section 2. President:
The President shall preside at all meetings of stockholders and, in the
absence of a, or the, Chairman of the Board of Directors, at all meetings of the
directors. He shall be generally vested with the power of the chief executive
officer of the Corporation and shall countersign all certificates, contracts,
and other instruments of the Corporation as authorized by the Board of Directors
or required by law. He shall make reports to the Board of Directors and
stockholders and shall perform such other duties and services as may be required
of him from time to time by the Board of Directors.
Section 3. Vice President:
The Vice President shall perform all the duties of the President if the
President is absent or for any other reason is unable to perform his duties and
shall have such other duties as the Board of Directors shall authorize or
direct.
Section 4. Secretary:
The Secretary shall issue notices of all meetings of stockholders and
directors, shall keep minutes of all such meetings, and shall record all
proceedings. He shall have custody and control of the corporate records and
books, excluding the books of account, together with the corporate seal. He
shall make such reports and perform such other duties as may be consistent with
his office or as may be required of him from time to time by the Board of
Directors.
Section 5. Treasurer:
The Treasurer shall have custody of all moneys and securities of the
Corporation and shall have supervision over the regular books of account. He
shall deposit all moneys, securities, and other valuable effects of the
Corporation in such banks and depositories as the Board of Directors may
designate and shall disburse the funds of the Corporation in payment of just
<PAGE>
debts and demands against the Corporation, or as they may be ordered by the
Board of Directors, shall render such account of his transactions as may be
required of him by the President or the Board of Directors from time to time and
shall otherwise perform such duties as may be required of him by the Board of
Directors.
The Board of Directors may require the Treasurer to give a bond
indemnifying the Corporation against larceny, theft, embezzlement, forgery,
misappropriation, or any other act of fraud or dishonesty resulting from his
duties as Treasurer of the Corporation, which bond shall be in such amount as
appropriate resolution or resolutions of the Board of Directors may require.
Section 6. Vacancies or Absences:
If a vacancy in any office arises in any manner, the directors then in
office may choose, by a majority vote, a successor to hold office for the
unexpired term of the officer. If any officer shall be absent or unable for any
reason to perform his duties, the Board of Directors, to the extent not
otherwise inconsistent with these Bylaws, may direct that the duties of such
officer during such absence or inability shall be performed by such other
officer or subordinate officer as seems advisable to the Board.
Section 7. Compensation:
No officer shall receive any salary or compensation for his services
unless and until the Board of Directors authorizes and fixes the amount and
terms of such salary or compensation.
ARTICLE V
STOCK
Section l. Certificates of Shares:
Each holder of stock of the Corporation shall be entitled to a stock
certificate signed by the President or Vice President and also by the Secretary
or an assistant secretary of the Corporation. The certificates of shares shall
be in such form, not inconsistent with the Certificate of Incorporation or
Articles of Incorporation, as shall be prepared or approved by the Board of
Directors. (All certificates shall be prepared or approved by the Board of
Directors). All certificates shall be consecutively numbered. Each certificate
shall state upon its face that the Corporation is organized under the laws of
this state; the name of the person to whom issued; the number and class of
shares; and the designation of the series, if any, which such certificate
represents; the par value of each share represented by the certificate, or a
statement that the shares are without par value. The name of the person owning
<PAGE>
the shares represented thereby, with the number of such shares and the date of
issue, shall be entered on the Corporation's books, and no certificate shall be
valid unless it be signed by the President or Vice President and by the
Secretary or an assistant secretary of the Corporation. The seal of the
Corporation affixed to stock certificates may be a facsimile. The signatures of
officers as above described on any such certificate may be a facsimile if the
certificate is countersigned by a transfer agent, or registered by a registrar,
other than the Corporation itself or an employee of the Corporation.
Section 2. New Certificates:
All certificates surrendered to the Corporation shall be canceled and
no new certificate shall be issued, except to evidence transfer of stock from
the unissued stock or treasury of the Corporation, or, in the case of a lost
certificate, except upon posting a bond of indemnity in such form and with such
surety or sureties and for such amount as shall be satisfactory to the directors
and upon producing by affidavit or otherwise such evidence of loss or
destruction as the Board may require, until the former certificates for the same
number of shares have been surrendered and canceled.
Section 3. Transfer of Shares:
Shares in the capital stock of the Corporation shall be transferred
only on the books of the Corporation by the holder thereof in person, or by his
attorney, upon surrender and cancellation of certificates for a like number of
shares. The delivery of a certificate of stock of this Corporation to a bona
fide purchaser or pledgee for value, together with a written transfer of the
same or a written power of attorney to sell, assign, and transfer the same,
signed by the owner of the certificate, shall be a sufficient delivery to
transfer the title against all persons except the Corporation. No transfer of
stock shall be valid against the Corporation until it shall have been registered
upon the books of the Corporation.
Section 4. Closing of Transfer Books or Provisions for Record Date:
The stock transfer books may be closed by the Board of Directors for a
period not exceeding fifty (50) days prior to any meeting of the stockholders or
prior to the payment of dividends; or the Board of Directors may fix in advance
a day not more than fifty (50) days prior to the holding of any such meeting of
stockholders or payment of dividends as the day as of which stockholders
entitled to notice of and to vote at such meeting or to payment of dividends, as
the case may be, shall be determined; and only stockholders of record on such
day shall be entitled to notice or to vote at such meeting, or to receive
dividends, as the case may be.
Section 5. Regulations:
The Board of Directors shall have power and authority to take all such
rules and regulations as they deem expedient concerning the issue, transfer, and
registration of certificates for shares of the capital stock of the Corporation.
The Board of Directors may appoint a Transfer Agent and a Registrar and may
require all stock certificates to bear the signature of such Transfer Agent or
such Registrar.
Section 6. Restrictions on Stock:
The Board of Directors may restrict any stock issued by giving the
Corporation or any stockholder "first right of refusal to purchase" the stock,
by making the stock redeemable or by restricting the transfer of the stock,
under such terms and in such manner as the directors may deem necessary and as
are not inconsistent with the Articles of Incorporation or the laws of the State
of Nevada. Any stock so restricted must carry a stamped legend setting out the
restriction or conspicuously noting the restriction and stating where it may be
found in the records of the Corporation.
<PAGE>
ARTICLE VI
DIVIDENDS AND FINANCES
Section l. Dividends:
Dividends may be declared by the directors and paid out of any funds
legally available therefor under the laws of Nevada, as may be deemed advisable
from time to time by the Board of Directors of the Corporation. Before declaring
any dividends, the Board of Directors may set aside out of net profits or earned
or other surplus such sums as the Board may think proper as a reserve fund to
meet contingencies or for other purposes deemed proper and to the best interests
of the Corporation.
Section 2. Monies:
The monies, securities, and other valuable effects of the Corporation
shall be deposited in the name of the Corporation in such banks or trust
companies as the Board of Directors shall designate and shall be drawn out or
removed only as may be authorized by the Board of Directors from time to time.
Section 3. Fiscal Year:
Unless and until the Board of Directors by resolution shall determine
otherwise, the fiscal year shall begin on the 1st day of January and end on the
31st day of December, and the first fiscal period shall end December 31, 1995.
ARTICLE VII
SEAL
The Board of Directors shall provide a corporate seal which shall be
in the form of a circle and shall have inscribed thereon the name of the
Corporation and the words "SEAL, Nevada," and shall be entrusted in the care of
the Secretary or such other officer of the Corporation as the Board of Directors
shall designate.
ARTICLE VIII
NOTICES
Section l. Requirements:
Whenever a notice shall be required by the statutes of the State of
Nevada or by these Bylaws, such notice may be given in writing by depositing the
same in the United States mails in a postpaid, sealed envelope addressed to the
<PAGE>
person for whom such notice is intended to his or her home or other address, as
the same shall appear on the stock transfer books of the Corporation. The time
of mailing shall be deemed to be the time of giving such notice. A waiver of any
notice in writing, signed by a stockholder, director, or officer, whether
before, at, or after the time stated in such waiver for holding a meeting, shall
be deemed the equivalent of duly giving such notice.
Section 2. Presence:
The presence of any officer at a meeting, or the presence of any
stockholder or director at a meeting, unless such presence is for the sole
purpose of objecting to the holding of such meeting on the ground that it is not
duly held or convened, shall in all events be considered a waiver of notice
thereof; and failure to vote thereat shall not defeat the effectiveness of such
waiver.
Section 3. Ratification:
The ratification or approval in writing of the minutes of any meeting
of officers, stockholders, or directors shall have the same force and effect as
if the ratifying or approving officer, director, or stockholder were present in
person at said meeting.
ARTICLE IX
AMENDMENTS
These Bylaws may be altered, amended, or repealed by the Board of
Directors by resolution of a majority of the Board.
ARTICLE X
INDEMNIFICATION
The Corporation shall indemnify any and all of its directors or
officers, or former directors or officers, or any person who may have served at
its request as a director or officer of another corporation in which this
Corporation owns shares of capital stock or of which it is a creditor and the
personal representatives of all such persons, against expenses actually and
necessarily incurred in connection with the defense of any action, suit, or
proceeding in which they, or any of them, were made parties, or a party, by
reason of being or having been directors or officers or a director or officer of
the Corporation, or of such other corporation, except in relation to matters as
to which any such director or officer or person shall have been adjudged in such
action, suit, or proceeding to be liable for negligence or misconduct in the
performance of any duty owed to the Corporation. Such indemnification shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled, independently of this Article X, by law, under any Bylaw agreement,
vote of stockholders, or otherwise.
<PAGE>
ARTICLE XI
CONFLICTS OF INTEREST
No contract or other transaction of the Corporation with any other
persons, firms or corporations, or in which the Corporation is interested, shall
be affected or invalidated by the fact that any one or more of the directors or
officers of the Corporation is interested in or is a director or officer of such
other firm or corporation; or by the fact that any director or officer of the
Corporation, individually or jointly with others, may be a party to or may be
interested in any such contract or transaction; and relieves every person who
may become a director or officer of the Corporation from any liability that
might otherwise arise by reason of his contracting with the Corporation for the
benefit of himself or any firm or corporation in which he may in any way be
interested.
CERTIFICATE
I do hereby certify that I was Secretary of the meeting of the Board of
Directors duly called and held on the 25th day of March, 1995, and I do hereby
certify that the above and foregoing Bylaws were duly adopted as the Bylaws of
said Corporation at such meeting.
/s/ E.G. Marchi
E. G. Marchi, Secretary
(SEAL)
ROYCE BIOMEDICAL, INC.
INCENTIVE STOCK OPTION PLAN
1. Purpose. The purpose of the Incentive Stock Option Plan (the "Plan")
is to advance the interests of Royce Biomedical, Inc. and any subsidiary
corporation (hereinafter referred to as the "Company") and all of its
shareholders, by strengthening the Company's ability to attract and retain in
its employ individuals of training, experience, and ability, and to furnish
additional incentive to officers and valued employees upon whose judgment,
initiative, and efforts the successful conduct and development of its business
largely depends, by encouraging such officers and employees to become owners of
capital stock of the Company.
This will be effected through the granting of stock options as
herein provided, which options are intended to qualify as "Incentive Stock
Options" within the meaning of Section 422 of the Internal Revenue Code, as
amended (the "Code").
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the directors duly appointed to administer
the Plan.
(c) "Common Stock" means the Company's Common Stock.
(d) "Date of Grant" means the date on which an Option is granted
under the Plan.
(e) "Option" means an Option granted under the Plan.
(f) "Optionee" means a person to whom an Option, which has not
expired, has been granted under the Plan.
(g) "Successor" means the legal representative of the estate of a
deceased optionee or the person or persons who acquire the right to exercise an
Option by bequest or inheritance or by reason of the death of any Optionee.
3. Administration of Plan. The Plan shall be administered by the
Company's Board of Directors or in the alternative, by a committee of two or
more directors appointed by the Board (the "Committee"). If a Committee should
be appointed, the Committee shall report all action taken by it to the Board.
The Committee shall have full and final authority in its discretion, subject to
the provisions of the Plan, to determine the individuals to whom and the time or
times at which Options shall be granted and the number of shares and purchase
<PAGE>
price of Common Stock covered by each Option; to construe and interpret the
Plan; to determine the terms and provisions of the respective Option agreements,
which need not be identical, including, but without limitation, terms covering
the payment of the Option Price; and to make all other determinations and take
all other actions deemed necessary or advisable for the proper administration of
the Plan. All such actions and determinations shall be conclusively binding for
all purposes and upon all persons.
4. Common Stock Subject to Options. The aggregate number of shares of
the Company's Common Stock which may be issued upon the exercise of Options
granted under the Plan shall not exceed 300,000. The shares of Common Stock to
be issued upon the exercise of Options may be authorized but unissued shares,
shares issued and reacquired by the Company or shares bought on the market for
the purposes of the Plan. In the event any Option shall, for any reason,
terminate or expire or be surrendered without having been exercised in full, the
shares subject to such Option but not purchased thereunder shall again be
available for Options to be granted under the Plan.
The aggregate fair market value (determined as of the time any option
is granted) of the stock for which any employee may be granted options which are
first exercisable in any single calendar year under this Plan (and any other
plan of the Company meeting the requirements for Incentive Stock Option Plans)
shall not exceed $100,000.
5. Participants. Options will be granted only to persons who are
employees of the Company or subsidiaries of the Company and only in connection
with any such person's employment. The term "employees" shall include officers
as well as other employees, and the officers and other employees who are
directors of the Company. The Committee will determine the employees to be
granted options and the number of shares subject to each option.
6. Terms and Conditions of Options. Any Option granted under the Plan
shall be evidenced by an agreement executed by the Company and the recipient and
shall contain such terms and be in such form as the Committee may from time to
time approve, subject to the following limitations and conditions:
(a) Option Price. The purchase price of each option shall not be
less than 100% of the fair market value of the Company's common stock at the
time of the granting of the option provided, however, if the optionee, at the
time the option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, the purchase price
of the option shall not be less than 110% of the fair market value of the stock
at the time of the granting of the option.
(b) Period of Option. The maximum period for exercising an option
shall be 10 years from the date upon which the option is granted, provided,
however, if the optionee, at the time the option is granted, owns stock
possessing more than l0% of the total combined voting power of all classes of
<PAGE>
stock of the Company, the maximum period for exercising an option shall be five
years from the date upon which the option is granted and provided further,
however, that these periods may be shortened in accordance with the provisions
of Paragraph 7 below.
Subject to the foregoing, the period during which each option may be
exercised, and the expiration date of each Option shall be fixed by the
Committee.
If an optionee shall cease to be employed by the Company due to
disability, as defined in Section 22(e)(3) of the Code, he may, but only within
the one year next succeeding such cessation of employment, exercise his option
to the extent that he was entitled to exercise it on the date of such cessation.
The Plan will not confer upon any optionee any right with respect to continuance
of employment by the Company, nor will it interfere in any way with his right,
or his employer's right, to terminate his employment at any time.
(c) Vesting of Shareholder Rights. Neither an Optionee nor his
successor shall have any rights as a shareholder of the Company until the
certificates evidencing the shares purchased are properly delivered to such
Optionee or his successor.
(d) Exercise of Option. Each Option shall be exercisable from time
to time during a period (or periods) determined by the Committee and ending upon
the expiration or termination of the Option; provided, however, the Committee
may, by the provisions of any Option Agreement, limit the number of shares
purchaseable thereunder in any period or periods of time during which the Option
is exercisable. An Option shall not be exercisable in whole or in part prior to
the date of shareholder approval of the Plan.
Options may be exercised in part from time to time during the
option period. The exercise of any option will be contingent upon compliance by
the Optionee (or purchaser acting pursuant to Section 6(b)) with the provisions
of Section 10 below and upon receipt by the Company of either (i) cash or
certified bank check payable to its order in the amount of the purchase price of
such shares (ii) shares of Company stock having a fair market value equal to the
purchase price of such shares, or (iii) a combination of (i) and (ii). If any
law or regulation requires the Company to take any action with respect to the
shares to be issued upon exercise of any option, then the date for delivery of
such stock shall be extended for the period necessary to take such action.
(e) Nontransferability of Option. No Option shall be transferable
or assignable by an Optionee, otherwise than by will or the laws of descent and
distribution and each Option shall be exercisable, during the Optionee's
lifetime, only by him. No Option shall be pledged or hypothecated in any way and
no Option shall be subject to execution, attachment, or similar process except
with the express consent of the Committee.
(f) Death of Optionee. In the event of the death of an optionee
while in the employ of the Company, the option theretofore granted to him shall
be exercisable only within the three months succeeding such death and then only
<PAGE>
(i) by the person or persons to whom the optionee's rights under the option
shall pass by the optionee's will or by the laws of descent and distribution,
and (ii) if and to the extent that he was entitled to exercise the option at the
date of his death.
7. Assumed Options. In connection with any transaction to which Section
424(a) of the Code is applicable, options may be granted pursuant hereto in
substitution of existing options or existing options may be assumed as
prescribed by that Section and any regulations issued thereunder.
Notwithstanding anything to the contrary contained in this Plan, options granted
pursuant to this Paragraph shall be at prices and shall contain such terms,
provisions, and conditions as may be determined by the Committee and shall
include such provisions and conditions as may be necessary to meet the
requirements of Section 424(a) of the Code.
8. Certain Dispositions of Shares. Any options granted pursuant to this
Plan shall be conditioned such that if, within the earlier of (i) the two-year
period beginning on the date of grant of an option or (ii) the one-year period
beginning on the date after which any share of stock is transferred to an
individual pursuant to his exercise of an option, such an individual makes a
disposition of such share of stock by way of sale, exchange, gift, transfer of
legal title, or otherwise, such individual shall promptly report such
disposition to the Company in writing and shall furnish to the Company such
details concerning such disposition as the Company may reasonably request.
9. Reclassification, Consolidation, or Merger. If and to the extent
that the number of issued shares of Common Stock of the Corporation shall be
increased or reduced by change in par value, split up, reclassification,
distribution of a dividend payable in stock, or the like, the number of shares
subject to Option and the Option price per share shall be proportionately
adjusted by the Committee, whose determination shall be conclusive. If the
Corporation is reorganized or consolidated or merged with another corporation,
an Optionee granted an Option hereunder shall be entitled to receive Options
covering shares of such reorganized, consolidated, or merged company in the same
proportion, at an equivalent price, and subject to the same conditions. The new
Option or assumption of the old Option shall not give Optionee additional
benefits which he did not have under the old Option, or deprive him of benefits
which he had under the old Option.
10. Restrictions on Issuing Shares. The exercise of each Option shall
be subject to the condition that if at any time the Company shall determine in
its discretion that the satisfaction of withholding tax or other withholding
liabilities, or that the listing, registration, or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange or under
any state or federal law, or that the consent or approval of any regulatory
body, is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares purchased thereto, then in any
such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
<PAGE>
Unless the shares of stock covered by the Plan have been registered
with the Securities and Exchange Commission pursuant to Section 5 of the
Securities Act of l933, each optionee shall, by accepting an option, represent
and agree, for himself and his transferees by will or the laws of descent and
distribution, that all shares of stock purchased upon the exercise of the option
will be acquired for investment and not for resale or distribution. Upon such
exercise of any portion of an option, the person entitled to exercise the same
shall, upon request of the Company, furnish evidence satisfactory to the Company
(including a written and signed representation) to the effect that the shares of
stock are being acquired in good faith for investment and not for resale or
distribution. Furthermore, the Company may, if it deems appropriate, affix a
legend to certificates representing shares of stock purchased upon exercise of
options indicating that such shares have not been registered with the Securities
and Exchange Commission and may so notify its transfer agent. Such shares may be
disposed of by an optionee in the following manner only: (l) pursuant to an
effective registration statement covering such resale or reoffer, (2) pursuant
to an applicable exemption from registration as indicated in a written opinion
of counsel acceptable to the Company, or (3) in a transaction that meets all the
requirements of Rule l44 of the Securities and Exchange Commission. If shares of
stock covered by the Plan have been registered with the Securities and Exchange
Commission, no such restrictions on resale shall apply, except in the case of
optionees who are directors, officers, or principal shareholders of the Company.
Such persons may dispose of shares only by one of the three aforesaid methods.
11. Use of Proceeds. The proceeds received by the Company from the sale
of Common Stock pursuant to the exercise of Options granted under the Plan shall
be added to the Company's general funds and used for general corporate purposes.
l2. Amendment, Suspension, and Termination of Plan. The Board of
Directors may alter, suspend, or discontinue the Plan, but may not, without the
approval of a majority of those holders of the Company's Common Stock voting in
person or by proxy at any meeting of the Company's shareholders, make any
alteration or amendment thereof which operates to (a) make any material change
in the class of eligible employees as defined in Section 5, (b) extend the term
of the Plan or the maximum option periods provided in paragraph 6, (c) decrease
the minimum option price provided in paragraph 6, except as provided in
paragraph 9, or (d) materially increase the benefits accruing to employees
participating under this Plan.
Unless the Plan shall theretofore have been terminated by the Board,
the Plan shall terminate ten years after the effective date of the Plan. No
Option may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without an
Optionee's consent, alter or impair any of the rights or obligations under any
Option theretofore granted to such Optionee under the Plan.
13. Limitations. Every right of action by any person receiving options
pursuant to this Plan against any past, present or future member of the Board,
or any officer or employee of the Company arising out of or in connection with
<PAGE>
this Plan shall, irrespective of the place where such action may be brought and
irrespective of the place of residence of any such director, officer or employee
cease and be barred by the expiration of one year from the date of the act or
omission in respect of which such right of action arises.
14. Governing Law. The Plan shall be governed by the laws of the State
of Colorado.
l5. Expenses of Administration. All costs and expenses incurred in the
operation and administration of this Plan shall be borne by the Company.
ROYCE BIOMEDICAL, INC.
NON-QUALIFIED STOCK OPTION PLAN
l. Purpose. This Non-Qualified Stock Option Plan (the "Plan") is
intended to advance the interests of Royce Biomedical, Inc. (the "Company") and
its shareholders, by encouraging and enabling selected officers, directors,
consultants and key employees upon whose judgment, initiative and effort the
Company is largely dependent for the successful conduct of its business, to
acquire and retain a proprietary interest in the Company by ownership of its
stock. Options granted under the Plan are intended to be Options which do not
meet the requirements of Section 422 of the Internal Revenue Code of 1954, as
amended (the "Code").
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the directors duly appointed to administer the
Plan.
(c) "Common Stock" means the Company's Common Stock.
(d) "Date of Grant" means the date on which an Option is granted under
the Plan.
(e) "Option" means an Option granted under the Plan.
(f) "Optionee" means a person to whom an Option, which has not expired,
has been granted under the Plan.
(g) "Successor" means the legal representative of the estate of a
deceased optionee or the person or persons who acquire the right to exercise an
Option by bequest or inheritance or by reason of the death of any Optionee.
3. Administration of Plan. The Plan shall be administered by the
Company's Board of Directors or in the alternative, by a committee of two or
more directors appointed by the Board (the "Committee"). If a Committee should
be appointed, the Committee shall report all action taken by it to the Board.
The Committee shall have full and final authority in its discretion, subject to
the provisions of the Plan, to determine the individuals to whom and the time or
times at which Options shall be granted and the number of shares and purchase
price of Common Stock covered by each Option; to construe and interpret the
Plan; to determine the terms and provisions of the respective Option agreements,
which need not be identical, including, but without limitation, terms covering
the payment of the Option Price; and to make all other determinations and take
all other actions deemed necessary or advisable for the proper administration of
the Plan. All such actions and determinations shall be conclusively binding for
all purposes and upon all persons.
4. Common Stock Subject to Options. The aggregate number of shares of
the Company's Common Stock which may be issued upon the exercise of Options
<PAGE>
granted under the Plan shall not exceed 300,000. The shares of Common Stock to
be issued upon the exercise of Options may be authorized but unissued shares,
shares issued and reacquired by the Company or shares bought on the market for
the purposes of the Plan. In the event any Option shall, for any reason,
terminate or expire or be surrendered without having been exercised in full, the
shares subject to such Option but not purchased thereunder shall again be
available for Options to be granted under the Plan.
5. Participants. Options may be granted under the Plan to employees,
directors and officers, and consultants or advisors to the Company (or the
Company's subsidiaries), provided however that bona fide services shall be
rendered by such consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction.
6. Terms and Conditions of Options. Any Option granted under the Plan
shall be evidenced by an agreement executed by the Company and the recipient and
shall contain such terms and be in such form as the Committee may from time to
time approve, subject to the following limitations and conditions:
(a) Option Price. The Option Price per share with respect to each
Option shall be determined by the Committee but shall in no instance be less
than the par value of the Common Stock.
(b) Period of Option. The period during which each option may be
exercised, and the expiration date of each Option shall be fixed by the
Committee, but, notwithstanding any provision of the Plan to the contrary, such
expiration date shall not be more than ten years from the date of Grant.
(c) Vesting of Shareholder Rights. Neither an Optionee nor his
successor shall have any rights as a shareholder of the Company until the
certificates evidencing the shares purchased are properly delivered to such
Optionee or his successor.
(d) Exercise of Option. Each Option shall be exercisable from time
to time during a period (or periods) determined by the Committee and ending upon
the expiration or termination of the Option; provided, however, the Committee
may, by the provisions of any Option Agreement, limit the number of shares
purchaseable thereunder in any period or periods of time during which the Option
is exercisable.
(e) Nontransferability of Option. No Option shall be transferable
or assignable by an Optionee, otherwise than by will or the laws of descent and
distribution and each Option shall be exercisable, during the Optionee's
lifetime, only by him. No Option shall be pledged or hypothecated in any way and
no Option shall be subject to execution, attachment, or similar process except
with the express consent of the Committee.
(f) Death of Optionee. If an Optionee dies while holding an Option
granted hereunder, his Option privileges shall be limited to the shares which
<PAGE>
were immediately purchasable by him at the date of death and such Option
privileges shall expire unless exercised by his successor within four months
after the date of death.
7. Reclassification, Consolidation, or Merger. If and to the extent
that the number of issued shares of Common Stock of the Corporation shall be
increased or reduced by change in par value, split up, reclassification,
distribution of a dividend payable in stock, or the like, the number of shares
subject to Option and the Option price per share shall be proportionately
adjusted by the Committee, whose determination shall be conclusive. If the
Corporation is reorganized or consolidated or merged with another corporation,
an Optionee granted an Option hereunder shall be entitled to receive Options
covering shares of such reorganized, consolidated, or merged company in the same
proportion, at an equivalent price, and subject to the same conditions. The new
Option or assumption of the old Option shall not give Optionee additional
benefits which he did not have under the old Option, or deprive him of benefits
which he had under the old Option.
8. Restrictions on Issuing Shares. The exercise of each Option shall be
subject to the condition that if at any time the Company shall determine in its
discretion that the satisfaction of withholding tax or other withholding
liabilities, or that the listing, registration, or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange or under
any state or federal law, or that the consent or approval of any regulatory
body, is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares purchased thereto, then in any
such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
Unless the shares of stock covered by the Plan have been
registered with the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act of l933, each optionee shall, by accepting an option,
represent and agree, for himself and his transferrees by will or the laws of
descent and distribution, that all shares of stock purchased upon the exercise
of the option will be acquired for investment and not for resale or
distribution. Upon such exercise of any portion of an option, the person
entitled to exercise the same shall, upon request of the Company, furnish
evidence satisfactory to the Company (including a written and signed
representation) to the effect that the shares of stock are being acquired in
good faith for investment and not for resale or distribution. Furthermore, the
Company may, if it deems appropriate, affix a legend to certificates
representing shares of stock purchased upon exercise of options indicating that
such shares have not been registered with the Securities and Exchange Commission
and may so notify the Company's transfer agent. Such shares may be disposed of
by an optionee in the following manner only: (l) pursuant to an effective
registration statement covering such resale or reoffer, (2) pursuant to an
applicable exemption from registration as indicated in a written opinion of
counsel acceptable to the Company, or (3) in a transaction that meets all the
requirements of Rule l44 of the Securities and Exchange Commission. If shares of
stock covered by the Plan have been registered with the Securities and Exchange
Commission, no such restrictions on resale shall apply, except in the case of
optionees who are directors, officers, or principal shareholders of the Company.
Such persons may dispose of shares only by one of the three aforesaid methods.
<PAGE>
9. Use of Proceeds. The proceeds received by the Company from the sale
of Common Stock pursuant to the exercise of Options granted under the Plan shall
be added to the Company's general funds and used for general corporate purposes.
l0. Amendment, Suspension, and Termination of Plan. The Board of Directors
may alter, suspend, or discontinue the Plan at any time.
Unless the Plan shall theretofore have been terminated by the
Board, the Plan shall terminate ten years after the effective date of the Plan.
No Option may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without an
Optionee's consent, alter or impair any of the rights or obligations under any
Option theretofore granted to such Optionee under the Plan.
11. Limitations. Every right of action by any person receiving options
pursuant to this Plan against any past, present or future member of the Board,
or any officer or employee of the Company arising out of or in connection with
this Plan shall, irrespective of the place where such action may be brought and
irrespective of the place of residence of any such director, officer or employee
cease and be barred by the expiration of one year from the date of the act or
omission in respect of which such right of action arises.
l2. Governing Law. The Plan shall be governed by the laws of the State of
Colorado.
13. Expenses of Administration. All costs and expenses incurred in the
operation and administration of this Plan shall be borne by the Company.
ROYCE BIOMEDICAL, INC.
STOCK BONUS PLAN
l. Purpose. The purpose of this Stock Bonus Plan is to advance the
interests of Royce Biomedical, Inc. (the "Company") and its shareholders, by
encouraging and enabling selected officers, directors, consultants and key
employees upon whose judgment, initiative and effort the Company is largely
dependent for the successful conduct of its business, to acquire and retain a
proprietary interest in the Company by ownership of its stock, to keep personnel
of experience and ability in the employ of the Company and to compensate them
for their contributions to the growth and profits of the Company and thereby
induce them to continue to make such contributions in the future.
2. Definitions.
A. "Board" shall mean the board of directors of the Company.
B. "Committee" means the directors duly appointed to administer the Plan.
C. "Plan" shall mean this Stock Bonus Plan.
D. "Bonus Share" shall mean the shares of common stock of the Company reserved
pursuant to Section 4 hereof and any such shares issued to a Recipient
pursuant to this Plan.
E. "Recipient" shall mean any individual rendering services for the Company to
whom shares are granted pursuant to this Plan.
3. Administration of Plan. The Plan shall be administered by a
committee of two or more directors appointed by the Board (the "Committee"). The
Committee shall report all action taken by it to the Board. The Committee shall
have full and final authority in its discretion, subject to the provisions of
the Plan, to determine the individuals to whom and the time or times at which
Bonus Shares shall be granted and the number of Bonus Shares; to construe and
interpret the Plan; and to make all other determinations and take all other
actions deemed necessary or advisable for the proper administration of the Plan.
All such actions and determinations shall be conclusively binding for all
purposes and upon all persons.
4. Bonus Share Reserve. There shall be established a Bonus Share
Reserve to which shall be credited 150,000 shares of the Company's common stock.
In the event that the shares of common stock of the Company should, as a result
of a stock split or stock dividend or combination of shares or any other change,
or exchange for other securities by reclassification, reorganization, merger,
consolidation, recapitalization or otherwise, be increased or decreased or
changed into or exchanged for, a different number or kind of shares of stock or
other securities of the Company or of another corporation, the number of shares
then remaining in the Bonus Share Reserve shall be appropriately adjusted to
<PAGE>
reflect such action. Upon the grant of shares hereunder, this reserve shall be
reduced by the number of shares so granted. Distributions of Bonus Shares may,
as the Committee shall in its sole discretion determine, be made from authorized
but unissued shares or from treasury shares. All authorized and unissued shares
issued as Bonus Shares in accordance with the Plan shall be fully paid and
non-assessable and free from preemptive rights.
5. Eligibility, and Granting and Vesting of Bonus Shares. Bonus Shares
may be granted under the Plan to the Company's (or the Company's subsidiaries)
employees, directors and officers, and consultants or advisors to the Company
(or its subsidiaries), provided however that bona fide services shall be
rendered by such consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction.
The Committee, in its sole discretion, is empowered to grant to an
eligible Participant a number of Bonus Shares as it shall determine from time to
time. Each grant of these Bonus Shares shall become vested according to a
schedule to be established by the Committee directors at the time of the grant.
For purposes of this plan, vesting shall mean the period during which the
recipient must remain an employee or provide services for the Company. At such
time as the employment of the Recipient ceases, any shares not fully vested
shall be forfeited by the Recipient and shall be returned to the Bonus Share
Reserve. The Committee, in its sole discretion, may also impose restrictions on
the future transferability of the bonus shares, which restrictions shall be set
forth on the notification to the Recipient of the grant.
The aggregate number of Bonus Shares which may be granted pursuant
to this Plan shall not exceed the amount available therefore in the Bonus Share
Reserve.
6. Form of Grants. Each grant shall specify the number of Bonus Shares
subject thereto, subject to the provisions of Section 5 hereof.
At the time of making any grant, the Committee shall advise the
Recipient by delivery of written notice, in the form of Exhibit A hereto
annexed.
7. Recipients' Representations.
A. The Committee may require that, in acquiring any Bonus Shares,
the Recipient agree with, and represent to, the Company that the Recipient is
acquiring such Bonus Shares for the purpose of investment and with no present
intention to transfer, sell or otherwise dispose of shares except such
distribution by a legal representative as shall be required by will or the laws
of any jurisdiction in winding-up the estate of any Recipient. Such shares shall
be transferable thereafter only if the proposed transfer shall be permissible
pursuant to the Plan and if, in the opinion of counsel (who shall be
satisfactory to the Committee), such transfer shall at such time be in
compliance with applicable securities laws.
B. To effectuate Paragraph A above, the Recipient shall deliver to
the Committee, in duplicate, an agreement in writing, signed by the Recipient,
in form and substance as set forth in Exhibit B hereto annexed, and the
Committee shall forthwith acknowledge its receipt thereof.
<PAGE>
8. Restrictions Upon Issuance.
A. Bonus Shares shall forthwith after the making of any representations
required by Section 6 hereof, or if no representations are required then within
thirty (30) days of the date of grant, be duly issued and transferred and a
certificate or certificates for such shares shall be issued in the Recipient's
name. The Recipient shall thereupon be a shareholder with respect to all the
shares represented by such certificate or certificates, shall have all the
rights of a shareholder with respect to all such shares, including the right to
vote such shares and to receive all dividends and other distributions (subject
to the provisions of Section 7(B) hereof) paid with respect to such shares.
Certificates of stock representing Bonus Shares shall be imprinted with a legend
to the effect that the shares represented thereby are subject to the provisions
of this Agreement, and to the vesting and transfer limitations established by
the Committee, and each transfer agent for the common stock shall be instructed
to like effect with respect of such shares.
B. In the event that, as the result of a stock split or stock
dividend or combination of shares or any other change, or exchange for other
securities, by reclassification, reorganization, merger, consolidation,
recapitalization or otherwise, the Recipient shall, as owner of the Bonus Shares
subject to restrictions hereunder, be entitled to new or additional or different
shares of stock or securities, the certificate or certificates for, or other
evidences of, such new or additional or different shares or securities, together
with a stock power or other instrument of transfer appropriately endorsed, shall
also be imprinted with a legend as provided in Section 7(A), and all provisions
of the Plan relating to restrictions herein set forth shall thereupon be
applicable to such new or additional or different shares or securities to the
extent applicable to the shares with respect to which they were distributed.
C. The grant of any Bonus Shares shall be subject to the condition
that if at any time the Company shall determine in its discretion that the
satisfaction of withholding tax or other withholding liabilities, or that the
listing, registration, or qualification of any Bonus Shares upon such exercise
upon any securities exchange or under any state or federal law, or that the
consent or approval of any regulatory body, is necessary or desirable as a
condition of, or in connection with, the issuance of any Bonus Shares, then in
any such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
D. Unless the Bonus Shares covered by the Plan have been
registered with the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act of l933, each Recipient shall, by accepting a Bonus Share,
represent and agree, for himself and his transferees by will or the laws of
descent and distribution, that all Bonus Shares were acquired for investment and
not for resale or distribution. The person entitled to receive Bonus Shares
shall, upon request of the Committee, furnish evidence satisfactory to the
Committee (including a written and signed representation) to the effect that the
shares of stock are being acquired in good faith for investment and not for
resale or distribution. Furthermore, the Committee may, if it deems appropriate,
<PAGE>
affix a legend to certificates representing Bonus Shares indicating that such
Bonus Shares have not been registered with the Securities and Exchange
Commission and may so notify the Company's transfer agent. Such shares may be
disposed of by a Recipient in the following manner only: (l) pursuant to an
effective registration statement covering such resale or reoffer, (2) pursuant
to an applicable exemption from registration as indicated in a written opinion
of counsel acceptable to the Company, or (3) in a transaction that meets all the
requirements of Rule l44 of the Securities and Exchange Commission. If Bonus
Shares covered by the Plan have been registered with the Securities and Exchange
Commission, no such restrictions on resale shall apply, except in the case of
Recipients who are directors, officers, or principal shareholders of the
Company. Such persons may dispose of shares only by one of the three aforesaid
methods.
9. Limitations. Neither the action of the Company in establishing the
Plan, nor any action taken by it nor by the Committee under the Plan, nor any
provision of the Plan, shall be construed as giving to any person the right to
be retained in the employ of the Company.
Every right of action by any person receiving shares of common
stock pursuant to this Plan against any past, present or future member of the
Board, or any officer or employee of the Company arising out of or in connection
with this Plan shall, irrespective of the place where action may be brought and
irrespective of the place of residence of any such director, officer or employee
cease and be barred by the expiration of one year from the date of the act or
omission in respect of which such right of action arises.
10. Amendment, Suspension or Termination of the Plan. The Board of
Directors may alter, suspend, or discontinue the Plan at any time.
Unless the Plan shall theretofore have been terminated by the Board,
the Plan shall terminate ten years after the effective date of the Plan. No
Bonus Share may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without a
recipient's consent, alter or impair any of the rights or obligations under any
Bonus Share theretofore granted to such recipient under the Plan.
11. Governing Law. The Plan shall be governed by the laws of the State
of Colorado.
12. Expenses of Administration. All costs and expenses incurred in the
operation and administration of this Plan shall be borne by the Company.
<PAGE>
- EXHIBIT A -
ROYCE BIOMEDICAL, INC.
STOCK BONUS PLAN
TO: Recipient: PLEASE BE ADVISED that Royce Biomedical, Inc. has on the
date hereof granted to the Recipient the number of Bonus Shares as set forth
under and pursuant to the Stock Bonus Plan. Before these shares are to be
issued, the Recipient must deliver to the Committee that administers the Stock
Bonus Plan an agreement in duplicate, in the form as Exhibit B hereto. The Bonus
Shares are issued subject to the following vesting and transfer limitations.
Vesting:
Number of Shares Date of Vesting
Transfer Limitations:
ROYCE BIOMEDICAL, INC.
By
Date
<PAGE>
- EXHIBIT B -
Royce Biomedical, Inc.
1100-1200 West 73rd Avenue
Vancouver, British Columbia
Canada V6P 6G5
Gentlemen:
I represent and agree that said Bonus Shares are being acquired by me for
investment and that I have no present intention to transfer, sell or otherwise
dispose of such shares, except as permitted pursuant to the Plan and in
compliance with applicable securities laws, and agree further that said shares
are being acquired by me in accordance with and subject to the terms, provisions
and conditions of said Plan, to all of which I hereby expressly assent. These
agreements shall bind and inure to the benefit of my heirs, legal
representatives, successors and assigns.
My address of record is: ___________________
and my social security number: ___________________.
Very truly yours,
Receipt of the above is hereby acknowledged.
ROYCE BIOMEDICAL, INC.
By
Date its
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