As filed with the Securities and Exchange Commission on March 31, 2010
RegistrationNo. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DCD.C. 20549
Amendment No. 3
to
FORM
Form S-1
Registration Statement under the Securities Act
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GEOVAX LABS, INC.
(Exact name of 1933
DAUPHIN TECHNOLOGY, INC.
------------------------
(Exact registrant as specified in its charter)
Delaware | 2834 | 87-0455038 | ||
| (State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
1900 Lake Park Dr., Suite 380, Smyrna Georgia 30080,(678) 384-7220
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Robert T. McNally, Ph.D.
President & Chief Executive Officer
GeoVax Labs, Inc.
1900 Lake Park Dr., Suite 380
Smyrna Georgia 30080
Telephone:(678) 384-7220
Facsimile:(678) 384-7281
(Name, address, including zip code, and telephone number, including area code, of Registrant as Specified in Its Charter)
agent for service)
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement as
determined by the selling shareholders.
statement.
With Copies To:
T. Clark Fitzgerald III, Esq.
Womble Carlyle Sandridge & Rice, PLLC
271 17th Street, NW, Suite 2400
Atlanta, Georgia 30363
Telephone:(404) 879-2455
Facsimile:(404) 870-4869
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box [X]
box. þ
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
o
If this Formform is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If deliveryo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting company” inRule 12b-2 of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[_]
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) | ||||||
CALCULATION OF REGISTRATION FEE
| Proposed Maximum | Amount of | |||||
| Title of Each Class of | Aggregate Offering | Registration | ||||
| Securities to be Registered | Price | Fee(1) | ||||
| Units, each unit consisting of one share of common stock, $0.001 par value, and warrants to purchase 0.20 shares of common stock | $40,000,000 | $2,852 | ||||
| Common stock included in the units(2) | $— | $— | ||||
| Warrants included in the units | $— | $—(4) | ||||
| Common stock issuable upon exercise of the warrants included in the units(3) | $— | $—(4) | ||||
| Warrants issued to placement agent | $— | $—(4) | ||||
| Common stock issuable upon exercise of placement agent warrants | $— | $—(4) | ||||
| Total | $40,000,000 | $2,852 | ||||
| (1) | Calculated pursuant to Rule 457(o) on the basis of | |
| (2) | Includes shares to be | |
| (3) | Pursuant to Rule 416 under the Securities Act of 1933, this registration statement shall be deemed to cover the additional securities (i) to be offered or issued in connection with any provision of any securities purported to be registered hereby to be offered pursuant to terms which provide for a change in the amount of securities being offered or issued to prevent dilution resulting from stock splits, stock dividends, or similar transactions and (ii) of the same class as the securities covered by this registration statement issued or issuable prior to completion of the distribution of the securities covered by this registration statement as a result of a split of, or a stock dividend on, the registered securities. | |
| (4) | Registration |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the event ofRegistrant shall file a stock split, stock dividend, or similar transaction
involving the Company's common stock, in order to prevent dilution,
the number of shares registeredfurther amendment which specifically states that this Registration Statement shall automatically be increased to
cover the additional sharesthereafter become effective in accordance with Rule 416(a) underSection 8(a) of the Securities Act.
(2) In accordance withAct or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
Unless otherwise indicated and except for the financial statements, all share amounts and prices in this registration statement assume the consummation of a registration rights agreement with a shareholder,
the Company is required to register for resale an aggregate minimumreverse stock split of 4,000,000 shares ofour common stock at a ratio of1-for-50to coverbe effected at least one week prior to the effectiveness of the registration statement, with the exact timing of the reverse stock split, to be determined by the Board of Directors. The Board of Directors may choose a different ratio and expects to be authorized to select a ratio of1-for-20,1-for-30,1-for-40, or1-for-50.
| The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION DATED MARCH 31, 2010
PROSPECTUS
GEOVAX LABS, INC.
UP TO UNITS, EACH CONSISTING OF ONE SHARE OF COMMON STOCK
AND A WARRANT TO PURCHASE 0.20 SHARES OF COMMON STOCK
This is a best efforts offering of up to units at a price of $ per unit. Each unit consists of one share of GeoVax Labs, Inc. common stock issuable($0.001 par value) and a five-year callable warrant to purchase up to 0.20 additional shares at an exercise price of $ per share, or to be issued20% above the offering price of the units. The units will separate immediately upon conversion of a Convertible Noteissuance and trade separately. We are offering shares and the exerciseselling stockholders are offering shares as part of the warrants. The Convertible Note is convertible into shares of
common stock on a formula of the lower of (i)110% of the average of
the Bid Prices during the ten Trading Days prior to September 28, 2001
and (ii)the average of the lowest three consecutive Bid prices during
the 22-day period immediately preceding the conversion date. If
converted as of June 11, 2002, such shares would convert into
5,905,977 of common stock assuming a conversion price of $0.4233 per
share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
DAUPHIN TECHNOLOGY, INC.
6,605,977 Shares of Common Stock
$0.60 Bid Price as of June 11, 2002
THE COMPANY
We design and sell mobile hand-held, pen-based computers and broadband
set-top boxes, as well as other electronic devices for home and business use and
perform design services, process methodology consulting and intellectual
property development.
Our corporate offices are located at:
800 East Northwest Highway
Suite 950
Palatine, Illinois 60067
(847) 358-4406
Our shares trade on the over-the-counter market electronic bulletin
board operated by the NASD under the symbol "DNTK.OB".
THE OFFERING
We are registering 6,605,977 shares of common stock which may be
acquired by Crescent International Ltd. ("Crescent" or "selling shareholder"),
an investment company managed by GreenLight (Switzerland) SA, through the
exercise of warrants or the conversion of Convertible Notes. These shares may be
offered and sold from time to time.units offered. We will not receive any proceeds from sales of units by the selling stockholders.
Our common stock is quoted on the OTC Bulletin Board under the symbol “GOVX.OB.” On March 30, 2010, the last reported sale price for our common stock on the OTC Bulletin Board was $0. per share. We do not intend to apply for listing of the proceeds from
the sale other than from the possible exercise offive-year callable warrants on any securities exchange. We intend to purchase 700,000
shares of common stock at $1.3064 per share.
Had Crescent exercised its warrants and converted the Convertible Note
on June 11, 2002, Crescent would have received 5,905,977 sharesapply for listing of our common stock. Asstock on either The Nasdaq Global Market or The Nasdaq Capital Market, which we collectively refer to as Nasdaq, under the symbol “GOVX.” We expect the listing to occur immediately prior to the date of this prospectus. No assurance can be given that our application will be approved.
Prior to the effectiveness of the same date,registration statement of which this prospectus is a part, we plan to implement a reverse stock split of our common stock anticipated to be on a1-for-50 basis.Unless otherwise indicated, and except for the Company would have received an aggregate amount
of $914,480 from Crescent in connection with its exercisefinancial statements, all share amounts and prices assume the consummation of the 700,000
warrants. Underreverse stock split.
Investing in the terms of our securities purchase agreement with Crescent,
the number of shares to be purchased by Crescent or to be obtained upon the
exercise of warrants or conversion of the Convertible Note held by Crescent
cannot exceed the number of shares that, when combined with all other shares of common stock and securities then owned by Crescent, would result in Crescent
owning more than 9.9% of our outstanding common stock at any given point of
time.involves certain risks. See "Recent Developments" on page 6.
Investing in our shares involves a high degree of risk. You should
invest only if you can afford a complete loss of your investment. See "Risk
Factors"“Risk Factors” beginning on page 7.
Unless the context indicates otherwise, all references to "we", "our",
"us", and the "Company" refer to Dauphin Technology, Inc. and its subsidiaries.
6 for a discussion of these risks.
Neither the Securities and Exchange Commission ("SEC") nor any state securities commission has approved or disapproved of these securities or determined whetherif this prospectus is truthful or complete. Nor have they made, nor will they make, any determination as to
whether anyone should buy these securities. Any representation to the contrary is a criminal offense.
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| Per Share | Total Offering | |||||||
| Public offering price per unit | $ | $ | ||||||
| Placement agent commissions | $ | $ | ||||||
| Proceeds to us(1) | $ | $ | ||||||
| Proceeds to stockholders(2) | $ | $ | ||||||
| (1) | Before deducting expenses of this offering payable by us estimated to be approximately $ . | |
| (2) | No units will be sold on behalf of the selling stockholders until after all units offered by the Company are sold. |
We have agreed to pay the placement agent a commission of six percent (6%) of the price of each unit sold, and to reimburse certain expenses, up to $50,000. In addition, we have agreed to sell to the placement agent for nominal consideration, warrants to purchase shares of our common stock equal in number to six percent (6%) of the number of units sold in this offering. See “Plan of Distribution.” Because there is no minimum offering amount required as a condition to closing in this offering, the actual public offering amount, placement agent fees, and proceeds to us, if any, are not presently determinable and may be substantially less than the total offering amounts set forth above.
The Dateplacement agent is not required to sell any specific number of units or dollar amount of units but will use its best efforts to sell the units.
This offering will terminate on , unless the offering is fully subscribed before that date or we decide to terminate the offering prior to that date. In either event, the offering may be closed without further notice to you. All costs associated with the registration will be borne by us.
Brokers or dealers effecting transactions in these shares should confirm that the shares are registered under the applicable state law or that an exemption from registration is available.
Global Hunter Securities LLC
The date of this Prospectus is June 12, 2002
, 2010
TABLE OF CONTENTS
Prospectus Summary 5
Risk Factors 7
Forward Looking Statements 14
Where You Can Find More Information 14
Use of Proceeds 15
Recently Issued Securities 15
Market Price of Common Stock
and Dividend Policy 19
Selected Financial Data 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 20
Business 23
Description of Property 27
Management 28
Executive Compensation 30
Certain Relationships and Related
Transactions 30
Principal Stockholders 31
Description of Capital Stock 32
Plan of Distribution 33
Selling Stockholder 34
Legal Matters 35
Experts 35
Index to Consolidated Financial Statements F-1
4
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the SEC, utilizing a "shelf" registration process. In accordance with a
registration rights agreement with Crescent International Ltd., the Company is
required to initially register for resale an aggregate of 6,605,977 shares of
common stock to cover the common stock to be issued upon conversion of the
Convertible Note and the exercise of the warrants. The Convertible Note is
convertible into shares of common stock by a formula of the lower of (i)$1.1561,
which represents 110% of the average of the Bid Prices during the ten Trading
Days prior to September 28, 2001 and (ii)the average of the lowest three
consecutive Bid prices during the 22-day period immediately preceding the
conversion date.
Each time we offer shares or warrants we will provide a prospectus
supplement that will contain specific information about that offer.
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You should read this prospectus together withrely only on the additional
information described under the heading, "Where You Can Find More Information."
No person has been authorized to give any information or to make any
representations in connection with this offering except those contained in this prospectus. Neither Dauphin nor the selling shareholder hasprospectus and in any accompanying prospectus supplement. We have not authorized anyone
else to provide you with different information.
We have not authorized anyone to make an offer of these shares of common stock in any jurisdiction where the offer is not permitted.
You should not assume that anythe information contained in this prospectus or prospectus is accurate as of any date other than the date on the front page of this prospectus. Neither Dauphin nor the selling shareholder is making an offer of
shares in any state where the offer is not permitted.
In this prospectus, reference to "we", "us" and "our" refer to Dauphin
Technology, Inc.
PROSPECTUS SUMMARY
You should read the following
This summary together with the more detailedhighlights information and financial statements, including the notes to the financial
statements, appearingcontained elsewhere in this prospectus. It does not contain all of the information that you should consider before investing in our securities. Please read the entire prospectus carefully, including the section entitled “Risk Factors” and our consolidated financial statements and the related notes. We have not authorized anyone else to provide you with different information, and if you receive any unauthorized information you should not rely on it. The information appearing in this prospectus is accurate only as of its date. Our Business
We designbusiness, financial condition, results of operations and sell mobile hand-held, pen-based computersprospects may have changed since that date.
Unless otherwise indicated and broadband
set-top boxes,except for the financial statements, all share amounts and other related electronic devices for home and business use.
We also provide private, interactive cable systems toprices in the extended stay
hospitality industry and perform design services, process methodology consulting
and intellectual property development. Orasis(R)registration statement of which this prospectus is a mobile hand-held,
pen-based computer that incorporates features, which we believe provide greater
power and flexibility to address performance requirements in a variety of
industrial and commercial uses. We have produced a limited number of Orasis(R)
units that have been used for marketing and limited sales. We are currently
redesigningpart assume the Orasis(R) and plan to introduce a new version in 2002. In
addition, the Company introduced a prototypeconsummation of a Vehicle Mountable Docking
Station (VMDS), which can be used as an accessory product for the Orasis(R)
Toward the endreverse stock split of 1999, we identified set-top boxes as a focus for
product development. The OraLynx(TM) set-top box is an electronic device that
converts digital signals into a user acceptable format via other electronic
devices such as television sets, telephones and computers. It is a routing
device that enables you to access and transmit information to take advantage of
services offered by television, telephone, Internet and other providers of
communication, information or entertainment content or media. For example, you
may connect a set-top box to your television to receive cable television
programming and music broadcasts through your television and home sound system.
You may also connect a set-top box to a computer or various office equipment to
serve a variety of commercial uses. Throughout 2000 and 2001, the Company has
successfully developed multiple versions of its OraLynx(TM) set-top box and is
continuing its further development. The Company has received a contract from the
Hellenic Telecommunications Organization, S.A. (OTE) for the production and sale
of set-top boxes and as of the writing of this registration statement has
shipped 1,100 set-top boxes to them.
In August 2000, the Company acquired the net assets of T & B Design,
Inc. (f/k/a Advanced Digital Designs, Inc.) ("ADD"). ADD performs design
services, process methodology consulting and intellectual property development
for a variety of technology companies. The Company's engineers specialize in
telecommunications, especially wireless
5
and cable-based product development, as well as multimedia development,
including digital video decoding and processing.
In July 2001, the Company purchased the net assets of Suncoast Automation,
Inc. ("Suncoast") from ProtoSource Corporation. Suncoast is a provider of
private, interactive cable systems providing bundled services of basic cable TV,
premium programming, video games and high-speed Internet access to the extended
stay hospitality industry. The Company currently has contracts for the
installation of over 3,200 units in the time share resort industry. Completion
of these installations is contingent upon receiving adequate funding for the
purchase of the equipment.
Recent Developments
On September 28, 2001, the Company entered into a Securities Purchase
Agreement with Crescent International Ltd., an institutional investor managed by
GreenLight (Switzerland) SA, that allows us to issue and sell to Crescent and
requires Crescent to purchase, at our sole discretion, equity and debt
securities for consideration of up to $10 million (minus applicable fees and
expenses). Under the Securities Purchase Agreement, we received $2.5 million in
exchange for a Convertible Note and may receive up to $7.5 million in exchange
for additional securities. In addition, the Company issued warrants exercisable
to purchase 700,000 shares of common stock at a priceratio of $1.3064 per share1-for-50 to be effected at least one week prior to the effectiveness of the registration statement, with the exact timing of the reverse stock split to be determined by the Board of Directors. The Board of Directors expects to be authorized to select a ratio of1-for-20,1-for-30,1-for-40, or1-for-50.
Company Overview
We are a biotechnology company dedicated to developing vaccines that prevent and fight human immunodeficiency virus (commonly known as HIV) infections that result in acquired immunodeficiency syndrome, also known as AIDS. We have preventative vaccines being evaluated in a Phase 2a human clinical trial in individuals who are not HIV infected and have recently been permitted by the United States Food and Drug Administration, or FDA, to conduct a Phase 1 human therapeutic clinical trial in individuals who are HIV infected.
Our preventative vaccines seek to prevent or control infection by HIV, reduce the rate of disease progression to AIDS and reduce the risk of HIV transmission. Our therapeutic vaccines target impeding viral replication to reduce viral load in HIV infected individuals with a view to reducing or eliminating the need for anti-HIV medications, and thereby reducing the cost of treatment and the detrimental side effects associated with current drug treatments.
Our vaccines address the version, known as clade B, of the HIV virus most prevalent in the developed world and have been shown to induce strong T-cell and antibody immune responses in non-human primates against the primate version of the HIV virus. Our goals include raising funds to develop additional HIV vaccines for global markets that have a different version (clade) of the virus, manufacturing and testing these vaccines under using Good Manufacturing and Good Laboratory Procedures consistent with FDA guidelines, conducting human trials for vaccine safety and effectiveness, and obtaining regulatory approvals to advance the development and commercialization of our vaccines.
Our preventative vaccine is one of only five vaccine candidates out of more than 80 tested by the HIV Vaccine Trials Network, which we refer to as the HVTN, in Phase 1 human clinical trials to have progressed to Phase 2 testing. Based on current enrollment progress, we expect the Phase 2a trial to be completed during 2011.
The Investigational New Drug, or IND, application to test our therapeutic vaccine in a Phase 1 human clinical trial is based on promising summary data from three pilot studies we conducted of therapeutic vaccination in simian immunodeficiency virus infected non-human primates. We expect the Phase 1 trial which we plan to begin in the first half of 2010, to generate vaccine performance data within 14 to 17 months and trial completion, with full enrollment within 36 months after the date of first patient enrollment.
Our vaccine candidates incorporate two delivery components: a recombinant deoxyribonucleic acid, or DNA, and a recombinant poxvirus, designated modified vaccinia Ankara, or MVA, which both deliver genes that encode inactivated HIV-1 derived proteins to the immune system. Both components are designed to support production of non-infectious virus-like particles in vaccinated individuals that prime and boost immune responses. When properly administered in series, our vaccine candidates induce strong T-cell and antibody responses in non-human primates against multiple HIV proteins.
1
Both the DNA and MVA vaccines contain sufficient HIV-1 genes to support the production of non-infectious virus-like particles in vaccinated people which display forms of proteins that appear authentic to the immune system. When used together, the recombinant DNA component is used to prime immune responses which are boosted by administration of the recombinant MVA component. In certain settings, the recombinant MVA alone may be sufficient for priming and boosting the immune responses.
Work on our vaccines began during the 1990s at Emory University in Atlanta, Georgia, under the direction of Dr. Harriet L. Robinson, who is now our Chief Scientific Officer. The vaccine technology was developed in collaboration with researchers at the United States National Institutes of Health, or the NIH, National Institute of Allergy and Infectious Disease, or the NIAID, and the United States Centers for Disease Control and Prevention, or CDC. The technology developed at Emory University is exclusively licensed to us. We also have nonexclusive rights through our license to certain patents owned by the NIH and exclusive license rights to certain manufacturing process patents of MFD, Inc.
In 2005, a Phase 1 human clinical trial to test our preventative vaccine concluded successfully. After receiving “Safe to Proceed” status for a five-year term and the Company may be required to issue additional warrants
under certain circumstances. See "Recently Issued Securities" on page 15.
Our Strategy
Our goals are to capture the opportunity presentednew IND by the Orasis(R)FDA, a Phase 1 trial combining low doses of the DNA vaccine with the MVA vaccine began in May 2006. An additional Phase 1 human clinical trial began in September 2006 to test full doses of the vaccines. In total, this Phase 1 testing included four clinical study stages. All trials tested various combinations and OraLynx(TM) productsdoses of our DNA and MVA vaccines in human volunteers for their ability to raise HIV-specific immune responses as well as for their safety. Successful results from all Phase 1 testing supported the initiation of the first Phase 2 testing. Our Phase 2a human clinical trial began in January 2009 and will involve 225 participants at sites in the United States and South America.
We are also conducting preclinical research on the impact of adding adjuvants, which are immune system stimulants, to our vaccine components to see if this can improve the effectiveness of our vaccine candidates. This work is being funded by the NIH through an Integrated Preclinical/Clinical AIDS Vaccine Development Grant, or an IPCAVD grant, to GeoVax. Pre-clinical animal trials have been conducted, with very encouraging results. If the activities funded by the IPCAVD grant are successful, it may result in a secondary clinical program for the development of the next generation of our HIV/AIDS vaccines.
All of the human clinical testing to date on our vaccines, except for the therapeutic trial we expect to begin in the first half of 2010, has been conducted by the HVTN using funding from the NIH. Separately, in September 2007 we received a five-year IPCAVD grant from the NIH. The total award of more than $18 million is limited to meritorious HIV/AIDS prevention vaccine programs and subject to annual renewal. The funds we are raising in this offering will be used for general business purposes and to become a leading providerexpand and accelerate our ability to fund research and clinical trials in hopes of niche electronic
products. In addition, weaccelerating the date our preventative and therapeutic vaccines receive required regulatory approval for commercial distribution.
Our common stock is currently quoted on the OTC Bulletin Board under the symbol “GOVX.OB”. We intend to successfully competeapply for additional
contracts forlisting of our common stock on Nasdaq under the installation of private, interactive cable systems. Our
strategy is to develop or acquire a variety of products and services that
complement each other or offer us production and operating economies. In this
way,symbol “GOVX,” which we seek to minimize the risk presented by reliance upon any given product
that may become obsolete through technological change.
We expect to increase our development, productionoccur immediately prior to the date of this prospectus.
As used herein, “GeoVax,” the “Company,” “we,” “our,” and marketing
capabilities by increasing staffsimilar terms include GeoVax Labs, Inc., and coordinating relationships with outside
manufacturers and sales representatives. its operating subsidiary, unless the context indicates otherwise.
We will then establish a responsive
levelare incorporated under the laws of production and distribution. At the same time, we have begun an
aggressive marketing campaign to seize opportunities in the growing set-top box
and hand-held computer markets.
GeneralState of Delaware. Our principal executive offices are located at 800 East Northwest Highway,1900 Lake Park Drive, Suite 950, Palatine, Illinois 60074, and our380, Smyrna, Georgia 30080 (metropolitan Atlanta). Our telephone number is (847) 358-4406.
Our(678) 384-7220. The address of our website is located at www.dauphintech.com.www.geovax.com. Information contained on our website is not a part of this prospectus.
THE REGISTRATION
Shares
2
SUMMARY FINANCIAL INFORMATION
The following summary financial data are derived from our audited consolidated financial statements. The historical results presented below are not necessarily indicative of the results to be registered 6,605,977 shares
Total number of shares outstanding
immediately after the
registration 71,656,566 shares
Use of proceeds The Company will not receiveexpected for any proceeds from this registration, other
than from the possible exercise of
warrants to purchase 700,000 shares of
common stock at $1.3064 per share. Any
proceeds received from the exercise of
warrants will be used for general
corporate purposes.
6
SUMMARY FINANCIAL INFORMATION
(In thousands, except per share data)
The following table summarizes the consolidated financial data for our
business.future period. You should read the following summary consolidated financial data
togetherinformation set forth below in conjunction with "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations,"” and our Consolidated Financial Statementsconsolidated financial statements and accompanying Notesthe related notes, beginning onpage F-1 of this prospectus.
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
| Total revenues (grant income) | $ | 3,668,195 | $ | 2,910,170 | $ | 237,004 | $ | 852,905 | $ | 670,467 | ||||||||||
| Net loss | (3,284,252 | ) | (3,728,187 | ) | (4,241,796 | ) | (584,166 | ) | (1,611,086 | ) | ||||||||||
| Basic and diluted net loss per common share(1) | (0.22 | ) | (0.25 | ) | (0.30 | ) | (0.07 | ) | (0.26 | ) | ||||||||||
Balance Sheet Data: | ||||||||||||||||||||
| Total assets | 4,315,597 | 3,056,241 | 3,246,404 | 2,396,330 | 1,685,218 | |||||||||||||||
| Redeemable convertible preferred stock | — | — | — | — | 1,016,555 | |||||||||||||||
| Total stockholders’ equity (deficit) | $ | 3,744,232 | $ | 2,709,819 | $ | 2,647,866 | $ | 2,203,216 | $ | (500,583 | ) | |||||||||
| (1) | Adjusted to give effect on a pro forma basis of an assumed1-for-50 reverse stock split of our common stock. |
3
THE OFFERING
| Securities Offered | Up to units. Each unit will consist of one share of our common stock and a warrant to purchase an additional 0.20 shares of our common stock. The first units sold will only include shares sold by the Company. The remaining units sold will include shares sold by the selling stockholders. | |
| Number of Shares Outstanding on the Date ofEffectiveness of thisRegistration Statement | 15,652,814 shares. (1) | |
| Number of Shares Outstanding on the Date ofEffectiveness If All theUnits Offered andRegistered are Sold | shares. (1) | |
| Description of Unit Warrants: | The five-year callable warrants will have an exercise price of $ per share, | |
| Use of Proceeds | To have vaccines manufactured for our clinical trials; to conduct a Phase 2 human clinical trial for the therapeutic use of our vaccine; toward conducting our planned Phase 2b human clinical trial for a preventative HIV vaccine; and for working capital and general corporate purposes. We will not receive any proceeds from the sale of units by the selling stockholders. | |
| OTC Bulletin Board Symbol for Our Common Stock | GOVX.OB | |
| Proposed Nasdaq Listing Symbol for Our Common Stock | GOVX | |
| Risk Factors | The securities offered by this prospectus are speculative and involve a high degree of risk and investors purchasing securities should not purchase the securities unless they can afford the loss of their entire investment. See “Risk Factors” beginning on page 6. | |
| Placement Agent’s Common Stock Purchase Warrant | In connection with this offering, we have also agreed to sell our placement agent a five-year warrant to purchase shares of our common stock equal in number to 6% of the units sold in this offering. If our placement agent exercises this warrant, each share of common stock may be purchased at $ |
Unless otherwise indicated, all share is calculated based onamounts and prices assume the weighted average
numberconsummation of shares for the respective period.
RISK FACTORS
Investment in our shares is risky and should be considered speculative. In
addition to the information contained in this prospectus, you should consider
carefully the following risk factors before investing in shares offered under
this prospectus. We operate in a highly competitive and volatile industry. We
are faced with aggressive pricing by competitors; competition for necessary
parts, components and supplies; continually changing customer demands and rapid
technological developments; and risks that buyers may encounter difficulties in
obtaining governmental licenses or approvals, or in completing installation and
construction of infrastructure, necessary to use our products or to offer them
to end users. The following cautionary statements discuss certain important
factors that could cause actual results to differ materially from the projected
results contained in the forward-looking statements contained in this
prospectus.
Risks Related to Our Financial Results and/or Condition
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We have an accumulated deficit due to substantial losses incurred over the last
six years.
Since July 1996 we have operated without substantial sales or revenue and have
an accumulated deficit of $59,594,000 as of December 31, 2001. The Company
expects to incur operating losses over the near term. The Company's ability to
achieve profitability will depend on many factors including the Company's
ability to manufacture and market commercially acceptable products, including
its set-top box. There can be no assurance that the Company will ever achieve a
profitable level of operations or if profitability is achieved, that it can be
sustained. Our financial performance may make it difficult for potential sources
of capital to evaluate the viabilityreverse stock split of our business to date and to assess its
future viability.
None of our products have achieved widespread distribution or customer
acceptance nor are there any assurances that the Company will be able to
profitably sell its products.
The Orasis(R) is a solution oriented, pen-based, mobile computer system, which
has been produced and marketed only on a limited basis. The Company has not
recognized significant sales of the product. A new version of the Orasis(R) is
under development and scheduled for release in 2002/2003.
We began shipping the OraLynx(TM) set-top box late in the fourth quarter of
2001. We believe the OraLynx(TM) set-top box will address a broad market demand.
There can be no assurance that a market demand will exist or the sales of the
OraLynx(TM) will continue after first being introduced. If a market demand
exists, it may be met with alternative products offered by competitors or with
pricing that we cannot match.
Availability of additional funding under our Securities Purchase Agreement
requires the Company to meet certain conditions precedent, which the Company may
be unable to meet.
On September 28, 2001 the Company entered into a $10 million Securities Purchase
Agreement with Crescent International Ltd., an institutional investor. Under the
Securities Purchase Agreement, the Company issued a Convertible Note for $2.5
million. Although the Company had the option to issue further convertible notes
to Crescent subject to certain conditions precedent, such option expired on
February 1, 2002 and no additional notes were issued. In addition, the Company
issued warrants exercisable to purchase 700,000 shares of common stock at a priceratio of $1.3064 per share for a five-year term. The Stock Purchase Agreement
further permits the Company1-for-50 to sell to Crescent up to $7.5 million in common
stock of the Company over a 24-month period. Additionally, the Company agreed
not to exercise any drawdowns against its then existing common stock purchase
agreement with Techrich International Ltd., which expired on January 28, 2002.
The Securities Purchase Agreement permits the Company to sell to Crescent and
requires Crescent to purchase from the Company,be effected at the Company's sole
discretion, common stock of the Company for up to $7.5 million over a 24-month
period. Individual sales are limited to $1.5 million, or a higher amount if
agreed to by the Company and Crescent, and each sale is subject to our
satisfaction of the following conditions precedent (none of which are within the
control of Crescent): (1) the Company's representations and warranties must be
true and complete, (2) the Company must haveleast one or more then currently
effective registration statements covering the resale by Crescent of all shares
issued inweek prior sales to Crescent and issuable upon the conversion of the
Convertible Note, (3) there must be no dispute as to the adequacyeffectiveness of disclosures
made in any such registration statement, (4) such registration statements must
not be subject to any stop order, suspension or withdrawal, (5) the Company must
have performed its covenants and obligations under the Securities Purchase
Agreement, (6) no statute, rule, regulation, executive order, decree, ruling or
injunction may have been enacted, entered, promulgated or adopted by any court
of governmental authority that would prohibit the Company's performance under
the Securities Purchase Agreement, (7) the company's common stock must not have
been delisted from its principal trading market and there must be no trading
suspension of its common stock in effect, and (8) the issuance of the designated
number of shares of common stock with respect to the applicable sale must not
violate the shareholder approval requirements of the Company's principal trading
market. The aggregate amount of all sale shares and convertible notes issued
cannot exceed $10 million. The amount of the sale is limited to twice the
average of the bid price multiplied by the trading volume during the 22 trading
day period immediately preceding the date of sale. When the total amount of
securities issued to Crescent equals or exceeds $5 million, then the Company
shall issue to Crescent a subsequent incentive warrant exercisable to purchase
400,000 shares of common stock at a price equal to the bid price on the date the
incentive warrant is issued.
Even though Crescent has no investment discretion with respect to shares of
common stock that the Company may
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require it to purchase under the Securities Purchase Agreement, the Company may
not be able to satisfy one or more of these conditions at any time that it
desires to raise funds from Crescent.
The initial funding of $2.5 million combined with the $308,000 cash on hand at
September 30, 2001 will allow the Company to pay the subcontractors for the OTE
order, complete two installations at time-share resorts, complete the opening of
the branch office in Piraeus, Greece and provide working capital for operations.
Risks Relating to Our Shares
Shareholders may suffer dilution from this offering and from the exercise of
existing options, warrants and convertible notes; the terms upon which we will
be able to obtain additional equity capital could be adversely affected.
Our common stock may become diluted if warrants and options to purchase our
common stock are exercised and if Crescent converts our outstanding $2,500,000
Convertible Note into shares of our common stock. The conversion price of
Crescent's Convertible Note is the lower of $1.1561 and a price based on a
formula determined at the time of conversion. We have limited rights to delay
conversion for up to 180 days from the date triggering those rights if the
conversion price determined by the formula is below $0.75 per share. At this
price, conversion by Crescent of its Convertible Note would result in the
issuance of 3,333,333 shares. We are required to register for resale shares
issued upon conversion of the Convertible Note to the extent they are not
registered under the registration statement of which this prospectus is a part.part, with the exact timing of the reverse stock split to be determined by the Board of Directors upon stockholder approval. The Board of Directors expects to be authorized to select a ratio of1-for-20,1-for-30,1-for-40, or1-for-50.
| (1) | The number of shares of our common stock to be outstanding after this offering is based on the number of shares outstanding as of March 31, 2010, and excludes: |
| • | 1,017,529 shares of common stock reserved for future issuance under our equity incentive plans. As of March 31, 2010, there were options to purchase 1,032,255 shares of our common stock outstanding under our equity incentive plans with a weighted average exercise price of $5.85 per share; |
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| • | 907,595 shares of common stock issuable upon exercise of currently outstanding warrants as of March 31, 2010, with exercise prices ranging from $7.00 per share to $16.50 per share; | |
| • | up to shares of common stock that will be issued upon exercise of the unit warrants at an exercise price of $ per share (120% of the offering price per unit) sold as part of the units in this offering; and | |
| • | up to shares of common stock that will be subject to the placement agent’s warrant. |
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RISK FACTORS
You should carefully consider the risks, uncertainties and other factors described below before you decide whether to buy units. Any of the factors could materially and adversely affect our business, financial condition, operating results and prospects and could negatively impact the market price of our securities. Also, you should be aware that the risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, of which we are not yet aware, or that we currently consider to be immaterial, may also impair our business operations. You should also refer to the other information contained in this prospectus, including our financial statements and the related notes.
Risks Related to Our Financial Results and Need for Additional Financing
We have a history of operating losses, and we expect losses to continue for the foreseeable future.
We have had no product revenue to date, and there can be no assurance that we will ever generate any product revenue. We have experienced operating losses since we began operations in 2001. As of June 11, 2002,December 31, 2009, we had an accumulated deficit of approximately $17.5 million. We expect to incur additional operating losses and expect cumulative losses to increase as our research and development, preclinical, clinical, manufacturing and marketing efforts expand. Our ability to generate revenue and achieve profitability depends on our ability to successfully complete the conversion pricedevelopment of our product candidates, conduct preclinical tests and clinical trials, obtain the necessary regulatory approvals, and manufacture and market the resulting products. Unless we are able to successfully meet these challenges, we will not be profitable and may not remain in business.
Our business will require continued funding. If we do not receive adequate funding, we will not be able to continue our operations.
To date, we have financed our operations principally through the private placement of equity securities and through NIH grants. We will require substantial additional financing at various intervals for our operations, including for clinical trials, for operating expenses including intellectual property protection and enforcement, for pursuit of regulatory approvals and for establishing or contracting out manufacturing, marketing and sales functions. There is no assurance that such additional funding will be available on terms acceptable to us or at all. If we are not able to secure the significant funding that is required to maintain and continue our operations at current levels or at levels that may be required in the future, we may be required to delay clinical studies, curtail operations or obtain funds through collaborative arrangements that may require us to relinquish rights to some of our products or potential markets.
The costs of conducting all of our human clinical trials to date have been borne by the HVTN, funded by the NIH, with GeoVax incurring costs associated with manufacturing the clinical vaccine supplies and other study support. This includes the cost of conducting the ongoing Phase 2a human clinical study of our preventative vaccine. We cannot predict the level of support we will receive from the HVTN and NIH for any additional clinical studies. We do not currently anticipate any governmental support for our planned Phase 1 therapeutic vaccine human clinical trial.
Our operations are also partially supported by the IPCAVD grant awarded to us to support our HIV/AIDS vaccine program. The project period for the grant, which is renewable annually, covers a five year period which commenced October 2007. The most recent annual award under the grant is for the period September 1, 2009 through August 31, 2010 in the amount of $4.7 million. If the annual grant does not occur, we will experience a shortfall in anticipated cash flow and will be required to seek other funds promptly to address the shortfall. We intend to pursue additional grants from the federal government; however, as we progress to the later stages of our vaccine development activities, government financial support may be more difficult to obtain, or may not be available at all. It will, therefore, be necessary for us to look to other sources of funding in order to finance our development activities.
Although we have the contractual right through July 31, 2010 to obtain additional equity financing pursuant to a stock purchase arrangement with an existing investor, we may be unable to access the full
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remaining amount available from the investor prior to the expiration of the Convertible Note was $0.4233,
which would result instock purchase agreement. This will depend on the issuance of 5,905,977 shares. Crescent has informed us
that it has no current intent to convert the Convertible Note into sharesprevailing market price of our common stock, and that any decisionits trading volume. The extent to which we rely on the investor as a source of funding prior to whether to convert in full or in part
will be based on relevant facts, circumstances and market conditions existing at
the timeexpiration of the decision.
In addition to the dilution resulting frominvestor’s purchase commitment will depend on a conversion of the Convertible Note,
we could be subject to further dilution upon exercise of a Protective Warrant,
if and when issued to Crescent. The number of sharesfactors, including whether this offering is successfully completed, the prevailing market price of our common stock and the extent to which we are able to secure equity capital from other sources. Even if we do access the full amount available under the stock purchase agreement, we will still need additional capital to fully implement our business, operating and development plans. Should the financing we require to sustain our working capital needs be unavailable, or prohibitively expensive, when we require it, the consequences could be a material adverse effect on our business, operating results, financial condition and prospects.
The current economic downturn may adversely impact our ability to raise capital.
The recession and adverse conditions in the national and global markets may negatively affect both our ability to raise capital and our operations in the future. The volatile equity markets and adverse credit markets may make it difficult for us to raise capital or procure credit in the future to fund the growth of our business, which could have a negative impact on our business and results of operations.
Risks Related to Development and Commercialization of Product Candidates and Dependence on Third Parties
Our products are still being developed and are unproven. These products may not be successful.
To become profitable, we must generate revenue through sales of our products, however our products are in varying stages of development and testing. Our products have not been proven in human research trials and have not been approved by any government agency for sale. If we cannot successfully develop and prove our products and processes, and if we do not develop other sources of revenue, we will not become profitable and at some point we would discontinue operations.
Whether we are successful will be dependent, in part, upon the leadership provided by our management. If we were to lose the services of any of these individuals, our business and operations may be adversely affected.
Whether our business will be successful will be dependent, in part, upon the leadership provided by our officers, particularly our President and Chief Executive Officer and our Chief Scientific Officer. The loss of the services of these individuals may have an adverse effect on our operations. Although we carry some key man insurance on Dr. Harriet L. Robinson, the amount of such coverage may not be sufficient to offset any adverse economic effects on our operations and we do not carry key man insurance on any of our other executive officers.
Regulatory and legal uncertainties could result in significant costs or otherwise harm our business.
To manufacture and sell our products, we must comply with extensive domestic and international regulation. In order to sell our products in the United States, approval from the FDA is required. Satisfaction of regulatory requirements, including FDA requirements, typically takes many years, and if approval is obtained at all, it is dependent upon the type, complexity and novelty of the product, and requires the expenditure of substantial resources. We cannot predict whether our products will be approved by the FDA. Even if they are approved, we cannot predict the time frame for approval. Foreign regulatory requirements differ from jurisdiction to jurisdiction and may, in some cases, be more stringent or difficult to meet than FDA requirements. As with the FDA, we cannot predict if or when we may obtain these regulatory approvals. If we cannot demonstrate that our products can be purchasedused safely and successfully in a broad segment of the patient population on a long-term basis, our products would likely be denied approval by the FDA and the regulatory agencies of foreign governments.
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We will face intense competition and rapid technological change that could result in products that are superior to the products we will be commercializing or developing.
The market for vaccines that protect against or treat HIV/AIDS is intensely competitive and is subject to rapid and significant technological change. We will have numerous competitors in the United States and abroad, including, among others, large companies with substantially greater resources than us. These competitors may develop technologies and products that are more effective or less costly than any of our future products or that could render our products obsolete or noncompetitive. We expect most of these competitors to have substantially more resources than us. If our products are not competitive, we may not be able to remain in business.
Our product candidates are based on new medical technology and, consequently, are inherently risky. Concerns about the safety and efficacy of our products could limit our future success.
We are subject to the risks of failure inherent in the development of product candidates based on new medical technologies. These risks include the possibility that the products we create will not be effective, that our product candidates will be unsafe or otherwise fail to receive the necessary regulatory approvals, and that our product candidates will be hard to manufacture on a large scale or will be uneconomical to market.
Many pharmaceutical products cause multiple potential complications and side effects, not all of which can be predicted with accuracy and many of which may vary from patient to patient. Long termfollow-up data may reveal additional complications associated with our products. The responses of potential physicians and others to information about complications could materially affect the market acceptance of our products, which in turn would materially harm our business.
We may experience delays in our clinical trials that could adversely affect our financial results and our commercial prospects.
We do not know whether planned clinical trials will begin on time or whether we will complete any of our clinical trials on schedule or at all. Product development costs will increase if we have delays in testing or approvals or if we need to perform more or larger clinical trials than planned. Significant delays may adversely affect our financial results and the commercial prospects for our products, and delay our ability to become profitable.
We rely heavily on the HVTN, independent clinical investigators, and other third party service providers for successful execution of our clinical trials, but do not control many aspects of their activities. We are responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as Good Clinical Practices, for conducting and recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Third parties may not complete activities on schedule, or may not conduct our clinical trials in accordance with regulatory requirements or our stated protocols. The failure of these third parties to carry out their obligations could delay or prevent the development, approval and commercialization of our product candidates.
Failure to obtain timely regulatory approvals required to exploit the commercial potential of our products could increase our future development costs or impair our future sales.
None of our vaccines are approved by the FDA for sales in the United States or by other regulatory authorities for sale in foreign countries. To exploit the commercial potential of our technologies, we are conducting and planning to conduct additional pre-clinical studies and clinical trials. This process is expensive and can require a significant amount of time. Failure can occur at any stage of testing, even if the results are favorable. Failure to adequately demonstrate safety and efficacy in clinical trials would prevent regulatory approval and restrict our ability to commercialize our technologies. Any such failure may severely harm our business. In addition, any approvals we obtain may not cover all of the clinical indications for which approval
8
is sought, or may contain significant limitations in the form of narrow indications, warnings, precautions or contraindications with respect to conditions of use, or in the form of onerous risk management plans, restrictions on distribution, or post-approval study requirements.
State pharmaceutical marketing compliance and reporting requirements may expose us to regulatory and legal action by state governments or other government authorities.
In recent years, several states have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs and file periodic reports on sales, marketing, pricing and other activities. Similar legislation is being considered in other states. Many of these requirements are new and uncertain, and available guidance is limited. Unless we are in full compliance with these laws, we could face enforcement action and fines and other penalties and could receive adverse publicity, all of which could harm our business.
We may be subject to new federal and state legislation to submit information on our open and completed clinical trials to public registries and databases.
In 1997, a public registry of open clinical trials involving drugs intended to treat serious or life-threatening diseases or conditions was established under the FDA Modernization Act, or the FDMA, to promote public awareness of and access to these clinical trials. Under the FDMA, pharmaceutical manufacturers and other trial sponsors are required to post the general purpose of these trials, as well as the eligibility criteria, location and contact information of the trials. Since the establishment of this registry, there has been significant public debate focused on broadening the types of trials included in this or other registries, as well as providing for public access to clinical trial results. A voluntary coalition of medical journal editors has adopted a resolution to publish results only from those trials that have been registered with a no-cost, publicly accessible database, such as www.clinicaltrials.gov. Federal legislation was introduced in the fall of 2004 to expand www.clinicaltrials.gov and to require the inclusion of study results in this registry. The Pharmaceutical Research and Manufacturers of America has also issued voluntary principles for its members to make results from certain clinical studies publicly available and has established a website for this purpose. Other groups have adopted or are considering similar proposals for clinical trial registration and the posting of clinical trial results. Failure to comply with any clinical trial posting requirements could expose us to negative publicity, fines and other penalties, all of which could materially harm our business.
We will face uncertainty related to pricing and reimbursement and health care reform.
In both domestic and foreign markets, sales of our products will depend in part on the availability of reimbursement from third-party payers such as government health administration authorities, private health insurers, health maintenance organizations and other health care-related organizations. Reimbursement by such payers is presently undergoing reform and there is significant uncertainty at this time how this will affect sales of certain pharmaceutical products.
Medicare, Medicaid and other governmental healthcare programs govern drug coverage and reimbursement levels in the United States. Federal law requires all pharmaceutical manufacturers to rebate a percentage of their revenue arising from Medicaid-reimbursed drug sales to individual states. Generic drug manufacturers’ agreements with federal and state governments provide that the manufacturer will remit to each state Medicaid agency, on a quarterly basis, 11% of the average manufacturer price for generic products marketed and sold under abbreviated new drug applications covered by the state’s Medicaid program. For proprietary products, which are marketed and sold under new drug applications, manufacturers are required to rebate the greater of (a) 15.1% of the average manufacturer price or (b) the difference between the average manufacturer price and the lowest manufacturer price for products sold during a specified period.
Both the federal and state governments in the United States and foreign governments continue to propose and pass new legislation, rules and regulations designed to contain or reduce the cost of health care. Existing regulations that affect the price of pharmaceutical and other medical products may also change before any of our products are approved for marketing. Cost control initiatives could decrease the price that we receive for any product developed in the future. In addition, third-party payers are increasingly challenging the price and
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cost-effectiveness of medical products and services and litigation has been filed against a number of pharmaceutical companies in relation to these issues. Additionally, some uncertainty may exist as to the reimbursement status of newly approved injectable pharmaceutical products. Our products may not be considered cost effective or adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an adequate return on our investment.
We may not be successful in establishing collaborations for product candidates we may seek to commercialize, which could adversely affect our ability to discover, develop, and commercialize products.
We expect to seek collaborations for the development and commercialization of product candidates in the future. The timing and terms of any collaboration will depend on the evaluation by prospective collaborators of the clinical trial results and other aspects of our vaccine’s safety and efficacy profile. If we are unable to reach agreements with suitable collaborators for any product candidate, we will be forced to fund the entire development and commercialization of such product candidates, and we may not have the resources to do so. If resource constraints require us to enter into a collaboration early in the development of a product candidate, we may be forced to accept a more limited share of any revenues this product may eventually generate. We face significant competition in seeking appropriate collaborators. Moreover, these collaboration arrangements are complex and time-consuming to negotiate and document. We may not be successful in our efforts to establish collaborations or other alternative arrangements for any product candidate. Even if we are successful in establishing collaborations, we may not be able to ensure fulfillment by collaborators of their obligations or our expectations.
We do not have manufacturing, sales and marketing experience and our lack of experience may restrict our success in commercializing our product candidates.
We do not have experience in manufacturing, marketing, or selling vaccines. We may be unable to establish satisfactory arrangements for manufacturing, marketing, sales, and distribution capabilities necessary to commercialize and gain market acceptance for our products. To obtain the expertise necessary to successfully manufacture, market, and sell our vaccines, we will require the development of our own commercial infrastructureand/or collaborative commercial arrangements and partnerships. Our ability to make that investment and also execute our current operating plan is dependent on numerous factors, including, the performance of third party collaborators with whom we may contract. Accordingly, we may not have sufficient funds to successfully commercialize our vaccines in the United States or elsewhere.
Furthermore, our products may not gain market acceptance among physicians, patients, healthcare payers and the medical community. Significant factors in determining whether we will be able to compete successfully include:
| • | the efficacy and safety of our vaccines; | |
| • | the time and scope of regulatory approval; | |
| • | reimbursement coverage from insurance companies and others; | |
| • | the price and cost-effectiveness of our products; and | |
| • | patent protection. |
We may be required to defend lawsuits or pay damages for product liability claims.
Product liability is a major risk in testing and marketing biotechnology and pharmaceutical products. We may face substantial product liability exposure in human clinical trials and for products that we sell after regulatory approval. We carry product liability insurance and we expect to continue such policies. However, product liability claims, regardless of their merits, could exceed policy limits, divert management’s attention, and adversely affect our reputation and the demand for our products.
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Risks Related to Our Intellectual Property
We could lose our license rights to our important intellectual property if we do not fulfill our contractual obligations to our licensors.
Our rights to significant and important parts of the technology we use in our vaccines are licensed from third parties and so are subject to termination if we do not fulfill our contractual obligations to our licensees. Termination of intellectual property rights under any of our licenses could adversely impact our ability to produce or protect our vaccines. Our obligations under our licenses include requirements that we pay milestone payments to licensors upon the achievement of clinical development and regulatory approval milestones, royalties as we sell commercial products, and reimburse patent filing and maintenance expenses. Should we become insolvent or bankrupt, our licensors could terminate our rights to critical technology we rely upon.
Other parties may claim that we infringe their intellectual property or proprietary rights, which could cause us to incur significant expenses or prevent us from selling products.
Our success will depend in part on our ability to operate without infringing the patents and proprietary rights of third parties. The manufacture, use and sale of new products have been subject to substantial patent rights litigation in the pharmaceutical industry. These lawsuits generally relate to the validity and infringement of patents or proprietary rights of third parties. Infringement litigation is prevalent with respect to generic versions of products for which the patent covering the brand name product is expiring, particularly since many companies which market generic products focus their development efforts on products with expiring patents. Pharmaceutical companies, biotechnology companies, universities, research institutions or other third parties may have filed patent applications or may have been granted patents that cover aspects of our products or our licensors’ products, product candidates or other technologies.
Future or existing patents issued to third parties may contain patent claims that conflict with our products. We expect to be subject to infringement claims from time to time in the ordinary course of business, and third parties could assert infringement claims against us in the future with respect to our current products or with respect to products that we may develop or license. Litigation or interference proceedings could force us to:
| • | stop or delay selling, manufacturing or using products that incorporate or are made using the challenged intellectual property; | |
| • | pay damages; or | |
| • | enter into licensing or royalty agreements that may not be available on acceptable terms, if at all. |
Any litigation or interference proceedings, regardless of their outcome, would likely delay the regulatory approval process, be costly and require significant time and attention of our key management and technical personnel.
Any inability to protect intellectual property rights in the United States and foreign countries could limit our ability to manufacture or sell products.
We will rely on trade secrets, unpatented proprietary know-how, continuing technological innovation and, in some cases, patent protection to preserve our competitive position. Our patents and licensed patent rights may be challenged, invalidated, infringed or circumvented, and the rights granted in those patents may not provide proprietary protection or competitive advantages to us. We and our licensors may not be able to develop patentable products. Even if patent claims are allowed, the claims may not issue, or in the event of issuance, may not be sufficient to protect the technology owned by or licensed to us. If patents containing competitive or conflicting claims are issued to third parties, we may be prevented from commercializing the products covered by such patents, or may be required to obtain or develop alternate technology. In addition, other parties may duplicate, design around or independently develop similar or alternative technologies.
We may not be able to prevent third parties from infringing or using our intellectual property, and the parties from whom we may license intellectual property may not be able to prevent third parties from infringing or using the licensed intellectual property. We generally will attempt to control and limit access to,
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and the distribution of, our product documentation and other proprietary information. Despite efforts to protect this proprietary information, however, unauthorized parties may obtain and use information that we may regard as proprietary. Other parties may independently develop similar know-how or may even obtain access to these technologies.
The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries.
The United States Patent and Trademark Office and the courts have not established a consistent policy regarding the breadth of claims allowed in pharmaceutical patents. The allowance of broader claims may increase the incidence and cost of patent interference proceedings and the risk of infringement litigation. On the other hand, the allowance of narrower claims may limit the value of our proprietary rights.
Risks Related to This Offering and Our Securities
We will have broad discretion over the use of the net proceeds from this offering.
There is no minimum offering amount required as a condition to closing this offering and therefore net proceeds from this offering will be immediately available to us to use at our discretion. We intend to use the proceeds as described in “Use of Proceeds.” However, the allocation of proceeds will depend in part upon how much money we raise and future developments in our business. Our judgment as to such allocations may not result in positive returns on your investment and you will not have an opportunity to evaluate the economic, financial, or other information upon which we base our decisions.
Future sales by our stockholders may adversely affect our stock price and our ability to raise funds in new stock offerings.
Sales of substantial amounts of our common stock in the public market following this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. These sales could also make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. Most of the outstanding shares held by our affiliates will be eligible for sale upon the expiration oflock-up agreements 180 days after the date of this prospectus, subject in some cases to volume and other restrictions of Rule 144 under the Securities Act. Thelock-up period may be extended in certain cases for up to 18 additional days.
There is no public market for the warrants to purchase common stock in this offering.
There is no established public trading market for the warrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intend to apply for listing the warrants on any securities exchange. Without an active market, the liquidity of the warrants will be limited.
If the registration statement covering the shares issuable upon exercise of the protective warrantwarrants contained in the units is equalno longer effective, the unit warrants will be issued with restrictive legends unless such shares are eligible for sale under Rule 144.
The offering may not be fully subscribed and, even if the offering is fully subscribed, we will need additional capital in the future. If additional capital is not available, we may not be able to continue to operate our business pursuant to our business plan and we may have to discontinue our operations entirely.
The placement agent in this offering will offer the units on a “best-efforts” basis, meaning that we may raise substantially less than the total maximum offering amounts. No refund will be made available to investors if less than all of the units are sold. Based on our proposed use of proceeds, we will likely need significant additional financing, which we may seek to raise through, among other things, public and private equity offerings and debt financing. Any equity financing will be dilutive to existing stockholders, and any debt financings will likely involve covenants restricting our business activities. Additional financing may not be available on acceptable terms, or at all.
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The impact of the proposed reverse stock split on the price of our common stock is uncertain.
We anticipate effecting the1-for-50 reverse stock split of our common stock for the purpose of increasing the per share trading price, among others. However, the price may decline due to many factors including: (i) the negative perception of reverse stock splits held by some stock market participants; (ii) the adverse effect on liquidity that might be caused by a reduced number of shares outstanding; and (iii) the costs associated with implementing a reverse stock split. The effect of the reverse stock split upon the market price of our common stock cannot be predicted with any certainty, and the history of similar stock splits for companies in similar circumstances to ours is varied. It is also possible that a reverse stock split may not increase the per share price of our common stock in proportion to the reduction in the number of shares of our common stock that is determinedoutstanding or result in a permanent increase in the per share price, which depends on many factors.
Investors in this offering will experience immediate and substantial dilution and may experience additional dilution in the future.
Investors in this offering will incur immediate and substantial dilution as a result of this offering. After giving effect to the sale by subtracting the amount paidus of all of units offered in this offering at a public offering price of $ per unit, and after deducting placement agent commissions and estimated offering expenses payable by Crescent for its initial purchaseus, our net tangible book value per share, as of December 31, 2009, would have been $ , representing an immediate dilution of $ per share, or %, of the Company's common stock, i.e.
$500,000, divided by the purchasepublic offering price, from an amount which is equal to
$500,000 divided by the priceassuming no exercise of the warrants. In addition, in the past, we issued options and warrants to acquire shares of common stock forstock. To the Company as computed on
the effective dateextent these options are ultimately exercised, investors in this offering will sustain future dilution.
The market price of the Company's registration statement. Under the terms of
the Protective Warrant, if the price for the Company's common stock as computed
on the effective date of the registration statement filed on behalf of Crescent
is higher than the purchase price for the Company's common stock, as computed on
the date Crescent purchased such shares, the Protective Warrant does not become
exercisable.
Irrespective of whether Crescent exercises its warrants or converts its
Convertible Note, our common stock is subject to further dilution upon the
issuance of shareshighly volatile.
The market price of our common stock has been and is expected to Crescent that could occur if we
require Crescentcontinue to purchase additionalbe highly volatile. Factors, including announcements of new developments by us or other companies, regulatory matters, new or existing medicines or procedures, concerns about our financial position, operating results, litigation, government regulation, developments or disputes relating to agreements, patents or proprietary rights, may have a significant impact on the market price of our stock. In addition, potential dilutive effects of future sales of shares of our common stock for upby stockholders and by us, including those sold pursuant to $7,500,000. These additional shares would be at a discount to the then current
market price. The purchase price, with respect to thethis prospectus and subsequent sale of common stock by us
to Crescent, is determined by taking the lower of $1.1561 and 92% of the average
of the lowest three consecutive bid prices during the 22 trading day period
immediately preceding the applicable sale date. Dilution resulting from issuance
of said shares will depend on the trading price at the time the common stock is
sold. Illustrations of such effect can be found on page 18. Under the terms of
our securities purchase agreement with Crescent, the number of shares to be
purchased by Crescent or to be obtained upon exerciseholders of warrants or conversion
of the Convertible Note held by Crescent cannot exceed the number of shares
that, when combined with all other shares of common stock and securities then
owned by Crescent, would result in Crescent owning more than 9.9% of our
outstanding common stock at any given point of time. Our agreements with
Crescent obligate us to register any shares of our common stock that we require
Crescent to purchase. Neither Crescent nor any of its affiliates can directly or
indirectly engage in any short sale of the Company's common stock. See "Recently
Issued Securities" on page 15 for a more complete description of our agreements
with Crescent.
Because the amount of securities to be issued to Crescent is based on a formula
that is tied to the market price of our shares, issuance of these securities
could result in significant dilution of the per share amounts of our shares. The
inverse relationship between the price and the amount of securities to be issued
may have the following results:
. the lower the average trading price of our shares at the time we
request Crescent to purchase additional shares, the greater the number
of securities that can be issued, and the greater the risk of dilution
caused by these securities;
. the perceived risk of dilution may cause Crescent or other
shareholders to sell their shares, which could
9
contribute to a downward movement in the stock price of shares; and
. any significant downward pressure on the trading price of our shares
could encourage shareholders to engage in short sales, which could
further contribute to a price decline of our shares.
These shares, as well as the eligibility for additional restricted shares to be
sold in the future, either pursuant to future registrations under the Securities
Act of 1933, as amended, or an exemption such as Rule 144 under the Securities
Act of 1933, as amended, may have a dilutive effect on the market for the price
of our common stock. The terms upon which we will be able to obtain additional
equity capital could also be adversely affected. In addition, the sale of common
stock offered by this prospectus, or merely the possibility that these sales
could occur,options could have an adverse effect on the market price of our shares.
Our common stock.
It is likely that our shares willstock does not have a vigorous trading market and you may not be subjectable to substantial price and volume
fluctuations due tosell your securities when desired.
We have a number of factors, many of which will be beyond our
control.
The securities markets have recently experienced significant price and volume
fluctuations. Thelimited active public market prices and volume of securities of technology and
development-stage companies have been especially volatile. Market volatility and
other market conditions could reduce the market price for our common shares. We cannot assure you that a more active public market will ever develop, allowing you to sell large quantities of shares despite
operating performance. In addition, if our operating performance falls below
expectations, the market priceor all of our shares could decrease significantly. Youyour holdings. Consequently, you may not be unableable to resell shares at or above the registration price. In the past,
companies that have experienced volatilityliquidate your investment in the market priceevent of their stock
have been the subject of securities class action litigation. If we were the
subject of such litigation we could experience substantial litigation costs and
diversion of management's attention and resources.
an emergency or for any other reason.
We have notnever paid any dividends and have no expectationplans to do so.
Holders of payingshares of our common stock are entitled to receive such dividends as may be declared by our Board of Directors. To date, we have paid no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future. We intend to retain future earnings, if any, to provide funds for operations of our business. Therefore, any return investors in our common stock may have not declared, paid, or distributed any cash dividends on our shareswill be in the past, nor areform of appreciation, if any, cash dividends contemplated in the foreseeable future.
There is no assurance thatmarket value of their shares of common stock.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our operations will generate any profits fromfinancial results or prevent fraud.
We are subject to reporting obligations under the United States securities laws. The SEC, as required by the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management
13
report on such company’s internal controls over financial reporting in its annual report, which to pay cash dividends. Even if profits are generated through operations in the
future, our present intent is to retain any such profits for acquisitions,
product development, production and marketing, and for general working capital
requirements.
Our shares are not widely traded.
There is only a limited market for our shares. If a large portioncontains management’s assessment of the shares
eligibleeffectiveness of our internal controls over financial reporting. Effective internal controls are necessary for immediate resale after registration wereus to be offered for public
resale withinproduce reliable financial reports and are important to help prevent fraud. As a short period of time, the current public market would likely be
unableresult, our failure to absorb such shares. Thisachieve and maintain effective internal controls over financial reporting could result in a significant reductionthe loss of investor confidence in the reliability of our financial statements, which in turn could negatively impact the trading price of our stock.
If we fail to remain current market prices. There canin our reporting requirements, our securities could be no assurance that investors will be able to
resell shares at the price they paid for the shares or at any price.
Our shares are subject to special trading rules relating to "penny stocks" which
restrict trading.
Our shares are covered by an SEC rule that imposes additional sales practice
requirements on broker-dealers who sell "penny stock" to persons other than
certain established customers. For transactions covered by the rule, the
broker-dealer must obtain sufficient informationremoved from the customer to make an
appropriate suitability determination, provide the customer with a written
statement setting forth the basis of the determination and obtain a signed copy
of the suitability statement from the customer. The rule may affectOTC Bulletin Board, which would limit the ability of broker-dealers to sell our sharessecurities and also may affect yourthe ability of stockholders to sell sharestheir securities in the secondary market.
Risks Related to Our Strategy
We may
Companies trading on the OTC Bulletin Board must be unable to identify or acquire additional technologies or products to
diversify our product offering which could reduce our ability to generate
revenues.
One of our goals is to become a leading provider of niche electronic products.
We expect to avoid reliance upon any one given product through acquisition
and/or development of additional technologies and products. However, we may be
unable to identify or acquire technologies or products. In that case, we may
have to rely upon our own resources to develop such technologies and products
internally. We may not have sufficient resources to do this. In addition,
acquisitions involve a number of special risks, such as diversion of
management's attention and financing issues, which may have a negative impact on
operations and financial performance. The Company does not have any current
plans or proposals for any acquisitions at this time.
10
We may not be able to efficiently integrate any acquired technologies, products
or businesses which may require additional time by senior management and disrupt
our current business.
We will actively look to acquire technologies, products and other businesses to
complement our operations. There can be no assurance that we will be able to
integrate the operations of any other business successfully. Acquisitions we do
undertake will subject us to a number of risks, including the following:
. inability to institute the necessary systems and procedures, such as
accounting and financial reporting systems;
. assumption of debt;
. issuance of additional common stock, thereby diluting current
shareholders ownership;
. reallocation of managements time away from its current activities;
. failure to retain key personnel; and o assumption of unanticipated legal
liabilities and other problems.
In addition, we may acquire technologies or products that prove incompatible to
other products following further development.
Even if we successfully integrate acquired technologies, products or businesses,
the additional strain on management and current resources may prevent us from
effectively managing the growth.
We seek to become profitable by expanding sales of Orasis(R), the OraLynx(TM)
set-top box and any new products that we may develop or acquire. To manage
growth, we may be required to:
. improve existing and implement new operational, production and personnel
systems;
. hire, train and manage additional qualified personnel; and
. establish relationships with additional suppliers and strategic partners
while maintaining existing relationships.
The existing purchase orders received from international companies subjects us
to risks associated with international operation, such as collection of accounts
receivable, foreign currency fluctuations and regulatory requirements .
As we begin shippingissuers under the purchase orders and set-top box agreement, we
risk exposure to international risks, including:
. greater difficulty in accounts receivable collection and longer
collection periods;
. unexpected changes in regulatory requirements;
. foreign currency fluctuations;
. reduced protection of intellectual property rights;
. potentially adverse tax consequences; and
. political instability.
At the present time, the Company is only currently operating in one foreign
country, Greece. However, as the Company continues to grow and develop,
expansion may very well occur in other countries, primarily in Europe.
Risks Related to Development, Production and Marketing of Our Products
The Company has developed two products in five years and the futureSection 12 of the Company willExchange Act, and must be affected by the success of these products.
From June of 1997 through June of 1999, the Company was principally engagedcurrent in research and development activities involving the hand-held computer. Since
then, the Company has been working on new technologies, in particular the design
and development of the set-top boxes. The Company's products have been sold in
limited quantities and there can be no assurance that a significant market will
develop for such products in the future. Therefore, the Company's inabilitytheir reports under Section 13, to develop, manufacture and market its products on a timely basis may have a
material adverse effectmaintain price quotation privileges on the Company's financial results.
11
Product development involves substantial expense and resource allocation that
may exceed our capabilities.
We incurred substantial expense in developing the Orasis(R) computer. We expect
to continue to develop enhancements and accessory equipment to meet customer and
market demands. The OraLynx(TM) set-top box is in the final development stage.
Although we anticipate further expense associated with the final stage of
development, it will not be substantial. However, delays in development arising
from insufficient cash or personnel resources will hinder our ability to bring
these products to market before competitors introduce comparable products. In
that case, we will miss the opportunity to capitalize on the technological
advances, which we believe such products may offer.
We depend on outside sources for components and may be harmed by unavailability
of components, excessive prices for components or unexpected delays in component
deliveries.
The Orasis(R) and OraLynx(TM) set-top box use or will use various component
parts, such as PCBs, microchips and fabricated metal parts. We must obtain these
components from manufacturers and third-party vendors. While we do not
anticipate any possible delays or problems in securing parts, our reliance on
those manufacturers and vendors, as well as industry component supply, may
create risks including the following:
. the possibility of a shortage of components;
. increases in component costs;
. variable component quality;
. reduced control over delivery schedules; and
. potential manufacturer/vendor reluctance to extend credit to us.
Additionally, we are currently utilizing the services of a subcontractor for the
manufacture of our OraLynx(TM) set-top box. If this subcontractor is unable to
meet our requests for product, or if there is a shortage of component parts or
if the cost of these parts substantially increases, our operations and our
success in the marketplace could be materially and adversely affected. The
Company has secured alternative subcontractors and vendors, should our current
sources be unavailable. However, similar risks are present with these
alternative sources.
Errors or defects in our products could result in customer refund or product
liability claims causing an impact on market penetration, acceptance of our
products, profitability and on the cash flow of the Company.
Because our products are complex, they could contain errors or bugs that can be
detected at any point in a product's life cycle. While we continually test our
products for errors and will work with customers to identify and correct bugs,
errors may be found in the future. Although many of these errors may prove to be
immaterial, any of these errors could be significant. Detection of any
significant errors may result in:
. loss of or delay in market acceptance and sales of our products;
. diversion of development resources;
. injury to our reputation; or
. increased maintenance and warranty costs.
Errors or defects could harm our business and future operating results. With
defective products, our market share would be negatively impacted and the
Company would lose substantial future revenue. Moreover, because our products
will be used in critical computing functions, we may receive significant
liability claims if our products do not work properly. Our agreements with
customers typically do and will contain provisions intended to limit our
exposure to product liability claims. However, these provisions may not preclude
all potential claims. Liability claims could require us to spend significant
time, money and effort in litigation. They also may result in substantial damage
awards. Any such claim, whether or not successful, could materially damage our
reputation, cause a strain on our results of operation with the lack of revenue
and additional expenses, and burden management resources by focusing efforts on
the errors or defects as opposed to product development and growth.
We will be unable to develop, produce and market our products without qualified
professionals and seasoned management.
Our success depends in large part on our ability to recruit and retain
professionals, key management and operating
12
personnel. We need to complete development of the OraLynx(TM) set-top box,
continue to develop and modify the Orasis(R) and coordinate production of
Orasis(R) computers and the OraLynx(TM) set-top box. We also need to develop
marketing channels to increase market awareness and sales of our products.
Qualified professionals, management and operating personnel are essential for
these purposes. Such individuals are in great demand and are likely to remain a
limited resource in the foreseeable future. Competition for them is intense and
turnover is high. If we cannot attract and retain needed personnel, we will not
succeed.
We believe that our future success will depend on our ability to retain the
services of our executive officers. These officers have developed industry
relationships that are critical to our growth and development. They also will be
essential in dealing with the significant challenges that we expect will arise
from anticipated growth in our operations.
We have an ongoing need to expand management personnel and support staff. The
loss of one or more members of management or key employees, or the inability to
hire additional personnel as needed, could have a material adverse effect on our
operations.
Risks Related to Competition within Our Industry
Competition in our industry is intense and we may not be able to compete
successfully due to our limited resources.
Our industry is highly competitive and dominated by competitors with substantial
resources. Continuous improvement in product pricing and performance is the key
to future success. At all levels of competition, pricing has become very
aggressive. We expect pricing pressure to continue to be intense. Many of our
competitors are larger and have significantly greater financial, technical,
marketing and manufacturing resources. They also have broader product lines,
greater brand name recognition and larger existing customer bases. As a result,
our competitors may be better able to finance acquisitions or internal growth or
respond to technological changes or customer needs.
Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. There can be no assurance that we will
be able to compete successfully in developing, manufacturing or marketing our
products. An inability to do so would adversely affect our business, financial
condition and market price of our shares.
Our industry is subject to rapid technological change and we may not be able to
keep up.
Rapid technological change, frequent new product introductions and enhancements,
uncertain product life cycles and changes in customer demands and evolving
industry standards, characterize the computer industry. Our products could
become obsolete if products based on new technologies are introduced or if new
industry standards emerge.
Computer equipment is inherently complex. As a result, we cannot accurately
estimate the life cycles of our products. New products and product enhancements
can require long development and testing periods, which requires retention of
increasingly scarce technically competent personnel. Significant delays in new
product releases or significant problems in installing or implementing new
products can seriously damage our business. In the past, we have experienced
delays in scheduled product introductions and cannot be certain that we will
avoid similar delays in the future. We must produce products that are
technologically advanced and comparable to and competitive with those made by
others. Otherwise, our products may become obsolete or we will fail to achieve
market acceptance.
Our future success depends on our ability to enhance existing products, develop
and introduce new products, satisfy customer requirements and achieve market
acceptance. We cannot be certain that we will successfully identify new product
opportunities and develop and bring new products to market in a timely and
cost-effective manner. We may sell fewer products if other vendors' products are
no longer compatible with ours or other vendors bundle their products with those
of our competitors and sell them at lower prices.
Our ability to sell our products depends in part on the compatibility of our
products with other vendors' software and hardware products. For example,
Orasis(R) will not sell if it cannot run software, or access resources such as
Internet or telephone services provided by others. The same is true for the
set-top box. Other vendors may change their products so that they will no longer
be compatible with our products. These vendors also may decide to bundle their
products with products of our competitors for promotional purposes and to
discount the sales price of the bundled products. If this were to occur, our
business and future operating results could suffer.
13
We have limited intellectual property protection and our competitors may be able
to appropriate our technology or assert infringement claims.
Our products are differentiated from those of our competitors by our internally
developed technology that is incorporated into our products.OTC Bulletin Board. If we fail to protectremain current on our intellectual property, others may appropriate our technology and
sell products with features similar to ours. Thisreporting requirements, we could reduce demandbe removed from the OTC Bulletin Board. As a result, the market liquidity for our products. We rely on a combinationsecurities could be severely adversely affected by limiting the ability of trade secrets, copyrightbroker-dealers to sell our securities and trademark
laws, non-disclosure and other contractual provisions with employees and third
parties, and technical measuresthe ability of stockholders to protectsell their securities in the secondary market.
There is no guarantee that our proprietary rights in our
products. There can be no assurance that these protectionsshares will be adequate or
that our competitors will not independently develop technologies that are
substantially equivalent or superior to ours.
We believe that our products do not infringe upon the proprietary rights of
third parties. However, there can be no assurance that third parties will not
assert infringement claims against us in the future or that a license or similar
agreement will be availablelisted on reasonable terms in the event of an unfavorable
ruling on any such claim. In addition, any such claim may require us to commit
substantial time and effort, and to incur substantial litigation expenses, and
may subject us to significant liabilities that could have a material adverse
effect on our financial condition and results of operations.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. Any statement that is not a statement of
historical fact constitutes a forward-looking statement. You can identify these
statements by forward-looking words such as "may", "will", "intend", "believe",
"anticipate", "estimate", "expect", "project" and similar words. You should read
statements that contain these words carefully because they discuss our future
expectations, contain projections of our future results of operation and of our
financial condition or state other forward looking information. This prospectus
also includes third party estimates regarding the size and growth of markets and
mobile computer equipment usage in general.
You should not place undue reliance on these forward-looking
statements. The sections captioned "Risk Factors" and "The Company" as well as
any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from our expectations.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We are under no duty to update
any of the forward looking statementsNasdaq.
Promptly after the datefiling of this prospectus or to
conform these statements to actual results or to changes in our expectations,
except with respect to material developments related to previously disclosed
information.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You can read and copy these reports, proxy
statements and other information at the SEC's public reference room at 450 Fifth
Street, N.W., Judiciary Plaza, Washington D.C. Copies of such materials can be
obtained from the public reference room at prescribed rates. You can obtain
information regarding operation of the public reference room by calling the SEC
at 1-800-SEC-0330. Such material can also be inspected and printed from the
SEC's Internet site located at http://www.sec.gov.
USE OF PROCEEDS
All net proceeds from the sale of the common stock covered by this
prospectus will be received by the selling shareholder. We will not receive any
proceeds from the sale of the common stock by the selling shareholder other than
14
from the possible exercise of warrants to purchase 700,000 shares of common
stock at $1.3064 per share. Any proceeds received from the exercise of warrants
will be used for general corporate purposes.
RECENTLY ISSUED SECURITIES
On September 28, 2001 the Company entered into a $10 million Securities Purchase
Agreement with Crescent International Ltd., an institutional investor. Under the
Securities Purchase Agreement, the Company issued a Convertible Note for $2.5
million. Although the Company had the option to issue further convertible notes
to Crescent subject to certain conditions precedent, such option expired on
February 1, 2002 and no additional notes were issued. In addition, the Company
issued warrants exercisable to purchase 700,000 shares of common stock at a
price of $1.3064 per share for a five-year term. The Stock Purchase Agreement
further permits the Company to sell to Crescent up to $7.5 million in common
stock of the Company over a 24-month period. Additionally, the Company agreed
not to exercise any drawdowns against its then existing common stock purchase
agreement with Techrich International Ltd., which expired on January 28, 2002.
The Securities Purchase Agreement permits the Company to sell to Crescent and
requires Crescent to purchase from the Company, at the Company's sole
discretion, common stock of the Company for up to $7.5 million over a 24-month
period. Individual sales are limited to $1.5 million, or a higher amount if
agreed to by the Company and Crescent, and each sale is subject to our
satisfaction of the following conditions precedent (none of which are within the
control of Crescent): (1) the Company's representations and warranties must be
true and complete, (2) the Company must have one or more then currently
effective registration statements covering the resale by Crescent of all shares
issued in prior sales to Crescent and issuable upon the conversion of the
Convertible Note, (3) there must be no dispute as to the adequacy of disclosures
made in any such registration statement, (4) such registration statements must
not be subject to any stop order, suspension or withdrawal, (5) the Company must
have performed its covenants and obligations under the Securities Purchase
Agreement, (6) no statute, rule, regulation, executive order, decree, ruling or
injunction may have been enacted, entered, promulgated or adopted by any court
of governmental authority that would prohibit the Company's performance under
the Securities Purchase Agreement, (7) the company's common stock must not have
been delisted from its principal trading market and there must be no trading
suspension of its common stock in effect, and (8) the issuance of the designated
number of shares of common stock with respect to the applicable sale must not
violate the shareholder approval requirements of the Company's principal trading
market. The aggregate amount of all sale shares and convertible notes issued
cannot exceed $10 million. The amount of the sale is limited to twice the
average of the bid price multiplied by the trading volume during the 22 trading
day period immediately preceding the date of sale. When the total amount of
securities issued to Crescent equals or exceeds $5 million, then the Company
shall issue to Crescent a subsequent incentive warrant exercisable to purchase
400,000 shares of common stock at a price equal to the bid price on the date the
incentive warrant is issued.
Convertible Note Issued to Crescent International
On October 2, 2001, in accordance with the Securities Purchase
Agreement, the Company issued a Convertible Note to Crescent in the amount of
$2,500,000, due September 28, 2004. The Company is not required to pay interest
on the Note unless the Company fails for a period of 10 trading days to issue
shares upon conversion or pay the remaining principal of the Note upon maturity
or redemption. If the Company fails to issue shares or pay the
remaining principal upon maturity or redemption, interest shall be payable at a
fixed rate of 8% per annum, payable in quarterly installments, on the
outstanding principal balance immediately prior to the date of conversion, until
the Note is fully converted or redeemed.
The Company retains the right to redeem the Convertible Note upon 30 days notice
at a price of 110% during the first year of its issuance, 120% during the second
year and 130% thereafter. Additionally, the Company can require the conversion
of the note into shares of our common stock if we satisfy each of the following
requirements:
. The shares of our common stock issuable upon conversion of the
Convertible Note may be sold by Crescent without registration and
without any time, volume or manner limitations pursuant to Rule
144 (or any similar provision then in effect) under the Securities
Act of 1933;
. The bid price for each of the 22 trading days immediately
preceding the date of notice of a required conversion is delivered
by the Company to Crescent is at least $1.881 (190% of Bid Price
on Subscription Date);
15
. Unless otherwise agreed to in writing by Crescent, the number of
shares of our common stock issuable upon such required conversion
of the Convertible Note is less than twice the average of the
daily trading volume during the 22 trading day period immediately
preceding the date of notice of a required conversion is delivered
by the Company to Crescent;
. At least 22 trading days have elapsed since a conversion date
relating to a prior conversion required by the Company or
Crescent; and
. No shares are subject to any shareholder agreements, lock-up
provisions or restrictions on transfer of any kind whatsoever.
The holder of the Note may convert the Note in whole or in part to common stock
of the Company at any time at the lower of $1.1561 or the average of the lowest
three consecutive bid prices during the 22 days preceding the date of
conversion. The conversion price and the number of note conversion shares is
subject to certain standard anti-dilution adjustments including
reclassification, consolidation, merger or mandatory share exchange; subdivision
or combination of shares; stock dividends; and the issuance of additional
capital shares by us at prices less than the conversion price.
We have the right to reject any conversion if the average bid price of our
common stock during the seven trading days preceding the delivery date of
Crescent's conversion notice is less than $0.75 per share. This right expires
120 days after it is first exercised by us. Based upon this provision, the
maximum number of shares of our common stock that we may be required to issue
upon the conversion of the Convertible Note would be 3,333,333 shares assuming
the conversion price is $0.75 per share.
In furtherance of this transaction, the Company entered into a registration
rights agreement, whereby it is required to file a registration statement, of
which this prospectus is a part, on behalf of Crescent with respect to the note
conversion shares and warrant shares issuable pursuant to the warrants issued to
Crescent. Similar registration statements are to be filed for each subsequent
sale of securities to Crescent. The failure of the Company to obtain the
effectiveness of its registration statements as required under the registration
rights agreement may subject it to certain financial penalties.
Securities issuable to Crescent International
Under the Securities Purchase Agreement with Crescent International Ltd., we can
obtain, subject to applicable fees and expenses and the terms and conditions of
the agreement, an additional $7.5 million by selling up to 10,000,000 shares of
our common stock to Crescent at various points in time, beginning 22 days after the registration statement of which this prospectus is a part, becomes effective.
Additionally, Crescent had the rightwe intend to assign its obligation to purchase sharesapply for listing of our common stock to affiliateson Nasdaq. Upon pricing of Crescent; however, Crescent has informed usthis offering, we believe that it has no current or future plans to assign its obligations.
Specifically, with regard towe can satisfy the sale of shares oflisting requirements and expect that our common stock to
Crescent, we can from time to time at our option and subject towill be listed on Nasdaq. Such listing, however, is not guaranteed. If the limitations
described in this prospectus, issue and sell shares ofapplication is not approved, our common stock with an
aggregate purchase price of upwill continue to twicebe quoted on the average dailyOTC Bulletin Board. Even if such listing is approved, there can be no assurance any broker will be interested in trading value during
the 22 trading day period immediately preceding the date of the notice by us
requiring Crescentour stock. Therefore, it may be difficult to purchase, but no more than $1.5 million at one time. The
purchase price is determined by taking the lower of $1.1561 and 92% of the
average of the lowest three consecutive bid prices during the 22 trading day
period immediately preceding the applicable sale date.
Under the agreement we are required to register the shares issuable to Crescent
through the registration statement of which this prospectus is a part and
subsequent registration statements.
Warrants Issued to Crescent International
Incentive Warrant
In further consideration for Crescent entering into the Securities Purchase
Agreement, the Company issued an Incentive Warrant to Crescent exercisable to
purchase 700,000sell your shares of common stock atif you desire or need to sell them. Our placement agent is not obligated to make a price of $1.3064 per share. The
Incentive Warrant is exercisable formarket in our securities, and even after making a five-year period commencing September 28,
2001, and provides for adjustment in the price and number of warrant shares:
16
. If the Company,market, can discontinue market making at any time whilewithout notice. Neither we nor the Incentive Warrant is unexpiredplacement agent can provide any assurance that an active and not exercisedliquid trading market in full, consummates a reclassification,
consolidation, mergerour securities will develop or, mandatory share exchange, sale, transfer or
lease of substantially all ofif developed, that the assets of the Company;
. If the Company, at any time while the Incentive Warrant is unexpiredmarket will continue.
We may need additional capital, and not exercised in full, shall subdivide its common stock, combine
its common stock, pay a dividend in its capital shares, or make any
other distribution of its capital shares; and
. If the Company, at any time while the Incentive Warrant is unexpired
and not exercised in full, makes a distribution of its assets or
evidences of indebtedness to the holders of its capital shares as a
dividend in liquidation or by way of return of capital or other than as
a dividend payable out of earnings or surplus legally available for
dividends under applicable law or any distribution to such holders made
in respect of the sale of alladditional shares or substantially allother equity securities could result in additional dilution to our stockholders.
We believe that our current cash and cash equivalents, anticipated cash flow from operations and the net proceeds from this financing will be sufficient to meet our anticipated cash needs through mid-2012. We may, however, require additional cash resources. If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity securities or borrow money. The sale of the Company's
assets, or any spin-offadditional equity securities could result in additional dilution to our stockholders. The incurrence of any of the Company's lines of business,
divisions or subsidiaries.
Upon each adjustment of the exercise price, the number of shares of our common
stock issuable in connection with the Incentive Warrant at the option of
Crescent shall be calculated, to the nearest one hundredth of a whole share,
multiplying the number of shares of our common stock issuable prior to an
adjustment by a fraction:
. The numerator of which shall be the exercise price before any adjustment;
and
. The denominator of which shall be the exercise price after such
adjustment.
In addition, Crescent may not exercise its warrant if, at the time of exercise,
the number of shares that it would receive, together with all other shares of
the Company's common stock which it beneficially owns,indebtedness would result in Crescent
owning more than 9.9%debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
We will issue a warrant to our placement agent in this offering.
We have agreed to issue our placement agent a warrant to purchase up to a total of up to 6% of the Company's common stock as would be outstanding onunits sold in this offering. The shares issuable upon exercise of this warrant are identical to those offered by this prospectus. This warrant is exercisable at $ per share, which is equal to 120% of the exercise date.
Protective Warrant
In further consideration for Crescent entering into the Securities Purchase
Agreement, if the Company elects to exercise its right with respect to any
subsequent sale to require Crescent to purchase shares of our common stock that
have not been previously registered and are not covered by an effective
registration statement, then on each closing date related to each subsequent
sale, the Company shall issue to Crescent a Protective Warrant with an exercise price of $0.01 per share of common stock, for the purchase of such number of
shares which shall be determined by subtracting (x)units sold in the investment amount with
respect to the applicable subsequent sale divided by the purchase price on the
sale date from (y) the investment amount with respect to the applicable
subsequent sale divided by the purchase price on the effective date applicable
to the sale date.
Liquidated Damages
Pursuant to our registration rights agreement with Crescent, we are required to
pay Crescent liquidated damages if we fail to obtain the effectiveness of any
registration statement, including any future registration statement, required
under our registration rights agreement, or to maintain its effectiveness for
the period required under our registration rights agreement. If we fail to
obtain the effectiveness of any registration statement for which effectiveness
is required
under our registration rights agreement, we are required under the registration
rights agreement to pay to Crescent an amount equal to 2% of the aggregate
purchase price paid by Crescent for securities that are registered for resale,
or required to be registered for resale, by Crescent as described in this
prospectus, for each calendar monthoffering, and for each portion of a calendar month,
pro rata, during the periodexpires five years from the effective date of the applicable
registration statement tostatement. The warrant may also be exercised on a cashless basis. During the effective dateterm of the applicable deficitwarrant, our placement agent will have the opportunity to profit from an increase in the price of the shares. The existence of the warrant may adversely affect the market price of the shares registration statement.
We will also be liable for liquidated damages similarly computed ifand the terms on which we fail to
keep any required registration statement effective forcan obtain additional financing.
14
Our directors and executive officers beneficially own a period of time ending
180 days after the termination of Crescent's obligation to purchase sharessignificant amount of our common stock plus one day for each day that we have failedand will be able to obtain or
maintain effectiveness of the registration statement.
Right of First Refusal
Crescent has been granted a right of first refusal for any or all shares in a
proposed sale by us of our securities in a private placement transaction exempt
from registration under the Securities Act of 1933, as amended, until 60 days
after
17
the date the Securities Purchase Agreement between Crescentexercise significant influence on matters requiring stockholder approval.
Our directors and us is
terminated. Such right of first refusal shall be held open to Crescent for five
trading days from the date of the proposed offer to sell the securities.
10% Limitation With Respect to Crescent
Under the terms of our Securities Purchase Agreement with Crescent, the number
of shares to be purchased by Crescent or to be obtained upon exercise of
warrants or conversion of the Convertible Note held by Crescent cannot exceed
the number of shares that, when combined with all other shares of common stock
and securities then owned by Crescent, would result in Crescent owning more than
9.9% of our outstanding common stock at any given point of time.
The following table is for illustrative purposes only and sets forth the number
of sharesexecutive officers collectively beneficially own approximately 21.6% of our common stock issuable to Crescent assuming Crescent were to
purchase the maximum amount of securities allowable under the Securities
Purchase Agreement at the prices stated below. Such number of shares is,
however, subject to the 9.9% limitation whereby Crescent may not own more than
9.9% of the Company's common stock as would be outstanding on any given date.
(a) Represents bid price at close of business on June 11, 2002.
(b) Represents a 25% decrease from the bid price at close of business on
June 11, 2002.
(c) Represents a 50% decrease from the bid price at close of business on
June 11, 2002.
(d) Represents a 75% decrease from the bid price at close of business on
June 11, 2002.
(e) Securities purchase agreement limits Crescent's ownership to 9.9% of
outstanding shares.
18
MARKET PRICE OF COMMON STOCK AND DIVIDEND POLICY
Our shares trade on the over-the-counter electronic bulletin board
operated by the NASD. The following table shows the range of representative bid
prices for our shares. The prices represent quotations between dealers and do
not include retail mark-up, markdown, or commission, and do not necessarily
represent actual transactions. The number of stockholders on record as of June
11, 2002 is approximately 19,000. Some of the stockholders on record are
brokerage firms that hold shares in the "street name". Therefore, we believe the
total number of stockholders may be greater than 19,000.
The closing bid price of a share on June 11, 2002 was $0.60. We have
never paid dividends and do not anticipate paying any dividends in the
foreseeable future. We currently intend to retain earnings, if any, for product
development, production and marketing, strategic acquisitions and for general
working capital requirements.
SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
The following table summarizes the consolidated financial data for our
business. You should read the following summary consolidated financial data
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and our Consolidated Financial Statements and
accompanying Notes beginning on page F-1 of this prospectus.
(1) Income (Loss) per common share is calculated based on the weighted average
number of shares for the respective period.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three months ended March 21, 2002 Compared to Three
months ended March 31, 2001
Revenues for the three months ended March 31, 2002 and 2001 were approximately
$152,000 and $445,000, respectively. Net sales increased from $5,000 in 2001 to
approximately $93,000 in 2002. Sales generated by the Company's interactive
cable system subsidiary, Suncoast, accounted for approximately $78,000 of these
revenues with the balance being parts and accessories for the Orasis(R) and
OraLynx(TM). Design service revenues in the first quarter of 2002 were
approximately $59,000 as compared to revenues of $441,000 in the first quarter
of 2001. This reduction in design service revenue is a continuation of the
decline in engineering projects available in the marketplace which the Company
began experiencing in the fourth quarter of 2001. Cost of sales represents costs
associated with the Suncoast operations for 2002, whereas cost of sales in 2001
related to the costs of parts and accessories. Cost of services increased from
$326,000 in 2001 to $448,000 in 2002. The increase is a result of the
termination of and severance benefits paid to the engineering staff which was
reduced during the first quarter of 2002. Because of these additional expenses,
gross profit margins were negatively affected and generated a gross loss of
$352,000 for the first quarter of 2002.
Selling, general and administrative expenses increased to approximately
$1,111,000 in 2002 from $476,000 in 2001. The increase of approximately $635,000
is primarily due to the selling, general and administrative expenses of Suncoast
and the Company's branch office in Piraeus, Greece which are included in the
first quarter of 2002 and not in 2001. These amounted to approximately $319,000
and $238,000, respectively. We acquired the net assets of Suncoast in July 2001
and opened the branch office in August 2001. In addition, approximately $130,000
of additional administrative costs were incurred at the Company's McHenry,
Illinois location related to closing the facility. These costs were offset by a
reduction of $52,000 in sales and marketing expenses, primarily advertising.
Research and Development expenses decreased to approximately $241,000 during the
first quarter ended March 31, 2002 from $463,000 for the corresponding period in
2001. The set-top box design was substantially completed in the fourth quarter
of 2001 which is reflected in the decrease in Research and Development expenses.
In 2002, approximately 66% of Research and Development costs consisted of costs
related to the development of the set-top box, with 34% related to further
development of the Orasis(R). In 2001, the majority of Research and Development
was costs were for the set-top box.
Interest expense increased to approximately $233,000 for the first quarter of
2002 from $7,000 for the first quarter of 2001. Included in interest expense in
the first quarter of 2002 is three months amortization of the debt discount
associated with the Convertible Note, amounting to $231,000. The remaining
interest is related to capital equipment leases, mortgage note and other
borrowings. Interest expense in the first quarter of 2001 related to capital
equipment leases and short term borrowings. Interest income declined from
$89,000 in 2001 to $4,000 in 2002 due to the reduction of short-term funds held
on deposit.
Net loss
The consolidated loss after tax increased for the first quarter ended March 31,
2002 to approximately ($1,932,000) or ($0.03) per share from ($1,015,000) or
($0.02) per share in 2001. The loss for 2002 was primarily attributed to the
decrease in revenues from design services, the increase in cost of services
related to the termination of the hardware design engineering staff, the
increase in selling, general and administrative costs generated by Suncoast and
the branch office and the increase in interest expense. The loss for 2001 was
primarily attributed to the amortization of goodwill associated with the
acquisition of Advanced Digital Designs, Inc., research and development costs
regarding the set-top box and general administrative expenses. Loss per common
share is calculated based on the monthly weighted average number of common
shares outstanding, which were 64,510,424 for the three-month period ended March
31, 2002, and 61,798,069 for the three-month period ended March 31, 2001.
Balance Sheet
Total assets for the Company at March 31, 2002 were approximately $3,123,000, a
decrease of approximately $800,000 from December 31, 2001. The decrease was
primarily attributable to the net cash used in operations of approximately
$976,000, the purchase of equipment of $315,000, offset by the proceeds from the
exercise of stock warrants and stock
20
options of $460,000 and the increase in borrowings of $350,000.
Results of Operations December 31, 2001 Compared to December 31, 2000
Revenue for the Company increased from approximately $860,000 in 2000 to
$2,621,000 in 2001. Revenues from the sale of products increased from $64,000 in
2000 to $1,274,000 in 2001. The significant increase is the result of the
Company beginning shipment of its set-top box during the fourth quarter of 2001.
Additionally, the Company recognized approximately $135,000 of revenues from its
interactive cable provider subsidiary, Suncoast Automation Inc. ("Suncoast").
These revenues are only for six months, since the Company acquired the net
assets of Suncoast on July 1, 2001. Design service revenue increased from
$796,000 in 2000 to $1,346,000 in 2001, an increase of 69%. Design service
revenues in 2000 were for four and one-half months, since the date of
acquisition of Advanced Digital Designs, Inc. ("ADD") on August 18, 2000. Design
service revenues began declining during the second half of 2001, as customers
began canceling projects and not beginning new ones. Cost of sales decreased
from $2,376,000 in 2000 to $1,680,000 in 2001. Cost of sales in 2000 included a
write down of obsolete inventory of $1,440,000 and a write down of inventory to
its net realizable value of $510,000. Cost of sales for 2001 includes the costs
of the set-top boxes sold, as well as a write down of obsolete inventory of
$490,000. Cost of services increased from $500,000 in 2000 to $1,137,000 in
2001. Cost of services for 2000 are included only from the date of acquisition
of ADD, representing four and one-half months. Cost of services consist
primarily of payroll and related employee benefits of the engineers performing
the services. Gross profit for design services decreased from 37% in 2000 to 16%
in 2001. The decline in gross profit is a result of the decline in revenues
while cost of services remained at annualized levels did not decrease in
proportion to the revenues.
Selling, general and administrative expenses increased to approximately
$4,742,000 for 2001 as compared to $3,630,000 for 2000. Selling, general and
administrative expenses for 2000 consisted of professional fees and financial
service expenses related to the private placement, salaries for administrative
personnel, expenses for the common stock purchase agreement, administrative
costs associated with the design services subsidiary, ADD and costs associated
with exercising the drawdown. For the year 2001, these selling, general and
administrative costs were partially offset by primarily expenses associated with
the issuance of common stock for reimbursement pursuant to a personal guarantee,
salaries for administrative and marketing personnel, expenses in establishing
the operations of the Greek branch office and expenses pertaining to the
Suncoast subsidiary. Included in selling, general and administrative expenses
for 2001 are the operations of the branch office in Greece, amounting to
approximately $300,000. Also included in 2001 are six months of selling, general
and administrative expenses of Suncoast, included since the date of acquisition.
These approximated $490,000.
Research and Development costs increased to approximately $2,434,000 for 2001 as
compared to $1,472,000 for 2000. Approximately 84% of Research and Development
in 2001 consisted of costs associated with the development of the OraLynx(TM)
set-top box, with approximately 16% for the development of the new version of
the Orasis(R). Research and Development costs in 2000 were for the development
of the OraLynx(TM) set-top box.
Amortization of goodwill associated with the acquisition of ADD amounted to
$1,100,000, whereas in 2000, only four and one-half months of amortization are
included, which amounted to $412,500.
Asset impairment and other losses for 2001 consisted of the write off of the
remaining goodwill associated with the acquisition of ADD of $3,987,500 and
$290,000 of an investment in non-marketable securities. During the fourth
quarter of 2001 the Company determined that the set-top box design was completed
and the design services business with outside customers was declining, therefore
an impairment of the goodwill associated with the acquisition of ADD occurred.
The Company revised its projections and determined that the projected results
would not fully support the future amortization carrying value of the goodwill
balance. In addition, the Company determined that the carrying value of its
investment in non-marketable securities had been impaired since the investment
had discontinued paying dividends in 2001 and due to the overall poor financial
condition of the issuing company.
Interest expense increased to approximately $274,000 for the year ended December
31, 2001 from $68,000 for the year ended December 31, 2000. Included in interest
expense in 2001 is three months amortization of the debt discount associated
with the Convertible Note, amounting to $252,000. The remaining interest is
related to capital equipment leases and other borrowings. Interest expense in
2000 was a result of the capital equipment leases and other borrowings. Interest
on these leases and other borrowings decreased from $68,000 to $22,000 because
the outstanding balances on the capital leases and borrowings have decreased.
21
Results of Operations December 31, 2000 Compared to December 31, 1999
Revenue for the Company decreased from approximately $2,279,000 in 1999 to
$860,000 in 2000. The revenue decreased as a result of the Company's decision to
eliminate contract manufacturing and focusing its efforts on the development of
the set-top box. The Company determined that contract manufacturing was no
longer profitable and did not fit in to the overall business plan of the
Company. Contract manufacturing revenues approximated $2,000,000 in 1999.
Revenue for 2000 was also aided by the design services and consulting of the
Company's subsidiary, ADD. Gross revenue from ADD from the date of acquisition
of August 18, 2000, amount to approximately $985,000. Gross profit margins are
not comparable for the period due to the fluctuations in revenue. The gross
profit margin for both years were effected by the write down of obsolete
inventory. For the year ended December 31, 2000 the write down of obsolete
inventory and the reserve for potential obsolete Orasis(R) inventory amounted to
$1,950,000 as compared to the write-off of obsolete inventory in the year ended
December 31, 1999 of $1,793,000.
Selling, general and administrative expenses decreased to approximately
$4,043,000 for 2000 as compared to $4,173,000 for 1999. The increase in
professional fees and financial service expenses related to the private
placement, common stock purchase agreement and cost associated with exercising
the drawdown, amounting to approximately $985,000, were offset by staff
reductions and other cost cutting measures implemented by management
approximating $1,115,000. The Company decided to eliminate contract
manufacturing in the third-quarter. The employee count at RMS was reduced from
185 employees during the beginning of 1999 to six employees at December 31,
2000. In addition, certain related expenses were also reduced, such as health
insurance, telephone, travel and entertainment, utilities, office supplies and
other administrative expenses.
Research and Development costs increased to approximately $1,472,000 for 2000 as
compared to $510,000 for 1999. Research and Development in 2000 consisted of
costs associated with the development of the OraLynx(TM) set-top box, whereas in
1999, these costs were for the continued development of the Orasis(R).
Interest expense decreased to approximately $68,000 for the year ended December
31, 2000 from $2,099,000 for the year ended December 31, 1999. Interest expense
in 1999 was mainly a result of the financing activities associated with the
conversion of debt to common stock as well as the issuance of warrants
associated with the debt.
Liquidity and Capital Resources
The Company has incurred a net operating loss in each year since its founding
and as of March 31, 2002 has an accumulated deficit of approximately
$61,526,000. The Company expects to incur operating losses over2010. After the near term.
The Company's ability to achieve profitability will depend on many factors
including the Company's ability to manufactureoffering and market commercially
acceptable products including its set-top box. There can be no assurance that
the Company will ever achieve a profitable level of operations or if
profitability is achieved, that it can be sustained.
For the three months ended March 31, 2002, the Company used $976,000 of cash in
operating activities, used $315,000 in investing activities and generated
$802,000 of cash from financing activities that produced a decrease in cash of
$489,000 for the three months. The net loss of $1,932,000 was partially offset
by the non-cash items of depreciation and amortization and amortization of the
debt discount associated with the Convertible Note. Investing activities
consisted of the purchase of equipment for installations associated with the
interactive cable systems. Financing activities consisted of the exercise of
warrants and the increase in mortgage note payable and short-term borrowings. As
of March 31, 2002, the Company had current liabilities in excess of current
assets, whereas at December 31, 2001, the Company had a current asset to current
liabilities ratio of 2.0. The Condensed Consolidated Statements of Cash Flows,
included in this report, detail the other sources and uses of cash and cash
equivalents.
In the second quarter of 2000, the Company entered into a common stock purchase
agreement, escrow agreement and registration rights agreement with Techrich
International Ltd., ("Techrich"). These agreements provided a $100,000,000
equity line of credit for use by the Company at its discretion. During the third
and fourth quarters of 2000, the Company received $7,000,000 from the equity
line in exchange for the issuance of 2,136,616 of common stock. In the third
quarter of 2001, the Company received an additional $300,000 from the equity
line in exchange for 258,968 shares of common stock. The shares underlying the
equity line of credit with Techrich were registered with the Securities and
Exchange Commission with an S-1 filing, File No. 333-35808, dated July 20, 2000
and effective on July 28, 2000.
22
On September 28, 2001 the Company entered into a $10 million Securities Purchase
Agreement with Crescent International Ltd., ("Crescent") an institutional
investor. Under the Securities Purchase Agreement, the Company issued a
Convertible Note for $2.5 million. Although the Company had the option to issue
further convertible notes to Crescent subject to certain conditions precedent,
such option expired on February 1, 2002 and no additional notes were issued. In
addition, the Company issued warrants exercisable to purchase 700,000 shares of
common stock at a price of $1.3064 per share for a five-year term. The Stock
Purchase Agreement further permits the Company to sell to Crescent up to $7.5
million in common stock of the Company over a 24-month period. Additionally, the
Company agreed not to exercise any drawdowns against its then existing common
stock purchase agreement with Techrich International Ltd., which expired on
January 28, 2002.
The Securities Purchase Agreement permits the Company to sell to Crescent and
requires Crescent to purchase from the Company, at the Company's sole
discretion, common stock of the Company for up to $7.5 million over a 24-month
period. Individual sales are limited to $1.5 million, or a higher amount if
agreed to by the Company and Crescent, and each sale is subject to our
satisfaction of the following conditions precedent (none of which are within the
control of Crescent): (1) the Company's representations and warranties must be
true and complete, (2) the Company must have one or more currently effective
registration statements covering the resale by Crescent ofassuming all shares issued in
prior sales to Crescentoffered hereby are sold, our directors and issuable upon the conversion of the Convertible
Note, (3) there must be no dispute as to the adequacy of disclosures made in any
such registration statement, (4) such registration statements must not be
subject to any stop order, suspension or withdrawal, (5) the Company must have
performed its covenants and obligations under the Securities Purchase Agreement,
(6) no statute, rule, regulation, executive order, decree, ruling or injunction
may have been enacted, entered, promulgated or adopted by any court of
governmental authority that would prohibit the Company's performance under the
Securities Purchase Agreement, (7) the company's common stock must not have been
delisted from its principal trading market and there must be no trading
suspension of its common stock in effect, and (8) the issuance of the designated
number of shares of common stock with respect to the applicable sale must not
violate the shareholder approval requirements of the Company's principal trading
market. The aggregate amount of all sale shares and convertible notes issued
cannot exceed $10 million. The amount of the sale is limited to twice the
average of the bid price multiplied by the trading volume during the 22 trading
day period immediately preceding the date of sale. When the total amount of
securities issued to Crescent equals or exceeds $5 million, the Company shall
issue to Crescent a subsequent incentive warrant exercisable to purchase 400,000
shares of common stock at a price equal to the bid price on the date the
incentive warrant is issued. If the Company, for the purposes of obtaining any
additional financing, wishes to sell shares to a party other than Crescent, the
Company shall first offer to Crescent the right to purchase such shares at the
bona fide price offered by the other party.
The Company elected to pursue the above financing arrangements with Crescent
because the Company's previous financing arrangements with Techrich contained
certain limitations as it related to the market priceofficers will collectively beneficially own approximately % of our common stock, the
average volume of shares traded on a daily basis and other such factors which
would not generate the greatest benefit to the Company's shareholders. In
addition, the financing arrangement with Techrich expired at the end of January
2002. Because of the changes in circumstances and the current economic
conditions of the Company, management decided to explore alternative financing
arrangements. Several alternatives were reviewed, including private placement
transactions, various long-term debt arrangements with different investment
bankers and other equity line arrangements similar to the one with Techrich.
Management felt that the arrangement with Crescent was the best alternative and
was in the best interest of the Company and its shareholders.
The Company expects to rely on the above financing arrangements in order to
continue its development of products and to continue its ongoing operations in
the short-term. The long-term cash needs of the Company will be dependent on the
successful development of the Company's products and their success in the market
place. At the current rate, the Company is not able to internally generate
sufficient funds for operations and will be required to rely on outside sources
for continued funding until such time as the Company's operations generate a
profit and cash is generated from operations. The Company has historically
issued and may continue, if the circumstances warrant, to issue common stock to
vendors and suppliers in lieu of cash for products and services provided to the
Company.
BUSINESS
Overview
Dauphin Technology, Inc. ("Dauphin" or the "Company") and its subsidiaries
design and market mobile hand-held, pen-based computers and set-top boxes. The
Company is also a provider of private, interactive cable systems to the extended
23
stay hospitality industry. One of the Company's subsidiaries has performed
design services, specializing in hardware and software development, to customers
in the communications, computer, video and automotive industries.
The Company, an Illinois corporation, was formed on June 6, 1988 and became a
public entity in 1991. As of December 31, 2001, the Company employed
approximately 50 people consisting of engineering, sales and marketing,
administrative, and other personnel. Because of the reduction in orders for
design services and the decision to terminate its operations at the facilities
in McHenry, during the first quarter of 2002, the Company laid off 24 full-time
employees and currently has 26 full-time employees. The Company's executive
offices are at 800 E. Northwest Highway, Palatine, Illinois and it has two other
facilities in northern Illinois, one in central Florida and a branch office in
Piraeus, Greece.
The Company's stock is traded on the over-the-counter market electronic bulletin
board operated by NASD, under the symbol DNTK.
In 1993 and 1994 the Company encountered severe financial problems. On January
3, 1995, the Company filed a petition for relief under Chapter 11 of the Federal
Bankruptcy Code in the United States Court for the Northern District of
Illinois, Eastern Division. The Company operated under Chapter 11 until July 23,
1996, when it was discharged as Debtor-in-Possession and bankruptcy proceedings
were closed.
Strategic Plan
Before the Company emerged from bankruptcy, the Board of Directors was
reconstituted and a new management team was recruited. Individuals with strong
engineering and manufacturing backgrounds as well as finance, accounting, sales
and marketing skills were hired. The new management formulated a strategic
business plan to diversify the Company's operations to eliminate dependence on a
single product line or industry.
The plan incorporated an initial focus on the hand-held mobile computer market.
In particular, it focused on development of miniaturized mobile computers that
would be incorporated in electronic solutions for vertical markets. In addition
to mobile computing markets, management is focused on producing and marketing
other electronic devices, namely set top boxes, coupled with targeted
acquisitions in the technology sector.
As part of management's plan, on June 6, 1997 the Company acquired all of the
outstanding shares of stock in R.M. Schultz & Associates, Inc. ("RMS"), an
electronic contract-manufacturing firm located in McHenry, Illinois. In 1999,
the Company terminated the operations of RMS because the entity was not
profitable and used, rather than provided, cash in its operations.
On August 28, 2000 the Company, through a newly formed subsidiary named ADD
Acquisition Corp., acquired all of the assets of T & B Design, Inc. (f/k/a
Advanced Digital Designs, Inc.), Advanced Technologies, Inc., and 937 Plum Grove
Road Partnership pursuant to an Asset Purchase Agreement. The subsidiary then
changed its name to Advanced Digital Designs, Inc. ("ADD"). ADD specializes in
design services in the telecommunications industry, especially wireless and
cable-based product development, as well as multimedia development, including
digital video decoding and processing.
To assist the Company in the further development and marketing of its set-top
box products, on July 1, 2001 the Company acquired substantially all of the net
assets of Suncoast Automation, Inc. ("Suncoast"). Suncoast is a provider of
private, interactive cable systems to the extended stay hospitality industry
utilizing the Company's set-top boxes.
In August 2001, the Company signed a sales and marketing agreement with the
Hellenic Telecommunications Organization S.A. (OTE) to sell set-top boxes
through their more than 400 retail shops, as well as to participate in several
vertical projects, meaning with other businesses or governmental agencies, that
OTE is managing. This relationship marks the Company's entry into the consumer
marketplace with its products. As a result of the agreement with OTE and other
similar marketing agreements reached with Orbit Plan and the Dialogue Group of
Companies, we established a European branch office consisting of twelve sales,
marketing, customer service and technical support personnel located in Piraeus,
Greece.
The Company plans to market and distribute for consumer use, complementary
peripheral devices manufactured by other vendors in conjunction with its set-top
boxes. A portfolio of complimentary peripheral devices would include video
telephones, displays, home cinema equipment, wireless local area network (LAN)
devices and various conferencing accessories. Specific consumer markets include
retail chains, Internet Service Providers (ISP), and satellite
24
programming providers.
As a result of the agreements noted above, the Company has become involved in
vertical projects to develop communications solutions for law enforcement,
defense, surveillance and Olympic security utilizing Terrestrial Trunked Radio
(TETRA) technology. As a part of this solution, the Company has begun
development of a next generation Orasis(R) by exploring alternative mobile
hand-held computer products through original equipment manufacturers.
Products and Services
Orasis(R) is a hand-held computer developed by the Company with features to meet
the expressed desires of many potential customers. The unit was developed with
the multi-sector mobile user in mind. As such, it incorporated an upgradable
processor, user upgradable memory and hard disc, various modules and mobile
devices to satisfy the needs of various industries. The Company has not
recognized significant sales of the product to date due to the lack of adequate
marketing and the development of new technologies within the industry. Because
of these new technologies, in 2001 the Company began developing a new version of
the Orasis(R). The new Orasis(R) will have most of the same features as the
original design, but will incorporate new technologies. The scheduled release of
the next generation Orasis(R) is currently planned for 2002-2003.
A set-top box is an electronic device that converts digital signals into a user
acceptable format via other electronic devices such as television sets,
telephones and computers. The OraLynx set-top box processes high-speed video,
provides storage and works with coaxial cable, ADSL and fiber. The OraLynx(TM)
set-top box offers considerable advantages for service providers and end users.
For service providers, the OraLynx(TM) set-top box enables integration of data,
voice, and video over one unified network using one termination device. For end
users, the OraLynx(TM) set-top box serves as a simple yet sophisticated gateway
and access device that can be controlled with a remote control, keyboard or
other mobile handheld device. The OraLynx(TM) set-top box can be networked to
PC's, Internet appliances, and more. The OraLynx(TM) can provide direct access
to interactive TV, video-on-demand and ATM or IP voiceover phone service. Basic
unit features are as follows:
. High quality/high speed user interface (2D graphics)
. Seamless Video-on-Demand Service
. Instant Telephone Access
. IP or ATM voiceover
. Supports standard Internet protocols and various Internet connections
(xDSL, SONET, ATM25, Ethernet)
. Networking and Smart Appliance Interface o Provides wireless or
conventional networking
The Company also designs, constructs, installs and maintains private interactive
entertainment systems, focusing primarily in the extended stay hospitality
industry, utilizing the Company's set-top boxes. The Company provides all
service and maintenance on the entire system. In addition to basic cable TV, the
Company's system offers high speed internet connectivity, tiered programming,
pay-per-view, games, room messaging, folio view, express check-out and community
channels.
During 2001 and 2000, the Company performed design services, specializing in
hardware and software development. In addition, the Company's engineers
consulted with and assisted customers in the development of intellectual
property. The Company's engineers specialize in telecommunications, especially
wireless and cable-based product development, as well as multimedia development,
including digital video decoding and processing. The design services part of the
business has decreased significantly, and in the first quarter of 2002, the
Company laid off the majority of its design engineering staff. As existing
contracts with customers expire and are completed, the Company will not pursue
additional orders.
Markets
Based on the latest statistics, the mobile computing devices market is
approximately $110 billion in annual revenue. Sales of laptop and notebook
computers represent a large portion of this market. However, the growth rate of
hand-held pen-based devices exceeds that of laptops and notebooks. Based on the
latest Frost and Sullivan studies, the total pen-tablets market, in which
Orasis(R) competes, is several billion dollars and is growing at approximately
twenty five
25
percent per year.
The set-top box market is a relatively new phenomenon. According to the research
firm, Strategy Analytics, the worldwide installed base of set-top boxes was a
mere 2.2 million in 1998 and was 27.4 million boxes in the year 2000, and is
expected to grow by 35% in 2002. Currently with the market in the early
developing stages, the "set-top box" has not been perfected. Existing designs do
not offer the flexibility or future capacity that Dauphin's customers seek.
Our focus on the timeshare market is based upon current statistics indicating
annual timeshare global sales topping $6 billion and timeshare growth between
16% and 18% a year for the past seven years. Timesharing is the fastest-growing
segment of the global travel and tourism industry. According to the January 1999
issue of Bear, Stearns & Co. Inc.'s Leisure Almanac, "the confluence of rapidly
growing population of income-qualified households and increased utilization
should result in collective revenues of $200 billion between 1995 and 2009." In
1998, the United States accounted for $3.06 billion--approximately half--of the
world's timeshare sales revenue, according to a survey sponsored by the American
Resort Development Association. In 2000, U.S. sales were about $4.1 billion,
according to Ragatz Associates. The United States also leads in the number of
resorts (more than 1,600) and owners (nearly 3 million). According to Ragatz
Associates, in 1998 there were 4.25 million timeshare owners living in more than
200 countries and over 5,000 timeshare resorts in more than 90 countries.
Sales and Marketing
During the later part of 1999, the Company was engaged in negotiations and
eventually on February 17, 2000 signed a contract with Estel Telecommunications
S.A. ("Estel"), a European telecommunications firm seeking to develop an
ultra-high speed information technology network, to develop and produce set-top
boxes. Estel intended to construct, install and operate a fiber optic cable
network system offering telephone, television, Internet and other services in
Greece. On August 30, 2000 and December 28, 2000 the contract was amended to
extend the delivery dates, amend certain specifications of the product and amend
certain terms and conditions pertaining to Estel's performance. During 2000 and
into the first six months of 2001, the Company focused its primary marketing
resources around the Estel contract and did not actively market its products to
other companies. This was because the Company had very limited staffing
resources and the lack of aggressive marketing was not a direct result of the
terms of the contract with Estel. The set-top box agreement with Estel was
terminated on July 1, 2001 due to the lack of performance by Estel and the
inability of Estel to meet the terms and conditions of the agreement.
During the year 2001, the Company focused its marketing efforts in Greece, as it
established a strong relationship with the Hellenic Telecommunications
Organization S.A. (OTE). The Company has a sales and marketing agreement with
OTE, whereby the Company's products are marketed through the OTE Commercial
Network throughout Europe and the Middle East. OTE is a multi-billion dollar
company comprised of well known subsidiaries including CosmOte, OTEnet, OTESAT,
CosmoOne, OTEGlobe, OTEestate, HELLASCOM and other affiliated companies based in
Bulgaria, Yugoslavia, Romania, Armenia, Albania and Jordan. OTE is a public
company and trades on the Athens Exchange and the New York Stock Exchange. OTE
is a reseller of our products in Greece and other European countries. OTE will
work directly with our Greek based branch marketing and sales office. The branch
office was opened in August 2001. The office is staffed with approximately
twelve sales and marketing personnel. In addition, the Company has developed a
relationship marketing arrangement with Orbit Plan S.A., a strategic planning
and business development firm having a presence in more than ten countries, for
assistance in marketing the Company's products into many regions of Europe,
Russia, the Commonwealth of Independent States, China and the Far East. The
Company has also entered into a marketing arrangement with the Dialogue Group of
Companies which establishes the framework for joint development of a
communications infrastructure for law enforcement and local public safety
authorities, as well as development of certain related software applications.
The agreement calls for bilateral representation of each respective company's
products. The Dialogue Group of Companies is a Russian/American joint venture
and is among the largest private commercial enterprises in the former Soviet
Union, employing more than 3,500 people with clients that include the Ministry
of Internal Affairs in Russia, the Moscow Police Department and the Federal Tax
Police.
The Company's interactive cable systems are marketed primarily to the extended
stay hospitality industry through advertising and direct contact with the
customer.
Competition
Many competitors exist in the market segments where Dauphin competes. In the
hand held computer market, companies such as Epson, Fujitsu, IBM, and Mitsubishi
are market segment leaders. The companies manufacturing set-top boxes
26
are equally as impressive, including Motorola and Scientific Atlanta. However,
Dauphin management believes some advantages exist over the competition including
flexibility, adaptability and unique solutions driven designs. Most of the
Company's competitors are large corporations or conglomerates, which may have
greater resources to withstand downturns in the hand-held computer and set-top
box markets, invest in new technology and capitalize on growth opportunities.
These competitors, like the Company, aggressively seek to improve their yields
by way of increased market share and cost reduction.
The Company's interactive cable system competes with cable television companies,
pay-per-view outlets such as On Command and others. Primary competitive factors
in our markets include selection, convenience, accessibility, customer service
and reliability.
We believe we can compete favorably in all of our markets. Most of our
competitors are larger than us and have much greater financial resources. No
assurance can be given that such increased competition will not have an adverse
effect on our business.
Customer Dependence
While the Company continues to market to a variety of companies in many
different industries, two customers accounted for approximately 87% of total
revenues for 2001. Motorola, Inc. accounted for approximately 45% of total
revenue for the year 2001 and approximately 53% of total revenues for the year
2000. This customer has itself suffered a reduction in revenue and as a result
has not been issuing new purchase orders for design services. Because of the
loss of future orders, in the first quarter of 2002, the Company laid off the
majority of its engineering staff. Another customer, Hellenic Telecommunications
Organization S.A. (OTE), accounted for approximately 42% of total revenues in
2001, as a result of fourth quarter sales of set-top boxes.
Research and Development
Substantially all of the Company's research and development efforts relate to
the development of handheld computers and set-top boxes. To compete in the
highly competitive hardware markets, the Company must continue to develop
technologically advanced products. The Company's total research and development
expenditures were approximately $2,434,000, $1,427,000and $510,000 in 2001, 2000
and 1999, respectively. The Company has retained all rights and intellectual
property acquired during the development of their handheld products and
peripheral devices, and anticipates protecting all intellectual property
developed as a result of work being done on the Company's set-top boxes.
Production
Because the main components of the Company's products are complex, the assembly
of the motherboards is outsourced to various subcontractors located in the
United States and in Southeast Asia. Additionally, final assembly and the first
level of testing is performed by the subcontractors. The Company's proprietary
software is loaded by the subcontractor. The Company does final testing and
modifications.
Source and Availability of Raw Materials
Component parts are obtained from suppliers around the world. Components used in
all designs are state of the art and are Year 2000 compliant. Components such as
the latest mobile Intel processors, color video controllers and CACHE memory
chips are in high demand and are, thus, available in short supply. However, once
production has begun, management does not anticipate delays in the production
schedule.
Software Licensing Agreements
The Company is leasing BIOS (basic input/output software) for Orasis(R) from
Phoenix Technologies Ltd. ("Phoenix"). Phoenix designs, develops, markets and
licenses proprietary software products for original equipment manufacturers and
related software for personal computers. A Master License Agreement was signed
for the right of distribution of Phoenix software. The Company pays $4 per unit
sold for this license.
The Company has entered into a Pen Products Original Equipment Manufacturing
Distribution License Agreement and
27
Sub-license Agreement for Dedicated Systems with Annabooks Software LLC
("Annabooks"), the supplier of products offered by Microsoft Corporation
("Microsoft"). Microsoft is the third-party beneficiary under these agreements.
Under the terms of these agreements, the Company is authorized to install DOS,
Windows 95, 98, 2000 and NT, and Windows for Pen, among others, on the computers
it sells. For this right, the Company must pay Annabooks royalties for each unit
sold, although quantity discounts are available. The Company pays approximately
$78 per license for each computer it sells.
Patents, Copyrights and Trademarks
In view of rapid technological and design changes inherent to the computer
industry, the Company does not believe that, in general, patents and/or
copyrights are an effective means of protecting its interests. However, due to
the unique configuration of the Orasis(R), the Company did patent its mechanical
design and processor upgradability concepts. It also expects to patent its
set-top box design following development. The Company also attempts to maintain
its proprietary rights by trade secret protection and by the use of
non-disclosure agreements. It is possible that the Company's products could be
duplicated by competitors and duplication and sale could therefore adversely
affect the Company. However, management believes that the time spent by
competitors engineering the product would be too long for the rapidly changing
computer industry. In 1997 the Company applied for and received a trademark on
the name "Orasis."
DESCRIPTION OF PROPERTY
Our executive offices consist of 7,300 square feet of office space
located at 800 E. Northwest Hwy, Suite 950, Palatine, Illinois 60067. We pay
approximately $10,000 per month to rent the facilities. In December 1998, in
conjunction with upgrading the facilities, we signed a five-year lease
extension. The lease called for increased rent, but provided for reconstruction
of facilities to better suit our needs. We believe the space will be adequate
for the foreseeable future. In addition, the Company operates a branch office
consisting of 2,800 square feet at II Merarchias 2 Street and Aki Miaouli, 185
35, Piraeus, Greece. The lease is for 2 years and the monthly rent is $2,800.
RMS facilities are located at 1809 South Route 31, McHenry, Illinois
60050. RMS occupies 53,000 square feet of space, of which 7,000 square feet is
for office space and 5,000 square feet is surface mount portion of production.
The lease was for a five-year term ending on May 31, 2002 with an optional
extension for an additional five years. The rent is approximately $16,000 per
month. The Company will not renew the lease.
ADD facilities are located at 937 N. Plum Grove Road, Schaumburg,
Illinois 60173. The approximately 5,500 square feet of office space is owned by
the Company.
Suncoast. facilities are located at 150 Dunbar Avenue, Oldsmar, Florida
34677. Suncoast occupies 3,000 square feet of space of which 1,500 square feet
is for office space and 1,500 square feet is warehouse. The current lease
expires in July 2002 and is renewable for three years. The rent is approximately
$1,800 per month. The Company believes the space will be adequate for the
foreseeable future.
MANAGEMENT
Directors and Executive Officers
The following table sets forth the name, age and position, present
principal occupation and employment history for the past five years for each ofstock. Consequently, our directors and executive officers as a group will continue to be able to exert significant influence over the election of October 31, 2001.
28
Mr. Kandalepas joined Dauphin as Chairman of the Board in February
1995. He was named CEO and President of Dauphin in November of 1995. In
addition, Mr. Kandalepas is the founder and President of CADserv, engineering
services firm. Mr. Kandalepas graduated from DeVry Institute in 1974 with a
Bachelor's Degree in Electronics Engineering Technology. He then served as a
product engineer at GTE for two years. Mr. Kandalepas left GTE to serve ten
years as a supervisor of PCB design for Motorola prior to founding CADserv in
1986.
Mr. Geier is Executive Vice President reporting directly to
Dauphin's CEO. Mr. Geier leads Dauphin's overall organization, including its
subsidiaries. Prior to joining Dauphin, Mr. Geier founded and managed several
multimillion-dollar private corporations, as well as a $100 million region of a
large retail distribution company. Mr. Geier earned an MBA from the University
of Chicago Graduate School of Business and a Bachelor of Arts in Criminal
Justice/Pre Law from Washington State University.
Mr. Lukens was appointed Chief Financial Officer in May 2000 and named
Assistant Secretary in March 2001. From 1998 until his appointment, he served as
a personal asset manager for an individual investor. From 1993 until 1998, Mr.
Lukens was Vice President, Treasurer and Chief Financial Officer of Deublin
Company, a privately owned international manufacturer. From 1972 until 1993, he
was with Grant Thornton LLP, serving as a partner from 1986 until 1993.
Mr. Goldberg has served as Secretary and a Director since June of
1995. He is also a member of the Audit Committee. Mr. Goldberg is a principal
with Jeffrey L. Goldberg and Associates, a financial planning firm and is
currently Chief Executive Officer of Stamford International, a Canadian company.
He is a former principal at Essex. LLC., a financial planning and asset
management firm and at FERS Personal Financial LLC, an accounting and financial
planning firm. Mr. Goldberg formerly served as the President of Financial
Consulting Group, LTD., a lawyer at the Chicago law firm of Goldberg and
Goodman, and prior to that, was a tax senior with Arthur Andersen LLP. He is an
attorney and CPA.
Mr. Soiney has served as a Director since November of 1995. He is
also a member of the Audit Committee. Mr. Soiney graduated from the University
of Wisconsin in Milwaukee with a degree in Business Administration. He is
currently a 75% owner in Pension Design & Services, Inc., a Wisconsin
corporation, which performs administrative services for qualified pension plans
to business primarily in the Mid-West.
Dr. Conti was appointed to the Board of Directors and to the Audit
Committee in September, 2000. Dr. Conti is a Radiation Oncologist and owns and
operates four Radiation Therapy Clinics in the St. Louis, MO. area. She has
practiced in the medical field since 1974 and has been a member of the Planning
and Budget Committee of Memorial Hospital in Belleville, Illinois. Dr. Conti
currently serves as a member of the Board of Directors of Creighton University,
FirstStar Bank Health Care Board, Association of Freestanding Radiation Oncology
Centersdirectors and the Accreditation Association for Ambulatory Health Care.
Alloutcome of most corporate actions requiring stockholder approval and our business, which may have the effect of delaying or precluding a third party from acquiring control of us. Furthermore, Emory University beneficially owns 29.5% of our common stock as of March 31, 2010, and will beneficially own approximately % if all shares offered hereby are sold. If our directors and executive officers are elected annually and hold
office until the next annual meetingmove to act in concert with Emory University, their ability to influence stockholder actions will be even more significant.
Certain provisions of the stockholders or until their
successors have been elected and qualified.
Involvement in Certain Legal Proceedings
There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
Involvement by Management in Public Companies
Mr. Goldberg is Chief Executive Officer and Chairman of the Board of
Stamford International, Inc., which trades on the Canadian Dealer Network. Mr.
Goldberg also served as a Director of Econometrics, Inc. that was traded on the
over the counter market until October 2000. None of the other Directors,
Executive Officers or Officers has had, or presently has,
29
any involvement with a public company, other than the Company.
Indemnification of Directors and Officers
We have adopted a by-law provision which stipulates that we shall
indemnify any director or executive officer who was or is a party, or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, investigative or administrative, against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him/her in connection with such
action, suit or proceeding, if he/she acted in good faith and in a manner he/she
reasonably believed to be in, or not opposed to, our best interest, had no
reasonable cause to believe his/her conduct was unlawful; provided, however, no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his/her duty to the company, unless, and only
to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper. These
indemnification provisions are not expected to alter the liability of directors
and executive officers under federal securities laws.
30
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth in the format required by applicable
regulations of the Securities and Exchange Commission the compensation for
Executive Officers of the Company who served in such capacities as of December
31, 2001.
SUMMARY COMPENSATION TABLE
(1) The Company presently has no long-term compensation
arrangements and had no such plans during fiscal years 1999
through 2001.
(2) The amounts disclosed in this column consist of Company
discretionary contributions to the Company's 401(k) Plan and
insurance premiums paid by the Company. The Company made no
discretionary contributions to the 410(k) Plan in fiscal years
1999 through 2001.
(3) Mr. Geier commenced employment in March 1999 and therefore,
the compensation shown for him for 1999 is for the period from
March 1999 through December 1999.
(4) Mr. Lukens commenced employment in May 2000 and therefore, the
compensation shown for him for 2000 is for the period from May
2000 through December 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CADserv, an engineering services company based in Schaumburg, Illinois,
controlled by Andrew J. Kandalepas, Chief Executive Officer and a major
shareholder, has contributed to the design, packaging and manufacturing of the
Orasis(R) and assisted the Company in the design of the set-top box. The Company
paid $72,573 in 2001 for such services.
RMS facilities are leased from Enclave Corporation, a company that is
owned by the former President of RMS whose contract with the Company was
terminated on May 14, 1999. The Company paid $182,337 of rent and $32,380 in
real estate taxes for the property lease in 2001, $179,468 of rent and $30,206
of real estate taxes for the property lease in 2000 and $179,684 of rent and
$24,150 of real estate taxes for 1999.
31
PRINCIPAL STOCKHOLDERS
The following table sets forth as of December 31, 2001, the number and
percentage of outstanding shares of the Company's common stock beneficially
owned by (i) each Executive Officer and Director, (ii) all Executive Officers
and Directors as a group, (iii) all persons known by the Company to own
beneficially more than 5% of the Company's common stock. Beneficial ownership
has been determined in accordance with Rule 13d-3 under the Exchange Act. Under
this rule, certain shares may be deemed to be beneficially owned by more than
one person (if, for example, persons share the power to vote or the power to
dispose of the shares). In addition, shares are deemed to be beneficially owned
by a person if the person has the right to acquire the shares (for example, upon
exercise of an option or warrant) within 60 days of the date as of which the
information is provided; in computing the percentage ownership of any person,
the amount of shares is deemed to include the amount of shares beneficially
owned by such person (and only such person) by reason of these acquisition
rights. As a result, the percentage of outstanding shares of any person as shown
in the following table does not necessarily reflect the person's actual voting
power at any particular date.
- -----------------------
* Less than 1%
(1) Includes options to purchase 1,150,000 shares under options
immediately exercisable.
(2) Includes options to purchase 480,000 shares under options immediately
exercisable.
(3) Includes options to purchase 80,000 shares under options immediately
exercisable.
(4) Includes options to purchase 1,000,000 shares under options
immediately exercisable.
(5) Includes options to purchase 80,000 shares under options immediately
exercisable.
(6) Includes options to purchase 40,000 shares under options immediately
exercisable.
(7) Assumes exercise of all shares being registered under the Convertible
Note and Incentive Warrant.
(8) Includes options to purchase 2,840,000 shares under options
immediately exercisable.
DESCRIPTION OF CAPITAL STOCK
32
Our authorized capital stock consists of 100,000,000 shares of $0.001
par value common stock and 10,000,000 shares of $0.01 par value preferred stock.
As of May 28, 2002 there were 65,050,646 shares of common stock outstanding and
beneficially owned by approximately 20,000 beneficial shareholders, and no
shares of preferred stock were outstanding. The following summary is qualified
in its entirety by reference to our certificate of incorporation which is
available upon request.
Common Stock
The holdersmay make it more difficult for a third party to effect a change in control.
Our certificate of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the shareholders. Subject
to preferences that may be applicable to any then outstanding preferred stock,
holders of common stock are entitled to receive ratably such dividends as may be
declared by theincorporation authorizes our Board of Directors out of funds legally available. In the event
of a liquidation, dissolution or windingto issue up of the company, holders of the
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of common stock have no right to convert their common stock into
any other securities and have no cumulative voting rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding10,000,000 shares of common stock are fully paid and non-assessable.
Preferred Stockpreferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by theour Board of Directors without further action by shareholders, andthe stockholders. These terms may include voting rights (includingincluding the right to vote as a series on particular matters),matters, preferences as to dividends and liquidation, conversion andrights, redemption rights and sinking fund provisions. We have no present plans to issue preferred stock. However, theThe issuance of any such preferred stock could affectdiminish the rights of the holders of our common stock, and therefore could reduce the value of thesuch common stock. In particular,addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party, thereby
preserving controlparty. The ability of the company by present owners.
Warrants and Options
As of May 28, 2002 warrants to purchase 8,265,411 shares of common
stock were issued and outstanding in the hands of approximately 60 investors.
These warrants are convertible at any time. The strike prices of these warrants
range from $0.20 to $5.481. The warrants expire between three and five years
from the date of issuance. The warrants include a change of form provision in
them so that if a change in the form of the common stock occurs due to stock
splits, stock dividends, or mergers, the holders are entitled to receive a
pro-rata increase of shares at a discounted price. However, the holders of the
warrants do not have any voting rights and are not entitled to receive any cash
or property dividends declared by theour Board of Directors until they convertto issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect achange-in-control, which in turn could prevent the warrants into common shares. At the time such warrants are exercised, the common
shareholders' ownership percentage of the Company will be diluted. In December
2000, the Company re-priced approximately 3,012,000 warrants it had previously
issued to outside consultants. The warrants were originally issued with an
exercise price rangingstockholders from $10.00 to $5.00, and were re-priced with exercise
prices ranging from $5.00 to $2.00 per share. The re-pricing createdrecognizing a charge to
earnings of approximately $234,000. In March 2002, the Company re-priced an
additional 1,023,000 warrants creating a charge to earnings of approximately
$27,218.
As of May 28, 2002 there are a total of 5,605,562 options issued and
outstandinggain in the hands of more than thirty employeesevent that a favorable offer is extended and former employees.
These options are exercisable at any time intocould materially and negatively affect the Company's $0.001 par value
common stock. The per share strike prices of these options range from $0.50 to
$3.875. These options expire three years from the date of issuance. At the time
such options are exercised, the common shareholders ownership percentage of the
Company will be diluted.
Transfer Agent and Registrar
Our transfer agent and registrar is American Stock Transfer and Trust
Company, 59 Maiden Lane, Plaza Level, New York, New York 10038 (212) 936-5100.
PLAN OF DISTRIBUTION
33
We are registering 6,605,977 shares of common stock on behalf of
Crescent International Ltd. The shares are shares that may be acquired by it
through the exercise of warrants and the conversion of a convertible note.
The selling shareholder may sell its shares from time to time at prices
and at terms prevailing at the time of sale. The selling shareholder may
exercise its 700,000 warrants from time to time prior to expiration. As of June
11, 2002, we would have received $914,480 from the exercise of such warrants if
all are exercised prior to expiration. We will receive none of the proceeds of
any subsequent sale of shares issued under the warrants or conversion of the
Convertible Note.
Crescent is contractually restricted from engaging in short salesmarket price of our common stockstock.
FORWARD-LOOKING STATEMENTS
The information contained in this prospectus, includes forward-looking statements as defined in the Private Securities Reform Act of 1995. These forward-looking statements are often identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “continue,” “plan,” their negatives, and has informed ussimilar expressions, although not all forward-looking statements contain these identifying words. These statements involve estimates, assumptions and uncertainties that it doescould cause actual results to differ materially from those expressed for the reasons described in this prospectus. You should not intendplace undue reliance on these forward-looking statements.
The forward-looking statements contained in this prospectus are based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known industry developments, our scientific work, contractual arrangements, and other factors. Although we believe such estimates and assumptions to engagebe reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, our assumptions about future events may prove to be inaccurate. We caution all readers that the forward-looking statements contained in short
salesthis prospectus are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or other stabilization activities.
Salesthe forward-looking events and circumstances will occur. Actual results may be made ondiffer materially from those anticipated or implied in the over-the-counter market or otherwise at prices
and at terms then prevailing or at prices relatedforward-looking statements due to the then current market
price, orfactors listed in negotiated private transactions, orthe “Risk Factors” section and elsewhere in a combination of these
methods. The selling shareholder will act independently of us in making
decisions with respect to the form, timing, manner and size of each sale. We
have been informed by the selling shareholder that there are no existing
arrangements between the selling shareholder and any other person, broker,
dealer, underwriter or agent relating to the sale or distribution of shares of
common stock which may be sold by selling shareholder through this prospectus. The selling shareholder may be deemed an underwriter in connection with resales
of its shares.
The common shares may be sold in one or more of the following manners:
. a block trade in which the broker or dealer so engaged will
attempt to sell the shares as agent, but may position and
resell a portion of the block as principal to facilitate the
transaction;
. purchases by a broker or dealer for its account under this
prospectus;
. ordinary brokerage transactions and transactions in which the
broker solicits purchases, or
. privately negotiated transactions.
In effecting sales, brokers or dealers engaged by the selling
shareholder may arrange for other brokers or dealers to participate. Except as
disclosed in a supplement to this prospectus, no broker-dealer will be paid more
than a customary brokerage commission in connection with any sale of the common
shares. Brokers or dealers may receive commissions, discounts or other
concessions from the selling shareholder in amounts to be negotiated immediately
prior to the sale. The compensation to a particular broker-dealer may be in
excess of customary commissions. Profits on any resale of the common shares as a
principal by such broker-dealers and any commissions received by such
broker-dealers may be deemed to be underwriting discounts and commissions under
the Securities Act of 1933. Any broker-dealer participating in such transactions
as agent may receive commissions from the selling shareholder (and, if they act
as agent for the purchaser of such common shares, from such purchaser).
Broker-dealers may agree with the selling shareholder to sell a
specified number of common shares at a stipulated price per share, and, to the
extent a broker dealer is unable to do so acting as agent, to purchase as
principal any unsold common shares at a price required to fulfill the
broker-dealer commitment to the selling shareholder. Broker-dealers who acquire
common shares as principal may thereafter resell such common shares from time to
time in transactions (which may involve crosses and block transactions and which
may involve sales to and through other broker-dealers, including transactions of
the nature described above) in the over-the-counter market, in negotiated
transactions or otherwise at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales may pay to or receive
from the purchasers of such common shares commissions computed as described
above. Brokers or dealers who acquire common shares as principal and any other
participating brokers or dealers may be deemed to be underwriters in connection
with resales of the common shares.
In addition, any common shares covered by this prospectus which qualify
for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this prospectus. We will not receive any of the proceeds from the sale of these
common shares, although we have paid the expenses of preparing this prospectus
and the related registration statement of which it is a part.
34
The selling shareholder will pay all commissions and its own expenses,
if any, associated with the sale of their common shares, other than the expenses
associated with preparing this prospectus and the registration statement of
which it is a part.
SELLING SHAREHOLDER
The following table provides certain information with respect to the
common stock beneficially owned by Crescent International Ltd., who is
classified as a selling shareholder and is entitled to use this prospectus. The
information in the table isAll forward-looking statements speak only as of the date of this prospectus. AlthoughWe do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us, or persons acting on our behalf. The risks, contingencies and uncertainties relate to, among other matters, the selling shareholder has not advised usfollowing: our history of its intentoperating losses, our need for
15
continued funding, the development stage of our vaccines, regulatory and legal uncertainties, competition, the difficulty of obtaining timely regulatory approvals, uncertainty as to sell shares pursuant to
this registration and after conversionthird party reimbursements, the impact of the note to shares, it may choose to
sell all or a portion of the shares from time to time in the over-the-counter
market or otherwise at prices and terms then prevailing or at priceshealthcare reform, difficulties related to the current market price, or negotiated transactions. The selling shareholder is
not nor has been an affiliate of the Company or holds more than 5% of the
outstanding shares.
On September 28, 2001, we entered into a $10 million securities
purchase agreement with Crescent International Ltd., ("Crescent") an
institutional investor managed by GreenLight (Switzerland) SA. The initial
funding was a $2.5 million Convertible Noteour intellectual property, and warrants exercisable to purchase
700,000 shares of common stock at a price of $1.3064 per share for a five-year
term. The Convertible Note is convertible into common stock at the lower of
(i)$1.1561, which represents 110% of the average of the Bid Prices during the
ten Trading Days prior to September 28, 2001 and (ii)the average of the lowest
three consecutive Bid prices during the 22-day period immediately preceding the
conversion date. If converted as of June 11, 2002, such shares would convert
into 5,905,977 of common stock assuming a conversion price of $0.4233 per share.
The Company and Crescent had signed a Stock Purchase Agreement on May
28, 1999. Under that agreement, the Company sold to Crescent 1,398,951 shares of
common stock for $598,050 and issued warrants to purchase 750,000 shares of
common stock at a price of $.6435 per share. Crescent exercised its warrants
during 2000. By July 31, 2001, Crescent had sold all of its shares of the
Company in the over-the- counter market or through negotiated transactions.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated, we believe each person
possesses sole voting and investment power with respect to all of the shares of
common stock owned by such person, subject to community property laws where
applicable. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock subject to
options or warrants held by that person that are currently exercisable or
exercisable within 60 days are deemed outstanding. Such shares, however, are not
deemed outstanding for the purpose of computing the percentage ownership of any
other person.
Except as previouslyfactors discussed the selling shareholder has not held
any positions or offices or had material relationships with us or any of our
affiliates within the past three years. We may amend or supplement this
prospectus from time to time to update the disclosure.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares being
registered have been passed upon for the company by Rieck and Crotty, P.C., 55
West Monroe Street, Suite 3390, Chicago, Illinois 60603.
35
EXPERTS
The audited consolidated financial statements as of and for the three
years ended December 31, 2001, which are includedunder “Risk Factors.”
Other factors besides those described in this prospectus and appearany prospectus supplement could also affect our actual results. These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares by us will be approximately $ assuming that we sell the maximum number of units we are offering pursuant to this prospectus. We will retain broad discretion over the use of the net proceeds to us from any sale of the shares under this prospectus. Except as described in this prospectus, we currently anticipate that the net proceeds from any sale of the shares under this prospectus will be used together with other funds available as follows:
| • | approximately $2,500,000 to have vaccines manufactured for our clinical trials; | |
| • | approximately $3,500,000 to conduct a Phase 2 human clinical trial for the therapeutic use of our HIV vaccine; | |
| • | up to $15,000,000 toward conducting our planned Phase 2b human clinical trial for a preventative HIV vaccine; and | |
| • | the remainder for working capital, and general corporate purposes. |
If substantially less than the maximum amount of units to be sold by Company is sold, we may need to seek additional capital as soon as practicable.
We plan to apply the proceeds in approximately the order listed above. However, as our business develops, the amount to be allocated to particular uses may change.
We will not receive any proceeds from the sale of shares by the selling stockholders but we will receive proceeds, if any, from the exercise of warrants included within the units sold pursuant to this offering. Since the warrants may or may not be exercised and, if exercised, may be exercised in whole or in part using a cashless exercise mechanism, we cannot predict the amount or timing of sums we may receive as a result of any warrant exercises.
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MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is currently traded on the OTC Bulletin Board market under the symbol “GOVX.OB”. Promptly after the filing of the registration statement of which this prospectus is a part, we intend to apply for listing of our shares on Nasdaq. The following table sets forth the high and low bid prices for our common stock for the periods indicated. The prices represent quotations between dealers and do not include retailmark-up, markdown, or commission, and do not necessarily represent actual transactions:
| Actual Historical as | ||||||||
| Adjusted for the Reverse | ||||||||
| Stock Split(1) | ||||||||
| High | Low | |||||||
| 2010 | ||||||||
| First Quarter (through March 30, 2010) | $ | 9.00 | $ | 5.00 | ||||
| 2009 | ||||||||
| Fourth Quarter | $ | 12.50 | $ | 7.00 | ||||
| Third Quarter | 16.50 | 6.00 | ||||||
| Second Quarter | 19.00 | 5.00 | ||||||
| First Quarter | 10.00 | 4.50 | ||||||
| 2008 | ||||||||
| Fourth Quarter | $ | 10.00 | $ | 4.50 | ||||
| Third Quarter | 10.00 | 6.50 | ||||||
| Second Quarter | 14.50 | 6.00 | ||||||
| First Quarter | 9.50 | 5.50 | ||||||
| (1) | Assumes the consummation of a reverse stock split of our common stock at a ratio of1-for-50. |
Holders
On March 31, 2010, there were approximately 1,300 holders of record of our common stock. The number of record holders does not reflect the number of beneficial owners of our common stock for whom shares are held by brokerage firms and other institutions.
We anticipate that there will be approximately 1,200 holders of record of our common stock immediately subsequent to implementation of the assumed1-for-50 reverse stock split of our common stock, giving effect to the estimated reduction resulting from the payout of fractional share interests.
Dividends
We have been audited by Grant Thornton LLP,
independent certified public accountants, as set forth in their report thereon
which appears elsewherenot paid any dividends since our inception and do not contemplate paying dividends in the prospectus and in the registration statement, and
is included in reliance upon the authorityforeseeable future.
17
CAPITALIZATION
The following table sets forth our capitalization as of such firm as experts in accounting
and auditing.
36
Dauphin Technology, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Dauphin Technology, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2002 and December 31, 2001
(Unaudited)
2009:
| • | on an actual basis (giving effect to the assumed1-for-50 reverse stock split of |
| • | on a pro forma as adjusted basis giving effect to the sale of shares of common stock |
| Pro Forma | ||||||||
| Actual | as Adjusted(1) | |||||||
| Common stock, $0.001 par value(2) | $ | 15,633 | $ | |||||
| Preferred stock, $0.001 par value, 10,000,000 shares authorized, none outstanding | $ | -0- | $ | |||||
Additionalpaid-in-capital | $ | 21,266,447 | $ | |||||
| Deficit accumulated during the development stage | $ | (17,537,848 | ) | $ | ( | ) | ||
| Total Stockholders’ Equity | $ | 3,744,232 | $ | |||||
| (1) | This column does not reflect the issuance or exercise of any warrants included within the units sold as part of this offering or the warrant to our placement agent. | |
| (2) | Before the1-for-50 reverse stock split, 900,000,000 pre-split common shares were authorized and 781,628,192 pre-split common shares outstanding. Subsequent to the assumed reverse stock split, these amounts are 18,000,000 and 15,632,563, respectively. |
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SELECTED FINANCIAL DATA
The following selected financial data are derived from our audited consolidated financial statements. The historical results presented below are not necessarily indicative of the results to be expected for any future period. You should read the information set forth below in conjunction with the information contained in Item 7, “Management’s Discussion and three months
ended March 31, 2002
(Unaudited)
F-4
Dauphin Technology, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2002Analysis of Financial Condition and 2001
(Unaudited)
-------------------------------------------------------------------------------
F-5
Dauphin Technology, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DescriptionResults of Business
Dauphin Technology, Inc. ("Dauphin" or the "Company")Operations”, and its Subsidiaries
design and market mobile hand-held, pen-based computers, broadband set-top
boxes; provide interactive cable systems to the extended stay hospitality
industry; and perform design services, specializing in hardware and software
development, out of its three locations in northern Illinois, one in central
Florida and its branch office in Piraeus, Greece. The Company, an Illinois
corporation, was formed on June 6, 1988 and became a public entity in 1991.
Basis of Presentation
Theour consolidated financial statements includeand the accountsrelated notes, beginning onpage F-1 of Dauphinthis prospectus.
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
| Total revenues (grant income) | $ | 3,668,195 | $ | 2,910,170 | $ | 237,004 | $ | 852,905 | $ | 670,467 | ||||||||||
| Net loss | (3,284,252 | ) | (3,728,187 | ) | (4,241,796 | ) | (584,166 | ) | (1,611,086 | ) | ||||||||||
| Basic and diluted net loss per common share(1) | (0.22 | ) | (0.25 | ) | (0.30 | ) | (0.07 | ) | (0.26 | ) | ||||||||||
Balance Sheet Data: | ||||||||||||||||||||
| Total assets | 4,315,597 | 3,056,241 | 3,246,404 | 2,396,330 | 1,685,218 | |||||||||||||||
| Redeemable convertible preferred stock | — | — | — | — | 1,016,555 | |||||||||||||||
| Total stockholders’ equity (deficit) | $ | 3,744,232 | $ | 2,709,819 | $ | 2,647,866 | $ | 2,203,216 | $ | (500,583 | ) | |||||||||
| (1) | Adjusted to give effect on a pro forma basis of an assumed1-for-50 reverse stock split of our common stock. |
19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AND RESULTS OF OPERATIONS
The following discussion and its
wholly owned subsidiaries, R.M. Schultz & Associates, Inc. ("RMS"), Advanced
Digital Designs, Inc ("ADD")analysis of our financial condition and Suncoast Automation, Inc. ("Suncoast"). All
significant intercompany transactionsresults of operations should be read together with the discussion under “Selected Financial Data” and balancesour consolidated financial statements included in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties because they are based on current expectations and relate to future events and our future financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.
Overview
GeoVax, a biotechnology company, focuses on developing vaccines to protect against or to treat diseases caused by HIV. We have exclusively licensed from Emory University vaccine technology, which was developed at Emory University in collaboration with the NIH and the CDC.
Our major ongoing research and development programs are focused on the clinical development of our DNA and MVA vaccines (designed for use together in a prime-boost system) for the preventionand/or treatment of HIV/AIDS. We are developing two clinical pathways for our vaccine candidates — (i) as a preventative vaccine to prevent or control infection of individuals who are exposed to the HIV virus, and (ii) as a therapeutic vaccine to prevent development of AIDS in those individuals who have already been eliminatedinfected with the HIV virus.
Our HIV vaccine candidates have successfully completed preclinical efficacy testing in consolidation.
2. SUMMARY OF MAJOR ACCOUNTING POLICIES
Earnings (Loss) Per Common Share
Basic earnings per common share are calculated on income available to common
stockholders dividednon-human primates and our preventative HIV vaccine candidate has completed Phase 1 clinical testing trials in humans.
Our preventative vaccine candidate is currently in a Phase 2a human clinical trial, being conducted by the weighted-average numberHVTN, with funding from the NIH. We expect to complete this trial during 2011 based on current patient enrollment rates.
With regard to our therapeutic vaccine candidate, the FDA has recently permitted us to begin a Phase 1 human clinical trial. We expect the Phase 1 trial to generate vaccine performance data within 14 to 17 months and trial completion, with full enrollment, within 36 months after the date of shares outstanding duringfirst patient enrollment.
In addition to our clinical development program for our vaccine candidates, we are conducting preclinical research on the period, which were 64,510,424impact of adding adjuvants (immune system stimulants) to our vaccine components to investigate whether they can improve the effectiveness of our vaccine candidates. This work is being funded by the NIH through an IPCAVD grant to GeoVax. If the activities funded by the IPCAVD grant are successful, it may result in a secondary clinical program for the three-month period March 31, 2002development of the next generation of our HIV/AIDS vaccines.
Critical Accounting Policies and 61,798,069 for the three-month period March 31, 2001. Diluted loss per common
shareEstimates
This discussion and analysis of our financial condition and results of operations is adjusted for the assumed conversion exercise of stock options and
warrants unless such adjustment would have an anti-dilutive effect.
Approximately 12.5 million additional shares would be outstanding if all
warrants and all stock options were exercised as of March 31, 2002.
Unaudited Financial Statements
The accompanyingbased on our consolidated financial statements, are unaudited, butwhich have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates and adjusts the estimates as necessary. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
20
Our significant accounting policies are summarized in Note 2 to our consolidated financial statements. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the discounted expected future net cash flows from the assets.
Revenue Recognition
We recognize revenue in accordance with the SEC’s Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by Staff Accounting Bulletin No. 104, Revenue Recognition, or SAB 104. SAB 104 provides guidance in applying U.S. generally accepted accounting principles to revenue recognition issues, and specifically addresses revenue recognition for upfront, nonrefundable fees received in connection with research collaboration agreements. During 2009, 2008 and 2007, our revenue consisted solely of grant funding received from the National Institutes of Health. Revenue from this arrangement is approximately equal to the costs incurred and is recorded as income as the related costs are incurred.
Stock-Based Compensation
We account for stock-based transactions in which the Company receives services from employees, directors or others in exchange for equity instruments based on the fair value of the award at the grant date. Compensation cost for awards of common stock is estimated based on the price of the underlying common stock on the date of issuance. Compensation cost for stock options or warrants is estimated at the grant date based on each instrument’s fair-value as calculated by the Black-Scholes option pricing model. The Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period for the award.
Liquidity and Capital Resources
At December 31, 2009, we had cash and cash equivalents of $3,515,784 and total assets of $4,315,597, as compared to $2,191,180 and $3,056,241, respectively, at December 31, 2008. Working capital totaled $3,309,355 at December 31, 2009, compared to $2,455,412 at December 31, 2008.
Sources and Uses of Cash
We are a development-stage company (as defined by Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 915,“Development Stage Entities”) and do not have any products approved for sale. Due to our significant research and development expenditures, we have not been profitable and have generated operating losses since our inception in 2001. Our primary sources of cash are from sales of our equity securities and from government grant funding.
Cash Flows from Operating Activities
Net cash used in operating activities was $1,425,150, $2,367,886, and $3,265,743 for the years ended December 31, 2009, 2008 and 2007, respectively. Generally, the differences between years are due to fluctuations in our net losses which, in turn, result from fluctuations in expenditures from our research activities, offset by net changes in our assets and liabilities.
The costs of conducting all of our human clinical trials to date, except for the therapeutic human clinical trial we expect to begin in the first half of 2010, have been borne by the HVTN, funded by the NIH, with
21
GeoVax incurring costs associated with manufacturing the clinical vaccine supplies and other study support. HVTN and NIH are bearing the cost of conducting our ongoing Phase 2a human clinical study, but we cannot predict the level of support we will receive from the HVTN and NIH for any additional clinical studies. We do not currently anticipate any governmental support for our planned Phase 1 therapeutic vaccine trial.
Our operations are also partially supported by the IPCAVD grant awarded to us in September 2007 by the NIH to support our HIV/AIDS vaccine program. The project period for the grant, which is renewable annually, covers a five year period which commenced October 2007, with an expected annual award of generally between $3 and $4 million per year (approximately $18.3 million in the aggregate). The most recent annual award under the grant is for the period September 1, 2009 through August 31, 2010 in the amount of $4.7 million. We are utilizing this funding to further our HIV/AIDS vaccine development, optimization, and production for human clinical trial testing, primarily with regard to our research into vaccine adjuvants. The funding we receive pursuant to this grant is recorded as revenue at the time the related expenditures are incurred, and thus partially offsets our net losses. If the annual grant does not occur, we will experience a shortfall in anticipated cash flow and will be required to seek other funds promptly to address the shortfall. We intend to pursue additional grants from the federal government; however, as we progress to the later stages of our vaccine development activities, government financial support may be more difficult to obtain, or may not be available at all. It will, therefore, be necessary for us to look to other sources of funding in order to finance our development activities.
Cash Flows from Investing Activities
Our investing activities have consisted predominantly of capital expenditures. Capital expenditures for the years ended December 31, 2009, 2008 and 2007, were $270,246, $99,831, and $-0-, respectively.
Cash Flows from Financing Activities
Net cash provided by financing activities was $3,020,000, $2,668,541, and $3,167,950 for the years ended December 31, 2009, 2008 and 2007, respectively. During 2009, we received $1,500,000 from the exercise of a stock purchase warrant. During 2009 and 2008, we received $1,520,000 and $406,091, respectively, from the sale of our common stock to an investor, Fusion Capital, net of costs associated with the financing arrangement. The remaining cash generated by our financing activities relates to the sale of our common stock to individual accredited investors.
In May 2008, we signed a stock purchase agreement with an existing investor, which provides for the sale of up to $10 million of shares of our common stock. In connection with this agreement, we filed a registration statement related to the transaction with the SEC covering the shares that have been issued or may be issued to the investor under the stock purchase agreement. The SEC declared the registration statement effective on July 1, 2008, and we now have the right until July 31, 2010 to sell our shares of common stock to the investor from time to time in amounts ranging from $80,000 to $1 million per purchase transaction, depending on certain conditions as set forth in the stock purchase agreement. Through December 31, 2009, we have sold a cumulative total of $2,020,000 of common stock to our investor, leaving $7,980,000 available pursuant to the stock purchase agreement as of that date. Depending on general stock market conditions, and the prevailing price of our common stock leading July 31, 2010, we may not be able to, or may choose not to, access the full amount available under the stock purchase agreement. The extent to which we rely on the stock purchase agreement as a source of funding will depend on a number of factors including whether this offering is successfully completed, the prevailing market price of our common stock and the extent to which we can secure working capital from other sources.
We anticipate incurring additional losses for several years as we expand our drug development and clinical programs and proceed into higher cost human clinical trials. Conducting clinical trials for our vaccine candidates in development is a lengthy, time-consuming and expensive process. We do not expect to generate product sales from our development efforts for several years. If we are unable to successfully develop and market pharmaceutical products over the next several years, our business, financial condition and results of operations will be adversely impacted.
22
In any event, we anticipate raising additional capital during the remainder of 2010, although there can be no assurance that we will be able to do so. While we believe that we will be successful in obtaining the necessary financing to fund our operations through grants, our stock purchase agreement with the investorand/or other sources, there can be no assurances that such additional funding will be available to us on reasonable terms or at all.
Our capital requirements, particularly as they relate to product research and development, have been and will continue to be significant. We intend to seek FDA approval of our products, which may take several years. We will not generate revenues from the sale of our products for at least several years, if at all. We will be dependent on obtaining financing from third parties in order to maintain our operations, including our clinical program. Due to the existing uncertainty in the capital and credit markets, and adverse regional and national economic conditions which may persist or worsen, capital may not be available on terms acceptable to the Company or at all. If we fail to obtain additional funding when needed, we would be forced to scale back or terminate our operations, or to seek to merge with or to be acquired by another company.
We believe that our current working capital, combined with the proceeds from the IPCAVD grant awarded annually from the NIH, and the net proceeds of this offering will be sufficient to support our planned level of operations through 2012, assuming all units are sold but no warrants are exercised for cash. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect on our business, operating results, financial condition and prospects.
To prepare the Company’s capital structure for the offering described in this prospectus, our Board of Directors has called a special meeting of stockholders, to be held on April 13, 2010, seeking stockholder approval of an increase in our authorized shares of common stock from 900,000,000 to 2,000,000,000 and a reverse stock split of our common stock with a ratio of1-for-20,1-for-30,1-for-40, or1-for-50, with the timing and specific ratio of the reverse stock split to be implemented, if at all, within four months after approval, at the discretion of the Board of Directors. If the reverse stock split is implemented, our authorized shares will be proportionally reduced and, we expect, the per share price of our common stock will be increased. We believe these actions will help GeoVax complete the offering described in this prospectus by helping GeoVax qualify its common stock for listing on Nasdaq, increasing the GeoVax share price, and broadening the pool of investors to include investors who will not invest in shares with low prices, such as certain institutional investors.
We have no off-balance sheet arrangements that are likely or reasonably likely to have a material effect on our financial condition or results of operations.
Contractual Obligations
Contractual obligations represent future cash commitments and liabilities under agreements with third parties, and exclude contingent liabilities for which we cannot reasonably predict future payment. Additionally, the expected timing of payment of the obligations presented below is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the timing of receipt of goods or services or changes toagreed-upon terms or amounts for some obligations.
The following table represents our contractual obligations as of December 31, 2009, aggregated by type (in thousands):
| Payments Due by Period | ||||||||||||||||||||
| Less than | 1-3 | 4-5 | More than | |||||||||||||||||
Contractual Obligations | Total | 1 Year | Years | Years | 5 years | |||||||||||||||
| Operating Lease Obligations(1) | $ | 609 | $ | 115 | $ | 365 | $ | 129 | $ | — | ||||||||||
| Emory University — License Agreement(2) | — | — | — | — | — | |||||||||||||||
| Total | $ | 609 | $ | 115 | $ | 365 | $ | 129 | $ | — | ||||||||||
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| (1) | Our operating lease obligations relate to the facility lease for our 8,430 square foot facility in Smyrna, Georgia, which houses our laboratory operations and our administrative offices. The lease, which was effective November 1, 2009, expires on December 31, 2014. | |
| (2) | Pursuant to the Emory License, we have committed to make potential future milestone and royalty payments which are contingent upon the occurrence of future events. Such events include development milestones, regulatory approvals and product sales. Because the achievement of these milestones is currently neither probable nor reasonably estimable, the contingent payments have not been included in the table above or recorded on our consolidated balance sheets. The aggregate total of all potential milestone payments included in the Emory License (excluding royalties on net sales) is approximately $3.5 million. |
As of December 31, 2009, except as disclosed in the table above, we had no other material firm purchase obligations or commitments for capital expenditures and no committed lines of credit or other committed funding or long-term debt. We have employment agreements with our four senior management team members and a consulting agreement with our Chairman, each of which may be terminated with no more than 90 days advance written notice.
Net Operating Loss Carryforwards
At December 31, 2009, we had consolidated net operating loss carryforwards for income tax purposes of $72.2 million, which will expire in 2010 through 2029 if not utilized. Approximately $59.7 million of our net operating loss carryforwards relate to the operations of our predecessor, Dauphin Technology, Inc. prior to the 2006 merger between Dauphin Technology, Inc. and GeoVax, Inc. We also have research and development tax credits of $522,000 available to reduce income taxes, if any, which will expire in 2022 through 2028 if not utilized. The amount of net operating loss carryforwards and research tax credits available to reduce income taxes in any particular year may be limited in certain circumstances. Based on an assessment of all available evidence including, but not limited to, our limited operating history in our core business and lack of profitability, uncertainties of the commercial viability of our technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, we have concluded that it is more likely than not that these net operating loss carryforwards and credits will not be realized and, as a result, a 100% deferred tax valuation allowance has been recorded against these assets.
Results of Operations
Net Loss
We recorded net losses of $3,284,252, $3,728,187 and $4,241,796 for the years ended December 31, 2009, 2008 and 2007, respectively. Our operating results will typically fluctuate due to the timing of activities and related costs associated with our vaccine research and development activities and our general and administrative costs, as described in more detail below.
Grant Revenue
We recorded grant revenues of $3,668,195 in 2009, $2,910,170 in 2008 and $237,004 in 2007. During 2007, we were awarded the IPCAVD grant by the NIH to support our HIV/AIDS vaccine program. The project period for the grant, which is renewable annually, covers a five year period which commenced October 2007, with an expected annual award of generally between $3 to $4 million per year (approximately $18.3 million in the aggregate). We are utilizing this funding to further our HIV/AIDS vaccine development, optimization and production, primarily with regard to our research into vaccine adjuvants. The grant is subject to annual renewal, with the latest grant award covering the period from September 2009 through August 2010 in the amount of $4.7 million. As of December 31, 2009, there is approximately $4.0 million remaining from the current grant year’s award and (assuming that the remaining budgeted amounts under the grant are awarded annually to the Company) there is an additional $7.5 million available through the grant for the remainder of the original five year project period ending August 31, 2012.
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Research and Development
Our research and development expenses were $4,068,682 in 2009, $3,741,489 in 2008 and $1,757,125 in 2007. Research and development expenses can vary considerably on aperiod-to-period basis, depending on our need for vaccine manufacturing and testing of manufactured vaccine by third parties, and due to fluctuations in the timing of other external expenditures related to our IPCAVD grant from the NIH. Research and development expense includes stock-based compensation expense of $304,654, $494,041 and $284,113 for 2009, 2008 and 2007, respectively (see discussion below). Our research and development costs do not include costs incurred by HVTN in conducting trials of GeoVax vaccines.
The increase in research and development expense during each of the periods is due primarily to increased costs associated with our vaccine manufacturing activities in preparation for the commencement of Phase 2 clinical testing, costs associated with our activities funded by our NIH grant (especially from the 2007 to the 2008 period, as the grant was awarded to us in September 2007), and higher personnel costs associated with the addition of new scientific personnel. Our recently initiated Phase 2a clinical trial is being conducted and funded by the HVTN, but we are responsible for the manufacture of vaccine product to be used in the trial. We cannot predict the level of support we may receive from HVTN or other federal agencies (or divisions thereof) for our future clinical trials. We expect that our research and development costs will continue to increase in 2010 and beyond as we progress through the human clinical trial process leading up to possible product approval by the FDA. We do not currently anticipate any governmental support for our planned Phase 1 therapeutic vaccine trial.
Since our inception, all of our research and development efforts have been focused on development of our HIV/AIDS vaccines, which we have managed and evaluated to date as a single project. Upon our receipt of the IPCAVD grant in late 2007, we began incurring additional costs directly associated with the grant. The table below summarizes our research and development expenses for each of the years in the three year period ended December 31, 2009 (in thousands). The amounts shown related to the IPCAVD grant represent all direct costs associated with the grant activities, including salaries and personnel-related expenses, supplies, consulting, contract services and travel. The remainder of our research and development expense is allocated to our general HIV/AIDS vaccine program.
R&D Project | 2009 | 2008 | 2007 | |||||||||
| IPCAVD Grant — Vaccine Adjuvants | $ | 2,772,397 | $ | 2,504,850 | $ | 215,458 | ||||||
| DNA/MVA Vaccines — HIV/AIDS | 1,296,285 | 1,236,639 | 1,541,667 | |||||||||
| Total Research and Development Expense | $ | 4,068,682 | $ | 3,741,489 | $ | 1,757,125 | ||||||
Our vaccine candidates still require significant, time-consuming and costly research and development, testing and regulatory clearances. Completion of clinical development will take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate. The cost of the ongoing Phase 2a clinical trial for our preventative vaccine is being funded by the HVTN, but we cannot be certain whether the HVTN or any other external source will provide funding for further development. We intend to use offering proceeds to fund the cost of the Phase 1 clinical trial of our therapeutic vaccine, which we estimate will cost approximately $700,000; and we also may use a portion of the proceeds of this offering to conduct a Phase 2 clinical trial for our therapeutic vaccine, which we estimate at $3.5 million. We intend to seek government or third party support for future clinical human trials, but there can be no assurance that we will be successful. The duration and the cost of future clinical trials may vary significantly over the life of the project as a result of differences arising during development of the human clinical trial protocols, including, among others, the following:
| • | the number of patients that ultimately participate in the clinical trial; | |
| • | the duration of patientfollow-up that seems appropriate in view of the results; | |
| • | the number of clinical sites included in the clinical trials; and | |
| • | the length of time required to enroll suitable patient subjects. |
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Due to the uncertainty regarding the timing and regulatory approval of clinical trials and preclinical studies, our future expenditures are likely to be highly volatile in future periods depending on the outcomes. From time to time, we will make determinations as to how much funding to direct to these programs in response to their scientific, clinical and regulatory success, anticipated market opportunity and the availability of capital to fund our programs.
In developing our product candidates, we are subject to a number of risks that are inherent in the development of products based on innovative technologies. For example, it is possible that our vaccines may be ineffective or toxic, or will otherwise fail to receive the necessary regulatory clearances, causing us to delay, extend or terminate our product development efforts. Any failure by us to obtain, or any delay in obtaining, regulatory approvals could cause our research and development expenditures to increase which, in turn, could have a material adverse effect on our results of operations and cash flows. Because of the uncertainties of clinical trials, estimating the completion dates or cost to complete our research and development programs is highly speculative and subjective. As a result of these factors, we are unable to accurately estimate the nature, timing and future costs necessary to complete the development of our product candidates. In addition, we are unable to reasonably estimate the period when material net cash inflows could commence from the sale, licensing or commercialization of such product candidates, if ever.
General and Administrative Expense
Our general and administrative expenses were $2,914,845 in 2009, $2,970,068 in 2008 and $2,784,182 in 2007. General and administrative costs include officers’ salaries, legal and accounting costs, patent costs, amortization expense associated with intangible assets, and other general corporate expenses. General and administrative expense includes stock-based compensation expense of $994,011, $1,525,008 and $1,234,380 for 2009, 2008 and 2007, respectively (see discussion below). We expect that general and administrative expenses may increase in the future in support of expanded research and development activities and other general corporate activities.
Stock-Based Compensation Expense
We recorded total stock-based compensation expense of $1,298,665, $2,019,049 and $1,518,496 during the years ended December 31, 2009, 2008 and 2007, respectively, which was allocated to research and development expense or general and administrative expense according to the classification of cash compensation paid to the employee, consultant or director to whom the stock compensation was granted. In addition to amounts related to the issuance of stock options to employees, the figures include amounts related to common stock and stock purchase warrants issued to consultants. For the three years ended December 31, 2009, stock-based compensation expense was allocated as follows:
| 2009 | 2008 | 2007 | ||||||||||
| General and administrative expense | $ | 994,011 | $ | 1,525,008 | $ | 1,234,383 | ||||||
| Research and development expense | 304,654 | 494,041 | 284,113 | |||||||||
| Total stock option expense | $ | 1,298,665 | $ | 2,019,049 | $ | 1,518,496 | ||||||
Other Income
Interest income was $31,080 in 2009, $73,200 in 2008 and $62,507 in 2007. The variances between years are primarily attributable to the cash available for investment and to interest rate fluctuations.
Impact of Inflation
For the three year period ended December 31, 2009, we do not believe that inflation and changing prices had a material impact on our operations or on our financial results.
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Quantitative and Qualitative Disclosures about Market Risk
Our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in the general level of United States interest rates, particularly because a significant portion of our investments are in short-term bank certificates of deposits and institutional money market funds. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income received without significantly increasing risk. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure. We do not have any derivative financial instruments or foreign currency instruments.
Off-Balance Sheet Arrangements
We have not entered into off-balance sheet financing arrangements, other than operating leases.
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BUSINESS
Introduction
GeoVax is a biotechnology company dedicated to developing vaccines that prevent and fight HIV infections that result in AIDS. We have preventative vaccines being evaluated in a Phase 2a human clinical trial in individuals who are not HIV infected and have recently received permission to conduct a Phase 1 human therapeutic clinical trial in individuals who are HIV infected.
Our preventative vaccines seek to prevent the progression of an HIV infection to AIDS and reduce the possibility for HIV transmission. Our therapeutic vaccines target reducing viral load in HIV infected individuals with a view to reducing or eliminating the need for oral medications, and thereby reducing the cost of treatment and detrimental side effects associated with current drug treatments.
Our vaccines under development address the clade B version of HIV most prevalent in the developed world and have been shown to induce strong T-cell and antibody immune responses in non-human primates against the primate version of the HIV virus. Our goals include raising funds for developing additional HIV vaccines for global markets that have a different version of the virus, manufacturing and testing these vaccines under Good Manufacturing and Good Laboratory Procedures consistent with FDA guidelines, conducting human trials for vaccine safety and effectiveness, and obtaining regulatory approvals to advance the development and commercialization of our vaccines.
Our preventative vaccine is one of only five vaccine candidates out of more than 80 tested by the HVTN in Phase 1 human clinical trials to have progressed to Phase 2 testing. Based on current enrollment progress, we expect the Phase 2a trial to be completed during 2011.
The IND application we filed with the FDA in late February 2010 to support our request to test our therapeutic vaccine in a Phase 1 human clinical trial is based on promising summary data from three pilot studies we conducted of therapeutic vaccination in simian immunodeficiency virus infected non-human primates. We expect the Phase 1 trial to generate vaccine performance data within 14 to 17 months and trial completion, with full enrollment, within 36 months after the date of first patient enrollment,
Our vaccine candidates incorporate two delivery components: a recombinant DNA (deoxyribonucleic acid); and a recombinant poxvirus, MVA, which both deliver genes that encode inactivated HIV derived proteins to the immune system. Both components are designed to support production of non-infectious virus-like particles in vaccinated individuals that prime and boost immune responses. When properly administered in series, our vaccine candidates induce strong T-cell and antibody responses in non-human primates against multiple HIV proteins.
Both the DNA and MVA vaccines contain sufficient HIV-1 genes to support the production of non-infectious virus-like particles in vaccinated people which display forms of proteins that appear authentic to the immune system. When used together, the recombinant DNA component is used to prime immune responses which are boosted by administration of the recombinant MVA component. In certain settings the recombinant MVA alone may be sufficient for priming and boosting the immune responses.
We are also conducting preclinical research on the impact of adding adjuvants, which are immune system stimulants, to our vaccine components to see if this can improve the effectiveness of our vaccine candidates. This work is being funded by the NIH through an IPCAVD grant to GeoVax. Pre-clinical animal trials have been conducted, with very encouraging results. If the activities funded by the IPCAVD grant are successful, it may result in a secondary clinical program for the development of the next generation of our HIV/AIDS vaccines.
Our primary business is conducted by our subsidiary, GeoVax, Inc., which was incorporated under the laws of Georgia in June 2001. The predecessor of our parent company, GeoVax Labs, Inc. (the reporting entity) was originally incorporated in June 1988 under the laws of Illinois as Dauphin Technology, Inc., or Dauphin. In September 2006, Dauphin completed a merger with GeoVax, Inc. As a result of that merger, GeoVax, Inc. became a wholly-owned subsidiary of Dauphin, and Dauphin changed its name to GeoVax Labs,
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Inc. Unless otherwise indicated, information for periods prior to the September 2006 merger is that of GeoVax, Inc. In June 2008, the Company was reincorporated under the laws of Delaware. We currently do not conduct any business other than GeoVax, Inc.’s business of developing new products for the treatment or prevention of human diseases.
Overview of HIV/AIDS
What is HIV?
HIV , is a retrovirus that carries its genetic code in the form of ribonucleic acid, or RNA. Retroviruses use RNA and the reverse transcriptase enzyme to create DNA from the RNA template. The HIV-1 virus invades a human cell and produces its viral DNA which is subsequently inserted into the chromosomes, which are genetic material of the cell. HIV preferentially infects and replicates in helper T-cells (a type of white blood cell) that changes the T-cells from immunity producing cells to cells that produce and release HIV particles into the blood stream. This process results in the destruction of the immune defense system of the infected individual and ultimately, the development of AIDS.
There are several AIDS-causing HIV virus subtypes, or “clades”, that are found in different regions of the world. These subtypes are identified as subtype A, subtype B on through C, D, E, F, etc. The predominant subtype found in Europe, North America, South America, Japan and Australia is B whereas the predominant subtypes in Africa are A and C. In India the predominant subtype is C. Each subtype is at least 20% different in its genetic sequence from other subtypes. These differences may mean that any vaccines or treatments developed against one subtype may only be partially effective or ineffective against other subtypes. Thus there is often a geographical focus to designing and developing vaccines suited for interimthe local clade.
HIV, even within subtypes, has a high rate of mutation that supports a significant level of genetic variation. In drug treatment programs, virus mutation can result in the development of drug resistance, referred to as virus drug escape, thereby rendering drug therapy ineffective. Hence, we believe that multi-drug therapy is very important. If several drugs are active against virus replication, the virus must undergo multiple simultaneous mutations to escape, which is less likely. The same is true for immune responses. HIV can escape single targeted immune responses. However, our scientists believe if an immune response is directed against multiple targets (called epitopes), virus escape is much less frequent. Vaccination against more than one of the proteins found in HIV increases the number of targets for the immune response as well as the chance that HIV will not escape the vaccine-stimulated immune response, thus resulting in protection against infection or the development of clinical AIDS once infection occurs.
What is AIDS?
AIDS is the final, life-threatening stage of infection with the virus known as HIV. Infection with HIV severely damages the immune system, the body’s defense against disease. HIV infects and gradually destroys T-cells and macrophages, which are white blood cells that play key roles in protecting humans against infectious disease caused by viruses, bacteria, fungi and other micro-organisms.
Opportunistic infections by organisms, normally posing no problem for control by a healthy immune system, can ravage persons with immune systems damaged by HIV infections. Destruction of the immune system occurs over years; the average onset of the clinical disease recognized as AIDS occurs after three to ten years of HIV infection if the virus is not treated effectively with drugs; but the time to developing AIDS is highly variable.
AIDS in humans was first identified in the United States in 1981, but researchers believe that it was present in Central Africa as early as 1959. AIDS is most often transmitted sexually from one person to another but it is also transmitted by blood in shared needles and through pregnancy and childbirth. Heterosexual activity is the most frequent route of transmission worldwide.
The level of virus in blood, known as viral load, is the best indicator of the speed with which an individual will progress to AIDS, as well as the frequency with which an individual will spread infection. An
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estimated 1% or fewer of those infected have low enough levels of the virus to preclude progression to disease and to not transmit the infection. These individuals are commonly called long-term non-progressors.
AIDS is considered by many in the scientific and medical community to be the most lethal infectious disease in the world. According to the 2008 Report on the Global AIDS Epidemic published by UNAIDS, the Joint United Nations Programme on HIV/AIDS, the total number of people living with HIV is 33.4 million globally with approximately 2.7 million newly infected in 2008 alone. Approximately 25 million people infected with HIV have died since the start of the HIV pandemic in 1981. The United States currently suffers about 56,000 infections per year with the highest rates found in Washington, DC where an estimated 3% of the population is infected; this is a prevalence rate higher than in some developing countries. According to International AIDS Vaccine Initiative, or the IAVI, in a model developed with Advanced Marketing Commitment dated June 2005, the global market for a safe and effective AIDS vaccine is estimated at approximately $4 billion.
At present, the standard approach to treating HIV infection is to lower viral replication rates through the use of combinations of drugs. Available drugs include reverse transcriptase inhibitors (RTIs), protease inhibitors (PIs), integration inhibitors and inhibitors of cell entry to block multiple essential steps in virus replication. However, HIV is prone to genetic changes that can produce strains that are resistant to currently approved drugs. When HIV acquires resistance to one drug within a class, it can often become resistant to the entire class, meaning that it may be impossible to re-establish control of a genetically altered strain by substituting different drugs in the same class. Furthermore, these treatments continue to have significant limitations which include toxicity, patient non-adherence to the treatment regimens and cost. As a result, over time, many patients develop intolerance to these medications or simply give up taking the medications due to the side effects.
According to IAVI, the cost and complexity of new treatment advances for AIDS puts them out of reach for most people in the countries where treatment is needed the most and as noted above, in industrialized nations, where drugs are more readily available, side effects and increased rates of viral resistance have raised concerns about their long term use. AIDS vaccines, therefore, are seen by many as the most promising way to end the HIV/AIDS pandemic. It is expected that vaccines for HIV/AIDS, once developed, will be used worldwide by any organization that provides health care services, including hospitals, medical clinics, the military, prisons and schools.
HIV/AIDS Vaccines Being Developed by GeoVax
Our vaccines, initially developed by our Chief Scientific Officer, Dr. Harriet L. Robinson at Emory University in collaboration with researchers at the NIH, NIAID and the CDC, incorporate two vaccine delivery components: (1) a recombinant DNA and (2) a recombinant poxvirus, known as MVA, both of which deliver genes that encode inactivated HIV derived proteins to the immune system. Both the DNA and MVA vaccines contain sufficient HIV genes to support the production of non-infectious virus-like particles in vaccinated people which display forms of proteins that appear authentic to the immune system. When used together, the recombinant DNA component is used to prime immune responses which are boosted by administration of the recombinant MVA component. However, in certain settings the recombinant MVA alone may be sufficient for priming and boosting the immune responses.
The initial work of the Company was on the development of a preventative vaccine for use in uninfected people to limit infection, disease and transmission should they be exposed to the virus. In 2008, we undertook the development of a therapeutic vaccine for use in HIV infected people to supplement approved drug regimens. For both preventative and therapeutic applications, our current focus is on a vaccine for use against clade B, which is common in the United States and the industrially developed world. However, if efficacy is documented against clade B, we plan to develop vaccines designed for use to combat the subtypes that predominate in developing countries (clades A, C and AG recombinant).
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Induction of T-cell and Antibody Immune Responses
Our vaccines induce T-cell and antibody immune responses against two major HIV-1 proteins, the Gag protein and envelope glycoprotein, or Env. The induction of both antibodies and T-cells is beneficial because these immune responses work through different mechanisms. Antibodies can block viruses from infecting cells. The avidity, or tightness, of antibody binding to Env of HIV correlates with reduced levels of virus replication in experiments completed using non-human primates. This result most likely reflects a tightly bound antibody that is blocking HIV infection as well as tagging the virus for destruction. The MVA vaccine also induces HIV specific IgA, which functions to protect mucosal surfaces and can be measured in rectal secretions. Both vaccines elicit CD8 T-cells, a type of T-cell that can recognize and kill cells that become infected by virus. CD8 T-cells are important for the control of the virus that has established an infection.
DNA and MVA as Vaccine Vectors
The availability of DNA and MVA vaccine delivery vectors provides GeoVax with the means to design combination vaccines to induce different patterns of T-cell and antibody responses. Specifically, the use of DNA to prime immune responses and MVA to boost elicits higher levels of T-cells and thus this format is well-suited for either preventative or therapeutic uses. Alternatively, the use of MVA alone to both prime and boost the immune response elicits higher levels of antibodies and is therefore well-suited for use in prevention.
MVA was selected for use as a viral vaccine because of its well established safety record and because of the ability of recombinants of this vector to carry other viral proteins to induce protective responses for a number of viral diseases; these effects were demonstrated in preclinical animal models. MVA was originally developed as a safer smallpox vaccine for use in immune compromised humans by further attenuating the standard smallpox vaccine. The attenuation (loss of disease causing ability) was accomplished by making over 500 passages of the virus in chicken embryos or chick embryo fibroblasts which resulted in large genomic deletions. These deletions affected the ability of MVA to replicate in human cells, which is the cause of safety problems, but did not compromise the ability of MVA to grow on avian cells that are used for manufacturing the virus. The deletions also resulted in the loss of immune evasion genes which assist the spread of wild type smallpox infections, even in the presence of human immune responses. MVA was safely administered to over 120,000 people in the 1970s to protect them against smallpox.
GeoVax’s DNA and MVA vaccines express over 66% of the HIV protein components and thus, are designed to stimulate immune responses with significant breadth. The vaccines cannot cause an HIV infection or AIDS because they do not produce the complete virus. We believe that the vaccines could provide multi-target protection against the AIDS virus, thus preventing infection and in those that do become infected, limiting virus escape, large scale viral replication and the onset of clinical signs of AIDS.
Preclinical Studies
During the development of our vaccines, multiple efficacy trials were conducted using non-human primates (rhesus macaques) infected with experimental viruses that cause AIDS-like disease in these animals. The experimental data produced by these trials documented the ability of prototypes of our vaccines to induce immune responses that can prevent infection as well as reduce the levels of viral replication in those animals that become infected, depending on the experimental design of the trials. For example, challenge studies completed by infecting animals using the rectal route and a dose estimated to be 40 to 400 times the typical human challenge dose were used to demonstrate that vaccination using our adjuvant product can prevent, not just control, infections in approximately 25% of the animals, even after 12 experimental challenges. For therapeutic studies rhesus macaques were infected with virus, placed on antiretroviral drugs, which mimic those used in humans, and vaccinated prior to ceasing drug therapy. Animals that were removed from drug therapy without vaccination experienced viral rebounds to the levels found prior to drug therapy whereas vaccinated animals had the ability to control virus replication at reduced levels; some approaching 1000-fold reductions.
Based on our preventative vaccination studies in animals, the FDA allowed the vaccines to be tested in Phase 1 trials in HIV uninfected humans. The use of the vaccines for a therapeutic in HIV infected humans
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has also recently been allowed by the FDA, and our goal is to initiate a Phase 1 clinical trial in the first half of 2010.
Preventative Vaccine — Phase 1 Human Clinical Trials
All of our preventative vaccination trials in humans have been conducted by the HVTN, a network that is funded and supported by the NIH. The HVTN is the largest worldwide clinical trials network focused on the development and testing of HIV/AIDS vaccines. The GeoVax vaccine tested by the HVTN is designed for use where clade B infections are most common, specifically in North America and Western Europe. In our first Phase 1 trial, HVTN 045, our DNA vaccine was tested alone to document its safety and immunogenicity. Our second trial, HVTN 065, was designed to test the combined use of DNA and MVA and consisted of a dose escalation for DNA delivered at 0 and 8 weeks and MVA delivered at 16 and 24 weeks, a DDMM regimen. The low dose consisted of 0.3 mg of DNA and 1x107 tissue culture infectious doses (TCID 50) of MVA. Once safety was demonstrated for the low dose in 10 participants, the full dose (3 mg of DNA and 1x108 TCID 50 of MVA) was administered to 30 participants. A single dose of DNA at time 0 followed by MVA at weeks 8 and 24, a DMM regimen, and three doses of MVA at weeks 0, 8 and 24, an MMM regimen, were also tested in 30 participants each. Participants were followed for 12 months for safety and immune responses measurements.
Data from the HVTN 065 trial again documented the safety of the vaccine products but also showed that the DDMM and MMM regimens induced different patterns of immune responses. The full dose DDMM regimen induced higher response rates for CD4+ T-cell (77%) and CD8+ T-cells (42%) compared to the MMM regimen (43% CD4+ and 17% CD8+ response rates). In contrast, the highest response rates and titers of antibodies to the HIV Env protein were induced in the group that received only the MVA using the MMM regimen. Antibody response rates were documented to be higher for the MMM group using three different assays designed to measure total binding antibody levels for the immune dominant gp41 portion of the Env protein (27% for DDMM and 75% for MMM), binding of antibodies to the form of Env in the vaccines, designated ADA gp140, (81% for DDMM and 86% for MMM) and neutralizing antibodies (7% for DDMM and 30% for MMM). The 1/10th dose DDMM regimen induced overall similar T-cell responses but reduced antibody responses while the response rates were intermediate in the DMM group.
Preventative Vaccine — Phase 2 Human Clinical Trials
Based on the safety and the immunogenicity results in the HVTN 045 and HVTN 065 trials, the use of two full dose DNA priming immunizations followed by two full dose MVA booster immunizations was selected for testing by the HVTN in a Phase 2a trial (designated HVTN 205) which commenced patient enrollment in February 2008. While more than 80 experimental HIV vaccines have been completed by the HVTN in Phase 1 trials, only five vaccine candidates, including the GeoVax vaccine candidate, have progressed to Phase 2 trials since 1992. The Phase 2a trial is designed to produce a larger database of safety and immunogenicity data in low risk individuals before proceeding to a Phase 2b trial in high risk individuals.
The HVTN 205 trial was originally designed to test only the DDMM regimen, which consists of two DNA primes followed by two MVA boosts, but it is currently being amended to include testing the MVA priming and boosting regimen, or MMM, using an additional 75 participants. The addition of an amendment to add the MMM arm was triggered by two factors;
| • | the success of the U.S. Military-Thailand Phase 3 trial, the first successful HIV-1 vaccine efficacy trial, which was completed with a vaccine component that did not elicit high T-cell responses; and | |
| • | recent data from our ongoing studies in non-human primates showing that the MMM vaccine protected as well as the more complex DDMM regimen against infection by repeated challenge using the rectal route. |
We expect the Phase 2a trial, parts A and B to require another 18 to 24 months to complete.
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Assuming the vaccine safety and immunogenicity profiles remain promising, the next stage will be a Phase 2b proof of concept trial in high risk individuals. GeoVax is currently manufacturing vaccine material for this trial so that progression through the development path can proceed smoothly.
Therapeutic Vaccine — Phase 1 Human Clinical Trials
To help serve those people who are already infected with HIV, the Company is testing its vaccine for the ability to supplement, or even supplant, the need for antiretroviral therapeutic drugs in HIV-infected individuals. Antiretroviral therapeutic drugs, which are taken for life by individuals once infected with HIV, have side effects and are expensive, costing on average $18,000 per year. Thus the need for improved therapies is well known.
In July 2008, we reported summary data from three pilot studies on therapeutic vaccination in simian immunodeficiency virus, or SIV, infected non-human primates; the vaccine used was specific for SIV but with the design features of our HIV/AIDS vaccine. In these pilot studies, conducted at Emory, the immune systems of a subset of the infected and then vaccinated animals were able to control the infection with 100 to 1000 times reductions in viral levels post the cessation of drugs. Based on these results, in late February 2010 we filed an IND with the FDA to support Phase 1 clinical testing in HIV infected individuals. The Company recently received permission to begin the trial. This initial trial will be conducted in Atlanta and enroll individuals who began successful antiretroviral therapeutic drug treatment within the first year of HIV infection. The goal of this trial is to document the safety and immunogenicity of the vaccine using the DDMM regimen in patients with well-controlled infections. We expect the Phase 1 trial to generate vaccine performance data within 14 to 17 months and trial completion, with full enrollment, within 36 months after the date of first patient enrollment,
Preclinical preventative studies using Granulocyte/Monocyte-Colony Stimulating Factor (GM-CSF)
GeoVax’s research pipeline includes the use of adjuvants with its DNA/MVA vaccine. One of these, GM-CSF, is a protein produced as a normal function of immune responses. GM-CSF has been used with success in non-human primate experiments wherein the rate for preventing infection by a total of twelve moderate dose challenges through the rectal site was increased. Specifically, using the DDMM regimen and a DNA vaccine co-expressing GM-CSF resulted in an increased protection rate from approximately 25% to 70%.
Support from the Federal Government
All of our Phase 1 human clinical trials to date, and our ongoing Phase 2a trial, with the exception of the therapeutic clinical trial we expect to begin in the first half of 2010, have been conducted by the HVTN and funded by NIH-NIAID. Our responsibility for these trials has been to provide sufficient supplies of vaccine materials and technical expertise when necessary.
In September 2007, we were the recipient of the IPCAVD grant to support our HIV/AIDS vaccine program, which was subsequently amended such that the total award now totals approximately $18.3 million. This grant was awarded by the NIH-NIAID. The project period for the grant is over the five-year period that commenced October 2007. The grant is subject to annual renewal with the latest grant award covering the period from September 2009 through August 2010. Only meritorious HIV/AIDS prevention vaccine candidates are considered to receive an IPCAVD award. Candidate companies are highly scrutinized and must supply substantial positive AIDS vaccine data to support their application. IPCAVD grants are awarded on a competitive basis and are designed to support later stage vaccine research, development and human trials. We are utilizing this funding to further our HIV/AIDS vaccine development, optimization and production, including the GM-CSF adjuvant program.
Government Regulation
Regulation by governmental authorities in the United States and other countries is a significant factor in our ongoing research and development activities and in the manufacture of our products under development. Complying with these regulations involves a considerable amount of time and expense.
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In the United States, drugs are subject to rigorous federal and state regulation. The Federal Food, Drug and Cosmetic Act, as amended, or the FDC Act, and the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of medications and medical devices. Product development and approval within this regulatory framework is difficult to predict, takes a number of years and involves great expense.
The steps required before a pharmaceutical agent may be marketed in the United States include:
| • | pre-clinical laboratory tests, in vivo pre-clinical studies and formulation studies; | |
| • | the submission to the FDA of an IND application for human clinical testing which must become effective before human clinical trials can commence; | |
| • | adequate and well-controlled human clinical trials to establish the safety and efficacy of the product; | |
| • | the submission of a New Drug Application to the FDA; and | |
| • | FDA approval of the New Drug Application prior to any commercial sale or shipment of the product. |
Each of these steps is described further below.
In addition to obtaining FDA approval for each product, each domestic manufacturing establishment must be registered with, and approved by, the FDA. Domestic manufacturing establishments are subject to biennial inspections by the FDA and must comply with the FDA’s Good Manufacturing Practices for products, drugs and devices.
Pre-Clinical Testing
Pre-clinical testing includes laboratory evaluation of chemistry and formulation, as well as cell culture and animal studies to assess the potential safety and efficacy of the product. Pre-clinical safety tests must be conducted by laboratories that comply with FDA GLP regulations. The results of pre-clinical testing are submitted to the FDA as part of the IND application and are reviewed by the FDA prior to the commencement of human clinical trials. Unless the FDA objects to an IND, the IND becomes effective 30 days following its receipt by the FDA.
Clinical Trials
Clinical trials involve the administration of the AIDS vaccines to healthy volunteers or to patients under the supervision of a qualified principal investigator. Clinical trials are conducted in accordance with the FDA GLP regulations under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Further, each clinical study must be conducted under the auspices of an independent institutional review board at the institution where the study will be conducted. The institutional review board will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution.
Clinical trials are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the product into healthy human subjects, the vaccine is tested for safety (including adverse side effects) and dosage tolerance. Phase 2 is the proof of principal stage and involves trials in a limited patient population to determine the utility of the product for inducing the desired effect for specific, targeted indications, and to determine dosage tolerance and optimal dosage and identify possible adverse side effects and safety risks. When there is evidence that the product may be effective and has an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to further evaluate clinical efficacy and to test for safety within an expanded patient population at geographically dispersed multi-center clinical study sites. The manufacturer or the FDA may suspend clinical trials at any time if either believes that the individuals participating in the trials are being exposed to unacceptable health risks.
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New Drug Application and FDA Approval Process
The results and details of the pre-clinical studies and clinical studies are submitted to the FDA in the form of a New Drug Application. If the New Drug Application is approved, the manufacturer may market the product in the United States.
International Approval
Whether or not the FDA has approved the drug, approval of a product by regulatory authorities in foreign countries must be obtained prior to the commencement of commercial sales of the drug in such countries. The requirements governing the conduct of clinical trials and drug approvals vary widely from country to country, and the time required for approval may be longer or shorter than that required for FDA approval.
Other Regulations
In addition to FDA regulations, our business activities may also be regulated by the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state or local regulations. Violations of regulatory requirements at any stage may result in various adverse consequences, including regulatory delay in approving or refusal to approve a product, enforcement actions, including withdrawal of approval, labeling restrictions, seizure of products, fines, injunctionsand/or civil or criminal penalties. Any product that we develop must receive all relevant regulatory approvals or clearances before it may be marketed.
Competition
There currently is no FDA licensed and commercialized HIV/AIDS vaccine or competitive vaccine available in the world market.
There are several small and large biopharmaceutical companies pursuing HIV/AIDS vaccine research and development, including Novartis, Wyeth, Sanofi-Aventis, Glaxo-Smith Kline and the NIH Vaccine Research Center. Other HIV/AIDS vaccines are in varying stages of research, testing and clinical trials including those supported by the IAVI, the European Vaccine Initiative, and the South African AIDS Vaccine Initiative, as well as others. Following the reported failure of the Merck vaccine in September 2007, the Merck vaccine program and the NIH Vaccine Research Center vaccine program, which both use Ad5 vectors, were placed on hold. Since then, the NIH Vaccine Research Center product has moved into an experimental Phase 2b trial to learn more about immune responses and AIDS control. This trial has been restricted to the roughly 50% of U.S. citizens who do not have high levels of antibodies to the Ad5 vector used in the vaccine and to men who are circumcised.
In October 2009, the results from a Phase 3 community based trial in Thailand using a recombinant canarypox as a priming vaccine and a bivalent form of the gp120 subunit of Env as a protein booster vaccine were reported; protection against HIV infection at the rate of 31% was reported. This level of protection was significant in a “modified intent to treat” analysis in which the seven participants in the 16,500 person trial who had become infected by the day of the first inoculation were excluded. The manufacturer of the ALVAC portion of the vaccine, Sanofi Pasteur, and the gp120 portion, Global Solutions for Infectious Diseases, did not have additional vaccine in stock at the time of the announcement and it is currently unclear how they plan to follow up on their finding. The results of this trial are highly encouraging because they represent the first success of an AIDS vaccine in humans and demonstrate that a vaccine can prevent HIV infections.
To our knowledge, none of our competitors’ products have been tested in large scale non-human primate trials that have both included experimental infection through the rectal site and shown to induce levels of protection or duration of protection comparable to that achieved using experimental prototypes of GeoVax’s vaccines. Furthermore, many competitor vaccine development programs require vaccine compositions which are much more complicated than ours. For these reasons, we believe that it may be possible for our vaccine to compete successfully in the marketplace if licensed.
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Overall, the biopharmaceutical industry is competitive and subject to rapid and substantial technological change. Developments by others may render our proposed vaccination technologies noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Technological competition in the industry from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase. Many of the pharmaceutical companies that compete with us have significantly greater research and development capabilities than we have, as well as substantially more marketing, manufacturing, and financial resources. In addition, acquisitions of, or investments in, small pharmaceutical or biotechnology companies by such large corporations could increase their research, financial, marketing, manufacturing and other resources. Competitor technologies may ultimately prove to be safer, more effective or less costly than any vaccine that we develop.
FDA and other regulatory approvals of our vaccines have not yet been obtained and we have not yet generated any revenues from product sales. Our future competitive position depends on our ability to obtain FDA and other regulatory approvals of our vaccines and to license or sell the vaccines to third parties on favorable terms.
Intellectual Property
We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are described by valid and enforceable patents or are effectively maintained as trade secrets. Accordingly, we are pursuing and will continue to pursue patent protection for our proprietary technologies developed through our collaboration between Emory, the NIH, and the CDC, or developed by us alone. Patent applications have been filed with the United States Patent and Trademark Office and in specific international markets (countries). Patent applications include provisions to cover our DNA and MVA based HIV vaccines, their genetic inserts expressing multiple HIV protein components, composition, structure, claim of immunization against multiple subtypes of HIV, routes of administration, safety and other related factors. Patent claims filed for our vaccines include provisions for their therapeutic and prophylactic use against two diseases: specifically, HIV and smallpox.
We are the exclusive, worldwide licensee of a number of patents and patent applications, which we refer to as the “Emory Technology”, owned, licensed or otherwise controlled by Emory for HIV or smallpox vaccines pursuant to a License Agreement originally entered into on August 23, 2002 and restated on June 23, 2004, which we refer to as the Emory License. Through the Emory License we are also a non-exclusive licensee of patents owned by the NIH related to the ability of our MVA vector vaccine to operate as a vehicle to deliver HIV virus antigens, and also to induce an immune response in humans. All of our obligations with respect to the NIH-owned MVA patents are covered by the Emory License. Currently, there are five issued patents and five pending patent applications in the United States subject to the Emory License, as well as 26 issued patents and 19 pending patent applications in other countries. Four of the five issued patents expire in 2026. The fifth issued patent will expire at a later date that has not yet been determined. The Emory License expires on the expiration date of the last to expire of the patents licensed thereunder including those that are issued on patents currently pending; we will therefore not know the final termination date of the Emory License until such patents are issued. The Company may terminate the Emory License upon 90 days’ written notice. The Emory License also contains standard provisions allowing Emory to terminate upon breach of contract by the Company or upon the Company’s insolvency or bankruptcy.
The Emory License, among other contractual obligations, requires payments based on the following:
| • | Milestone Payments. An aggregate of $3,450,000 is potentially due to Emory in the future upon the achievement of clinical development and regulatory approval milestones as defined in the agreement. To date, we have paid a nominal milestone fee upon entering Phase 2 clinical trials for our preventative HIV/AIDS vaccine. | |
| • | Maintenance Fees. The Company has achieved the specified milestones and met its obligations with regard to the related payments, and no maintenance fees are (or will be) owed to Emory. |
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| • | Royalties. Upon commercialization of products covered by the Emory License, we will owe royalties to Emory of between 5% and 7.5%, depending on annual sales volume, of net sales made directly by GeoVax. The agreement also requires minimum annual royalty payments of $3 million in the third year following product launch, increasing annually to $12 million in the sixth year. | |
| • | Sublicense Royalties. In the event that we sublicense a covered product to a third party, we will owe royalties to Emory based on all payments, cash or noncash, we receive from our sublicensees. Those royalties will be 19% of all sublicensing consideration we receive prior the first commercial sale of a related product; commencing with the first commercial sale, the royalty owed to Emory will be 27.5% of all sublicensing consideration we receive. | |
| • | Patent Reimbursements. During the term of the Emory License we are obligated to reimburse Emory for ongoing third party costs in connection with the filing, prosecution and maintenance of patent applications subject to the Emory License. The expense associated with these ongoing patent cost reimbursements to Emory amounted to $85,673, $102,141, and $243,653 for the years ended December 31, 2009, 2008 and 2007, respectively. |
We may only use the Emory Technology for therapeutic or prophylactic HIV or smallpox vaccines. Emory also reserved the right to use the Emory Technology for research, educational and non-commercial clinical purposes. Due to the use of federal funds in the development of the Emory Technology, the United States Government has the irrevocable, royalty-free,paid-up right to practice and have practiced certain patents throughout the world, should it choose to exercise such rights.
We are also the exclusive licensee of five patents from MFD, Inc., which we refer to as the MFD Patents, pursuant to a license agreement dated December 26, 2004, related to certain manufacturing processes used in the production of our vaccines. Pursuant to the MFD license agreement, we obtained a fully paid, worldwide, irrevocable, exclusive license in and to the MFD Patents to use, market, offer for sale, sell, lease and import for any AIDS and smallpox vaccine made with GeoVax technology and non-exclusive rights for other products. The term of the MFD license agreement ends on the expiration date of the last to expire of the MFD Patents. These patents expire in 2017 through 2019.
In addition to patent protection, we also attempt to protect our proprietary products, processes and other information by relying on trade secrets and non-disclosure agreements with our employees, consultants and certain other persons who have access to such products, processes and information. Under these agreements, all inventions conceived by employees are our exclusive property. Nevertheless, there can be no assurance that these agreements will afford significant protection against misappropriation or unauthorized disclosure of our trade secrets and confidential information.
We cannot be certain that any of the current pending patent applications we have licensed, or any new patent applications we may file or license, will ever be issued in the United States or any other country. Even if issued, there can be no assurance that those patents will be sufficiently broad to prevent others from using our products or processes. Furthermore, our patents, as well as those we have licensed or may license in the future, may be held invalid or unenforceable by a court, or third parties could obtain patents that we would need to either license or to design around, which we may be unable to do. Current and future competitors may have licensed or filed patent applications or received patents, and may acquire additional patents and proprietary rights relating to products or processes competitive with ours.
We are not a party to any litigation, opposition, interference, or other potentially adverse proceeding with regard to our patent positions. However, if we become involved in litigation, interference proceedings, oppositions or other intellectual property proceedings, for example as a result of an alleged infringement, or a third-party alleging an earlier date of invention, we may have to spend significant amounts of money and time and, in the event of an adverse ruling, we could be subject to liability for damages, invalidation of our intellectual property and injunctive relief that could prevent us from using technologies or developing products, any of which could have a significant adverse effect on our business financial condition and results of operation. In addition, any claims relating to the infringement of third-party proprietary rights, or earlier date of invention, even if not meritorious, could result in costly litigation, lengthy governmental proceedings, divert
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management’s attention and resources and require us to enter royalty or license agreements which are not advantageous if available at all.
Manufacturing
We do not have the facilities or expertise to manufacture any of the clinical or commercial supplies of any of our products. To be successful, our products must be manufactured in commercial quantities in compliance with regulatory requirements and at an acceptable cost. To date, we have not commercialized any products, nor have we demonstrated that we can manufacture commercial quantities of our product candidates in accordance with regulatory requirements. If we cannot manufacture products in suitable quantities and in accordance with regulatory standards, either on our own or through contracts with third parties, it may delay clinical trials, regulatory approvals and marketing efforts for such products. Such delays could adversely affect our competitive position and our chances of achieving profitability. We cannot be sure that we can manufacture, either on our own or through contracts with third parties, such products at a cost or in quantities which are commercially viable.
We currently rely and intend to continue to rely on third-party contract manufacturers to produce vaccines needed for research and clinical trials. We have entered into arrangements with third party manufacturers for the instructionssupply of our DNA and MVA vaccines for use in our planned clinical trials. These suppliers operate under current GMP regulations established by the FDA and the European Medicines Agency. We anticipate that these suppliers will be able to Form 10-Qprovide sufficient vaccine supplies to complete our currently planned clinical trials. Various contractors are generally available in the United States and Rule 10-01Europe for manufacture of vaccines for clinical trial evaluation, however, it may be difficult to replace existing contractors for certain manufacturing and testing activities and costs for contracted services may increase substantially if we switch to other contractors.
Research and Development
Our expenditures for research and development activities were approximately $4,069,000, $3,741,000 and $1,757,000 during the years ended December 31, 2009, 2008 and 2007, respectively. As our vaccines continue to go through the process to obtain regulatory approval, we expect our research and development costs to continue to increase significantly as even larger human trials proceed in the United States and foreign countries. We have not yet formulated any plans for marketing and sales of any vaccine candidate we may successfully develop. Compliance with environmental protection laws and regulations has not had a material effect on our capital expenditures, earnings or competitive position to date.
Properties
We lease approximately 8,400 square feet of office and laboratory space located at 1900 Lake Park Drive, Suite 380, Smyrna, Georgia under a 62 month lease agreement which began November 1, 2009.
Legal Proceedings
We are not currently a party to any material legal proceedings. We may from time to time become involved in various legal proceedings arising in the ordinary course of business.
Employees
As of March 31, 2010, we had 12 full-time and three part-time employees. None of our employees are covered by collective bargaining agreements and we believe that our employee relations are good.
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DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers
The following table sets forth certain information with respect to our directors and executive officers.
Name | Age | Current Position | ||||
| Donald G. Hildebrand | 69 | Chairman of the Board of Directors | ||||
| Robert T. McNally, Ph.D. | 62 | President and Chief Executive Officer, Director | ||||
| Mark J. Newman, Ph.D. | 55 | Vice President, Research and Development | ||||
| Mark W. Reynolds, CPA | 48 | Chief Financial Officer and Corporate Secretary | ||||
| Harriet L. Robinson, Ph.D. | 72 | Chief Scientific Officer, Director | ||||
| Steven S. Antebi | 66 | Director | ||||
| David A. Dodd(1) | 60 | Director | ||||
| Dean G. Kollintzas(1)(2) | 36 | Director | ||||
| John N. Spencer, Jr., CPA(1)(2) | 69 | Director | ||||
| Peter M. Tsolinas(2) | 73 | Director | ||||
| (1) | Member of the Nominating and Corporate Governance Committee of the Board of Directors. | |
| (2) | Member of the Audit Committee and the Compensation Committee of the Board of Directors. |
Donald G. Hildebrand. Mr. Hildebrand joined the Board of Directors as Chairman and became our President and Chief Executive Officer upon consummation of the merger with GeoVax, Inc. in September 2006. Effective April 1, 2008, upon the appointment of Dr. Robert T. McNally as our President and Chief Executive Officer, Mr. Hildebrand executed a consulting agreement with the Company and remained as Chairman of the Board. Mr. Hildebrand is a founder of GeoVax, Inc., our wholly-owned subsidiary, and served as its President and Chief Executive Officer and as a member of its Board of Directors from its inception in 2001 to April 2008. Prior to founding GeoVax, Mr. Hildebrand was North American President and Chief Executive Officer of Rhone Merieux, Inc., a subsidiary of Rhone Merieux, S.A., a world leader in the biopharmaceutical and animal health industries. In 1997, Mr. Hildebrand also became Global Vice President of Merial Limited, a position that he held until retiring in 2000. Mr. Hildebrand received his bachelor of science in microbiology from the University of Wisconsin. The Board of Directors has concluded that Mr. Hildebrand should serve on the Board of Directors by virtue of his prior experience in the vaccine industry and his intimate knowledge of the Company’s history and technology resulting from his prior service as its President and Chief Executive Officer.
Robert T. McNally, Ph.D. Dr. McNally joined the Board of Directors in December 2006 and was appointed as our President and Chief Executive Officer effective April 1, 2008. From 2000 to March 2008, Dr. McNally served as Chief Executive Officer of Cell Dynamics LLC, a cGMP laboratory services company. Previously, Dr. McNally was Senior Vice President of Clinical Research for CryoLife, Inc., a pioneering company in transplantable human tissues. Dr. McNally is a Fellow of the American Institute for Medical and Biological Engineering, serves on the advisory boards of the Petit Institute for Bioengineering and Dupree College of Management at the Georgia Institute of Technology, and is a former Chairman of Georgia Bio, a trade association. Dr. McNally graduated with a Ph.D. in biomedical engineering from the University of Pennsylvania. The Board of Directors has concluded that Dr. McNally should serve on its Board of Directors by virtue of his prior business and scientific experience, including his experience as Chief Executive Officer of Cell Dynamics, LLC and as Senior Vice President of Clinical Research for CryoLife, Inc., and due to his intimate involvement with the Company’s ongoing operations as its President and Chief Executive Officer.
Mark J. Newman, Ph.D. Dr. Newman joined the Company as Vice President, Research and Development in January 2010. Prior to joining GeoVax, Dr. Newman served in similar positions at PaxVax, Inc. (from March 2009 to December 2009), Pharmexa A/S (from January 2006 to December 2008), and Epimmune, Inc. (from February 1999 to December 2005). He has also served in senior scientific management roles at Vaxcel, Inc., Apollon, Inc. and Cambridge Biotech Corp. Dr. Newman’s experience includes directing research,
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preclinical development and early stage clinical testing of protein, peptide, plasmid DNA and viral vectored vaccines and multiple vaccine adjuvants. He has co-authored more than 100 scientific papers, reviews and book chapters during his professional career, and is a named co-inventor on six issued U.S. patents and one European patent, all related to vaccine technologies. He has also been awarded multiple federal government and foundation grants and contracts to support research and early stage clinical development in the field of vaccines. Dr. Newman is a graduate of the Ohio State University (B.Sc. and M.Sc.) and received his Ph.D. in Immunology from the John Curtin School of Medical Research, the Australian National University. He completed four years of post-doctoral training at Cornell University and the National Cancer Institute, National Institutes of Health and served as a full time member of the Louisiana State University faculty prior to joining the biotech industry.
Mark W. Reynolds, CPA Mr. Reynolds joined the Company on a part-time basis in October 2006 as Chief Financial Officer and Corporate Secretary, becoming a full-time employee in January 2010. From 2003 to 2006, before being named Chief Financial Officer of GeoVax Labs, Inc., Mr. Reynolds provided financial and accounting services to GeoVax, Inc. as an independent contractor. From 2004 to 2008, Mr. Reynolds served as Chief Financial Officer for Health Watch Systems, Inc. a privately-held company in the consumer healthcare industry. From 2004 to 2006, he served as Chief Financial Officer for Duska Therapeutics, Inc., a publicly-held biotechnology company. From 1988 to 2002, Mr. Reynolds was first Controller and later Chief Financial Officer and Corporate Secretary of CytRx Corporation, a publicly-held biopharmaceutical company. Mr. Reynolds began his career as an auditor with Arthur Andersen & Co. from 1985 to 1988. He is a certified public accountant and earned a masters of accountancy degree from the University of Georgia.
Harriet L. Robinson, Ph.D. Dr. Robinson joined the Company as Senior Vice President, Research and Development on a part-time basis in November 2007 and on a full-time basis in February 2008, and was elected to the Board of Directors in June 2008. She is a co-founder of GeoVax, Inc. and has served as chief of its scientific advisory board since formation of the company in 2001. From 1999 to February 2008, Dr. Robinson served as the Asa Griggs Candler Professor of Microbiology and Immunology at Emory University in Atlanta, Georgia, and from 1998 to February 2008 as Chief, Division of Microbiology and Immunology, Yerkes National Primate Center and Professor at the Emory University School of Medicine. She was Professor, Department of Microbiology & Immunology, at the University of Massachusetts Medical Center from 1988 to 1997 and Staff, then Senior, then Principal Scientist at the University of Massachusetts Worcester Foundation for Experimental Biology from 1977 to 1987. She was also a National Science Foundation Postdoctoral Fellow at the Virus Laboratory, University of California, Berkeley, from 1965 to 1967. Dr. Robinson received a bachelor of arts degree from Swarthmore College and M.S. and Ph.D. degrees from the Massachusetts Institute of Technology. The Board of Directors has concluded that Dr. Robinson should serve on its Board of Directors by virtue of her extensive knowledge of the Company’s technology as its scientific founder.
Steven S. Antebi. Mr. Antebi joined the Board of Directors in March 2010. During the last five years, he has served as President of Maple Capital Management, a fund focusing on debt and equity investments in North America (May 2007 to present), President and Chief Executive Officer of Galileo Partners LLC (2006 to present), and President of Blue and Gold Enterprises Inc.(2002-2009), funds that invest in registered direct investments, PIPE transactions, private placements, and open market equity transactions. Prior to that, he served for twenty years in various senior positions at Bear Stearns and Company, including institutional sales, trading the firm’s capital in the over the counter market, syndicate distribution, and outside investment banking. He has served as a member of the Board of Governors of Cedars Sinai Medical Center in Los Angeles, one of the largest hospital/research centers in the world, for over ten years. He serves as Chairman of the Board of Epinex Diagnostic Inc., a late stage development company, creating a rapid diagnostic system for testing glycated albumen in diabetics. Mr. Antebi is also the Chairman of the Board of the Royalty Review Council, a company doing royalty accounting for web casting and digital media, covering all five major record labels. The Board of Directors concluded that Mr. Antebi should serve on the Board of Directors because of his substantial experience in finance and his experience in healthcare and technology.
David A. Dodd. Mr. Dodd joined the Board of Directors in March 2010. He is the Chief Executive Officer of RiversEdge BioVentures, an investment and advisory firm focused on the life sciences and
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pharmaceuticals industries, which he founded in 2009. He has more than 35 years of executive experience in the healthcare industry. From December 2007 to June 2009, Mr. Dodd was President, Chief Executive officer and Chairman of BioReliance Corporation, an organization that provided biological safety testing, viral clearance testing, genetic and mammalian technology testing and laboratory animal diagnostic services testing. From October 2006 to April 2009, he served as non-executive chairman of Stem Cell Sciences Plc. Before that, Mr. Dodd served as President, Chief Executive Officer and Director of Serologicals Corporation (Nasdaq: SERO) before it was sold to Millipore Corporation in July 2006 for $1.5 billion. For five years prior to this, Mr. Dodd served as President and Chief Executive Officer of Solvay Pharmaceuticals, Inc. and Chairman of its subsidiary Unimed Pharmaceuticals, Inc. The Board of Directors concluded Mr. Dodd should serve on the Board of Directors due to his experience in the pharmaceutical industry, as well as his background in general management, business transformation, corporate partnering, and mergers and acquisitions.
Dean G. Kollintzas. Mr. Kollintzas joined the Board of Directors upon consummation of the merger with GeoVax, Inc. in September 2006. Since 2001 Mr. Kollintzas has been an intellectual property attorney specializing in biotechnology and pharmaceutical licensing, FDA regulation, and corporate/international transactions. Mr. Kollintzas received a microbiology degree from the University of Illinois and a J.D. from Franklin Pierce Law Center. He is a member of the Wisconsin and American Bar Associations. Since 2004, Mr. Kollintzas has owned and operated a restaurant in Joliet, Illinois called The Metro Grill. The Board of Directors has concluded that Mr. Kollintzas should serve on the Board of Directors by virtue of his experience with intellectual property matters, biotechnology and pharmaceutical licensing, and FDA regulation.
John N. (Jack) Spencer, Jr., CPA Mr. Spencer joined the Board of Directors upon consummation of the merger with GeoVax, Inc. in September 2006. Mr. Spencer is a certified public accountant and was a partner of Ernst & Young where he spent more than 38 years until he retired in 2000. Mr. Spencer also serves as a director for two privately held medical technology companies where he also chairs the audit committees, and served as a director of Firstwave Technologies (Nasdaq:FSTW) from November 2003 until April of 2009. He also serves as a consultant to various companies primarily relating to financial accounting and reporting matters. Mr. Spencer received a bachelor of science degree from Syracuse University, and he earned an M.B.A. degree from Babson College. He also attended the Harvard Business School advanced management program. The Board of Directors has concluded that Mr. Spencer should serve on the Board of Directors by virtue of his experience at Ernst & Young where he was the partner in charge of that firm’s life sciences practice for the southeastern United States, and his clients included a large number of publicly-owned and privately-held medical technology companies, together with his continuing expertise as a director of, and a consultant to, other publicly owned and privately held companies.
Peter M. Tsolinas. Mr. Tsolinas joined the Board of Directors in August 2008. In 1981 Mr. Tsolinas founded TMA Group Development Corp., a Chicago based real estate, architectural and development firm, and he currently serves as its Chairman and Chief Executive Officer, a position he has held since its formation. He is also a director of Royal America Bank. Mr. Tsolinas has a varied year career of more than 45 years as an architect and real estate developer. Mr. Tsolinas attended the University of Illinois where he received a bachelor of architecture degree. The Board of Directors has concluded that Mr. Tsolinas should serve on the Board of Directors by virtue of his general business experience, as the founder of a Company which has been in business since 1981, and his knowledge of the Company’s shareholder base.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2009, Mr. Kollintzas, Mr. Spencer and Mr. Tsolinas served on the Compensation Committee. None of these individuals were officers or employees of the Company or any of its subsidiaries during the fiscal year ended December 31, 2009, nor at any time prior thereto. During the fiscal year ended December 31, 2009, none of the members of the Compensation Committee had any relationship with the Company requiring disclosure under Item 404 ofRegulation S-X. S-K, and none of the Company’s executive officers served on the compensation committee (or equivalent), or the Board of Directors, of another entity whose executive officer(s) served on our Board of Directors or Compensation Committee.
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COMPENSATION DISCUSSION AND ANALYSIS
In the opinionparagraphs that follow, the Compensation Committee provides an overview and analysis of our compensation program and policies, the material compensation decisions made under those programs and policies with respect to our executive officers, and the material factors considered in making those decisions.
The Compensation Committee reviews, analyzes and approves the compensation of our senior executive officers, including the “Named Executive Officers” listed in the tables that follow this Compensation Discussion and Analysis. The Named Executive Officers for 2009 include our chief executive officer, our chief financial officer, and the two other individuals who served as executive officers during 2009 and whose total compensation for 2009 exceeded $100,000, calculated in accordance with the rules and regulations of the SEC. Our Named Executive Officers for 2009 were:
| • | Robert T. McNally, President and Chief Executive Officer | |
| • | Mark W. Reynolds, Chief Financial Officer | |
| • | Harriet L. Robinson, Chief Scientific Officer | |
| • | Andrew Kandalepas, our former Senior Vice-President |
The tables that follow this Compensation Discussion and Analysis contain specific data about the compensation earned or paid in 2009 to the Named Executive Officers. The discussion below is intended to help you understand the detailed information provided in the compensation tables and put that information into the context of our overall compensation program.
Objectives of Our Compensation Program
In general, we operate in a marketplace where competition for talented executives is significant. The biopharmaceutical industry is highly competitive and includes companies with far greater resources than ours. We are engaged in the long-term development of drug candidates without the benefit of significant current revenues, and therefore our operations involve a high degree of risk and uncertainty. This level of risk and uncertainty may make it difficult to retain talented executives. Nevertheless, continuity of personnel across multi-disciplinary functions is critical to the success of our business. Furthermore, since we have relatively few employees, each must perform a broad scope of functions, and there is very little redundancy in skills.
The objectives of our compensation program for our executive officers and other employees are to provide competitive cash compensation, health, and retirement benefits, as well as long-term equity incentives that offer significant reward potential for the risks assumed and for each individual’s contribution to our long-term performance. Although the Compensation Committee seeks to pay salaries and bonuses sufficient to hire and retain talented individuals, the Compensation Committee also believes, based on its subjective perception of their skills, that many of its employees could earn somewhat higher cash compensation at other companies, and seeks to address this concern by making stock option grants at a somewhat higher level than it would if the salaries and bonuses were higher. Individual performance is measured subjectively taking into account Company and individual progress toward overall corporate goals, as well as each individual’s skills, experience, and responsibilities, together with corporate and individual progress in the areas of scientific innovation, regulatory compliance, business development, employee development, and other values designed to build a culture of high performance. No particular weight is assigned to these measures, and the Compensation Committee is of the view that much of the Company’s progress results from team effort. These policies and practices are based on the principle that total compensation should serve to attract and retain those executives and employees critical to our overall success and are designed to reward executives for their contributions toward business performance that enhances stockholder value.
Role of the Compensation Committee
Our Compensation Committee assists our Board of Directors in discharging its responsibilities relating to compensation of our executive officers. As such, the Compensation Committee has responsibility over certain matters relating to the fair and competitive compensation of our executives, employees and directors (only
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non-employee directors are compensated as directors) as well as matters relating to equity-based benefit plans. Each of the members of our Compensation Committee is independent in accordance with the criteria of independence set forth in Rule 5605(a)(2) of the Nasdaq Listing Rules. We believe that their independence from management allows the members of the Compensation Committee to provide unbiased consideration of various elements that could be included in an executive compensation program and apply independent judgment about which elements best achieve our compensation objectives. Pursuant to its charter as in effect prior to March 2010, the Compensation Committee was charged specifically with reviewing and determining annually the compensation of our Chief Executive Officer, approving special bonus payments and perquisites paid to and other special compensation or benefit arrangements with executive officers, and approving (subject to approval of the Board of Directors) recommendations by the Chief Executive Officer with respect to grants under our stock option plan and any other equity-based plan we might adopt in the future. Subject to approval of the Board of Directors, the Compensation Committee also set salaries and determines bonuses, sometimes referred to as cash incentive awards, for the Company’s employees. The Compensation Committee gave due consideration to the Chief Executive Officer’s recommendations and could change them prior to recommending them to the Board of Directors. The Compensation Committee did not exercise the authority granted to it by its charter to approve a pool of options and other discretionary awards to be used by the Chief Executive Officer.
In March 2010, the Compensation Committee and the Board of Directors approved a new charter for the Compensation Committee. Pursuant to the new charter, the Compensation Committee is responsible for, among other things:
| • | reviewing the Company’s overall compensation philosophy and strategy; | |
| • | evaluating and determining the compensation of the Chief Executive Officer; | |
| • | evaluating and setting, in conjunction with the Chief Executive Officer, the compensation of other officers; | |
| • | reviewing and approving the annual Compensation Discussion and Analysis; | |
| • | evaluating and approving the components and amounts of compensation of the Company’s employees; | |
| • | evaluating, considering and approving, in its discretion, the Company’s equity-based compensation plans, as well as grants and awards made under any such plans to persons other than the Chief Executive Officer and submitting them to the Board of Directors for its consideration and approval; | |
| • | approving, with sole and exclusive authority, grants and awards made to the Company’s Chief Executive Officer under the Company’s equity-based compensation plans; | |
| • | evaluating, considering and approving, in its discretion, compensation for non-employee members of the Board of Directors; and | |
| • | managing and controlling the operation and administration of the Company’s stock option plans. |
Elements of Compensation
To achieve the objectives described above, the three primary compensation elements used for executive officers are base salary, cash bonus, and stock option awards. We believe that these three elements are the most effective combination in motivating and retaining our executive officers at this stage in our development. The Compensation Committee has not utilized other companies for benchmarking purposes because it believes that those businesses which would be most comparable to GeoVax are either privately held or divisions of very large medical products companies.
Base Salary
Our philosophy is to maintain executive base salary at a competitive level sufficient to recruit and retain individuals possessing the skills and capabilities necessary to achieve our goals over the long term. Base
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salaries provide our executive officers with a degree of financial certainty and stability and also reward individual achievements and contributions.
Cash Bonus
Annual cash incentive awards motivate our executive officers to contribute toward the achievement of corporate goals and objectives. Generally, every employee is eligible to earn an annual cash incentive award, promoting alignment andpay-for-performance at all adjustments (consisting onlylevels of normal recurring adjustments) considered
necessarythe organization. The Company does not have a formalized cash incentive award plan, and awards are based on the subjective recommendation of the President and Chief Executive Officer (except as to the Chief Executive Officer’s cash bonus) and on the Compensation Committee’s subjective judgment.
Stock Option Awards
Stock option awards are a fundamental element in our executive compensation program because they emphasize our long-term performance, as measured by creation of stockholder value, and align the interests of our stockholders and management. In addition, the Compensation Committee believes they are crucial to a competitive compensation program for executive officers, and they act as a powerful retention tool. In our current pre-commercial state, we view the Company as still facing a significant level of risk, but with the potential for a fair presentationhigh reward over a period of resultstime, and therefore we believe that stock incentive awards are appropriate for executive officers. These awards are provided through initial grants at or near the date of hire and through subsequent, periodic grants. The initial grant is typically larger than subsequent, periodic grants and is intended to motivate the officer to make the kind of decisions and implement strategies and programs that will contribute to an increase in our stock price over time. Subsequent periodic stock option awards may be granted to reflect each executive officer’s ongoing contributions to the Company, to create an incentive to remain at the Company, and to provide a long-term incentive to achieve or exceed our corporate goals and objectives. The Company does not have been included. The interim
financial statements contained herein do not include alla formula for determining stock option awards. Awards are generally based on the subjective recommendation of the footnotesPresident and other information requiredChief Executive Officer and on the Compensation Committee’s subjective judgment. The Compensation Committee does not typically give much weight to the overall levels of stock and stock options owned by the Company’s executive officers and directors.
Accounting and Tax Considerations
The accounting and tax treatment of compensation generally has not been a factor in determining the amounts of compensation for the Company’s executive officers.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits tax deductions of public companies on compensation paid to certain executive officers in excess of $1 million. The Compensation Committee considers the impact of Section 162(m) on its compensation decisions, but has no formal policy to structure executive compensation so that it complies with the requirements of Section 162(m) due to the overall level of compensation paid. In general, stock options granted under the Company’s 2006 Equity Incentive Plan, or the Plan, are intended to qualify under and comply with the “performance based compensation” exemption provided under Section 162(m), thus excluding from the Section 162(m) compensation limitation any income recognized by executives at the time of exercise of such stock options.
Accounting principles generally accepted in the United States require us to recognize an expense for the fair value of Americaequity-based compensation awards. The Compensation Committee is informed of the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans, but has no formal policy to structure executive compensation to align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives. The Compensation Committee has considered the impact of cash payments to its employees as compared to the costs it recognizes on an accrual basis when stock options are granted.
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Setting Executive Compensation
Historically, we have not used quantitative methods or mathematical formulae in setting any element of executive compensation. We use discretion, guided in large part by the concept ofpay-for-performance, and we consider all elements of an executive’s compensation package when setting each portion of compensation. There is no pre-established policy or target for complete financial statementsthe allocation between cash and equity incentive compensation, although the Committee believes its stock option grants are at a level that permits it to retain talented personnel at somewhat lower levels of cash compensation than these individuals might otherwise receive.Year-to-year changes in base salary have usually been relatively modest, and executive officer base salaries are within a relatively narrow range. The Compensation Committee considers relative levels of compensation among its various executive officers. Our annual cash incentive awards have generally been modest. When made at all, the individual cash incentive awards have ranged from $10,000 to $15,000 over the last three years. Bonuses have usually been paid to all Named Executive Officers when they were paid at all. We may choose other compensation approaches if circumstances warrant.
When determining compensation for a new executive officer, and when annually reviewing the compensation for our executive officers, factors taken into consideration are the individual’s skills, knowledge and experience, the individual’s past and potential future impact on our short-term and long-term success, the individual’s recent compensation levels in other positions, and any present and expected compensation information obtained from other prospective candidates interviewed during the recruitment process. In setting our executive compensation for 2009, no specific benchmarking activities were undertaken. We will generally make a grant of stock options when an executive officer joins us. Options are granted at no less than 100% of the fair market value on the date of grant. In determining the size of an initial stock option grant to an executive officer, we primarily consider company performance and the individual’s scope of responsibility. For periodic grants, we also consider the Company’s and the individual’s continuing performance and the recommendations of the Chief Executive Officer, all on a subjective basis. Since the stock option grant is meant to be a retention tool, we also consider the importance to stockholders of that person’s continued service. Stock option grants to executives generally vest over a period of three years.
The Compensation Committee annually reviews and determines the compensation for our Chief Executive Officer. Each year, recommendations for the compensation for other executive officers (other than himself) are prepared by the Chief Executive Officer and are reviewed with the Compensation Committee and modified by it where appropriate.
In order to assess the performance of a full calendar year, annual cash incentive and stock option awards are generally determined in December of each year. We do not currently have any program, plan or practice in place to time stock option grants to our executives or other employees in coordination with the release of material non-public information.
As part of our executive compensation review conducted annually in December, we review a tally sheet prepared by the President and Chief Executive Officer setting forth all components of total compensation to our Named Executive Officers and all other employees. The tally sheet includes current and proposed base salary, proposed annual cash incentive awards and historical, as well as proposed, stock option awards. Post-termination pay under employment agreements to which our executive officers are parties is not considered to be material at the present time. These tools are employed by the Compensation Committee both in reviewing individual compensation awards and as a useful check on total compensation. These tools also show the effect of compensation decisions made over time on the total annual compensation to a Named Executive Officer and allow the Compensation Committee to review historical amounts for comparative purposes.
We considered whether our compensation policies and practices create risks that are reasonably likely to have a material adverse effect on GeoVax, and concluded that they do not.
2009 Executive Compensation
In December 2008, using its subjective judgment as to the overall progress of the Company, skills, experience, responsibilities, achievements and historical compensation of each of the Named Executive
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Officers, the Compensation Committee established their salaries for 2009. At that time, Dr. McNally recommended that none of the Named Executive Officers receive a cash bonus for 2008 or salary increases for 2009, except that Mr. Reynolds should receive a salary increase in proportion to his increased time commitment to business of the Company. Dr. McNally made this recommendation, and the Compensation Committee accepted it, partially in the interest of preserving the Company’s overall cash flow to the extent reasonably possible. Stock option grants were made at that time. The amount of compensation earned by each of the Named Executive Officers during fiscal 2009, 2008 and 2007 is shown in the Summary Compensation Table below.
In December 2009, the Compensation Committee considered 2009 stock option grants and cash incentive awards as well as base salaries for 2010. The Compensation Committee considered the same factors, the overall progress of the Company, the skills, experience, responsibilities, achievements and historical compensation of each of the Named Executive Officers, in determining the award of cash bonuses and stock option grants for 2009 and salary levels for 2010. In its deliberations on executive compensation at its meeting in December 2009, the Compensation Committee considered the fact that, during the preceding year (at its meeting in December 2008) the Compensation Committee had accepted the recommendation from Dr. McNally that none of the Named Executive Officers receive a cash bonus for 2008 and that no salary increases would be effective for 2009, except as related to Mr. Reynolds with respect to a proportionate increase relative to his time commitment to the business of the Company. The Compensation Committee felt that, under the circumstances, it should increase the salaries of the Company’s executive officers, and decided to increase the salaries of the Company’s executive officers. The Compensation Committee reviewed the salary increases it had approved for the other employees of the Company and determined the average of the increases was approximately 6.3%. The Compensation Committee then increased executive officer salaries by 6.3%, with the exception of Dr. McNally, who received a 10% increase in salary. The Compensation Committee provided a higher salary to Dr. McNally because it felt that the Chief Executive Officer should be the most highly compensated executive.
Robert T. McNally. Dr. McNally serves as our President and Chief Executive Officer pursuant to an employment agreement executed in April, 2008. In December 2009, the Compensation Committee awarded Dr. McNally a cash bonus of $15,000 and a stock option grant for 500,000 shares at an exercise price of $0.14 per share. The Compensation Committee also increased Dr. McNally’s annual base salary from $250,000 to $275,000 (a 10% increase), effective January 1, 2010.
Mark W. Reynolds. Mr. Reynolds serves as our Chief Financial Officer pursuant to an employment agreement amended and restated effective January 2010. Pursuant to this agreement, and its predecessor agreement, during 2009 Mr. Reynolds provided services to the Company on a part-time basis (approximately 75%) and was paid an annualized salary of $150,000 during 2009. In December 2009, the Compensation Committee awarded Mr. Reynolds a cash bonus of $10,000 and a stock option grant for 500,000 shares at an exercise price of $0.14 per share. The Compensation Committee also increased Mr. Reynolds’ annual base salary from $150,000 to $212,600, effective January 1, 2010. The increase in Mr. Reynolds’ base salary was determined based on (a) a proportional increase of $50,000 (33.3%) based on Mr. Reynolds increased time commitment from 75% to 100%, and (b) a merit increase of $12,600 (6.3%).
Harriet L. Robinson. Dr. Robinson serves as our Chief Scientific Officer pursuant to an employment agreement executed in November 2008. In December 2009, the Compensation Committee awarded Dr. Robinson a cash bonus of $10,000 and a stock option grant for 500,000 shares at an exercise price of $0.14 per share. The Compensation Committee also increased Dr. Robinson’s annual base salary from $250,000 to $265,750 (a 6.3% increase), effective January 1, 2010.
Andrew Kandalepas. Mr. Kandalepas served as our Senior Vice President until his resignation in July 2009. During 2009, he received an annualized base salary of $225,000 pursuant to his employment agreement. During 2009, the Compensation Committee made no decisions with regard to Mr. Kandalepas’ compensation.
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Benefits Provided to Executive Officers
We provide our executive officers with certain benefits that the Compensation Committee believes are reasonable and consistent with our overall compensation program. The Compensation Committee will periodically review the levels of benefits provided to our executive officers.
Dr. McNally, Mr. Reynolds and Dr. Robinson are eligible for health insurance and 401(k) benefits at the same level and subject to the same conditions as provided at
year-end. For further information, referto all other employees. The amounts shown in the Summary Compensation Table under the heading “Other Compensation” represent the value of the Company’s matching contributions to the consolidated financial
statements401(k) accounts of these executive officers. Executive officers did not receive any other perquisites or other personal benefits or property from the Company or any other source.
Employment Agreements
Robert T. McNally. On March 20, 2008, GeoVax entered into an employment agreement with Robert T. McNally, Ph.D. to become our President and footnotes thereto includedChief Executive Officer effective April 1, 2008. The employment agreement has no specified term. The employment agreement provided for an initial annual salary of $200,000 to Dr. McNally, subject to periodic increases as determined by the Compensation Committee. The Board of Directors may also approve the payment of a discretionary bonus annually. Dr. McNally is eligible for grants of awards from the Plan and is entitled to participate in any and all benefits in effect fromtime-to-time for employees generally. We may terminate the registrant'semployment agreement, with or without cause. If we terminate the employment agreement without cause, we will be required to provide Dr. McNally at least 60 days prior notice of the termination and one week of severance pay for each full year of service as President and Chief Executive Officer ($10,577 if terminated in fiscal 2010, paid as salary continuance). Dr. McNally may terminate the employment agreement at any time by giving us 60 days notice. In that event, he would not receive severance.
Mark W. Reynolds. On February 1, 2008, GeoVax entered into an amended and restated employment agreement with Mark W. Reynolds, our Chief Financial Officer. The employment agreement has no specified term. The employment agreement provided for an initial annual report on
Form 10-Ksalary of $115,000 to Mr. Reynolds, which was increased to $150,000 by the Compensation Committee and the Board of Directors effective January 1, 2009, commensurate with an increased time commitment provided by Mr. Reynolds (50% to 75%). The employment agreement was again amended and restated, effective January 1, 2010, to reflect a further adjustment for Mr. Reynolds time commitment (from 75% to 100%) together with a base salary increase to $212,600. The Board of Directors may also approve the payment of a discretionary bonus annually. Mr. Reynolds is eligible for grants of awards from the Plan and is entitled to participate in any and all benefits in effect fromtime-to-time for employees generally. We may terminate the employment agreement, with or without cause. If we terminate the employment agreement without cause, we will be required to provide Mr. Reynolds at least 60 days prior notice of the termination and one week of severance pay for each full year of service as Chief Financial Officer ($16,354 if terminated in fiscal 2010, paid as salary continuance). Mr. Reynolds may terminate the employment agreement at any time by giving us 60 days notice. In that event, he would not receive severance.
Harriet L. Robinson. On November 19, 2007, GeoVax entered into an employment agreement with Harriet L. Robinson, our Chief Scientific Officer. The employment agreement has no specified term. The employment agreement provided for an initial base salary of $250,000 to Dr. Robinson, subject to periodic increases as determined by the Compensation Committee. Dr. Robinson initially worked part-time for the Company, and became a full-time employee in February 2008. The Board of Directors may also approve the payment of a discretionary bonus annually. Dr. Robinson is eligible for grants of awards from the Plan and is entitled to participate in any and all benefits in effect fromtime-to-time for employees generally. We may terminate the employment agreement, with or without cause. If we terminate the employment agreement without cause, we will be required to provide Dr. Robinson at least 90 days prior notice of the termination and one week of severance pay for each full year of service ($15,332 if terminated in fiscal 2010, paid as salary continuance). Dr. Robinson may terminate the employment agreement at any time by giving us 60 days notice. In that event, she would not receive severance.
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Andrew Kandalepas. On February 1, 2007, GeoVax entered into an employment agreement with Andrew Kandalepas, our Senior Vice President. The employment agreement had no specified term. The employment agreement provided for an initial annual salary of $210,000 to Mr. Kandalepas, subject to periodic increases as determined by the Compensation Committee. Mr. Kandalepas was also eligible for discretionary cash bonuses, grants of awards from the Plan and participation in any and all benefits in effect fromtime-to-time for employees generally. We could terminate the employment agreement, with or without cause. Effective June 30, 2009, Mr. Kandalepas resigned from our Board of Directors, and effective July 1, 2009, he resigned his position as Senior Vice President. We paid Mr. Kandalepas severance of $18,750.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation earned during the fiscal years ended December 31, 2009, 2008 and 2007 by our Named Executive Officers.
| Option | All Other | |||||||||||||||||||||||
| Name and Principal | Salary | Bonus | Awards | Compensation | Total | |||||||||||||||||||
Position | Year | ($) | ($) | ($)(1) | ($)(2) | ($) | ||||||||||||||||||
| Robert T. McNally | 2009 | $ | 250,000 | $ | 15,000 | $ | 61,500 | $ | 3,675 | $ | 330,175 | |||||||||||||
| President and | 2008 | 175,000 | — | 391,100 | 1,250 | 567,350 | ||||||||||||||||||
| Chief Executive Officer | 2007 | — | — | — | — | — | ||||||||||||||||||
| Mark W. Reynolds | 2009 | 150,000 | 10,000 | 61,500 | 94 | 221,594 | ||||||||||||||||||
| Chief Financial Officer | 2008 | 120,740 | — | 45,500 | — | 166,240 | ||||||||||||||||||
| 2007 | 92,102 | 10,000 | 674,800 | — | 776,902 | |||||||||||||||||||
| Harriet L. Robinson | 2009 | 250,000 | 10,000 | 61,500 | 3,675 | 325,175 | ||||||||||||||||||
| Chief Scientific Officer | 2008 | 234,375 | — | 204,220 | 313 | 438,908 | ||||||||||||||||||
| 2007 | 14,904 | 10,000 | — | — | 24,904 | |||||||||||||||||||
| Andrew J. Kandalepas | 2009 | 119,230 | — | — | 18,750 | 137,980 | ||||||||||||||||||
| Former Senior Vice President | 2008 | 225,000 | — | 45,500 | — | 270,500 | ||||||||||||||||||
| (through July 1, 2009) | 2007 | 205,288 | 10,000 | 604,800 | — | 820,088 | ||||||||||||||||||
| (1) | Amounts shown in the “Option Awards” column represent the aggregate grant date fair value of awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718,Compensation — Stock Compensation(“FASB ASC Topic 718”). For a discussion of the various assumptions made and methods used for determining such amounts, see footnotes 2 and 7 to our 2009 consolidated financial statements contained in this prospectus. For 2008, the amount reported for Dr. Robinson includes $158,720, related to the extension of the exercise period of stock options granted in prior years. These stock options were originally granted with an exercise period of five to seven years and were to expire beginning in 2009. The extensions were made to adjust the exercise period to ten years from the original grant date, consistent with the current stock option grant policies of the Company. The extensions did not affect the vesting schedule of the grants; all were originally granted with a three-year vesting schedule and were fully vested at the time of the extensions. | |
| (2) | Amounts shown in the “All Other Compensation” column represent employer contributions to the Company’s 401(k) retirement plan for Dr. McNally, Mr. Reynolds and Dr. Robinson, and for Mr. Kandalepas, the amount in this column represents the severance paid to him during the year ended December 31, 2009. |
This table excludes Mark Newman, who joined GeoVax as Vice President, Research and Development in January 2010.
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GRANTS OF PLAN-BASED AWARDS
The following table sets forth option awards. No stock awards or non-equity incentive awards were granted to the Named Executive Officers for the year ended December 31, 2001.
2009.
| All Other Option | ||||||||||||||||
| Awards: Number | Exercise or | |||||||||||||||
| of Securities | Base Price of | Grant Date Fair | ||||||||||||||
| Grant | Underlying Options | Option Awards | Value of Stock and | |||||||||||||
Name | Date | (#) | ($/Sh)(1) | Option Awards(2) | ||||||||||||
| Robert T. McNally | 12/2/09 | 10,000 | $ | 7.00 | $ | 61,500 | ||||||||||
| Mark W. Reynolds | 12/2/09 | 10,000 | 7.00 | 61,500 | ||||||||||||
| Harriet L. Robinson | 12/2/09 | 10,000 | 7.00 | 61,500 | ||||||||||||
| (1) | The exercise price for options is the closing trading price of the common stock of the Company on the grant date. The grant date is determined by the Compensation Committee. All stock option grants during 2009 will vest and become exercisable in three equal annual installments on the first three anniversary dates of the grant date. | |
| (2) | Compensation expense is recognized for all share-based payments based on the grant date fair value estimated for financial reporting purposes. For a discussion of the various assumptions made and methods used for determining such amounts, see footnotes 2 and 7 to our 2009 consolidated financial statements contained in this prospectus. |
Additional discussion regarding material factors that may be helpful in understanding the information included in the Summary Compensation Table and Grants of Plan-Based Awards table is included above under “Compensation Discussion and Analysis.”
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The reader is remindedfollowing table sets forth certain information with respect to unexercised options previously awarded to our Named Executive Officers as of December 31, 2009. There were no stock awards outstanding as of December 31, 2009.
| Option Awards | ||||||||||||||||
| Number of | Number of | |||||||||||||||
| Securities | Securities | |||||||||||||||
| Underlying | Underlying | |||||||||||||||
| Unexercised Options | Unexercised Options | Option Exercise | Option Expiration | |||||||||||||
Name | (#) Exercisable | (#) Unexercisable | Price ($) | Date | ||||||||||||
| Robert T. McNally | — | 10,000 | (1) | $ | 7.00 | 12/2/19 | ||||||||||
| 3,333 | 6,667 | (2) | 5.50 | 12/11/18 | ||||||||||||
| 16,000 | 32,000 | (3) | 8.50 | 6/17/18 | ||||||||||||
| 6,667 | 3,333 | (4) | 8.05 | 12/5/17 | ||||||||||||
| 26,400 | — | 17.75 | 3/14/17 | |||||||||||||
| Mark W. Reynolds | — | 10,000 | (1) | 7.00 | 12/2/19 | |||||||||||
| 3,333 | 6,667 | (2) | 5.50 | 12/11/18 | ||||||||||||
| 6,667 | 3,333 | (4) | 8.05 | 12/5/17 | ||||||||||||
| 36,000 | — | 17.75 | 3/14/17 | |||||||||||||
| Harriet L. Robinson | — | 10,000 | (1) | 7.00 | 12/2/19 | |||||||||||
| 3,333 | 6,667 | (2) | 5.50 | 12/11/18 | ||||||||||||
| 177,913 | — | 2.004 | 2/5/14 | |||||||||||||
| (1) | These stock options vest and become exercisable in three equal installments on December 2, 2010, 2011 and 2012. | |
| (2) | These stock options vest and become exercisable in two equal installments on December 11, 2010 and 2011. | |
| (3) | These stock options vest and become exercisable in two equal installments on June 17, 2010 and 2011. | |
| (4) | These stock options vest and become exercisable on December 5, 2010. |
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Potential Payments Upon Termination orChange-in-Control
Under SEC rules, we are required to estimate and quantify the payment that would be payable at, following, or in connection with any termination, including without limitation resignation, severance, retirement or a constructive termination of each Named Executive Officer, or achange-in-control of the resultsCompany or a change in the Named Executive Officer’s responsibilities, with respect to each Named Executive Officer, as if the triggering event had occurred as of operationsthe last business day of the last fiscal year.
The Plan contains provisions that could lead to an accelerated vesting of options or other awards. In the event of certainchange-in-control transactions described in the Plan, (i) outstanding options or other awards under the Plan may be assumed, converted or replaced; (ii) the successor corporation may substitute equivalent options or other awards or provide substantially similar consideration to Plan participants as was provided to stockholders (after taking into account the existing provisions of the options or other awards); or (iii) the successor corporation may replace options or awards with substantially similar shares or other property.
In the event the successor corporation (if any) refuses to assume or substitute options or other awards as described (i) the vesting of any or all options or awards granted pursuant to the Plan will accelerate upon thechange-in-control transaction, and (ii) any or all options granted pursuant to the Plan will become exercisable in full prior to the consummation of thechange-in-control transaction at such time and on such conditions as the Compensation Committee determines. If the options are not exercised prior to the consummation of thechange-in-control transaction, they shall terminate at such time as determined by the Compensation Committee. Subject to any greater rights granted to Plan participants under the Plan, in the event of the occurrence of achange-in-control transaction any outstanding options or other awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, or sale of assets.
If the Company experienced achange-in-control transaction described in the Plan on December 31, 2009, the value of accelerated options for each Named Executive Officer, based on the difference between $9.00, the closing price of our common stock on the OTC Bulletin Board on December 31, 2009, and, if lower, the exercise price per share of each option for which vesting would be accelerated for each Named Executive Officer, would be as follows: Dr. McNally — $62,500; Mr. Reynolds — $46,500 and Dr. Robinson — $43,333. Mr. Kandalepas resigned effective July 1, 2009 and held no outstanding options as of December 31, 2009.
Additionally, our employment agreements with each Named Executive Officer provide for payment to the Named Executive Officer if we terminate the Named Executive Officer’s employment without cause. If each Named Executive Officer was terminated without cause on December 31, 2009, the following amounts, which represent one week of pay for each full year of service to the Company, would be payable to each Named Executive Officer as salary continuance under the terms of such Named Executive Officer’s employment agreement: Dr. McNally — $10,577; Mr. Reynolds — $16,354 and Dr. Robinson — $15,332. Mr. Kandalepas resigned from our Board of Directors effective June 30, 2009 and resigned his position as Senior Vice President effective July 1, 2009. Mr. Kandalepas was paid severance of $18,750.
Risk Assessment
We considered whether our compensation policies and practices create risks that are reasonably likely to have a material adverse effect on GeoVax and concluded that they do not. We do not tie compensation to specific stock prices or milestones that might encourage risk taking to increase stock prices or meet specific milestones. When we have granted cash incentive awards, they have been retrospective or in relatively modest amounts so that they do not encourage inappropriate short-term risk taking. We give consideration to subjective elements when we determine salaries, bonuses, and option grants that help us evaluate employee productivity and contribution to the welfare of GeoVax and place less emphasis on short-term metrics or milestones that might encourage undue risk taking. When we use stock options, we require them to vest over a period of years so that their increase in value will be more closely associated with the long-term success of the Company.
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DIRECTOR COMPENSATION
The following table sets forth information concerning the compensation earned for service on our Board of Directors during the fiscal year ended December 31, 2009 by each individual who served as a director at any time during the fiscal year.
| Change | ||||||||||||||||||||||||||||
| in Pension | ||||||||||||||||||||||||||||
| Non-Equity | Value and | |||||||||||||||||||||||||||
| Fees | Incentive | Non-Qualified | All | |||||||||||||||||||||||||
| Earned or Paid in | Stock | Option | Plan | Deferred | Other | |||||||||||||||||||||||
| Cash | Awards | Awards | Compensation | Compensation | Compensation | Total | ||||||||||||||||||||||
Name | ($) | ($) | ($)(3)(4) | ($) | Earnings | ($) | ($) | |||||||||||||||||||||
| Donald Hildebrand(1) | $ | 30,000 | $ | — | $ | — | $ | — | $ | — | $ | 57,600 | $ | 87,600 | ||||||||||||||
| Andrew Kandalepas(2) | — | — | — | — | — | — | — | |||||||||||||||||||||
| Dean Kollintzas | 14,100 | — | 61,500 | — | — | — | 75,600 | |||||||||||||||||||||
| Robert T. McNally(2) | — | — | — | — | — | — | — | |||||||||||||||||||||
| Harriet L. Robinson(2) | — | — | — | — | — | — | — | |||||||||||||||||||||
| John Spencer | 28,500 | — | 61,500 | — | — | — | 90,000 | |||||||||||||||||||||
| Peter Tsolinas | 12,400 | — | 61,500 | — | — | — | 73,900 | |||||||||||||||||||||
| (1) | The amount shown in the “All Other Compensation” column represents the amount paid to Mr. Hildebrand for the year ended December 31, 2009 pursuant to his consulting agreement with the Company. See “Certain Relationships and Related Transactions — Consulting Agreement with Donald Hildebrand”. | |
| (2) | Dr. McNally, Dr. Robinson, and Mr. Kandalepas, who were employees of the Company during the fiscal year ended December 31, 2009, received no compensation for their service as directors. All amounts related to their compensation as Named Executive Officers during the fiscal year ended December 31, 2009 and prior years are included in the “Summary Compensation Table.” Mr. Kandalepas resigned as a director effective June 30, 2009 and resigned his position as Senior Vice President effective July 1, 2009. | |
| (3) | Amounts shown in the “Option Awards” column represent the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718. For a discussion of the various assumptions made and methods used for determining such amounts, see footnotes 2 and 7 to our 2009 consolidated financial statements contained in this prospectus. On December 2, 2009, Mr. Kollintzas, Mr. Spencer, and Mr. Tsolinas were each granted options to purchase 500,000 shares of our common stock, with an exercise price of $7.00 per share. | |
| (4) | The table below shows the aggregate numbers of option awards outstanding for each non-employee director as of December 31, 2009. There were no stock awards outstanding for the non-employee directors as of December 31, 2009. |
| Aggregate Option Awards | ||||
| Outstanding | ||||
| as of December 31, 2009 | ||||
Name | (#) | |||
| Donald Hildebrand | 355,825 | |||
| Dean Kollintzas | 56,400 | |||
| John Spencer | 56,400 | |||
| Peter Tsolinas | 36,400 | |||
Director Compensation Plan
In March 2007, the Board of Directors approved a recommendation from the Compensation Committee for director compensation, which we refer to as the “Director Compensation Plan.” It was subsequently amended in March 2008 and again in December 2009. The Director Compensation Plan applies only to non-employee directors. Directors who are employees of the Company receive no compensation for their service as directors or as members of committees.
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Cash Fees
For 2009, each non-employee director received an annual retainer of $2,000 (paid quarterly) for service as a member of the Audit Committee and $1,250 for service as a member of the Compensation Committee. The Chairman of the Audit Committee received an annual retainer of $9,000, and the Chairman of the Compensation Committee received an annual retainer of $6,000 which retainers were also paid quarterly. Non-employee directors also received fees for each Board of Directors or Committee meeting attended as follows: $1,500 per Board of Directors meeting, $1,000 per Committee meeting chaired, and $500 per Committee meeting attended as a non-chair member. Meetings attended telephonically were paid at lower rates ($750, $750 and $400, respectively). The non-employee Chairman of the Board received an annual retainer of $30,000 (paid quarterly) and was not entitled to additional fees for meetings attended.
Effective January 1, 2010, the fees paid to non-employee directors for attending meetings of the Board of Directors were increased to $3,000 for in person meetings and $1,500 for telephonic meetings. Also, the annual cash retainer for members (non-chairman) of the Audit Committee was increased to $5,000, and the annual cash retainer for members (non-chairman) of the Compensation Committee was increased to $3,300. No changes were made to the annual cash retainer for the interim periodchairman of the Audit Committee or the Compensation Committee, nor were any changes made to the fees paid for attending committee meetings. The members and chairman of the newly formed Nominating and Governance Committee will receive the same compensation as members of the Compensation Committee.
Stock Option Grants
Non-employee directors each receive an automatic grant of options to purchase 26,400 shares of common stock on the date that such non-employee director is first elected or appointed. We currently do not have a formula for determining annual stock option grants to directors (upon their re-election to the Board of Directors, or otherwise). Such option grants are currently determined by the Board of Directors, upon recommendation by the Compensation Committee based on the Compensation Committee’s annual deliberations and review of the director compensation structure of similar companies. At its meeting in December 2009, upon a recommendation of the Compensation Committee, the Board of Directors determined an annual stock option grant of 10,000 shares to its non-employee members, with the exception of Mr. Hildebrand, who declined the stock option grant.
Expense Reimbursement
All directors are reimbursed for expenses incurred in connection with attending meetings of the Board of Directors and committees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Policies and Procedures for Approval of Related Party Transactions
Our Audit Committee is responsible for reviewing and approving all transactions or arrangements between the Company and any of our directors, officers, principal stockholders or any of their respective affiliates, associates or related parties, other than transactions with officers which are covered by the duties of the Compensation Committee. In determining whether to approve or ratify a related party transaction, the Audit Committee will discuss the transaction with management and will consider all relevant facts and circumstances available to it including:
| • | whether the terms of the transaction are fair to the Company and at least as favorable to the Company as would apply if the transaction did not involve a related party; | |
| • | whether there are demonstrable business reasons for the Company to enter into the transaction; | |
| • | whether the transaction would impair the independence of a non-employee director; and |
52
| • | whether the transaction would present an improper conflict of interest for any director or executive officer, taking into account the size of the transaction, the direct or indirect nature of the related party’s interest in the transaction and the ongoing nature of any proposed relationship, and any other factors the Audit Committee deems relevant. |
Consulting Agreement with Donald Hildebrand
In March 2008, we entered into a consulting agreement with Donald Hildebrand, the Chairman of our Board of Directors and our former President and Chief Executive Officer, pursuant to which Mr. Hildebrand provides business and technical advisory services to the Company. The term of the consulting agreement began on April 1, 2008 with an original termination date of December 31, 2009. In December 2009, the Company and Mr. Hildebrand extended the term of the consulting agreement for an additional year. During 2009 and 2008, Mr. Hildebrand received $57,600 and $64,000, respectively, for his services pursuant to the consulting agreement. During the remaining term of the consulting agreement, Mr. Hildebrand will provide us with at least 16 hours of service per month and will be paid at the rate of $4,800 per month. We also pay Mr. Hildebrand’s medical and dental coverage through the term of the consulting agreement. We may terminate the consulting agreement, with or without cause. If we terminate the consulting agreement without cause, we must give Mr. Hildebrand at least 30 days notice and we will be required to pay him, as a severance payment, three months compensation ($14,400). Likewise, if the consulting agreement is terminated due to the death of Mr. Hildebrand, we will be required to pay his estate three months compensation. If Mr. Hildebrand wishes to terminate the consulting agreement, he must provide us with at least 30 days notice. No severance payments will be due to Mr. Hildebrand upon termination with cause or upon his voluntary termination.
Transactions with Emory University
Emory University is a significant stockholder of the Company, and our primary product candidates are based on technology rights subject to a license agreement with Emory University, which we refer to as the Emory License. The Emory License, among other contractual obligations, requires payments based on milestone achievements, royalties on sales by the Company or on payments to the Company by our sublicensees, and payment of maintenance fees in the event certain milestones are not necessarily indicative ofmet within the results for the complete year.
Use of Estimates
The presentation of the Company's consolidated financial statements in
conformity with accounting principles generally acceptedtime periods specified in the United States of
America requires management to make estimates and assumptions. These estimates
and assumptions affectEmory License. We may terminate the reported amounts of assets and liabilities,Emory License upon 90 days prior written notice. In any event, the disclosure of contingent assets and liabilities atEmory License expires on the date of the consolidated
financial statementslatest expiration date of the underlying patents. We are also obligated to reimburse Emory University for certain ongoing costs in connection with the filing, prosecution and maintenance of patent applications subject to the reportedEmory License. Such reimbursements to Emory University amounted to $85,673, $102,141 and $243,653 for the years ended December 31, 2009, 2008 and 2007, respectively.
In June 2008, we entered into two subcontracts with Emory University for the purpose of conducting research and development activities associated with a grant from the NIH. During 2009 and 2008, we recorded $816,651 and $723,887, respectively, of expense associated with these subcontracts. All amounts paid to Emory University under these subcontracts are reimbursable to us pursuant to the NIH grant.
Through November 2009, we leased office and laboratory space on a month-to-month basis from Emtech Biotechnology Development, Inc., a related party associated with Emory University. Rent expense associated with this lease totaled $43,112, $47,041 and $36,588 for the years ended December 31, 2009, 2008 and 2007, respectively.
Director Independence
The Board of revenueDirectors has determined that Messrs. Antebi, Dodd, Kollintzas, Spencer and expenses duringTsolinas are the reporting period. Actual results could differ from those estimates.
F-6
Dauphin Technology, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. RISKSmembers of our Board of Directors who are “independent,” as that term is defined by Section 301(3)(B) of the Sarbanes-Oxley Act of 2002. The Board of Directors has also determined that these five individuals meet the definition of “independent director” set forth in Rule 5605(a)(2) of the Nasdaq Listing Rules. As independent directors, Messrs. Kollintzas, Spencer and Tsolinas serve as the members of our Audit and Compensation Committees, and Messrs. Dodd, Kollintzas and Spencer serve as the members of the Nominating and Governance Committee.
53
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS, DIRECTORS AND UNCERTAINTIES
The Company has incurred a net operating loss in each year since its founding
andOFFICERS
Based solely upon information made available to us, the following table sets forth information with respect to the beneficial ownership of our common stock as of March 31, 20022010 by (1) each director; (2) each of our Named Executive Officers; (3) all executive officers and directors as a group; and (4) each additional person who is known by us to beneficially own more than 5% of our common stock. Except as otherwise indicated, the holders listed below have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
| Number of Shares | ||||||||
| Beneficially | Percent | |||||||
Name and Address of Beneficial Owner(1) | Owned | of Class(2) | ||||||
Directors and Executive Officers: | ||||||||
| Steven S. Antebi(3) | — | * | ||||||
| David A. Dodd(4) | — | * | ||||||
| Donald G. Hildebrand(5) | 1,426,225 | 8.9 | % | |||||
| Dean G. Kollintzas(6) | 36,400 | * | ||||||
| Robert T. McNally(7) | 64,755 | * | ||||||
| Mark W. Reynolds(8) | 46,600 | * | ||||||
| Harriet L. Robinson(9) | 1,279,142 | 8.1 | % | |||||
| John N. Spencer, Jr.(10) | 40,000 | * | ||||||
| Peter M. Tsolinas(11) | 706,340 | 4.4 | % | |||||
| All executive officers and directors as a group (10 persons)(12) | 3,599,462 | 21.6 | % | |||||
| Andrew J. Kandalepas(13) | 250,360 | 1.6 | % | |||||
Other 5% Stockholders: | ||||||||
| Emory University(14) | 4,621,405 | 29.5 | % | |||||
| Stavros Papageorgiou(15) | 1,111,857 | 7.1 | % | |||||
| Welch & Forbes LLC(16) | 1,582,073 | 10.1 | % | |||||
| * | Less than 1% | |
| (1) | Except as otherwise indicated, the business address of each director and executive officer listed isc/o GeoVax Labs, Inc., 1900 Lake Park Drive, Suite 380, Smyrna, Georgia 30080. | |
| (2) | This table is based upon information supplied by our executive officers and directors, and with respect to principal stockholders, Schedule 13G filed with the SEC. Beneficial ownership is determined in accordance with the rules of the SEC. Applicable percentage ownership is based on 15,652,813 shares of common stock outstanding as of March 31, 2010. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options currently exercisable, or exercisable within 60 days of March 31, 2010, are deemed outstanding. | |
| (3) | Mr. Antebi has options to acquire 26,400 shares, which will vest in equal amounts over the next three anniversaries of his appointment to the Board of Directors, beginning in March 2011. | |
| (4) | Mr. Dodd has options to acquire 26,400 shares, which will vest in equal amounts over the next three anniversaries of his appointment to the Board of Directors, beginning in March 2011. | |
| (5) | Includes options to purchase 355,825 shares of common stock exercisable within 60 days of March 31, 2010. | |
| (6) | Includes options to purchase 36,400 shares of common stock exercisable within 60 days of March 31, 2010. | |
| (7) | Includes options to purchase 52,400 shares of common stock exercisable within 60 days of March 31, 2010. | |
| (8) | Includes options to purchase 46,000 shares of common stock exercisable within 60 days of March 31, 2010. |
54
| (9) | Dr. Robinson shares voting and investment power over 1,093,441 shares with Welch & Forbes LLC, whose ownership is described below. Includes options to purchase 181,245 shares of common stock exercisable within 60 days of March 31, 2010. | |
| (10) | Includes options to purchase 36,400 shares of common stock exercisable within 60 days of March 31, 2010. | |
| (11) | Includes warrants to purchase 267,806 shares of common stock exercisable within 60 days of March 31, 2010, and options to purchase 8,800 shares of common stock exercisable within 60 days of March 31, 2010. | |
| (12) | Includes options to purchase 717,070 shares of common stock and warrants to purchase 267,806 shares of common stock exercisable within 60 days of March 31, 2010. | |
| (13) | Mr. Kandalepas resigned as an executive officer of the Company on July 1, 2009. Ownership information has been derived from our stock records, which show Mr. Kandalepas owns theses shares of record. | |
| (14) | The address for this stockholder is Administration Building, 201 Dowman Drive, Atlanta, Georgia 30322. Ownership information has been derived from this stockholder’s SEC filing on Form 4 filed on January 29, 2010. | |
| (15) | The address for this stockholder isc/o Morse, Zelnick, Rose & Lander LLP, 405 Park Avenue, Suite 1401, New York, New York 10022. Includes 91,854 shares subject to warrants and 503,840 shares as to which Mr. Papageorgiou shares voting and investment power. Ownership information has been derived from this stockholder’s SEC filing on Schedule 13G filed on October 1, 2009. | |
| (16) | The address for this stockholder is 45 School Street, Boston, Massachusetts 02108. This stockholder shares voting and investment power with respect to all of these shares. Includes 1,093,441 shares held by Dr. Robinson. Ownership information has been derived from this stockholder’s Schedule 13G filed February 12, 2010. |
SELLING STOCKHOLDERS
The following table presents information regarding the selling stockholders. Emory University is a principal stockholder. Mr. Hildebrand is our Chairman of the Board and previously served as our President and Chief Executive Officer from September 2006 to September 2008. See “Certain Relationships and Related Transactions” for additional information regarding our transactions with Emory University and our Consulting Agreement with Mr. Hildebrand. Dr. Robinson is our Chief Scientific Officer and a director.
| Percentage of | Shares to be Sold in | |||||||||||||||
| Outstanding | the Offering | |||||||||||||||
| Shares | Shares | Assuming | Percentage of | |||||||||||||
| Beneficially | Beneficially | the Maximum | Outstanding Shares | |||||||||||||
| Owned Before | Owned Before | Number of Units are | Beneficially Owned | |||||||||||||
Selling Stockholder | Offering | Offering(1) | Sold in this Offer | After Offering(1) | ||||||||||||
| Emory University(2) | 4,621,405 | 29.5 | % | % | ||||||||||||
| Donald G. Hildebrand(3) | 1,426,225 | 8.9 | % | % | ||||||||||||
| Harriet L. Robinson(4) | 1,279,142 | 8.1 | % | % | ||||||||||||
| (1) | Applicable percentage of ownership is based on 15,652,813 shares of our common stock outstanding as of March 31, 2010, together with securities exercisable or convertible into shares of common stock within sixty days of March 31, 2010, for each selling stockholder. Assumes no exercise of warrants to be issued in this offering. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. | |
| (2) | The address for this stockholder is Administration Building, 201 Dowman Drive, Atlanta, Georgia 30322. Ownership information has been derived from this stockholder’s SEC filing on Form 4 filed on January 29, 2010. |
55
| (3) | Includes options to purchase 355,825 shares of common stock exercisable within 60 days of March 31, 2010. | |
| (4) | Dr. Robinson shares voting and investment power over 1,093,441 shares with Welch & Forbes LLC. Includes options to purchase 181,245 shares of common stock exercisable within 60 days of March 31, 2010. |
PLAN OF DISTRIBUTION
Global Hunter Securities LLC, referred to as the placement agent, has an accumulated deficitentered into a placement agency agreement with us and the selling stockholders in which it has agreed to act as placement agent in connection with the offering. Subject to the terms and conditions contained in the placement agency agreement, the placement agent is using its best efforts to introduce us to selected institutional investors who will purchase the shares. The placement agent has no obligation to buy any of $61,526,143. the shares from us nor is the placement agent required to arrange the purchase or sale of any specific number or dollar amount of the shares, but has agreed to use its best efforts to arrange for the sale of all of the shares.
The Company
expectsplacement agency agreement provides that the obligations of the placement agent and the investors are subject to incur operating losses over the near term. The Company's ability to
achieve profitability will depend on many factorscertain conditions precedent, including the Company's
abilityabsence of any material adverse changes in our business and the receipt of customary legal opinions, letters and certificates.
We have agreed to designindemnify the placement agent and develop and market commercially acceptable products
including its set-top box. There can be no assurance thatcertain other persons against certain liabilities under the Company will ever
achieve a profitable levelSecurities Act of operations or if profitability is achieved,1933, as amended. The placement agent has informed us that it canwill not engage in overallotment, stabilizing transactions or syndicate covering transactions in connection with this offering.
We have agreed to pay the placement agent a fee equal to 6% of the proceeds of this offering and to reimburse the placement agent for reasonable expenses that it incurs in connection with the offering, but in no event greater than $ . The estimated offering expenses payable by us, in addition to the placement agent’s fee, are approximately $ , which includes our legal and accounting costs and various other fees associated with registering and listing the shares offered hereby. In addition, we have agreed to issue the placement agent a five-year callable warrant to purchase shares of our common stock, equal in number to 6% of the number of units sold in this offering at an exercise price equal to 120% of the offering price of the shares.
The following table shows the per share and total maximum fees we will pay to the placement agent, assuming a maximum reimbursement of $ and the sale of all of the shares offered pursuant to this prospectus:
| Per share | $ | |||||||
| Total | $ |
Because the offering may not be sustained.
4. BUSINESS SEGMENTS
fully subscribed, the actual total may be less than the maximum amount set forth above.
This is a brief summary of the material provisions of the placement agency agreement and does not purport to be a complete statement of its terms and conditions. A copy of the placement agency agreement has been filed as an exhibit to the registration statement of which this prospectus forms a part. See “Where You Can Find More Information” on page of this prospectus.
The Companytransfer agent for our common stock to be issued in this offering is American Stock Transfer & Trust Company.
Our common stock is traded on the OTC Bulletin Board under the symbol “GOVX:OB.” We intend to apply to list our common stock on Nasdaq, as discussed in “Description of Securities.”
A prospectus in electronic format may be made available on the web site maintained by the placement agent and the placement agent may distribute the prospectus electronically.
We, our executive officers and directors and the selling stockholders have entered intolock-up agreements pursuant to which we and they have agreed that, for a period of 180 days from the date of this prospectus, we
56
and they will not, without the prior written consent of the placement agent, offer, sell or otherwise transfer or dispose of, directly or indirectly, or enter into any swap agreement with respect to, any shares of common stock or securities convertible into or exchangeable or exercisable for shares of common stock, subject to certain exceptions.
If:
| • | during the last 17 days of the180-daylock-up period, we issue an earnings release, or material news or a material event relating to us occurs; or | |
| • | prior to the expiration of the180-daylock-up period, we announce that we will release earnings results during the16-day period beginning on the last day of the10-daylock-up period, then the180-daylock-up period will be extended until the expiration of the18-day period that begins on the date the earnings release is issued, the public announcement of the material news or the material event occurs. |
DESCRIPTION OF CAPITAL STOCK AND UNIT WARRANTS
Capital Stock
The following description of our capital stock is summarized from, and qualified in its entirety by reference to, our certificate of incorporation, which has three reportable segments: Dauphin Technology, Inc.been previously filed with the SEC and RMS
(Dauphin)is incorporated herein by reference. This summary is not intended to give full effect to provisions of statutory or common law. We urge you to review the following documents because they, and not this summary, define your rights as a holder of shares of common stock or preferred stock:
| • | The General Corporation Law of the State of Delaware (the “DGCL”), as it may be amended from time to time; | |
| • | Our certificate of incorporation, as it may be amended or restated from time to time, and | |
| • | Our bylaws, as they may be amended or restated from time to time. |
General
Our authorized capital stock currently consists of 910,000,000 shares, which are divided into two classes consisting of 900,000,000 shares of common stock (18,000,000 upon implementation of the assumed1-for-50 reverse stock split), Advanced Digital Designs, Inc. (ADD)par value $0.001 per share, and Suncoast Automation, Inc.
(Suncoast). Dauphin is involved in design, manufacturing and distribution10,000,000 shares of hand-held pen-based computer systems and accessories and smartbox set-top boxes.
ADD performs design services, process methodology consulting and intellectual
property development.preferred stock (no change upon implementation of the assumed1-for-50 reverse stock split), par value $0.01 per share. As of March 31, 20022010, there were issued and outstanding 782,640,692 shares of common stock (15,652,814 shares upon implementation of the reverse stock split), options to purchase 51,612,757 shares (1,032,255 shares upon implementation of the reverse stock split) of common stock and warrants to purchase 45,379,740 shares (907,595 shares upon implementation of the reverse stock split) of common stock. No shares of preferred stock were outstanding.
We have submitted to our stockholders the following proposals, which are described in greater detail in our proxy statement pursuant to Section 14(a) of the Securities Exchange Act of 1934 filed with the SEC on March 31, 2001
---------------- ----------------
Revenue
-------
Dauphin $ 15,132 $ 4,566
ADD 268,750 638,275
Suncoast 77,962 -
Inter-company elimination (209,375) (197,687)
------------ ------------
Total $ 152,469 $ 445,154
============ ============
Operating (Loss)
Dauphin $ (1,117,988) $ (1,037,747)
ADD (288,667) (59,190)
Suncoast (296,733) -
Inter-company elimination - -
----------- ------------
Total $ (1,703,388) $ (1,096,937)
============ ============
March 31, 2002 December 31, 2001
---------------- -----------------
Assets
------
Dauphin $ 18,039,736 $ 17,461,145
ADD 2,678,197 2,699,250
Suncoast 1,747,311 1,702,791
------------
Inter-company elimination (19,341,955) (17,945,762)
------------ ------------
Total $ 3,123,289 $ 3,917,424
============ ============
5. COMMITMENTS AND CONTINGENCIES
The Company is an operating entity12, 2010:
| • | To approve an amendment to our certificate of incorporation to increase the number of our authorized shares of common stock, $0.001 par value, from 900,000,000 to 2,000,000,000 (40,000,000 after the assumed1-for-50 reverse stock split). | |
| • | To approve the grant of discretionary authority to our Board of Directors to amend our certificate of incorporation to effect a reverse stock split of our authorized, issued and outstanding common stock at any time within four months after the date stockholder approval is obtained at any one of the following ratios, as selected by our Board of Directors:1-for-20,1-for-30,1-for-40, or1-for-50. Assuming the proposal to increase our authorized shares is approved, the number of authorized shares will be proportionally reduced upon implementation of the reverse stock split of our common stock. |
57
We anticipate that both proposals will be approved at the special meeting of the stockholders to be held April 13, 2010. Upon approval, we will promptly file the amendment to increase the number of our authorized shares. We plan to file the amendment to implement the reverse stock split of our common stock at least one week prior to this offering. We expect to select a1-for-50 reverse split ratio, but this will be subject to the discretion of our Board of Directors. Unless otherwise indicated and except for the financial statements, all share amounts and prices in this registration statement assume the selection of a1-for-50 ratio.
Common Stock
Holders of our common stock are entitled to one vote for each share held in the election of directors and in all other matters to be voted on by the normal coursestockholders. There is no cumulative voting in the election of business,directors. Holders of common stock are entitled to receive dividends as may be declared from time to time may be involvedby our Board of Directors out of funds legally available therefor. In the event of liquidation, dissolution or winding up of the Company, holders of common stock are to share in litigation. In management's opinion, any
currentall assets remaining after the payment of liabilities. Holders of common stock have no pre-emptive or pending litigation isconversion rights and are not materialsubject to further calls or assessments. There are no redemption or sinking fund provisions applicable to the overall financial positioncommon stock. The rights of the Company.
Dauphin Technology, Inc.
F-7
Dauphin Technology, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. CONVERTIBLE DEBT AND WARRANTS
-----------------------------
In connection with a Securities Purchase Agreement entered into with Crescent
International Ltd., an institutional investor, on September 28, 2001, a
Convertible Note was funded on October 2, 2001 and is due September 28, 2004.
The Company shall not be required to pay interest on the Convertible Note unless
the Company fails to deliver shares upon conversion. In such event, the Note
will bear an interest rate of 8.0% per annum, payable in quarterly installments.
The Company has recorded a beneficial conversion feature on the Convertible Note
and Warrants based on the fair valueholders of the common stock are subject to any rights that may be fixed for holders of $0.99 per share aspreferred stock. All of the dateoutstanding shares of commitment. The Warrants with an exercise pricecommon stock are fully paid and non-assessable.
Preferred Stock
We are also authorized to issue 10,000,000 shares of $1.3064 per
share, are valued usingpreferred stock. Under our certificate of incorporation, the Black-Scholes valuation method,Board of Directors has the power, without further action by the holders of common stock, to designate the relative rights and are recorded at
$684,600. The beneficial conversion feature is calculated to be $914,279 and has
been recorded as Additional Paid in Capital and a discount to the Convertible
Note. The beneficial conversion feature is being amortized over three years, the
lifepreferences of the Note. Forpreferred stock, and issue the three month period ended March 31, 2002,preferred stock in one or more series as designated by the Company
recognized $230,469Board of Directors. The designation of rights and preferences could include preferences as interest expense on the amortizationto liquidation, redemption and conversion rights, voting rights, dividends or other preferences, any of which may be dilutive of the beneficial
conversion feature. At conversion,interest of the Companyholders of the common stock or the preferred stock of any other series. The ability of directors, without stockholder approval, to issue additional shares of preferred stock could be used as anti-takeover measures. Anti-takeover measures may record anresult in you receiving less for your stock than you otherwise might. The issuance of preferred stock creates additional beneficial conversion based onsecurities with dividend and liquidation preferences over common stock, and may have the effect of delaying or preventing a change in control without further stockholder action and may adversely affect the rights and powers, including voting rights, of the holders of common stock. In certain circumstances, the issuance of preferred stock could depress the market price of the common stock.
Delaware Anti-Takeover Law
We have elected not to be subject to certain provisions of Delaware law that could make it more difficult to acquire us by means of a tender offer, a proxy contest, open market purchases, removal of incumbent directors and otherwise. These provisions, summarized below, are expected to discourage types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with our Board of Directors.
In general, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in various “business combination” transactions with any interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:
| • | the transaction is approved by the corporation’s board of directors prior to the date the interested stockholder obtained interested stockholder status; | |
| • | upon consummation of the transaction that resulted in the stockholder’s becoming an interested stockholder, the stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
58
| • | on or subsequent to the date the business combination is approved by the corporation’s board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 662/3% of the outstanding voting stock that is not owned by the interested stockholder. |
A “business combination” is defined to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder. In general, an “interested stockholder” is a person who, together with affiliates and associates, owns or within three years, did own, 15% or more of a corporation’s voting stock.
Section 203 applies to Delaware corporations that have a class of voting stock at the conversion
date.
7. MORTGAGE NOTE PAYABLE
---------------------
On March 28, 2002, the Company entered into a one-year mortgage note payable
with a current shareholder, Clifford F. Klose and Marjorie J. Klose Trust. The
interest ratethat is Prime plus 7.25%. The current interest rate is 12% per annum.
Interest is payablelisted on a monthly basis. The Company's buildingnational securities exchange or held of record by more than 2,000 stockholders; provided, however, the restrictions of this statute will not apply to a corporation if:
| • | the corporation’s original charter contains a provision expressly electing not to be governed by the statute; | |
| • | the corporation’s board of directors adopts an amendment to the corporation’s bylaws within 90 days of the effective date of the statute expressly electing not to be governed by it; | |
| • | the stockholders of the corporation adopt an amendment to its charter or bylaws expressly electing not to be governed by the statute (so long as such amendment is approved by the affirmative vote of a majority of the shares entitled to vote); | |
| • | a stockholder becomes an interested stockholder inadvertently and as soon as practicable divests himself of ownership of a sufficient number of shares so that he ceases to be an interested stockholder, and during the three year period immediately prior to a business combination, would not have been an interested stockholder but for the inadvertent acquisition; | |
| • | the business combination is proposed prior to the consummation or abandonment of a merger or consolidation, a sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets of the corporation or a proposed tender or exchange offer for 50% or more of the outstanding voting shares of the corporation; or | |
| • | the business combination is with an interested stockholder who became an interested stockholder at a time when the restrictions contained in the statutes did not apply. |
Our certificate of incorporation includes a provision electing not to be governed by Section 203 of the DCGL. Accordingly, our board of directors does not have the power to reject certain business combinations with interested stockholders based on Section 203 of the DCGL.
Unit Warrants
In connection with the sale of each unit in Schaumburg,
Illinois serves as collateral for the mortgage.
8. EQUITY TRANSACTIONS
-------------------
2002 Events
During the first quarterthis offering, we will issue a five-year callable warrant to purchase up to 0.20 shares of 2002, the Company received proceeds in the amount of
$410,000 for the exercise of 933,333 warrants. Additionally, employees exercised
57,500common stock options at prices ranging from $0.50 to $0.89 per share.
In March 2002, the Company re-priced approximately 1,023,000 warrants it had
previously issued to outside consultants. The warrants were originally issued
with an exercise price ranging from $2.00 to $5.00, and were re-priced with an exercise price of $0.60$ per share. share, or 20.0% above the offering price of the units. After the expiration of the exercise period, unit warrant holders will have no further rights to exercise the unit warrants.
The re-pricing createdunit warrants may be exercised only for full shares of common stock and may be exercised on a charge“cashless” basis. If the registration statement covering the shares issuable upon exercise of the warrants contained in the units is no longer effective, the unit warrants may only be exercised on a “cashless” basis. We will not issue fractional shares of common stock or cash in lieu of fractional shares of common stock. Unit warrant holders do not have any voting or other rights as a stockholder of our company. The exercise price and the number of shares of common stock purchasable upon the exercise of each unit warrant are subject to earningsadjustment upon the happening of certain events, such as stock dividends, distributions, and splits. In addition, the unit warrants have a “callable feature” whereby, commencing at any time after the date of issuance of the unit warrants, if the average closing bid price of the common stock for 30 consecutive trading days exceeds $, or 225% of the offering price of the units, then we shall have the right, upon 30 days’ prior written notice, to redeem all of the then-issuable shares of common stock subject to the unit warrant at a price of $0.01 per share of common stock subject to the unit warrant.
59
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational reporting requirements of the Exchange Act, which requires us to file annual, quarterly, and current reports, proxy statements and other information with the SEC. The SEC maintains a website that contains such information regarding issuers that file electronically, such as GeoVax Labs, Inc. The public may inspect our filings over the Internet at the SEC’s home page at www.sec.gov. The public may also read and copy any document we file at the Public Reference Room of the SEC at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by the public by calling the SEC at1-800-SEC-0330. Our website address is www.geovax.com. Information contained on our website does not constitute a part of this prospectus.
EXPERTS
The audited consolidated financial statements of GeoVax, Labs, Inc. and subsidiary for the years ended December 31, 2009, 2008 and 2007 and for the period of time considered part of the development stage from January 1, 2006 to December 31, 2009, included in this prospectus, have been audited by Porter Keadle Moore LLP, an independent registered public accounting firm, as set forth in its report appearing herein. Such financial statements have been so included in reliance upon the reports of such firm given upon its authority as an expert in accounting and auditing.
The statements of operations, stockholders’ deficiency and cash flows of GeoVax, Inc. (a Georgia corporation in the development stage) for the period from inception (June 27, 2001) to December 31, 2005, included in this prospectus, have been audited by Tripp, Chafin & Company, LLC, an independent registered public accounting firm, as set forth in its report appearing herein. Such financial statements have been so included in reliance upon the reports of such firm given upon its authority as an expert in accounting and auditing.
LEGAL MATTERS
The validity of the common stock will be passed upon for us by Womble Carlyle Sandridge & Rice, PLLC, Atlanta, Georgia. As of the date of this prospectus, attorneys with Womble Carlyle Sandridge & Rice, PLLC beneficially own an aggregate of approximately $27,218, which was calculated using33,000 shares (after an assumed1-for-50 reverse stock split) of our common stock. Certain legal matters in connection with this offering will be passed upon for the Black-Scholes pricing
model assuming 0% dividend yield, risk free interest rate of 5%placement agent by Stradling Yocca Carlson & Rauth, P.C., volatility
factor of 443% and an expected remaining life of 10 months.
F-8
Report of Independent Certified Public Accountants
Newport Beach, California.
60
GEOVAX LABS, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
(A DEVELOPMENT-STAGE ENTERPRISE)
INDEX TO 2009 CONSOLIDATED FINANCIAL STATEMENTS
| F-2 | ||||
| F-4 | ||||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
| F-8 | ||||
| Financial Statement Schedule: | ||||
| F-18 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENTS
ON FINANCIAL STATEMENTS
To the Board of Directors and Shareholders of
Dauphin Technology,
GeoVax Labs, Inc. and Subsidiaries:
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of DAUPHIN
TECHNOLOGY, INC. (an Illinois corporation)GeoVax Labs, Inc. and Subsidiaries,subsidiary (a development stage company) (the “Company”) as of December 31, 20012009 and 2000,2008, and the related consolidated statements of operations, shareholders'stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2001.2009, and for the period of time considered part of the development stage from June 27, 2001 to December 31, 2009, except we did not audit the Company’s financial statements for the period from June 27, 2001 to December 31, 2005 which were audited by other auditors. These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
audit.
We conducted our audits in accordance with auditingthe standards generally accepted
inof the United States of America.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dauphin
Technology,GeoVax Labs, Inc. and its Subsidiariessubsidiary as of December 31, 20012009 and 20002008, and the
consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001,2009 in conformity with accounting principles generally accepted in the United States of America.
The accompanying
Our audits of the consolidated financial statements have been prepared assuming thatand internal controls over financial reporting also included the financial statement schedule of the Company, will continueSchedule II, on page F-18. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits of the consolidated financial statements. In our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a going concern. As discussedwhole, presents fairly in Note 2,all material respects the information set forth therein.
We have also audited, in accordance with the standards of the Public Company incurred a net lossAccounting Oversight Board (United States), GeoVax Labs, Inc. and subsidiary’s internal control over financial reporting as of $13,252,360 during the year ended December 31, 2001,2009, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and asour report dated February 22, 2010, expressed an unqualified opinion on the effectiveness of GeoVax Labs, Inc.’s internal control over financial reporting.
/S/ PORTER KEADLE MOORE LLP
Atlanta, Georgia
February 22, 2010
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENTS
ON FINANCIAL STATEMENTS
Board of Directors
GeoVax, Inc.
Atlanta, Georgia
We have audited the statements of operations, stockholders’ deficiency and cash flows of GeoVax, Inc. (a Georgia corporation in the development stage) for the period from inception (June 27, 2001) to December 31, 2005. 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that date,we plan and perform the Company's accumulated deficit is $59,594,075. In addition,
the Company has consistently used, rather than provided, cash in its operations.
These factors, among others, as discussed in Note 2audit to obtain reasonable assurance about whether the financial statements raise substantial doubt aboutare free of material misstatement. An audit includes examining, on a test basis, evidence supporting the Company's ability to continueamounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a going
concern. Management's plans in regard to these matters are also described in
Note 2. Thereasonable basis for our opinion.
In our opinion, the financial statements do not include any adjustments that might
result fromof GeoVax, Inc. referred to above present fairly, in all material respects, the outcomeresults of this uncertainty.
As disclosedits operations, changes in Note 20, the accompanying consolidated financial statementsstockholders’ deficiency and cash flows for the year endedperiod from inception (June 27, 2001) to December 31, 2000 have been restated.
GRANT THORNTON LLP
Chicago, Illinois
April 9, 2002
F-9
Dauphin Technology, Inc.
2005, in conformity with accounting principles generally accepted in the United States of America.
/s/ TRIPP, CHAFIN & COMPANY, LLC
Marietta, Georgia
February 8, 2006
F-3
GEOVAX LABS, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
(A DEVELOPMENT-STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
December 31, 2001
| December 31, | ||||||||
| 2009 | 2008 | |||||||
ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 3,515,784 | $ | 2,191,180 | ||||
| Grant funds receivable | 320,321 | 311,368 | ||||||
| Prepaid expenses and other | 44,615 | 299,286 | ||||||
| Total current assets | 3,880,720 | 2,801,834 | ||||||
| Property and equipment, net of accumulated depreciation and amortization | 344,202 | 138,847 | ||||||
| Other assets: | ||||||||
| Licenses, net of accumulated amortization of $159,161 and $134,276 | ||||||||
| at December 31, 2009 and 2008 respectively | 89,695 | 114,580 | ||||||
| Deposits and other | 980 | 980 | ||||||
| Total other assets | 90,675 | 115,560 | ||||||
| Total assets | $ | 4,315,597 | $ | 3,056,241 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 408,344 | $ | 176,260 | ||||
| Amounts payable to Emory University (a related party) | 163,021 | 170,162 | ||||||
| Total current liabilities | 571,365 | 346,422 | ||||||
| Commitments (Note 5) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $.001 par value, 900,000,000 shares authorized 781,628,192 and 747,448,876 shares outstanding at December 31, 2009 and 2008, respectively | 781,628 | 747,449 | ||||||
| Additional paid-in capital | 20,500,452 | 16,215,966 | ||||||
| Deficit accumulated during the development stage | (17,537,848 | ) | (14,253,596 | ) | ||||
| Total stockholders’ equity | 3,744,232 | 2,709,819 | ||||||
| Total liabilities and stockholders’ equity | $ | 4,315,597 | $ | 3,056,241 | ||||
See accompanying reports of independent registered public accounting firms and 2000
The accompanying notes are an integral part of these balance sheets.
F-10
Dauphin Technology, Inc.
to financial statements.
F-4
GEOVAX LABS. INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2001, 2000
| From Inception | ||||||||||||||||
| Years Ended December 31, | (June 27, 2001) to | |||||||||||||||
| 2009 | 2008 | 2007 | December 31, 2009 | |||||||||||||
| Grant revenue | $ | 3,668,195 | $ | 2,910,170 | $ | 237,004 | $ | 10,226,550 | ||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 4,068,682 | 3,741,489 | 1,757,125 | 16,560,345 | ||||||||||||
| General and administrative | 2,914,845 | 2,970,068 | 2,784,182 | 11,512,970 | ||||||||||||
| 6,983,527 | 6,711,557 | 4,541,307 | 28,073,315 | |||||||||||||
| Loss from operations | (3,315,332 | ) | (3,801,387 | ) | (4,304,303 | ) | (17,846,765 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 31,080 | 73,200 | 62,507 | 314,586 | ||||||||||||
| Interest expense | — | — | — | (5,669 | ) | |||||||||||
| 31,080 | 73,200 | 62,507 | 308,917 | |||||||||||||
| Net loss | $ | (3,284,252 | ) | $ | (3,728,187 | ) | $ | (4,241,796 | ) | $ | (17,537,848 | ) | ||||
| Basic and diluted: | ||||||||||||||||
| Loss per common share | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.04 | ) | ||||
| Weighted average shares | 759,563,911 | 740,143,397 | 714,102,311 | 469,267,530 | ||||||||||||
See accompanying reports of independent registered public accounting firms and 1999
The accompanying notes are an integral part of theseto financial statements.
F-11
Dauphin Technology, Inc.
F-5
GEOVAX LABS, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OFSHAREHOLDERS'STOCKHOLDERS’ EQUITY For the years ended December 31, 2001, 2000(DEFICIENCY)
(A DEVELOPMENT-STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF
| Deficit | ||||||||||||||||||||||||
| Accumulated | Total | |||||||||||||||||||||||
| Stock | During the | Stockholders’ | ||||||||||||||||||||||
| Common Stock | Additional | Subscription | Development | Equity | ||||||||||||||||||||
| Shares | Amount | Paid in Capital | Receivable | Stage | (Deficiency) | |||||||||||||||||||
| Capital contribution at inception (June 27, 2001) | — | $ | — | $ | 10 | $ | — | $ | — | $ | 10 | |||||||||||||
| Net loss for the year ended December 31, 2001 | — | — | — | — | (170,592 | ) | (170,592 | ) | ||||||||||||||||
| Balance at December 31, 2001 | — | — | 10 | — | (170,592 | ) | (170,582 | ) | ||||||||||||||||
| Sale of common stock for cash | 139,497,711 | 139,498 | (139,028 | ) | — | — | 470 | |||||||||||||||||
| Issuance of common stock for technology license | 35,226,695 | 35,227 | 113,629 | — | — | 148,856 | ||||||||||||||||||
| Net loss for the year ended December 31, 2002 | — | — | — | — | (618,137 | ) | (618,137 | ) | ||||||||||||||||
| Balance at December 31, 2002 | 174,724,406 | 174,725 | (25,389 | ) | — | (788,729 | ) | (639,393 | ) | |||||||||||||||
| Sale of common stock for cash | 61,463,911 | 61,464 | 2,398,145 | — | — | 2,459,609 | ||||||||||||||||||
| Net loss for the year ended December 31, 2003 | — | — | — | — | (947,804 | ) | (947,804 | ) | ||||||||||||||||
| Balance at December 31, 2003 | 236,188,317 | 236,189 | 2,372,756 | — | (1,736,533 | ) | 872,412 | |||||||||||||||||
| Sale of common stock for cash and stock subscription receivable | 74,130,250 | 74,130 | 2,915,789 | (2,750,000 | ) | — | 239,919 | |||||||||||||||||
| Cash payments received on stock subscription receivable | — | — | — | 750,000 | — | 750,000 | ||||||||||||||||||
| Issuance of common stock for technology license | 2,470,998 | 2,471 | 97,529 | — | — | 100,000 | ||||||||||||||||||
| Net loss for the year ended December 31, 2004 | — | — | — | — | (2,351,828 | ) | (2,351,828 | ) | ||||||||||||||||
| Balance at December 31, 2004 | 312,789,565 | 312,790 | 5,386,074 | (2,000,000 | ) | (4,088,361 | ) | (389,497 | ) | |||||||||||||||
| Cash payments received on stock subscription receivable | — | — | — | 1,500,000 | 1,500,000 | |||||||||||||||||||
| Net loss for the year ended December 31, 2005 | — | — | — | — | (1,611,086 | ) | (1,611,086 | ) | ||||||||||||||||
| Balance at December 31, 2005 | 312,789,565 | 312,790 | 5,386,074 | (500,000 | ) | (5,699,447 | ) | (500,583 | ) | |||||||||||||||
| Cash payments received on stock subscription receivable | — | — | — | 500,000 | — | 500,000 | ||||||||||||||||||
| Conversion of preferred stock to common stock | 177,542,538 | 177,543 | 897,573 | — | — | 1,075,116 | ||||||||||||||||||
| Common stock issued in connection with merger | 217,994,566 | 217,994 | 1,494,855 | — | — | 1,712,849 | ||||||||||||||||||
| Issuance of common stock for cashless warrant exercise | 2,841,274 | 2,841 | (2,841 | ) | — | — | — | |||||||||||||||||
| Net loss for the year ended December 31, 2006 | — | — | — | — | (584,166 | ) | (584,166 | ) | ||||||||||||||||
| Balance at December 31, 2006 | 711,167,943 | 711,168 | 7,775,661 | — | (6,283,613 | ) | 2,203,216 | |||||||||||||||||
| Sale of common stock for cash | 20,336,433 | 20,336 | 3,142,614 | — | — | 3,162,950 | ||||||||||||||||||
| Issuance of common stock upon stock option exercise | 123,550 | 124 | 4,876 | — | — | 5,000 | ||||||||||||||||||
| Stock-based compensation expense | — | — | 1,518,496 | — | — | 1,518,496 | ||||||||||||||||||
| Net loss for the year ended December 31, 2007 | — | — | — | — | (4,241,796 | ) | (4,241,796 | ) | ||||||||||||||||
| Balance at December 31, 2007 | 731,627,926 | 731,628 | 12,441,647 | — | (10,525,409 | ) | 2,647,866 | |||||||||||||||||
| Sale of common stock for cash in private placement transactions | 8,806,449 | 8,806 | 1,356,194 | — | — | 1,365,000 | ||||||||||||||||||
| Transactions related to common stock purchase agreement with Fusion Capital | 6,514,501 | 6,515 | 399,576 | — | — | 406,091 | ||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||
| Stock options | — | — | 1,798,169 | — | — | 1,798,169 | ||||||||||||||||||
| Consultant warrants | — | — | 146,880 | — | — | 146,880 | ||||||||||||||||||
| Issuance of common stock for consulting services | 500,000 | 500 | 73,500 | — | — | 74,000 | ||||||||||||||||||
| Net loss for the year ended December 31, 2008 | — | — | — | — | (3,728,187 | ) | (3,728,187 | ) | ||||||||||||||||
| Balance at December 31, 2008 | 747,448,876 | 747,449 | 16,215,966 | — | (14,253,596 | ) | 2,709,819 | |||||||||||||||||
| Transactions related to common stock purchase agreement with Fusion Capital | 10,813,027 | 10,813 | 1,509,187 | — | — | 1,520,000 | ||||||||||||||||||
| Sale of common stock for cash upon exercise of stock purchase warrant | 23,141,289 | 23,141 | 1,476,859 | — | — | 1,500,000 | ||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||
| Stock options | — | — | 1,221,764 | — | — | 1,221,764 | ||||||||||||||||||
| Consultant warrants | — | — | 45,401 | — | — | 45,401 | ||||||||||||||||||
| Issuance of common stock for consulting services | 225,000 | 225 | 31,275 | — | — | 31,500 | ||||||||||||||||||
| Net loss for the year ended December 31, 2009 | — | — | — | — | (3,284,252 | ) | (3,284,252 | ) | ||||||||||||||||
| Balance at December 31, 2009 | 781,628,192 | $ | 781,628 | $ | 20,500,452 | $ | — | $ | (17,537,848 | ) | $ | 3,744,232 | ||||||||||||
See accompanying reports of independent registered public accounting firms and 1999
The accompanying notes are an integral part of theseto financial statements.
F-12
Dauphin Technology, Inc.
F-6
GEOVAX LABS. INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
(A DEVELOPMENT-STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
| From Inception | ||||||||||||||||
| (June 27, | ||||||||||||||||
| 2001) to | ||||||||||||||||
| Years Ended December 31, | December 31, | |||||||||||||||
| 2009 | 2008 | 2007 | 2009 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||||
| Net loss | $ | (3,284,252 | ) | $ | (3,728,187 | ) | $ | (4,241,796 | ) | $ | (17,537,848 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||||||||||
| Depreciation and amortization | 89,776 | 61,014 | 54,461 | 336,847 | ||||||||||||
| Accretion of preferred stock redemption value | — | — | — | 346,673 | ||||||||||||
| Stock-based compensation expense | 1,298,665 | 2,019,049 | 1,518,496 | 4,836,210 | ||||||||||||
| Changes in assets and liabilities | ||||||||||||||||
| Grant funds receivable | (8,953 | ) | (218,108 | ) | (93,260 | ) | (320,321 | ) | ||||||||
| Stock subscriptions receivable | — | — | (897,450 | ) | — | |||||||||||
| Prepaid expenses and other current assets | 254,671 | (249,538 | ) | (11,618 | ) | (44,615 | ) | |||||||||
| Deposits | — | — | — | (980 | ) | |||||||||||
| Accounts payable and accrued expenses | 224,943 | (252,116 | ) | 405,424 | 571,365 | |||||||||||
| Total adjustments | 1,859,102 | 1,360,301 | 976,053 | 5,725,179 | ||||||||||||
| Net cash used in operating activities | (1,425,150 | ) | (2,367,886 | ) | (3,265,743 | ) | (11,812,669 | ) | ||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Purchase of property and equipment | (270,246 | ) | (99,831 | ) | — | (521,888 | ) | |||||||||
| Net cash used in investing activities | (270,246 | ) | (99,831 | ) | — | (521,888 | ) | |||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Net proceeds from sale of common stock | 3,020,000 | 2,668,541 | 3,167,950 | 15,121,898 | ||||||||||||
| Net proceeds from sale of preferred stock | — | — | — | 728,443 | ||||||||||||
| Net cash provided by financing activities | 3,020,000 | 2,668,541 | 3,167,950 | 15,850,341 | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | 1,324,604 | 200,824 | (97,793 | ) | 3,515,784 | |||||||||||
| Cash and cash equivalents at beginning of period | 2,191,180 | 1,990,356 | 2,088,149 | — | ||||||||||||
| Cash and cash equivalents at end of period | $ | 3,515,784 | $ | 2,191,180 | $ | 1,990,356 | $ | 3,515,784 | ||||||||
| Supplemental disclosure of cash flow information Interest paid | $ | — | $ | — | $ | — | $ | 5,669 | ||||||||
Supplemental disclosure of non-cash investing and financing activities:
In connection with the years ended December 31, 2001, 2000Merger discussed in Note 6, all of the outstanding shares of the Company’s mandatory redeemable convertible preferred stock were converted into shares of common stock as of September 28, 2006.
See accompanying reports of independent registered public accounting firms and 1999
The accompanying notes are an integral part of these statements
F-13
Dauphin Technology, Inc.
to financial statements.
F-7
GEOVAX LABS, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,2001, 20002009, 2008 and 1999
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
Description of Business
Dauphin Technology,2007 and
Period from Inception (June 27, 2001) to December 31, 2009
(A DEVELOPMENT-STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,
Period from Inception (June 27, 2001) to December 31, 2009
| 1. | Nature of Business |
GeoVax Labs, Inc. ("Dauphin"(“GeoVax” or the "Company"“Company”), is a biotechnology company focused on developing human vaccines for diseases caused by Human Immunodeficiency Virus (HIV). The Company has exclusively licensed from Emory University (“Emory”) vaccine technology which was developed in collaboration with the National Institutes of Health (“NIH”) and its Subsidiaries
designthe Centers for Disease Control and market mobile hand-held, pen-based computers, broadband set-top
boxes; provide private, interactive cable systems toPrevention (“CDC”). The Company is incorporated under the extended stay
hospitality industry; and perform design services, specializing in hardware and
software development, outlaws of three locations in northern Illinois, one in
central Floridathe State of Delaware and its branch officeprincipal offices are located in Piraeus, Greece. Through oneSmyrna, Georgia (metropolitan Atlanta area).
The Company is devoting all of its subsidiaries,present efforts to research and development. We have funded our activities to date almost exclusively from equity financings and government grants, and we will continue to require substantial funds to continue these activities. We expect that our existing cash resources, combined with the Company marketed its contract manufacturing servicesproceeds from the NIH grant discussed in Note 4 and our anticipated use of the common stock purchase agreement discussed in Note 7, will be sufficient to fund our planned activities at least through July 1999.2010. The Company, an Illinois corporation, was formedextent to which we rely on June 6, 1988the common stock purchase agreement as a source of funding will depend on a number of factors including the prevailing market price of our common stock and became a public entity in 1991.
the extent to which we choose to secure working capital from other sources, if available.
| 2. | Summary of Significant Accounting Policies |
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Dauphin and its
wholly owned subsidiaries, R.M. Schultz & Associates,GeoVax, Inc. ("RMS"), Advanced
Digital Designs,from inception together with those of GeoVax Labs, Inc. ("ADD") and Suncoast Automation, Inc. ("Suncoast")from September 28, 2006 (see Note 6). All significant inter-companyintercompany transactions and balances have been eliminated in consolidation.
2. REALIZATION OF ASSETS:
Development-Stage Enterprise
GeoVax is devoting all of its present efforts to research and development and is a development stage enterprise as defined by Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 915, “Development Stage Entities”. All losses accumulated since inception (June 27, 2001) have been considered as part of the Company’s development stage activities.
Use of Estimates
The accompanyingpreparation of financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which
contemplate continuationrequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the company as a going concern. However, the company
has sustained substantial losses from operations in recent years, and such
losses have continued through the unaudited quarter ended March 31, 2002.
Revenues from the Company's design services have declined. In addition, the
company has used, rather than provided, cash in its operations.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the company, which in turn is
dependent upon the company's ability to meet its financing requirements on a
continuing basis, to maintain present financing, and to succeed in its future
operations. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the company be
unable to continue in existence.
Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue in existence: The Company has concentrated its efforts on
marketing its set-top boxes, halted all further development of the next
generation Orasis and are exploring alternative mobile hand-held computer
products through original equipment manufacturers. In January 2002 the
management of the Company began terminating employees who were not a critical
part of the marketing efforts. The facilities in McHenry, which housed the RMS
operations, has been closed, the majority of the personnel have been terminated
and the remaining inventoryreported amounts of revenues and equipment will be auctioned inexpenses during the second
quarter of 2002.
F-14
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
3. RISK AND UNCERTAINTIES:
Absence of Operating Profit
The Company has incurred a net operating loss in each year since it's founding
and as of December 31, 2001 has an accumulated deficit of $59,594,075. The
Company expects to incur operating losses over the near term. The Company's
ability to achieve profitability will depend on many factors including the
Company's ability to market commercially acceptable products including its
set-top box. There can be no assurance that the Company will ever achieve a
profitable level of operations or if profitability is achieved, that it can be
sustained.
Early Stage of Development of the Company's Products
From June of 1997 through June of 1999, the Company was principally engaged in
research and development activities involving the hand-held computer. Since
then, the Company has been working on new technologies, in particular the design
and development of the set-top boxes. In 2001, the Company also began developing
a new version of its hand-held computer. The Company's products have been sold
in limited quantities and there can be no assurance that a significant market
will develop for such products in the future. Therefore, the Company's inability
to develop and market its products on a timely basisreporting period. Actual results may have a material adverse
effect on the Company's financial results.
4. SUMMARY OF MAJOR ACCOUNTING POLICIES:
differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include
We consider all cash andhighly liquid investments that maturewith a maturity of three months or less from when theypurchased to be cash equivalents. Our cash and cash equivalents consist primarily of bank deposits and money market accounts. The recorded values approximate fair market values due to the short maturities.
F-8
Fair Value of Financial Instruments and Concentration of Credit Risk
Financial instruments that subject us to concentration of credit risk consist primarily of cash and cash equivalents, which are purchased.maintained by a high credit quality financial institution. The carrying amount
approximatesvalues reported in the balance sheets for cash and cash equivalents approximate fair value due to short maturity of these investments.
Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market and primarily consist of purchased parts and assemblies.
values.
Property and Equipment
Property and equipment are stated at cost. The components of property and equipment as of December 31, 2009 and 2008 are as follows:
| 2009 | 2008 | |||||||
| Laboratory equipment | $ | 389,494 | $ | 243,663 | ||||
| Leasehold improvements | 115,605 | — | ||||||
| Other furniture, fixtures & equipment | 16,789 | 7,979 | ||||||
| Total property and equipment | 521,888 | 251,642 | ||||||
| Accumulated depreciation and amortization | (177,686 | ) | (112,795 | ) | ||||
| Property and equipment, net | $ | 344,202 | $ | 138,847 | ||||
Expenditures for maintenance and repairs are charged to operations as incurred, while additions and improvements are capitalized. Depreciation is being computed using the straight-line methodsmethod over the estimated useful lives (principallyof the assets which range from three to seven years for machinery and equipment and twenty-five years for building) andfive years. Amortization of leasehold improvements is computed using the straight-line method over the lesserremaining term of the lease term or their useful life.
Goodwillrelated lease. Depreciation and long-livedamortization expense was $64,891, $36,128, and $29,575 during the years ended December 31, 2009, 2008 and 2007, respectively.
Other Assets
Other assets Goodwill arising from business acquisitions isconsist principally of license agreements for the use of technology obtained through the issuance of the Company’s common stock. These license agreements are amortized on a straight-linestraight line basis ranging fromover ten years. Amortization expense related to these agreements was $24,886 during each of the years ended December 31, 2009, 2008 and 2007, respectively, and is expected to be $24,886, $24,886, $19,923, $10,000 and $10,000 for each of the next five years, to ten years. Goodwill associated with the
acquisitionrespectively.
Impairment of ADD was being amortized on a straight-line basis over 5 years.
Goodwill associated with the acquisition of RMS was being amortized on a
straight-line basis over 10 years. Installation contracts acquired in the
acquisition of Suncoast are being amortized on a straight-line basis over the
term of the contract, typically seven years. Long-Lived Assets
Long-lived assets, including
goodwill and other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss wouldRecoverability of assets to be recognized whenheld and used is measured by a comparison of the carrying amount of an asset exceeds the estimated undiscountedassets to the future net cash flows expected to result frombe generated by such assets. If such assets are considered to be impaired, the use ofimpairment to be recognized is measured by the asset and its eventual disposition. Theamount by which the carrying amount of the impairment loss to be recorded is calculated byassets exceeds the excessdiscounted expected future net cash flows from the assets.
Accrued Liabilities
As part of the asset's
carrying value over its fair value. Fair valueprocess of preparing our financial statements, we estimate expenses that we believe we have incurred, but have not yet been billed by our third party vendors. This process involves identifying services and activities that have been performed by such vendors on our behalf and estimating the level to which they have been performed and the associated cost incurred for such service as of each balance sheet date in our financial statements. Examples of expenses for which we accrue include fees for professional services and fees owed to contract manufacturers in conjunction with the manufacture of vaccines for our clinical trials. We make these estimates based upon progress of activities related to contractual obligations and information received from vendors.
F-9
Restatement for Recapitalization
All share amounts and per share figures in the accompanying consolidated financial statements and the related footnotes have been restated for the 2006 recapitalization discussed in Note 6.
Net Loss Per Share
Basic and diluted loss per common share are computed based on the weighted average number of common shares outstanding. All common share equivalents (which consist of options and warrants) are excluded from the computation of diluted loss per share since the effect would be anti-dilutive. Common share equivalents which could potentially dilute basic earnings per share in the future, and which were excluded from the computation of diluted loss per share, totaled: 93,327,497, 114,829,102; and 93,637,594 shares at December 31, 2009, 2008 and 2007, respectively.
Revenue Recognition
We recognize revenue in accordance with the SEC’s Staff Accounting Bulletin No. 101,Revenue Recognition in Financial Statements,as amended by Staff Accounting Bulletin No. 104,Revenue Recognition,(“SAB 104”). SAB 104 provides guidance in applying U.S. generally accepted accounting principles to revenue recognition issues, and specifically addresses revenue recognition for upfront, nonrefundable fees received in connection with research collaboration agreements. During 2009, 2008 and 2007, our revenue consisted of grant funding received from the National Institutes of Health (see Note 4). Revenue from this arrangement is F-15
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
4. SUMMARY OF MAJOR ACCOUNTING POLICIES - Continued
Goodwillapproximately equal to the costs incurred and long-lived assets-Continued
determined using a discounted cash flow analysis. The Companyis recorded $1,100,000as income as the related costs are incurred.
Research and $412,500Development Expense
Research and development expense primarily consists of amortizationcosts incurred in the discovery, development, testing and manufacturing of our product candidates. These expenses consist primarily of (i) fees paid to third-party service providers to perform, monitor and accumulate data related to the Company’s preclinical studies and clinical trials, (ii) costs related to sponsored research agreements, (iii) the costs to procure and manufacture materials used in clinical trials, (iv) laboratory supplies and facility-related expenses to conduct development, and (v) salaries, benefits, and share-based compensation for personnel. These costs are charged to expense during 2001as incurred.
Patent Costs
Our expenditures relating to obtaining and 2000,
respectively. Atprotecting patents are charged to expense when incurred, and are included in general and administrative expense.
Period to Period Comparisons
Our operating results are expected to fluctuate for the endforeseeable future. Therefore,period-to-period comparisons should not be relied upon as predictive of the year,results for future periods.
Income Taxes
We account for income taxes using the Company recorded an impairment loss of
$3,987,500 on goodwillliability method. Under this method, deferred tax assets and an impairment loss of $290,000 on its investment in
non-marketable securities (See Notes 6 and 13).
Income Taxes
Deferred tax liabilities and assets are recognized for the expectedestimated future tax consequences of events that have been included in the financial statements and
tax returns. Deferred tax liabilities and assets are determined based on the
differenceattributable to differences between the financial statement basis and tax basiscarrying amounts of existing assets and liabilities (excluding non-deductible goodwill) and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the yearsyear in which thetemporary differences are expected to become recoverablebe recovered or payable.
Revenue Recognitionsettled. Deferred tax assets are reduced by a valuation allowance unless, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized.
F-10
Stock-Based Compensation
We account for stock-based transactions in which the Company receives services from employees, directors or others in exchange for equity instruments based on the fair value of the award at the grant date. Compensation cost for awards of common stock is estimated based on the price of the underlying common stock on the date of issuance. Compensation cost for stock options or warrants is estimated at the grant date based on each instrument’s fair-value as calculated by the Black-Scholes- option-pricing model. The Company recognizes revenue upon shipmentstock-based compensation cost as expense ratably on a straight-line basis over the requisite service period for the award. See Note 7 for additional stock-based compensation information.
Recent Accounting Pronouncements
In June 2009, the FASB issued guidance now codified as ASC Topic 105, “Generally Accepted Accounting Principles”, as the single source of mobile computers, computer
accessories, set-top boxesauthoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”). ASC Topic 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative GAAP by providing all authoritative literature related to a particular topic in one place (the “Codification”). The Codification became the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and assembled products. Revenue from design services,
consultinginterpretive releases of the Securities and intellectual property development is recognizedExchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of ASC Topic 105, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the month the
servicesCodification became non-authoritative. The provisions of ASC Topic 105 are performed.
(Loss) Per Common Share
Basic loss per common share is calculated by dividing net losseffective for interim and annual periods ending after September 15, 2009 and, accordingly, are effective for the year by
the weighted-average number of shares outstanding during the period, which were
63,147,476, 58,711,286 and 46,200,408Company for the years ended December 31, 2001,
2000 and 1999, respectively. Diluted loss per common share is adjusted for the
assumed exercisecurrent fiscal reporting period. The adoption of stock options and warrants unless such adjustment wouldASC Topic 105 did not have an anti-dilutive effect
Concentrationimpact on our results of Credit Risk
Financial instruments which potentially subject Dauphinoperations, financial position, or cash flows, but will impact our financial reporting process by eliminating all references to concentrations of
credit risk consist principally of accounts receivable. Generally, credit risk
with respectpre-codification standards. All references to accounts receivable is diversified dueaccounting literature included in the notes to our financial statements have been changed to reference the number of entities
comprising Dauphin's customer base. However, one individual customer accounted
for approximately 50% and 53% of total accounts receivable at December 31, 2001
and 2000, respectively and the same customer accounted for approximately 45% and
53% of total revenues for the year ended December 31, 2001 and 2000,
respectively. Another customer accounted for approximately 42% of total revenues
for the year ended December 31, 2001.
Use of Estimates
The presentationappropriate sections of the Company's consolidated financial statements in
conformity with accounting principles generally acceptedCodification.
Following ASC Topic 105, the FASB will not issue new standards in the United Statesform of America requires managementStatements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates. The FASB does not consider Accounting Standards Updates as authoritative in their own right. Accounting Standards Updates serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on changes in the Codification.
In September 2006, the FASB issued guidance now codified under ASC Topic 820,“Fair Value Measurements and Disclosures,”which provides enhanced guidance for using fair value to measure assets and liabilities, provides a common definition of fair value, and establishes a framework to make estimatesthe measurement of fair value under GAAP more consistent and assumptions. These estimates
and assumptions affectcomparable. The pronouncement also requires expanded disclosures to provide information about the reported amounts ofextent to which fair value is used to measure assets and liabilities, the disclosuremethods and assumptions used to measure fair value, and the effect of contingentfair value measures on earnings. In February 2008, the FASB released additional guidance also now codified under ASC Topic 820, which delayed the January 1, 2008 effective date for application of certain guidance related to non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the date of the consolidated financial statements on a recurring basis, until January 1, 2009. The implementation of this pronouncement did not have a material effect on our results of operations, financial position, or cash flows.
In March 2008, the FASB issued guidance now codified under ASC Topic 815, “Derivatives and Hedging”, which amends and expands the reported amountsdisclosure requirements previously required for derivative instruments and hedging activities. We adopted this pronouncement effective January 1, 2009 and it did not have a material effect on our results of revenueoperations, financial position, or cash flows.
In April 2008, the FASB issued guidance now codified under ASC Topic 350, “Intangibles — Goodwill and expenses duringOther,” which amends the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
On July 20, 2001,factors that should be considered in developing renewal or extension assumptions used to determine the Financial Accounting Standards Board ("FASB") issued
Statementuseful life of Financial Accounting Standards No.141 ("SFAS No. 141"), "Business
Combinations", and Statement of Financial Accounting Standards No. 142 ("SFAS
No. 142"), "Goodwill and Intangible Assets". SFAS No. 141 is
F-16
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
4. SUMMARY OF MAJOR ACCOUNTING POLICIES - Continued
New Accounting Pronouncements -Continued
effective for all business combinations completed after June 30, 2001. SFAS No.
142 is effective for fiscal years beginning after December 15, 2001; however,
certaina recognized intangible asset. We adopted the provisions of such Statement applythis pronouncement effective January 1, 2009, and it did not have a material effect on our results of operations, financial position, or cash flows.
F-11
In June 2008, the FASB issued guidance now codified under ASC Topic 260, “Earnings Per Share.” This pronouncement addresses whether instruments granted in share-based payment transactions are participating securities prior to goodwillvesting, and other intangible
assets acquired between July 1, 2001, andtherefore, need to be included in the effective date of SFAS No. 142.
Major provisions of these Statements and their effective dates forearnings allocation in calculating earnings per share under the Company
are as follows:
1. All business combinations initiated after June 30, 2001 must use
the purchasetwo-class method of accounting. The poolingcomputing earnings per share. This pronouncement requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of interest methodsecurities in calculating earnings per share. We adopted this pronouncement effective January 1, 2009 and it did not have a material effect on our results of accounting is prohibited except for transactions initiated
before July 1, 2001.
2. Intangible assets acquiredoperations, financial position, or cash flows.
In April 2009, the FASB issued guidance now codified under ASC Topic 825, “Financial Instruments,” which amends previous Topic 825 guidance to require disclosures about fair value of financial instruments in a business combination must be
recorded separately from goodwill if they arise from contractual
or other legal rights or are separable from the acquired entity
and can be sold, transferred, licensed, rented, or exchanged,
either individually or as part of a related contract, asset, or
liability.
3. Goodwill,interim as well as intangible assets with indefinite lives,
acquired after June 30, 2001, willannual financial statements. We adopted this pronouncement effective April 1, 2009 and it did not be amortized. Effective
January 1, 2002, all previously recognized goodwill and intangible
assets with indefinite lives will no longer be subject to
amortization.
4. Effective January 1, 2002, goodwill and intangible assets with
indefinite lives will be tested for impairment annually and
whenever there is an impairment indicator.
5. All acquired goodwill must be assigned to reporting units for
purposeshave a material effect on our results of impairment testing and segment reporting.
The Company has written-off the remaining goodwill as of the end of the year in
accordance with SFAS 121, therefore the provisions of SFAS 141 and SFAS 142 will
not effect the Company.
During 2001,operations, financial position, or cash flows.
In May 2009, the FASB issued SFAS 144, Accountingguidance now codified under ASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for, the Impairment or Disposaland disclosures of, Long-Lived Assets, to address significant implementation issues related to
SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and to develop a single accounting model to account
for long-lived assets to be disposed of. SFAS 144 carries over the recognition
and measurement provisions of SFAS 121. Accordingly, an entity should recognize
an impairment loss if the carrying amount of a long-lived asset or asset group
(a) is not recoverable and (b) exceeds its fair value. Similar to SFAS 121, SFAS
144 requires an entity to test an asset or asset group for impairment whenever
events or circumstances indicate that its carrying amount may not be
recoverable. SFAS 144 provide guidance on estimating future cash flows to test
recoverability. SFAS 144 includes criteria that have to be met for an entity to
classify a long-lived asset or asset group as held for sale. However, if the
criteria to classify an asset as held for sale are metoccur after the balance sheet date but before financial statements are issued or are available to be issued. We adopted this pronouncement effective June 30, 2009 and it did not have a material effect on our results of operations, financial position, or cash flows. We have performed an evaluation of subsequent events through February 22, 2010, which is the issuancedate these financial statements were issued.
We do not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on our financial statements.
| 3. | License Agreements |
Emory License — During 2002, we entered into a license agreement with Emory University (the “Emory License”), a related party, for technology required in conjunction with certain products under development by us in exchange for 35,226,695 shares of our common stock valued at $148,856. The Emory License, among other contractual obligations, requires payments based on milestone achievements, royalties on our sales or on payments to us by our sublicensees, and payment of maintenance fees in the event certain milestones are not met within the time periods specified in the agreement. The Emory License expires on the date of the financial statements,latest expiration date of the asset group would
continueunderlying patents.
MFD License — During 2004, we entered into a license agreement with MFD, Inc. in exchange for 2,470,998 shares of our common stock valued at $100,000. Pursuant to this agreement, we obtained a fully paid, worldwide, irrevocable exclusive license to certain patents covering technology that may be classified as held and used in those financial statements when
issued,employed by our products.
| 4. | NIH Grant |
In September 2007, the National Institutes of Health (NIH) awarded us an Integrated Preclinical/Clinical AIDS Vaccine Development (IPCAVD) grant to support our HIV/AIDS vaccine program. The project period for the grant, which is renewable annually, covers a change from current practice. The measurementfive-year period which commenced October 2007, with an expected annual award of a long-lived
asset or asset group classified as held for sale is at the lower of its carrying
amount of fair value less cost to sell. Expected future losses associated with
the operations of a long-lived asset or asset group classified as held for sale
are excluded from that measurement.
SFAS 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001generally between $3 and interim periods within those fiscal years. However,
the provisions of SFAS 144 related to assets to be disposed of are effective for
disposal activities initiated by an entity's commitment to a plan after the
effective date or after the Statement are initially applied.
F-17
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. INVENTORY
Inventory is comprised of material, labor and overhead and consists of the
following at December 31:
2001 2000
---- ----
Finished goods $ 359,890 $ 88,211
Work in process 156,040 156,040
Raw materials 2,984,145 2,752,714
---------- ----------
3,500,075 2,996,965
Less - Reserve for Obsolescence 2,981,623 2,491,216
---------- ----------
Less - Reserve for obsolescence 2,981,623 2,491,216
---------- ----------
$ 518,452 $ 505,749
========== ==========
During the fourth quarter of 2001, the Company determined that its current
inventory could not be used$4 million per year (approximately $18.3 million in the production of a new version of the Orasis(R),
when itaggregate). The most recent award is completed, and therefore adjusted its remaining raw materials and
work in process inventory to an estimated liquidation value. The Company plans
on liquidating this inventory in the second quarter of 2002. The amount of the
write down was $490,000. During the fourth quarter of 2000, the Company wrote
down approximately $1,440,000 of inventory, consisting primarily of raw
materials, and disposed of certain excess and obsolete inventory which will not
be used in the production of the Orasis(R) or the set top box. In addition, the
Company also set up a reserve for obsolescence of approximately $510,000 to
adjust for the net realizable value of the remaining inventory associated with
the Orasis(R). Upon liquidation and disposal of the inventory, the reserve for
obsolescence will be adjusted.
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
During the fourth quarter of 2001, the Company decided to terminate its
operations at the facilities in McHenry, Illinois and liquidate the remaining
assets. The property and equipment at this facility were written down to an
estimated liquidation value. The result was a write down of obsolete assets of
$221,000. In addition, in the fourth quarter the Company concluded that the
plastic molds for the Orasis(R) were deemed unusable in the development and
production of a new version of the Orasis(R) and were written off, resulting in
a charge of approximately $305,000. The remaining liquidation value of the
assets has been reclassified to Assets not used in the Business.
F-18
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. INVESTMENT
During the third quarter of 1998, the Company invested in non-marketable
securities of a company that was managed by a former director of Dauphin. The
investment was carried on the books at cost. The Company recorded dividend
income of approximately $26,000 in 2000. Dividends were discontinued in 2001.
The Company has determined that due to the discontinuance of dividends and the
poor financial condition of the company, the carrying value has been impaired.
Therefore the Company wrote off the investment in 2001period September 1, 2009 through August 31, 2010 in the amount of $290,000$4.7 million. We are utilizing this funding to further our HIV/AIDS vaccine development, optimization and production. We record revenue associated with the expensegrant as the related costs and expenses are incurred and such revenue is includedreported as a separate line item in the asset impairment loss in the statementour statements of operations. 8. LONG-TERM DEBTDuring 2009, 2008 and 2007, we recorded $3,668,195, $2,910,170 and $237,004, respectively, of revenue associated with the grant.
| 5. | Commitments |
Lease Agreements
In September 2009, we executed a lease agreement, effective November 1, 2009, for approximately 8400 square feet of office and laboratory space located in Smyrna, Georgia (metropolitan Atlanta). Future
F-12
minimum lease payments pursuant to the 62 month lease total $114,570 in 2010, $118,010 in 2011, $121,560 in 2012, $125,180 in 2013 and $128,920 in 2014.
Other Commitments
In the normal course of business, we may enter into various firm purchase commitments related to production and testing of our vaccine material, and other research-related activities. As of December 31, 2001,2009, there were less than $10,000 of unrecorded outstanding purchase commitments to our vendors and subcontractors, which will be due in less than one year.
| 6. | 2006 Merger and Recapitalization |
The Company was originally incorporated in June 1988 under the fair valuelaws of long-term debt approximates its book
value. At December 31, long-term liabilities consist of:
Future minimum debt payments areIllinois as follows:
Year Amount Due
---- ----------
2002 $ 82,507
2003 24,343
2004 19,237
---------
Total long-term debt $ 126,087
=========
F-19
Dauphin Technology, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. CONVERTIBLE DEBT AND WARRANTS
On(“Dauphin”). Dauphin was unsuccessful and its operations were terminated in December 2003. In September 28, 20012006, Dauphin completed a merger (the “Merger”) with GeoVax, Inc. which was incorporated under the laws of Georgia in June 2001. As a result of the Merger, the shareholders of GeoVax, Inc. exchanged their shares of common stock for Dauphin common stock and GeoVax, Inc. became a wholly-owned subsidiary of Dauphin. Dauphin then changed its name to GeoVax Labs, Inc. and replaced its officers and directors with those of GeoVax, Inc. Subsequent to the Merger, the Company entered intohas not conducted any business other than GeoVax, Inc.’s business of developing human vaccines. The Merger was accounted for under the purchase method of accounting as a $10 million Securities Purchase
Agreementreverse acquisition in accordance with Crescent International Ltd., an institutional investor.U.S. generally accepted accounting principles. Under this method of accounting, Dauphin was treated as the Securities Purchase Agreement,acquired company and, accordingly, all financial information prior to the date of Merger presented in the accompanying consolidated financial statements, or in the notes herein, as well as any references to prior operations, are those of GeoVax, Inc. In June 2008, the Company was reincorporated under the laws of the State of Delaware.
| 7. | Stockholders’ Equity |
Common Stock Transactions
During April and May 2008, we sold an aggregate of 8,806,449 shares of our common stock to 16 individual accredited investors for an aggregate purchase price of $1,365,000. We also issued a Convertible Note for $2.5
million on October 2, 2001. Althoughto the Company had the option to issue further
convertible notes to Crescent subject to certain conditions precedent, such
option expired on February 1, 2002 and no additional notes were issued. In
addition, the Company issuedinvestors warrants exercisable to purchase 700,000an aggregate of 14,104,841 shares of common stock at a price of $1.3064$0.33 per share, 8,258,065 of which expire in May 2013, with the remainder expiring in April/May 2012.
In September 2009, we issued 23,141,289 shares of our common stock for an aggregate purchase price of $1,500,000 upon the exercise of a five-year term. The
Securitiespreviously issued stock purchase warrant.
We may, from time to time, issue shares of our common stock to consultants or others in exchange for services. During 2009 and 2008 we issued 225,000 and 500,000 shares, respectively, for consulting services; and we recorded general and administrative expense of $31,500 and $74,000 during each respective period related to these issuances.
Common Stock Purchase Agreement further permits the Company to sell to Crescent up
to $7.5 million in common stock of the Company over
In May 2008, we signed a 24-month period.
Additionally, the Company agreed not to exercise any drawdowns against its
existing common stock purchase agreement (the “Purchase Agreement”) with Techrich International Ltd., which
expired on January 28, 2002.Fusion Capital Fund II, LLC (“Fusion Capital”). The Securities Purchase Agreement permits the Companyallows us to sell to Crescent and
requires Crescentrequire Fusion Capital to purchase up to $10 million of our common stock in amounts ranging from $80,000 to $1.0 million per purchase transaction, depending on certain conditions, from time to time over a25-month period beginning July 1, 2008, the Company,date on which the SEC declared effective the registration statement related to the transaction.
The purchase price of the shares relating to the Purchase Agreement is based on the prevailing market prices of our shares at the Company's sole
discretion,times of the sales without any fixed discount, and we control the timing and amounts of any sales of shares to Fusion Capital. Fusion Capital does not have the right or the obligation to purchase any shares of our common stock on any business day that the purchase price of our common stock is below $0.05 per share. As primary consideration for entering into the Purchase Agreement, and upon the execution of the Company forPurchase Agreement we issued to Fusion Capital 2,480,510 shares of our common stock as a
F-13
commitment fee, and we agreed to issue to Fusion Capital up to $7.5an additional 2,480,510 commitment fee shares, on a pro rata basis, as we receive the $10 million over a 24-month
period. Individual salesof future funding. The Purchase Agreement may be terminated by us at any time at our discretion without any additional cost to us. There are limitedno negative covenants, restrictions on future financings, penalties or liquidated damages in the agreement.
During 2008 we sold 3,709,964 shares to $1.5 million, or a higher amount if
agreedFusion under the terms of the Purchase Agreement for an aggregate purchase price of $500,000, and issued 124,027 shares to by the Company and Crescent, and each sale is subjectFusion pursuant to our satisfactiondeferred commitment fee arrangement. During 2009, we sold 10,435,991 shares to Fusion for an aggregate purchase price of $1,520,000, and issued 377,036 shares pursuant to our deferred commitment fee arrangement.
Stock Options
In 2006 we adopted the GeoVax Labs, Inc. 2006 Equity Incentive Plan (the “Stock Option Plan”) for the granting of qualified incentive stock options (“ISO’s”), nonqualified stock options, restricted stock awards or restricted stock bonuses to employees, officers, directors, consultants and advisors of the following conditions precedent (none of which are within the
control of Crescent): (1) the Company's representations and warranties must be
true and complete, (2) the Company must have one or more then currently
effective registration statements covering the resale by Crescent of all shares
issued in prior sales to Crescent and issuable upon the conversion of the
Convertible Note, (3) there must be no dispute as to the adequacy of disclosures
made inCompany. The exercise price for any such registration statement, (4) such registration statements mustoption granted may not be subjectless than fair value (110% of fair value for ISO’s granted to any stop order, suspension or withdrawal, (5) the Company must
have performed its covenants and obligationscertain employees). Options granted under the Securities Purchase
Agreement, (6) no statute, rule, regulation, executive order, decree, ruling or
injunction mayStock Option Plan have been enacted, entered, promulgated or adopted by any court
of governmental authority that would prohibit the Company's performance under
the Securities Purchase Agreement, (7) the company's common stock must not have
been delisted from its principal trading marketa maximum ten-year term and there must be no trading
suspensiongenerally vest over three years. The Company has reserved 51,000,000 shares of its common stock in effect,for issuance under the Stock Option Plan.
A summary of activity under the Stock Option Plan as of December 31, 2009, and (8)changes during the issuanceyear then ended is presented below:
| Weighted- | ||||||||||||||||
| Weighted- | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number | Exercise | Contractual | Intrinsic | |||||||||||||
| of Shares | Price | Term (Yrs) | Value | |||||||||||||
| Outstanding at January 1, 2009 | 46,947,757 | $ | 0.10 | |||||||||||||
| Granted | 3,425,000 | 0.14 | ||||||||||||||
| Exercised | — | — | ||||||||||||||
| Forfeited or expired | (2,425,000 | ) | 0.29 | |||||||||||||
| Outstanding at December 31, 2009 | 47,947,757 | $ | 0.12 | 5.5 | $ | 4,292,646 | ||||||||||
| Exercisable at December 31, 2009 | 39,409,424 | $ | 0.11 | 4.8 | $ | 3,984,013 | ||||||||||
Additional information concerning our stock options for the years ended December 31, 2009, 2008 and 2007 is as follows:
| 2009 | 2008 | 2007 | ||||||||||
| Weighted average fair value of options granted during the period | $ | 0.12 | $ | 0.12 | $ | 0.30 | ||||||
| Intrinsic value of options exercised during the period | — | — | 22,181 | |||||||||
| Total fair value of options vested during the period | 1,143,326 | 1,074,454 | 1,156,020 | |||||||||
We use a Black-Scholes model for determining the grant date fair value of our stock option grants. This model utilizes certain information, such as the interest rate on a risk-free security with a term generally equivalent to the expected life of the designated
number of shares of common stock with respect tooption being valued and requires certain other assumptions, such as the applicable sale must not
violate the shareholder approval requirements of the Company's principal trading
market. The aggregateexpected amount of all sale shares and convertible notes issued
cannot exceed $10 million. The amount of the saletime an option will be outstanding until it is limitedexercised or expired, to twice the
average of the bid price multiplied by the trading volume during the 22 trading
day period immediately preceding the date of sale. When the total amount of
securities issued to Crescent equals or exceeds $5 million, then the Company
shall issue to Crescent a subsequent incentive warrant exercisable to purchase
400,000 shares of common stock at a price equal to the bid price on the date the
incentive warrant is issued.
The Convertible Note was funded on October 2, 2001 and is due September 28,
2004. The Company shall not be required to pay interest on the Convertible Note
unless the Company fails to deliver shares upon conversion. In such event, the
Note will bear an interest rate of 8.0% per annum, payable in quarterly
installments. The Company has recorded a beneficial conversion feature on the
Convertible Note and Warrants based oncalculate the fair value of stock options granted. The significant assumptions we used in our fair value calculations were as follows:
| 2009 | 2008 | 2007 | ||||||||||
| Weighted average risk-free interest rates | 2.8 | % | 2.9 | % | 4.5 | % | ||||||
| Expected dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
| Expected life of option | 7 | yrs | 7 | yrs | 6.8 | yrs | ||||||
| Expected volatility | 112.3 | % | 100.5 | % | 135 | % | ||||||
F-14
Stock-based compensation expense related to the commonStock Option Plan was $1,221,764, $1,798,169 and $1,296,196 during the years ended December 31, 2009, 2008 and 2007, respectively. The 2008 and 2007 expense includes $425,725 and $242,113, respectively, associated with extensions of previously issued stock option grants (accounted for as reissuances) which were due to expire in 2007 to 2011. Stock option expense is allocated to research and development expense or to general and administrative expense based on the related employee classifications and corresponds to the allocation of $0.99 per shareemployee salaries. For the three years ended December 31, 2009, stock option expense was allocated as follows:
| 2009 | 2008 | 2007 | ||||||||||
| General and administrative expense | $ | 917,110 | $ | 1,304,128 | $ | 1,012,083 | ||||||
| Research and development expense | 304,654 | 494,041 | 284,113 | |||||||||
| Total stock option expense | $ | 1,221,764 | $ | 1,798,169 | $ | 1,296,196 | ||||||
As of December 31, 2009, there was $943,295 of unrecognized compensation expense related to stock-based compensation arrangements. The unrecognized compensation expense is expected to be recognized over a weighted average remaining period of 2.2 years.
Compensatory Warrants
We may, from time to time, issue stock purchase warrants to consultants or others in exchange for services. A summary of our compensatory warrant activity as of December 31, 2009, and changes during the year then ended is presented below:
| Weighted- | ||||||||||||||||
| Weighted- | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number | Exercise | Contractual | Intrinsic | |||||||||||||
| of Shares | Price | Term (Yrs) | Value | |||||||||||||
| Outstanding at January 1, 2008 | 2,700,000 | $ | 0.33 | |||||||||||||
| Granted | 2,970,000 | 0.14 | ||||||||||||||
| Exercised | — | — | ||||||||||||||
| Forfeited or expired | (2,700,000 | ) | 0.33 | |||||||||||||
| Outstanding at December 31, 2009 | 2,970,000 | $ | 0.14 | 2.7 | $ | 118,800 | ||||||||||
| Exercisable at December 31, 2009 | 2,767,500 | $ | 0.14 | 2.7 | $ | 110,700 | ||||||||||
Additional information concerning our compensatory warrants for the years ended December 31, 2009, 2008 and 2007 is as follows:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| Weighted average fair value of warrants granted during the period | $ | 0.10 | $ | 0.05 | $ | 0.25 | ||||||
| Intrinsic value of warrants exercised during the period | — | — | — | |||||||||
| Total fair value of warrants vested during the period | 6,413 | 146,880 | 266,760 | |||||||||
We use a Black-Scholes model for determining the grant date fair value of commitment.our compensatory warrants. The Warrantssignificant assumptions we used in our fair value calculations were as follows:
| 2009 | 2008 | 2007 | ||||||||||
| Weighted average risk-free interest rates | 1.54 | % | 2.01 | % | 4.6 | % | ||||||
| Expected dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
| Expected life of warrant | 3 | yrs | 2.5 | yrs | 3 | yrs | ||||||
| Expected volatility | 112.1 | % | 99.0 | % | 113.6 | % | ||||||
F-15
Expense associated with ancompensatory warrants was $45,401, $146,880 and $222,300 during the years ended December 31, 2009, 2008 and 2007, respectively. All such expense was allocated to general and administrative expense. As of December 31, 2009, there was $121,058 of unrecognized compensation expense related to compensatory warrant arrangements. The unrecognized compensation expense is expected to be recognized over a weighted average remaining period of 1 year.
Investment Warrants
In addition to outstanding stock options and compensatory warrants, as of December 31, 2009 we have a total of 42,409,740 outstanding stock purchase warrants issued to investors in connection with previous financing transactions. These warrants have a weighted-average exercise price of $1.3064$0.33 per share are valued using the Black-Scholes valuation method,
and are recorded at $684,600. The beneficial conversion feature is calculated to
be $914,279 and has been recorded as Additional Paid in Capital and a discountweighted-average remaining contractual life of 2.6 years.
| 8. | Retirement Plan |
We participate in a multi-employer defined contribution retirement plan (the “401k Plan”) administered by a third party service provider; and the Company contributes to the Convertible Note. The beneficial conversion feature is being amortized
over three401k Plan on behalf of its employees based upon a matching formula. During the years the life of the Note. For the year ended December 31, 2001,2009, 2008 and 2007 our contributions to the Company recognized $252,076 as interest expense on the amortization401k Plan were $25,057, $11,691 and $6,535, respectively.
| 9. | Income Taxes |
At December 31, 2009, we have a consolidated federal net operating loss (“NOL”) carryforward of approximately $72.2 million, available to offset against future taxable income which expires in varying amounts in 2010 through 2029. Additionally, we have approximately $522,000 in research and development (“R&D”) tax credits that expire in 2022 through 2028 unless utilized earlier. No income taxes have been paid to date.
As a result of the beneficial conversion feature. At conversion, the Company may record an
additional beneficial conversion based on the market price of the stock at the
conversion date.
On March 30, 1999, the Company signed an agreement with Augustine Funds, LP
("Augustine"), an accredited investor operated by Augustine Capital Management.
Augustine agreed to commit up to $6 million accordingMerger discussed in Note 6, our NOL carryforward increased substantially due to the following
conditions:
F-20
addition of approximately $59.7 million of historical NOL carryforwards for Dauphin Technology, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. CONVERTIBLE DEBT AND WARRANTS - Continued
A) The first closing for $1 million will occur upon executionHowever, Section 382 of agreed upon
documentation as wellthe Internal Revenue Code contains provisions that may limit our utilization of NOL and R&D tax credit carryforwards in any given year as a depositresult of 2 million common shares (which shall be
pledged by current shareholders)significant changes in escrow. This tranche will takeownership interests that have occurred in past periods or may occur in future periods.
Deferred income taxes reflect the formnet effect of an 8% promissory note convertible into stock beginning sixty days after closing.
B) Iftemporary differences between the Company's stock value is below the 5/8 bidcarrying amounts of assets and liabilities for two consecutive days
the Company must replenish the escrow account with additional shares until the
escrow value is greater than $1.5 million. Augustine received a warrant to
purchase 100,000 shares of common stock at an exercise price of $1.00 per share
for the commitment.
In April 1999, the Company received the funds and subsequently deposited an
additional 400,000 shares into an escrow account to compensate for the decline
in share price. In May 1999, the note was converted into common stockfinancial reporting purposes and the escrow account was disbursed to Augustine. The agreement with Augustine was then
cancelled.
10. STOCK-BASED COMPENSATION
In accordance with SFAS No. 123, "Accountingamounts used for Stock-Based Compensation"income tax purposes. Significant components of our deferred tax assets and liabilities included the Company has elected to continue to account for stock compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". During 2001 and 2000, the Company issued non-qualified stock options
to purchase 1,496,164 and 3,921,832 shares of common stock, respectively, to
certain key employees at exercise prices ranging from $0.50 to $3.875 per share
(approximating the market price at date of grant). The options vest immediately
and expire in three years if the individual is still employed with the Company.
Had the Company accounted for its stock options in accordance with Statement
123,following at December 31, 20012009 and 2000 pro forma earnings per share would2008:
| 2009 | 2008 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforward | $ | 25,035,390 | $ | 24,217,858 | ||||
| Research and development tax credit carryforward | 522,322 | 354,581 | ||||||
| Stock-based compensation expense | 1,569,212 | 1,127,665 | ||||||
| Other | 32,300 | — | ||||||
| Total deferred tax assets | 27,159,224 | 25,700,104 | ||||||
| Deferred tax liabilities | ||||||||
| Depreciation | (31,091 | ) | (25,222 | ) | ||||
| Total deferred tax liabilities | (31,091 | ) | (25,222 | ) | ||||
| Net deferred tax assets | 27,128,132 | 25,674,882 | ||||||
| Valuation allowance | (27,128,132 | ) | (25,674,882 | ) | ||||
| $ | — | $ | — | |||||
F-16
We have been:
For purposes of determining the pro forma effect of these options, the fair
value of each option is estimated on the date of grant based on the
Black-Scholes single-option-pricing model:
F-21
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. STOCK-BASED COMPENSATION - Continued
Information regarding these options for 2001 and 2000 is as follows:
The following table summarizes information about the options outstanding at
December 31, 2001 and 2000:
F-22
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. STOCK-BASED COMPENSATION - Continued
11. WARRANTS
During 2001 and 2000, the Company issued warrants to purchase 983,672 and
6,309,972 shares of common stock, respectively, to certain investors at exercise
prices ranging from $0.20 to $5.481 per share (approximating the market price at
date of grant). The warrants expire in three to five years. The warrants issued
to consultants are measured at fair value and recorded as expense, while the
warrants issued in capital raising are measured in fair value and recorded as an
allocation of the capital received. The warrants are recorded at the fair value
estimated on the date of grant based on the Black- the Black-Scholes
single-option-pricing model:
December 31, 2001 December 31, 2000
Dividend yield 0.0% 0.0%
Risk-free interest rate 5.0% 6.0%
Volatility factor 433% 224%
Expected life in years 2.75 2.60
Information regarding these warrants for 2001 and 2000 is as follows:
F-23
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
11. WARRANTS - Continued
The following table summarizes information about the warrants outstanding at
December 31, 2001 and 2000:
F-24
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
11. WARRANTS - Continued
In December 2000, the Company re-priced approximately 3,012,000 warrants it had
previously issued to outside consultants. The warrants were originally issued
with an exercise price ranging from $10.00 to $5.00, and were re-priced with
exercise prices ranging from $5.00 to $2.00 per share. The re-pricing created a
charge to earnings of approximately $234,000, which was calculated using the
Black-Scholes pricing model assuming 0% dividend yield, risk free interest rate
of 6%, volatility factor of 224% and an expected life of 2.6 years.
12. EMPLOYEE BENEFIT PLAN
The Company maintains a salary deferral 401(k) plan covering substantially all
employees who meet specified service requirements. Contributions are based upon
participants' salary deferrals and compensation and are made within Internal
Revenue Service limitations. For the years 2001, 2000 and 1999, the Company did
not make any matching contributions. The Company does not offer post-employment
or post-retirement benefits. The Company does not administer this plan, and
contributions are determined in accordance with provisions of the plan.
13. IMPAIRMENT OF ASSETS
On an ongoing basis, the Company estimates the future undiscounted cash flows,
before interest, of the operating unit to which the goodwill relates in order to
evaluate its impairment. If there is an indication of impairment exists, the
carrying amount of the goodwill is reduced to its fair value by the estimated
shortfall of cash flows. During the fourth quarter of 2001 the Company
determined that the set-top box design was completed and the design services
business with outside customers was declining, therefore an impairment of the
goodwill associated with the acquisition of ADD occurred. The Company revised
its projections and determined that the projected results would not fully
support the goodwill balance. In accordance with the Company policy, management
assessed the recoverability of goodwill using a cash flow projection based on
the remaining amortization period of three and three quarter years. Based on
this projection, the cumulative cash flow over the remaining period was
insufficient to fully recover the goodwill. The Company estimated there was no
value and the remaining goodwill of decided to write off the remaining
$3,987,500 was written off of goodwill.
In addition, the Company determined that the carrying value of its investment in
non-marketable securities had been impaired since the investment had
discontinued paying dividends in 2001 and due to the overall poor financial
condition of the company. Therefore, the Company wrote off its investment in the amount of $290,000.
During the fourth quarter of 2001, the Company decidedour net deferred tax assets due to terminate its
operations at the facilities in McHenry, Illinois and liquidate the remaining
assets. The property and equipment at this facility were written downuncertainties with respect to an
estimated liquidation value. The result was a total write down of obsoleteour ability to generate sufficient taxable income to realize these assets of $221,000. In addition, during the fourth quarter the Company concluded
that the plastic molds for the Orasis(R) were deemed unusable in the development
and production of a new version of the Orasis(R) and the remaining undepreciated
value of approximately $305,000 was written off.
F-25
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. IMPAIRMENT OF ASSETS - Continued
During the third quarter of 1999 the Company experienced an impairment of the
goodwill associated with the acquisition of RMS, when an estimated cash flow
from the operating unit dramatically decreased. The Company recorded $767,475 as
an expense during 1999.
14. INCOME TAXES:
future.
A reconciliation of the income tax benefit on losses at the U.S. federal statutory rate to the reported income tax expense follows:
As of December 31, 2001 and 2000, the Company had generated deferred tax assetsis as follows:
| 2009 | 2008 | 2007 | ||||||||||
| U.S. federal statutory rate applied to pretax loss | $ | (1,116,646 | ) | $ | (1,267,584 | ) | $ | (1,442,211 | ) | |||
| Permanent differences | 3,223 | 3,054 | 4,719 | |||||||||
| Research and development credits | — | 167,741 | 100,296 | |||||||||
| Change in valuation allowance (excluding impact of the Merger discussed in Note 6) | 1,113,423 | 1,096,789 | 1,337,196 | |||||||||
| Reported income tax expense | $ | — | $ | — | $ | — | ||||||
| 10. | Related Party Transactions |
We are obligated to these assets. During 1995, there was an
ownership change in the Company as defined under Section 382reimburse Emory University (a significant stockholder of the Internal
Revenue Code of 1986, which adversely affects the Company's ability to utilize
the NOL carryforward.
F-26
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
15. BUSINESS SEGMENTS:
The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information". During 2001, the Company has three
reportable segments: Dauphin Technology, Inc., ("Dauphin"), Advanced Digital
Designs, Inc. ("ADD") and Suncoast Automation, Inc. ("Suncoast"). During 2000,
the Company had two reportable segments: Dauphin and ADD. During 1999, the
Company had two reportable segments: Dauphin and R.M. Schultz & Associates, Inc.
("RMS"). Dauphin is involved in design, manufacturing and distribution of
hand-held pen-based computer systems and accessories. ADD is a design
engineering company performing design services, process methodology consulting
and intellectual property development. Suncoast provides private, interactive
cable systems to the hospitality industry. RMS was an electronic contract
manufacturing firm. The operations of RMS were terminated in 1999 because the
entity was not profitable and used, rather than provided, cash in its
operations.
The reportable segments are managed separately because each business has
different customer requirements, either as a result of the regional environment
of the country or differences in products and services offered. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. Intangible assets are included in each
segment's reportable assets and the amortization of these intangible assets is
included in the determination of a segment's operating profit or loss. The
Company evaluates performance based on profit or loss from operations before
income taxes, interest, and non-operating income (expenses).
F-27
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
16. COMMITMENTS AND CONTINGENCIES:
The Company conducts its operations from facilities which are rented under
non-cancelable operating leases. The leases on these facilities expire
throughout 2002 and contain renewal options and escalation clauses. Minimum
rental payments for 2002 amount to approximately $210,000, including real estate
taxes. Total rental expense was approximately $376,000, $294,000 and $300,000
for 2001, 2000 and 1999 respectively.
During 2001 and through the date of this report, the Company has been engaged in
various legal proceedings. Management believes that any existing litigation
would not be material to the overall financial condition of the Company.
17. RELATED-PARTY TRANSACTIONS:
CADserv, an engineering services company based in Schaumburg, Illinois,
controlled by an Officer and a major shareholder, has contributed to the design
and development of the new version of the Orasis(R) and assisted the Company in
the design of the set-top box. The Company paid $72,573 in 2001 for such
services.
RMS facilities are leased from Enclave Corporation, a company that is owned by
the former President of RMS whose contract with the Company was terminated on
May 14, 1999. The Company paid $182,337 of rent and $32,380 in real estate taxes
or the property lease in 2001, $179,468 of rent and $30,206 of real estate taxes
for the property lease in 2000 and $179,684 of rent and $24,150 of real estate
taxes for 1999.
18. EQUITY TRANSACTIONS:
2001 Transactions
During the first quarter of 2001, the Company received proceeds in the amount of
$102,300 for the exercise of 210,000 warrants. Additionally, employees exercised
4,000 stock options at a price of $.50 per share.
During the second quarter of 2001, employees exercised 4,000 stock options at a
price of $.50 per share
In April 2001, the Company issued to certain consultants 30,000 shares of common
stock and warrants to purchase 70,000 shares of common stock at an exercise
price of $1.36 per share, as paymentCompany) for certain promotionalprior and consulting
services. In September 2001, the Company issued additional warrants to purchase
16,666 shares of common stock at an exercise price of $1.395 per share to
finalize the arrangement with the consultants.
Effective July 1, 2001, the Company completed the acquisition of substantially
all of the assets of Suncoast Automation, Inc., a wholly owned subsidiary of
ProtoSource Corporation, pursuant to an Asset Purchase Agreement. The purchase
price was 766,058 shares of the Company's common stock valued at approximately
$1.1 million based on the closing bid price of $1.47 per share on June 29, 2001.
During the third quarter of 2001, the Company received proceeds in the amount of
$75,000 for the exercise of 75,000 warrants.
On August 14, 2001 the Company issued a drawdown noticeongoing costs in connection with the common stock purchasefiling, prosecution and maintenance of patent applications subject to the Emory License (see Note 3). The expense associated with these ongoing patent cost reimbursements to Emory amounted to $85,673, $102,141 and $243,653 for the years ended December 31, 2009, 2008 and 2007, respectively.
In June 2008, we entered into two subcontracts with Emory for the purpose of conducting research and development activities associated with our grant from the NIH (see Note 4). During 2009 and 2008, we recorded $816,651 and $723,887, respectively, of expense associated with these subcontracts. All amounts paid to Emory under these subcontracts are reimbursable to us pursuant to the NIH grant.
Through November 2009, we leased office and laboratory space on amonth-to-month basis from Emtech Biotechnology Development, Inc., a related party associated with Emory. Rent expense associated with this lease totaled $43,112, $47,041 and $36,588 for the years ended December 31, 2009, 2008 and 2007, respectively.
In March 2008, we entered into a consulting agreement with Techrich International for $300,000. Upon
receiptDonald Hildebrand, the Chairman of the funds, the Company issued 258,968 sharesour Board of common stockDirectors and warrantsour former President & Chief Executive Officer, pursuant to purchase 22,006 shares of common stock at an exercise price of
$1.14516.
F-28
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
18. EQUITY TRANSACTIONS - Continued
On September 13, 2001 the Company filed with the Securitieswhich Mr. Hildebrand provides business and Exchange
Commission a Form S-3 registration statement relating to 6,964,724 shares of
common stock. The shares were issued by the Company in respect of the following:
(i) 766,058 shares were issued by the Company in connection with the acquisition
of the net assets of Suncoast; (ii) 52,000 shares were issued by the Company as
payment for certain advertising and promotional expenses and consulting
services; and (iii) 6,146,666 shares issuable by the Company to shareholders
upon the exercise by them of issued and outstanding warrants and options. On
September 27, 2001, the Securities and Exchange Commission declared the
registration statement effective.
During the fourth quarter of 2001, employees exercised 27,600 stock options at a
price of $.89 per share.
In November 2001, the Company issued warrants to purchase 175,000 shares of
common stock at exercise prices ranging from $1.00 to $1.50, as payment for
certain advertising and promotional expenses.
On November 19, 2001 the Company filed with the Securities and Exchange
Commission a Form S-1 registration statement relating to 4,000,000 shares of
common stock to be issued upon the conversion of the Convertible Note (see Note
9). This registration statement is still pending approval by the Securities and
Exchange Commission.
Personal Guarantee
On April 3, 2001, the Company and Estel Telecommunications S.A. cancelled the
performance bond issued on October 26, 2000 and the 1,550,000 shares of
restricted stock held by Best S.A. were returnedtechnical advisory services to the Company. In connectionThe term of the consulting agreement began on April 1, 2008 and originally was to end on December 31, 2009; in December 2009 the consulting agreement was extended for an additional year. During 2009 and 2008, we recorded $57,600 and $64,000, respectively, of expense associated with the cancellation of the shares, Best S.A. executed the personal guarantee
of Mr. Andrew J. Kandalepas, which he had granted to secure the performance of
the Company's obligation to register the 1,550,000 shares issued in connection
with the performance bond and retained the 1,032,118 shares. The set-top box
agreement with Estel Telecommunications S.A. terminated on July 1, 2001 due to
lack of performance on behalf of Estel. This transaction was entered into on
behalf of the Company and therefore the Company recorded an expense of
$1,241,741, with an offsetting entry to additional paid in capital.
On December 20, 2001, the Board of Directors approved the issuance of 1,032,118
shares to the Chairman of the Board and CEO of the Company to replace the shares
that Best S.A. retained under the personal guarantee. The shares were valued at
$1,241,741 based on the closing price of $1.20 on April 3, 2001.
2000 Transactions
During the first and second quarter of 2000, the Company conducted a private
placement of 4,654,613 common shares and approximately 1,300,000 warrants to a
group of accredited investors in exchange for approximately $7,300,000. The
proceeds were used to settle the majority of trade payables, for day-to-day
operations and to start the development of the set-top box.
In January 2000, the Company issued 480,000 shares to a customer in exchange for
cancellation of $300,000 of customer deposits.
In January 2000, the Company issued warrants to an investment banker, for
services rendered, to purchase 350,000 shares at an exercise price of $1.00.
In January 2000, the Company issued 500,000 shares to a consulting firm for
services rendered in relation to the set-top box agreement with Estel
Telecommunications S.A.
F-29
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
18. EQUITY TRANSACTIONS - Continued
In April 2000, the Company completed its private placement and issued 3,630,000
warrants to an investment banker in lieu of consulting fees.
On April 26, 2000, the Company completed a common stock purchase agreement,
escrow agreement and registration rights agreement with Techrich International
Limited ("Techrich"). These agreements provide a $100,000,000 equity line of
credit as the Company requests over an 18 month period, in return for common
stock and warrants to be issued to the investor. Once every 22 days, the Company
may request a draw of up to $10,000,000 of that money, subject to a maximum of
18 draws. The maximum amount the Company actually can draw down upon each
request will be determined by the volume-weighted average daily price of the
Company's common stock for the 22 trading days prior to its request and the
average trading volume for the 45 trading days prior to the request. Each draw
down must be for at least $250,000. Use of a 22 day trading average was
negotiated to reduce the impact of market price fluctuations over any calendar
month, which generally includes 22 trading days. At the end of a 22-day trading
period following the drawdown request, the amount of shares is determined based
on the volume-weighted average stock price during that 22-day period in
accordance with the formulas in the common stock purchase agreement.
On April 28, 2000, the Company filed with the Securities and Exchange Commission
a Form S-1 registration statement relating to 15,332,560 shares of common stock
issued to stockholders in private transactions, 11,958,963 shares for other
stockholders, and 6,000,000 shares to be issued when the Company requests a
drawdown under the common stock purchase agreement referred to above.
On July 28, 2000, the Securities and Exchange Commission declared the
registration statement effective. Pursuant to the common stock purchase
agreement with Techrich, the Company issued as a placement fee warrants to
purchase 250,000 shares of common stock at an exercise price of $5.481.
On July 31, 2000, the Company issued a drawdown notice in connection with the
common stock purchase agreement with Techrich for $5,000,000. Upon receipt of
the funds, the Company issued 1,354,617 shares of common stock and warrants to
purchase 101,463 shares of common stock at exercise prices ranging from $4.06 to
$4.22.
In September 2000, the Company issued 73,750 stock options to certain employees
under employment agreements. At the time of issuance, the option price was below
the market price and the Company recorded $70,622 as additional compensation
expense.
On October 17, 2000, the Company issued a drawdown notice in connection with the
common stock purchase agreement with Techrich for $2,000,000. Upon receipt of
the funds, the Company issued 781,999 shares of common stock and warrants to
purchase 44,646 shares of common stock at exercise prices ranging from $3.26676
to $4.4369.
On October 20, 2000 the Company entered into an agreement with Best S.A. to act
as its distributor/agent in Greece. On October 26, 2000 the Company issued
1,550,000 shares of restricted stock to Best S.A. as a performance bond to
assure the Company's compliance with the Set-Top Box Agreement by and between
the Company and Estel S.A. These shares have not been included in the issued and
outstanding shares as of December 31, 2000, as Best S.A. has acknowledged that
they would return the shares to the Company upon satisfactory compliance with
the Set-Top Box Agreement. The agreement with Best S.A. requires the Company to
register these shares with the Securities and Exchange Commission during 2000.
To secure performance of the Company's obligation to register these shares,
Andrew J. Kandalepas, Chairman of the Board and CEO of the Company, granted to
Best S.A. a security interest in 1,032,118 shares of Company stock owned by him.
F-30
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
18. EQUITY TRANSACTIONS - Continued
In December 2000, the Company issued 22,000 shares of common stock and warrants
to purchase 148,265 shares of common stock at exercise prices ranging from
$1.0312 to $1.25, as payment for certain advertising and promotional expenses
and consulting services related to the establishment of an office in Europe.
In December 2000, the Company re-priced approximately 3,012,000 warrants it had
previously issued to outside consultants. The warrants were originally issued
with an exercise price ranging from $10.00 to $5.00, and were re-priced with
exercise prices ranging from $5.00 to $2.00 per share. The re-pricing created a
charge to earnings of approximately $234,000, which was calculated using the
Black-Scholes pricing model assuming 0% dividend yield, risk free interest rate
of 6%, volatility factor of 224% and an expected life of 2.6 years.
1999 Transactions
In January and April 1999, the Company issued a total of 46,373 shares under an
employment contract with Richard M. Schultz, former President of RMS. As of May
14, 1999, the Company no longer employs Richard M. Schultz.
In February and March 1999, the Company issued a total of 87,380 treasury shares
and 1,570,927 shares in exchange for $660,000 of principal, $17,123 of interest
and $32,909 of original issue discount amortization on Convertible Debentures -
2001A. In addition, in March the short-term loan from an investor in the amount
of $250,000 together with $7,500 of interest was converted into 427,667 shares.
In March 1999, the Company issued warrants to an investment banker to purchase
50,000 shares at an exercise price of $0.60 exercisable after the market bid
price of the Company's stock exceeds $1.00 for 15 consecutive trading days. Also
in March of 1999 the Company issued warrants to the same investment banker to
purchase 50,000 shares at an exercise price of $0.50 exercisable after the
market bid price of the Company's stock exceeds $2.00 for 15 consecutive trading
days. The warrants were valued at $48,000 using the Black-Scholes securities
valuation model, assuming among other things, a 6% risk free interest rate, 0%
dividend yield, 1 and 2 year life respectively and 120% volatility.
In March 1999, the Company issued 507,160 shares to five accredited investors in
exchange for $403,492. In addition to the shares, the Company issued warrants to
purchase 300,000 shares of common stock at an exercise price of $1.10 per share
exercisable immediately. The warrants were valued at $165,600 using the
Black-Scholes securities valuation model, assuming among other things, a 7% risk
free interest rate, 0% dividend yield, 5 year life and 120% volatility.
On March 30, 1999, Dauphin signed an agreement with Augustine Funds LP
("Augustine"), an accredited investor operated by Augustine Capital Management,
where Augustine agreed to commit up to $6 million. The first closing for $1
million occurred on April 15, 1999 when the parties executed agreed upon
documentation and Dauphin deposited 2 million common shares in escrow. This
tranche was in the form of an 8% promissory note convertible into stock
beginning sixty days after closing. The conversion was at 15% discount from the
closing bid price of the Company's common stock. The contract also called for
the adjustment in escrowed shares in case stock value decreases, under the 5/8
bid for two consecutive days. As specified on the contract, on April 22 due to
decline in market price of the stock, the Company deposited additional 400,000
shares in an escrow account to replenish the $1.5 million value in the account.
As an incentive, Augustine received a warrant to purchase 100,000 common shares
of stock at an exercise price of $1.00 per share. The warrant was valued at
$52,200 using Black-Scholes securities valuation model, assuming among other
things, a 6% risk free interest rate, 0% dividend yield, 1 and 2 year life
respectively and 120% volatility. On May 24, 1999 $1 million funded under the
note, together with accrued interest, was converted into 2,441,414 shares of
common stock of which 2,400,000 common shares were disbursed to Augustine. The
agreement with Augustine has been cancelled.
F-31
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
18. EQUITY TRANSACTIONS - Continued
In May 1999, the Company issued 150,000 shares to two accredited investors in
exchange for $82,500. In addition to the shares the Company issued warrants to
purchase 150,000 shares of common stock at an exercise price of $0.55 per share.
The warrants are exercisable immediately and expire in three years. The warrants
were valued at $53,250 using the Black-Scholes securities valuation model,
assuming among other things, a 6% risk free interest rate, 0% dividend yield, 5
year life and 120% volatility.
In May 1999, the company issued 586,764 common shares in exchange for $240,000
of the remaining principal of the Convertible Debentures-2001A. That closed out
all debts the Company had in relation to the Convertible Debentures.
On May 28, 1999 the Company signed a Stock Purchase Agreement with Crescent
International Ltd. ("Crescent"), an investment company managed by GreenLight
(Switzerland) SA, which allows the Company and obligates Crescent to purchase
shares from the Company based on terms and conditions outlined in the agreement.
In total Crescent agreed to purchase up to $2,250,000 of the common stock within
the next twenty-four months. Crescent agreed to purchase from the Company shares
based on ninety percent of the daily average trading value, which is computed by
multiplying the closing bid price by the daily volume of the Company's common
stock traded average over the twenty days prior to closing. In connection
therewith the Company sold to Crescent 1,048,951 shares for $450,000 at an
average price of $0.43 per share including $58,000 of closing fees. The Company
has the right to sell additional shares with an interval of 25 business days
with a minimum of $100,000 per sale and a maximum of $500,000 based on the
average daily value as described above. In addition to the stock, Crescent
received an Incentive Warrant to purchase 750,000 common shares at a price of
$0.6435 per share. The Warrants were valued at $235,500 using Black-Scholes
securities valuation model assuming among other things 6% risk free rate, 0%
dividend yield, five years life and 120% volatility.
In connection with the Stock Purchase Agreement signed by the Company on May 28,
1999, the Company sold to Crescent 350,000 shares for $148,050 at an average
price of $0.423 per share, including $2,961 of closing fees.
In the third quarter of 1999, the Company issued 14,963 treasury shares and
2,086,540 common shares to a group of accredited investors in exchange for
$598,817 or an average of $0.29 per share. In addition to the shares the Company
issued warrants to purchase 1,651,600 shares of common stock at an average
exercise price of $0.47 per share. The warrants are exercisable immediately and
expire in three to five years. The Warrants were valued at $443,622 using
Black-Scholes securities valuation model assuming among other things 6% risk
free rate, 0% dividend yield, five years life and 120% volatility.
During the third quarter, the Company agreed to issue a total of 407,868 shares
to satisfy certain payables in the cumulative amount of $223,825 or
approximately $0.55 per share.
In September 1999, a Warrant for a total of 100,000 shares that was issued in
July 1999 was exercised at $0.53 per share. The Company received a total of
$53,000 from such exercise.
On October 26 1999, the Company issued 93,358 shares in exchange for $29,643 or
$0.32 per share net of $605 of closing fees in accordance with the Stock
Purchase Agreement signed by the Company on May 28, 1999 with Crescent.
On October 27, 1999 in connection with the Stock Purchase Agreement signed by
the Company on May 28, 1999 with Crescent, the Company sold to Crescent 447,012
shares for $141,935 at an average price of $0.32 per share, including $2,897 of
closing fees.
F-32
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
18. EQUITY TRANSACTIONS - Continued
In November 1999, the Company issued 457,650 shares to three accredited
investors in exchange for $156,500 or $0.33 per share.
During the third quarter of 1999 a Warrant for 302,858 shares at $0.20 was
exercised. The Company received a total of $60,285 for the shares. As of the
date of this report, these shares have not been issued.
In November 1999, in exchange for services rendered, the Company issued 300,000
shares to a consultant.
In December 1999, the Company converted $70,000 of short-term notes including
$5,000 of interest from an affiliate into 350,000 shares.
In December 1999, the Company issued 362,858 shares in exchange for $72,572 from
two accredited investors. In addition to shares, the Company issued two Warrants
for the total of 362,858 common shares to the investors with a strike price of
$0.20. The Warrants were valued at $68,637 using Black-Scholes securities
valuation model assuming among other things 6% risk free rate, 0% dividend
yield, five years life and 120% volatility.
19. ACQUISITIONS:
On July 1, 2001, the Company acquired substantially all of the assets of
Suncoast Automation, Inc. The purchase price was 766,058 shares of the Company's
common stock valued at $1,126,105 based on the closing bid price of $1.47 per
share on June 29, 2001. The transaction was accounted for under the purchase
method of accounting. The purchase price, was allocated as follows:
Accounts Receivable $ 14,669
Inventory 113,054
Prepaid expenses 24,326
Equipment 794,170
Installation contracts 320,000
-----------
1,266,105
Less Accounts payable 140,114
-----------
Total $ 1,126,105
===========
Pro Forma operating results as if the acquisition had occurred at the beginning
of the respective for the years ending December 31, 2001 an d 2000, as required
under Financial Accounting Standards No. 141, Business Combinations, are as
follows:
2001 2000
---- ----
Revenue $ 2,620,207 $ 1,064,676
Operating loss (13,652,231) (8,489,753)
Net loss (13,702,198) (8,365,215)
Net loss per share
Basic $ (0.22) $ (0.14)
Diluted $ (0.22) $ (0.14)
F-33
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
19. ACQUISITIONS - Continued
On August 28, 2000, the Company acquired T & B Designs, Inc. (formerly known as
Advanced Digital Designs, Inc.), Advanced Technologies, Inc. and 937 Plum Grove
Road Partnership in exchange for $3 million in cash and $3 million to be held in
escrow and disbursed in accordance with the terms and conditions of an Escrow
Agreement. The transaction was accounted for under the purchase method of
accounting. Goodwill was recorded and is to be amortized under the straight-line
method over a 5-year period.
The purchase price, plus direct costs of the acquisition, were allocated as
follows:
Building $ 400,000
Computer equipment 110,000
Other equipment 15,000
Excess of Cost over Net Assets Acquired 5,500,000
-----------
Total $ 6,025,000
===========
Pro Forma operating results as if the acquisition had occurred at the beginning
of the respective for the years ending December 31, 2000 and 1999, as required
under APB 16 (Accounting Principles Board Opinion number 16, regarding Business
Combinations), are as follows:
2000 1999
---- ----
Revenue $ 3,548,801 $ 5,513,493
Operating loss (7,023,058) (6,594,083)
Net loss (8,253,941) (8,650,289)
Net loss per share
Basic $ (0.14) $ (0.19)
Diluted $ (0.14) $ (0.19)
20. RESTATEMENT:
Selling, general and administrative expenses, interest expense, net loss and per
share amounts have been adjusted from previously reported amounts to offset the
difference between the quoted market price and the proceeds from stock sales
under a private placement in the first quarter of 2000 against additional paid
in capital rather than interest expense amounting to $1,302,383 ($0.02 per
share).
F-34
Dauphin Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
| 11. | Selected Quarterly Financial Data (unaudited) |
A summary of selected quarterly informationfinancial data for 20012009 and 20002008 is as follows:
* Net loss
| 2009 Quarter Ended | ||||||||||||||||
| March 31 | June 30 | September 30 | December 31 | |||||||||||||
| Revenue from grants | $ | 710,155 | $ | 752,800 | $ | 1,808,551 | $ | 396,689 | ||||||||
| Net loss | (861,509 | ) | (1,348,653 | ) | (230,815 | ) | (843,275 | ) | ||||||||
| Net loss per share | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||
| 2008 Quarter Ended | ||||||||||||||||
| March 31 | June 30 | September 30 | December 31 | |||||||||||||
| Revenue from grants | $ | 599,991 | $ | 376,078 | $ | 1,322,502 | $ | 611,599 | ||||||||
| Net loss | (682,510 | ) | (1,284,352 | ) | (722,108 | ) | (1,039,217 | ) | ||||||||
| Net loss per share | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||
F-17
GEOVAX LABS, INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2009, 2008 andper share amounts for the quarter ended June 30, 2001 have been
adjusted from previously reported amounts2007
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2009, 2008 and
| Additions | ||||||||||||||||||||
| Balance at | Charged to | Charged to | Balance at | |||||||||||||||||
| Beginning | Costs and | Other | End | |||||||||||||||||
Description | of Period | Expenses | Accounts | Deductions | of Period | |||||||||||||||
| Reserve Deducted in the Balance Sheet From the Asset to Which it Applies: | ||||||||||||||||||||
| Allowance for Deferred Tax Assets | ||||||||||||||||||||
| Year ended December 31, 2009 | $ | 25,674,882 | $ | 1,453,250 | $ | — | $ | — | $ | 27,128,132 | ||||||||||
| Year ended December 31, 2008 | $ | 24,436,911 | $ | 1,237,971 | $ | — | $ | — | $ | 25,674,882 | ||||||||||
| Year ended December 31, 2007 | $ | 22,792,303 | $ | 1,644,608 | $ | — | $ | — | $ | 24,436,911 | ||||||||||
F-18
GEOVAX LABS, INC.
$40,000,000
Up to reflect the issuanceUnits
$ Per Unit
PROSPECTUS
Global Hunter Securities LLC
The date of 1,032,118
shares of common stock to the Chairman of the Board and CEO of the Company to
replace shares issued under a personal guarantee amounting to $1,241,741 (0.02
per share).
** Net loss and per share amounts for the quarters ended March 31, 2000 and
September 30, 2000 have been adjusted from previously reported amounts to offset
the difference between the quoted market price and the proceeds from stock sales
under the private placement against additional paid in capital rather than
interest expense amounting to $1,721,939 ($0.03 per share) for the quarter ended
March 31, 2000 and $343,416 ($0.01 per share) for the quarter ended September
30, 2000.
F-35
this Prospectus is , 2010
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
| ITEM 13. | Other Expenses of Issuance and Distribution. |
The following table sets forth the variousestimated costs and expenses of the Registrant in connection with the sale
and distributionoffering described in the registration statement all of which will be borne by us.
| SEC Registration Fee | $ | 2,852 | ||
| FINRA Filing Fee | $ | * | ||
| Legal Fees and Expenses | $ | * | ||
| Accounting Fees and Expenses | $ | * | ||
| Printing Fees and Expenses | $ | * | ||
| Miscellaneous | $ | * | ||
TOTAL | $ | |||
| * | To be filed by amendment |
| ITEM 14. | Indemnification of Directors and Officers. |
Section 145 of the securities being registered hereby. All amounts are
estimated except the Securities and Exchange Commission registration fee.
Amount
------
SEC registration fee $ 890.00
Accounting fees and expenses 14,000.00
Legal fees and expenses 16,000.00
Miscellaneous fees and expenses 6,500.00
-------------
Total $ 37,390.00
-------------
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Registrant is incorporated in the State of Illinois. Section 8.75 of the
Illinois BusinessDelaware General Corporation Act defines the powers of registrant to indemnify
officers, directors, employees and agents.
In additional to the provisions of Illinois Business Corporation Act Section
8.75, and pursuant to the power granted therein, registrant has adapted Article
XII of its Bylaws whichLaw (the “DGCL”), provides, as follows:
ARTICLE XII
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 1 Theamong other things, that a corporation shallmay indemnify any person who was or is a party or is threatenthreatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the corporation’s request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding. The power to indemnify applies (i) if such person is successful on the merits or otherwise in defense of any action, suit or proceeding or (ii) if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The power to indemnify applies to actions brought by or in the right of the corporation as well, but only to the extent of defense expenses (including attorneys’ fees but excluding amounts paid in settlement), actually and reasonably incurred and not to any satisfaction of judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification shall be made in the event of any adjudication of negligence or misconduct in the performance of his duties to the corporation, unless a court believes that in light of all the circumstances indemnification should apply.
Our bylaws provide that we may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation)Company) by reason of the fact that he is or was a directors, officer, employee or agent of the corporation or fiduciary of any employee benefit plan maintained by the
corporation, or whoperson is or was a director, officer, employee or agent of the corporation of a fiduciary as aforesaid,Company, or who is or was serving at the request of the corporationCompany as a director, officer, employee or agent of fiduciary of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney'sattorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by himthe person in connection with such action, suit or proceeding if hethe person acted in good faith and in a manner hethe person reasonably believed to be in or not opposed to the best interests of the corporation (or, in the case of a fiduciary, the best interests of the plan and
plan participants) and, with respect to any criminal action proceeding, had no
reasonable cause to believe his conduct was unlawful. This termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contender or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporationCompany, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that thisthe person’s conduct was unlawful. SECTION 2 The corporation shallOur bylaws also provide that we may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporationCompany to procure a judgment in its favor by reason of the fact that hethe person is or was a director, officer, employee or agent of the corporation or fiduciary as aforesaid,Company, or is or was serving at the request of the corporationCompany as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorney'sattorneys’ fees) actually and reasonably incurred by himthe person in
II-1
connection with the defense or settlement of such action or suit if hethe person acted in good faith and in a manner hethe person reasonably believed to be in or not opposed to the best interests of the corporation (or, in the case of a fiduciary, the best
interests of the planCompany and plan participants), except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation,Company unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view II-1
of all the circumstances of the case, such person is fairly and reasonably entitled to indemnifyindemnity for such expenses aswhich the Delaware Court of Chancery or such other court shall deem proper.
SECTION 3 To the extent that a director, officer, employee or agent of a
corporation or fiduciary as aforesaid has been successful, on the merits or
otherwise, in the defense of any action, suit or proceeding referred to in
proceeding sections, or in defense of any claim, issue or matter therein, he
shall be indemnified against
Under our bylaws, expenses (including attorney'sattorneys’ fees) actually and
reasonably incurred by him in connection therewith.
SECTION 4 Any indemnification under section 1 and 2 hereof (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case,
upon a determination of thean officer or director officer, employee, agent of fiduciary is
proper on the circumstances because he has met the applicable standard of
conduct set forth in said sections. Such determination shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtained, or even if obtainable, a quorum of disinterest directors so
directs, by independent legal counsel in a written opinion, or (3) by the
shareholders.
SECTION 5 Expenses incurred in defending aany civil, criminal, administrative or criminalinvestigative action, suit or proceeding may be paid by the corporationCompany in advance of the final disposition of such action, suit or proceeding as authorized by the board of directors in the
specific case, upon receipt of an undertaking by or ohon behalf of thesuch director officer, employee or agentofficer to repay such amount unlessif it shall ultimately be determined that hesuch person is not entitled to be indemnified by the corporationCompany. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as authorized in this Article.
SECTION 6 we deem appropriate.
The indemnification and advancement of expenses provided by this Article shallour bylaws is not be deemed
exclusive, of any other rights to which those seeking indemnification may be
entitled under any bylaws, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in hissuch person’s official capacity and as to action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent, and shall
incur to the benefit of the heirs, executors and administrators of such person.
SECTION 7 The corporationoffice.
Our bylaws also provide that we may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation
of fiduciary,Company, or who is or was serving at the request of the corporation as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article.
SECTION 8 In the case of a merger, the term "corporation" shall include, in
additional to the surviving corporation, any merging corporation absorbed in a
merger, which if its separate existence had continued, would have had the power
and authority to indemnify its directors, officers and employees or agents, so
that any person who was a director, officer, employee or agent of such merging
corporation, or was serving at the request of another corporation,Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall standagainst any liability asserted against such person and incurred by such person in the same position under the
provisionsany such capacity, or arising out of this section with respect to the surviving corporationsuch person’s status as such, personwhether or not the Company would have with respectthe power to indemnify such merging ifperson against such liability under our bylaws. The Company maintains an insurance policy providing for indemnification of its separate existence had
continued.
SECTION 9 For the purposeofficers, directors and certain other persons against liabilities and expenses incurred by any of this Article, referenced to "other enterprises"
shall include employee benefit plans; reference to "fines" shall include any
excise tax assessed on a person with respect to an employee benefit plan;them in certain stated proceedings and references to the phrase "serving at the request of the corporation" shall
include any service as a director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries. A person who acted
in good faith and in a manner he or she reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Article.
under certain stated conditions.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers andor persons controlling persons ofthe registrant pursuant to the foregoing provisions, or otherwise,the registrant has been advisedinformed that in the opinion of the Securities and Exchange CommissionSEC such indemnification is against public policy as expressed in the Securities Act and is therefore enforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by registrant of expenses incurred in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction
II-2
the questions whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such an
issue.
Except to the extent herein above set forth, there is no charter provision,
bylaw, contract, arrangement or statute pursuant to which any director or
officer of registrant is indemnified in any manner against any liability which
he may incur in his capacity as such.
Item 15. unenforceable.
| ITEM 15. | Recent Sales of Unregistered Securities. |
Recent Sales of Unregistered Securities
Within the past three years, the registrant has sold the following securities
that were not registered under the Securities Act. The purchases
GeoVax Labs, Inc., an Illinois corporation
In November and sales were
exempt pursuant to Section 4(2)December 2007, we issued an aggregate of the Securities Act and/or Regulation D
promulgated thereunder, as transactions by an issuer not involving a public
offering, where the purchasers represented their intention to acquire the
securities for investment only, not with a view to distribution,337,155 shares of our common stock and received or
had access to adequate information about the registrant.
1. In May 1999, the Company issued 150,000 shares to two accredited
investors, Peter Tsolinas and Ernest Kezios, in exchange for $82,500. We
undertook this transaction to raise funds for general working capital purposes.
In addition to the shares the Company issued warrants to purchase 150,000an aggregate of 534,669 shares of our common stock at $16.50 per share to 29 individual accredited investors for an aggregate purchase price of $2,612,950. We also granted these investors certain “piggyback” registration rights.
In December 2007, we also issued 38,710 shares of our common stock and warrants to purchase an aggregate of 31,429 shares of our common stock at $16.50 per share to an institutional investor for an aggregate purchase price of $300,000. We also granted this investor certain “piggyback” registration rights.
In January and March 2008, we issued an aggregate of 6,000 shares of our common stock and a warrant to purchase 54,000 shares of our common stock at $16.50 per share to Equinox One Consulting, LLC (“Equinox One”) for public and financial relations services to be rendered to us during 2008. The warrant vested in installments with 21,600 shares vested upon issuance and 10,800 shares vesting on each of June 30, September 30, and December 31, 2008.
During April and May 2008, we sold to fifteen individual accredited investors 176,129 shares of our common stock and warrants to purchase an aggregate of 282,097 shares of common stock at an exercise price
II-2
of $0.55$16.50 per share. The warrants are
exercisable immediatelyshare for an aggregate purchase price of $1,365,000. We also granted these investors certain “piggyback” registration rights.
On May 8, 2008, we entered into the Purchase Agreement (the “Purchase Agreement”) with Fusion Capital as disclosed in ourForm 8-K filed May 12, 2008, and expire in three years. The warrants were valued at
$53,250 usingwe issued to Fusion Capital 49,610 shares of our common stock as a commitment fee. This completed the Black-Scholes securities valuation model, assuming among other
things, a 6% risk free interest rate, 0% dividend yield, 5 year life and 120%
volatility. The purchase and sale were exemptprivate placement, pursuant to which we may sell shares to Fusion Capital, as described in thatForm 8-K and the relatedForm S-1 (Reg.No. 333-151491). TheForm S-1 registered the sale by Fusion Capital, in an indirect primary offering, of the shares acquired under the Purchase Agreement. We disclose information regarding the number of shares sold in a given period in the notes to our financial statements. We had previously issued 4,000 shares to Fusion Capital as an expense reimbursement upon execution of the related term sheet. See “The Fusion Transaction.”
No underwriters or placement agents were used in the above transactions. We relied upon the exemptions from registration contained in Section 4(2) of the Securities Actand/orRule 506 promulgated thereunder as to all of the transactions, as the investors were either deemed to be sophisticated with respect to the investment in the securities due to their financial conditionand/or involvement in our business or were accredited investors. Restrictive legends were placed on the certificates evidencing the securities issued in all of the above transactions.
GeoVax Labs, Inc., a Delaware corporation
On June 18, 2008, GeoVax Labs, Inc., a Delaware corporation, issued approximately 14,868,297 shares of its common stock to former holders of common stock of GeoVax Labs, Inc., an Illinois corporation on aone-for-1 basis. Outstanding options and Regulation D as transactions by an issuer not involving a public offering, where
the purchases represented their intentionwarrants to acquire the securities for
investment only, not with a view to distribution, and received or had access to
adequate information about the registrant, consisting of periodic reports filed
pursuant to Section 13(a) and 15 (d) of the Exchange Act. The securities were
issued without use of advertising or general solicitation following the
Company's delivery of a copy of the most recent Form 10-K, proxy statement and
interim Forms 10-Q to the investors and the investors delivery of a subscription
agreement stating the investors qualification as accredited investors, including
the investor's statement of intent to acquire the securities for the investors'
own investment purposes and not with a view toward further distribution.
2. In May 1999, the Company issued 586,764 common shares to Augustine
Funds, LP, an institutional investor, in exchange for $240,000 of the remaining
principal of the Convertible Debentures-2001A. That closed out all debts the
Company had in relation to the Convertible Debentures with Augustine Funds LP.
3. On May 28, 1999 the Company signed a Stock Purchase Agreement with
Crescent International Ltd. ("Crescent"), an investment company managed by
GreenLight (Switzerland) SA, which allows the Company and obligates Crescent to
purchase shares from the Company based on terms and conditions outlined in the
agreement. We undertook this transaction to raise funds for general working
capital purposes. In total Crescent agreed to purchase up to $2,250,000 of the
common stock within the next twenty-four months. Crescent agreed to purchase
from the Company shares based on ninety percent of the daily average trading
value, which is computed by multiplying the closing bid price by the daily
volume of the Company's common stock traded average over the twenty days prior
to closing. In connection therewith the Company sold to Crescent 1,048,951
shares for $450,000 at an average price of $0.43 per share including $58,000 of
closing fees. The Company has the right to sell additional shares with an
interval of 25 business days with a minimum of $100,000 per sale and a maximum
of $500,000 based on the average daily value as described above. In addition to
the stock, Crescent received an Incentive Warrant to purchase 750,000 common
shares at a price of $0.6435 per share. The Warrants were valued at $235,500
using Black-Scholes securities valuation model assuming among other things 6%
risk free rate, 0% dividend yield, five years life and 120% volatility. Under
this agreement, on May 28, 1999 the Company sold to Crescent 350,000 shares for
$148,050 at an average price of $0.423 per share, including $2,961 of closing
fees.
4. In the third quarter of 1999, the Company issued 14,963 treasury shares
and 2,086,540 common shares to a group of eight accredited investors in exchange
for $598,817 or an average of $0.29 per share. . We undertook this transaction
to raise funds for general working capital purposes. In addition to the shares
the Company issued warrants to purchase 1,651,600approximately 2,200,182 shares of common stock at an
average exercise price of $0.47 per share. The warrants are exercisable
immediately and expire in three to five years. The Warrantsthe Illinois corporation were valued at
$443,622 using Black-Scholes securities valuation model assuming among other
things 6% risk free rate, 0% dividend yield, five years life and 120%
volatility. The purchase and sale were exempt pursuant to Rule 506 and
Regulation D as transactions by an issuer not involving a public offering, whereconverted into the purchasers represented their intentionright to acquire shares of the Delaware corporation on aone-for-1 basis.
The Delaware corporation relied upon SEC Rule 145(a)(2). The transaction was a statutory merger in which the securities for
investment only, not with a view to distribution, and received or had access to
adequate information about the registrant,
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consisting of periodic reports filed pursuant to Section 13(a) and 15 (d) of the Exchange Act.
5. DuringIllinois corporation were exchanged for the third quarter, the Company agreed to issue a total of
407,868 shares to satisfy certain payables in the cumulative amount of $223,825
or approximately $0.55 per share. The issuance was exempt pursuant to Section
4(2) as transactions by an issuer not involving a public offering.
6. In September 1999, a Warrant for a total of 100,000 shares that was
issued in July 1999 was exercised by James Stella at $0.53 per share. The
Company received a total of $53,000 from such exercise. We used the funds for
general working capital purposes. The securities were issued without use of
advertising or general solicitation following the Company's delivery of a copy of the most recent Form 10-K, proxy statement and interim Forms 10-Q to the
investorDelaware corporation and the investor's deliverytransaction’s sole purpose was to change the issuer’s domicile from Illinois to Delaware.
On July 1, 2008, we issued 2,000 shares of a subscription agreement stating the
investor's qualification as an accredited investor, including the investor's
statement of intentour common stock, $0.001 par value, to acquire the securities for its own investment purposes
and not with a view toward further distribution.
7. On October 27, 1999 in connection with the Stock Purchase Agreement
signed by the Company on May 28, 1999 with Crescent, the Company sold to
Crescent 447,012 shares for $141,935 at an average price of $0.32 per share,
including $2,897 of closing fees.
8. In November 1999, the Company issued 457,650 shares to three accredited
investors, Brian Smith, Dan Schlaphohl and Paul Zeedyk, in exchange for $156,500
or $0.33 per share. We undertook this transaction to raise funds for general
working capital purposes. The purchase and sale were exempt pursuant to Rule 506
and Regulation D as transactions by an issuer not involving a public offering,
where the purchasers represented their intention to acquire the securities for
investment only, not with a view to distribution, and received or had access to
adequate information about the registrant, consisting of periodic reports filed
pursuant to Section 13(a) and 15 (d) of the Exchange Act.
9. During the third quarter of 1999 a Warrant for 302,858 shares at $0.20
was exercised by Dan Schlapkohl. The Company received a total of $60,285 for the
shares. We applied these proceeds to general working capital. The securities
were issued without use of advertising or general solicitation following the
Company's delivery of a copy of the most recent Form 10-K, proxy statement and
interim Forms 10-Q to the investor and the investor's delivery of a subscription
agreement stating the investor's qualification as an accredited investor,
including the investor's statement of intent to acquire the securities for its
own investment purposes and not with a view toward further distribution.
10. In November 1999, in exchange for financial advisory services rendered,
the Company issued 300,000 shares to Nick Fegen, a consultant. The purchase and
sale were exempt pursuant to Section 4(2) as a transaction by an issuer not
involving a public offering. The securities were issued without use of
advertising or general solicitation following the Company's delivery of a copy
of the most recent Form 10-K, proxy statement and interim Forms 10-Q to the
investor and the investor's delivery of a subscription agreement stating the
investor's qualification as an accredited investor, including the investor's
statement of intent to acquire the securities for its own investment purposes
and not with a view toward further distribution.
11. In December 1999, the Company converted $70,000 of short-term notes
including $5,000 of interest from Jim Lekos into 350,000 shares. The purchase
and sale were exempt pursuant to Rule 506 and Regulation D as transactions by an
issuer not involving a public offering, where the purchaser represented its
intention to acquire the securities for investment only, not with a view to
distribution, and received or had access to adequate information about the
registrant, consisting of periodic reports filed pursuant to Section 13(a) and
15 (d) of the Exchange Act.
12. In December 1999, the Company issued 362,858 shares in exchange for
$72,572 from two accredited investors, Steve Notaro and Dan Schlapkohl. We
undertook this transaction to raise funds for general working capital purposes.
In addition to shares, the Company issued two Warrants for the total of 362,858
common shares to the investors with a strike price of $0.20. The Warrants were
valued at $68,637 using Black-Scholes securities valuation model assuming among
other things 6% risk free rate, 0% dividend yield, five years life and 120%
volatility. The purchase and sale were exempt pursuant to Rule 506 and
Regulation D as transactions by an issuer not involving a public offering, where
the purchasers represented their intention to acquire the securities for
investment only, not with a view to distribution, and received or had access to
adequate information about the registrant, consisting of periodic reports filed
pursuant to Section 13(a) and 15 (d) of the Exchange Act.
13. During the first and second quarter of 2000, the Company conducted a
private placement of 4,654,613 common shares and approximately 1,300,000
warrants to a group of approximately 135 accredited investors in
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exchange for approximately $7,300,000. A listing of all accredited investors
appears in the Company's Form S-1 filing dated July 21, 2000, File No. 333-35808
effective July 28, 2000. The proceeds were used to settle the majority of trade
payables, for day-to-day operations and to start the development of the set-top
box. The purchases and sales were exempt pursuant to Rule 506 and Regulation D
as transactions by an issuer not involving a public offering, where the
purchasers represented their intention to acquire the securities for investment
only, not with a view to distribution, and received or had access to adequate
information about the registrant, consisting of periodic reports filed pursuant
to Section 13(a) and 15 (d) of the Exchange Act. The securities were issued
without use of advertising or general solicitation following the Company's
delivery of a copy of the most recent Form 10-K, proxy statement and interim
Forms 10-Q to the investor and the investor's delivery of a subscription
agreement stating the investor's qualification as an accredited investor,
including the investor's statement of intent to acquire the securities for its
own investment purposes and not with a view toward further distribution.
14. In January 2000, the Company issued 480,000 shares to Bulfon S.A. in
exchange for cancellation of $300,000 of customer deposits. The purchase and
sale were exempt pursuant to Section 4(2) as a transaction by an issuer not
involving a public offering.
15. In January 2000, the Company issued warrants to Nick Fegen, a
consultant (see #10 above), for financial advisory services rendered, to
purchase 350,000 shares at an exercise price of $1.00. The purchase and sale
were exempt pursuant to Section 4(2) as a transaction by an issuer not involving
a public offering. The securities were issued without use of advertising or
general solicitation following the Company's delivery of a copy of the most
recent Form 10-K, proxy statement and interim Forms 10-Q to the investor and the
investor's delivery of a subscription agreement stating the investor's
qualification as an accredited investor, including the investor's statement of
intent to acquire the securities for its own investment purposes and not with a
view toward further distribution.
16. In January 2000, the Company issued 500,000 shares to Provonat
Technologies LimitedEquinox One for services rendered in relationpursuant to the set-top box
agreement with Estel Telecommunications S.A. The purchase and sale were exemptconsulting agreement.
For the quarter ended September 30, 2008, we sold an aggregate of 32,463 shares of our common stock, $0.001 par value, to Fusion Capital pursuant to Section 4(2)the Purchase Agreement for an aggregate purchase price of $240,000. We also issued to Fusion Capital an additional 1,191 shares of our common stock as a transaction by an issuer not involving a public
offering.
17. In April 2000,partial settlement of the Company completed its private placement andcommitment fee for entering into the Purchase Agreement.
On October 13, 2008, we issued 3,630,000 warrants2,000 shares of our common stock, $0.001 par value, to an investment banker, Cutter and Co., in lieu of
consulting fees. The purchase and sale were exemptEquinox One for services rendered pursuant to Rule 506 and
Regulation D as transactions bythe consulting agreement.
For the quarter ended December 31, 2008, we sold an issuer not involving a public offering, where
the purchaser represented its intention to acquire the securities for investment
only, not with a view to distribution, and received or had access to adequate
information about the registrant.
18. On April 26, 2000, the Company completed aaggregate of 41,736 shares of our common stock, $0.001 par value, to Fusion Capital pursuant to the Purchase Agreement for an aggregate purchase agreement, escrow agreement and registration rights agreement with Techrich
International Limited ("Techrich"),price of $260,000. We also issued to Fusion Capital an accredited institutional investor. These
agreements provide a $100,000,000 equity lineadditional 1,290 shares of credit as the Company requests
over an 18 month period, in return forour common stock and warrantsas a partial settlement of the commitment fee for entering into the Purchase Agreement.
For the quarter ended March 31, 2009, we sold an aggregate of 48,009 shares of our common stock, $0.001 par value, to beFusion Capital pursuant to the Purchase Agreement for an aggregate purchase price of $240,000. We also issued to Fusion Capital an additional 1,191 shares of our common stock as a partial settlement of the investor. Once every 22 days,commitment fee for entering into the Company may request a drawPurchase Agreement.
For the quarter ended June 30, 2009, we sold an aggregate of up74,692 shares of our common stock, $0.001 par value, to $10,000,000 of that money, subjectFusion Capital pursuant to a maximum of 18 draws. The maximum amount
the Company actually can draw down upon each request will be determined by the
volume-weighted average dailyPurchase Agreement for an aggregate purchase price of the Company's$590,000. We also issued to Fusion Capital an additional 2,927 shares of our common stock as a partial settlement of the commitment fee for entering into the 22
trading days priorPurchase Agreement.
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On September 4, 2009, we issued 2,250 shares of our common stock, $0.001 par value, to its request andEquinox One for consulting services.
For the average trading volume for the 45
trading days priorquarter ended September 30, 2009, we sold an aggregate of 27,837 shares of our common stock, $0.001 par value, to Fusion Capital pursuant to the request. Each draw down must bePurchase Agreement for at least $250,000.
Usean aggregate purchase price of a 22 day trading average was negotiated$210,000. We also issued to reduce the impactFusion Capital an additional 1,042 shares of market
price fluctuations over any calendar month, which generally includes 22 trading
days. At the end of a 22-day trading period following the drawdown request, the
amount of shares is determined based on the volume-weighted average stock price
during that 22-day period in accordance with the formulas in theour common stock purchase agreement. We undertook this transaction to raise fundsas a partial settlement of the commitment fee for general
working capital purposes.
19. entering into the Purchase Agreement.
On April 28, 2000, the Company filed with the Securities and Exchange
Commission a Form S-1 registration statement relating to 15,332,560December 1, 2009 we issued 2,250 shares of our common stock, issued$0.001 par value, to stockholders in private transactions, 11,958,963 shares
underlying options and warrants previously issued to employees, and 6,000,000
shares to be issued when the Company requests a drawdown under the Techrich
common stock purchase agreement.
20. On July 28, 2000, the Securities and Exchange Commission declared the
registration statement effective. PursuantEquinox One Consulting, LLC for services rendered pursuant to the common stock purchase
agreement with Techrich, the Company issued to Ladenburg, Thalman, an
institutional investor, as a placement fee warrants to purchase 250,000 shares
of common stock at an exercise price of $5.481.
21. On July 31, 2000, the Company issued a drawdown notice in connection
with the common stock purchase
II-5
agreement with Techrich for $5,000,000. We undertook this transaction to raise
funds for general working capital purposes. Upon receipt of the funds, the
Company issued 1,354,617 shares of common stock and warrants to purchase 101,463
shares of common stock at exercise prices ranging from $4.06 to $4.22.
22. In September 2000, the Company issued 73,750 stock options to certain
employees under employment agreements. At the time of issuance, the option price
was below the market price and the Company recorded $70,622 as additional
compensation expense. The purchase and sale were exempt pursuant to Section 4(2)
as transactions by an issuer not involving a public offering.
23. On October 17, 2000, the Company issued a drawdown notice in connection
with the common stock purchase agreement with Techrich for $2,000,000. We
undertook this transaction to raise funds for general working capital purposes.
Upon receipt of the funds, the Company issued 781,999 shares of common stock and
warrants to purchase 44,646 shares of common stock at exercise prices ranging
from $3.26676 to $4.4369.
24. On October 20, 2000 the Company entered into an agreement with Best
S.A. to act as its distributor/agent in Greece. On October 26, 2000 the Company
issued 1,550,000 shares of restricted stock to Best S.A. as a performance bond
to assure the Company's compliance with the Set-Top Box Agreement by and between
the Company and Estel S.A. These shares have not been included in the issued and
outstanding shares as of December 31, 2000, as Best S.A. has acknowledged that
they would return the shares to the Company upon satisfactory compliance with
the Set-Top Box Agreement. The agreement with Best S.A. requires the Company to
register these shares with the Securities and Exchange Commission during 2000.
To secure performance of the Company's obligation to register these shares,
Andrew J. Kandalepas, Chairman of the Board and CEO of the Company, granted to
Best S.A. a security interest in 1,032,118 shares of Company stock owned by him.
25. In December 2000, the Company issued to Brian Smith, Mark Thompson and
Stavros Galanakis, 22,000 shares of common stock and warrants to purchase
148,265 shares of common stock at exercise prices ranging from $1.0312 to $1.25,
as payment for certain advertising and promotional expenses and consulting services related to the establishment of an office in Europe. The purchase and
sale were exempt pursuant to Section 4(2) as a transactions by an issuer not
involving a public offering.
26. In December 2000, the Company re-priced approximately 3,012,000
warrants it had previously issued to outside consultants, Cutter and Company, in
consideration of additional services rendered to the Company pertaining to
financing. The warrants were originally issued with an exercise price ranging
from $10.00 to $5.00, and were re-priced with exercise prices ranging from $5.00
to $2.00 per share. The re-pricing created a charge to earnings of approximately
$234,000, which was calculated using the Black-Scholes pricing model assuming 0%
dividend yield, risk free interest rate of 6%, volatility factor of 224% and an
expected life of 2.6 years.
27. During the first quarter of 2001, the Company received proceeds in the
amount of $102,300 for the exercise of 210,000 warrants issued to Joe Lemberger
and Ryan Miller. Additionally, employees exercised 4,000 stock options at a
price of $.50 per share. The proceeds were used for general working capital
purposes.
28. During the second quarter of 2001, employees exercised 4,000 stock
options at a price of $.50 per share.
29. On April 3, 2001, the Company and Estel Telecommunications S.A.
cancelled the performance bond issued on October 26, 2000 and the 1,550,000
shares of restricted stock held by Best S.A. were returned to the Company. In
connection with the cancellation of the shares, Best S.A. executed the personal
guarantee of Mr. Andrew J. Kandalepas, which he had granted to secure the
performance of the Company's obligation to register the 1,550,000 shares issued
in connection with the performance bond and retained the 1,032,118 shares. The
set-top box agreement with Estel Telecommunications S.A. terminated on July 1,
2001 due to lack of performance on behalf of Estel. This transaction was entered
into on behalf of the Company and therefore the Company recorded an expense of
$1,241,741, with an offsetting entry to additional paid in capital.
30. In April 2001, the Company issued to The DeClan Group, consultants,
30,000 shares of common stock and warrants to purchase 70,000 shares of common
stock at an exercise price of $1.36 per share, as payment for certain
promotional and consulting services. In September 2001, the Company issued
additional warrants to purchase 16,666 shares of common stock at an exercise
price of $1.395 per share to finalize the arrangement with the consultants. The
purchase and sale were exempt pursuant to Section 4(2) as transactions by an
issuer not involving a public offering.
31. Effective July 1, 2001, the Company completed the acquisition of
substantiallyagreement.
For all of the assetsaforementioned transactions with Fusion Capital and Equinox One, respectively, we relied on Section 4(2) of Suncoast
II-6
Automation, Inc.,the Securities Act and Rule 506 promulgated thereunder. The shares were only offered to a wholly owned subsidiary of ProtoSource Corporation, pursuant
to an Asset Purchase Agreement. The purchase price was 766,058single accredited investor who purchased for investment in a transaction that did not involve a general solicitation.
On September 22, 2009 we issued 462,826 shares of the
Company'sour common stock, valued at approximately $1.1 million based on the closing
bid price of $1.47 per share on June 29, 2001. The purchase and sale were exempt
pursuant$0.001 par value, to Section 4(2) as a transaction by an issuer not involving a public
offering.
32. During the third quarter of 2001, the Company received proceeds in the
amount of $75,000 for the exercise of 75,000 warrants by TDG Limited. Proceeds
were used for general working capital purposes.
33. On August 14, 2001 the Company issued a drawdown notice in connection
with the common stock purchase agreement with Techrich for $300,000. We
undertook this transaction to raise funds for general working capital purposes.
Upon receipt of the funds, the Company issued 258,968 shares of common stock and
warrants to purchase 22,006 shares of common stock at an exercise price of
$1.14516.
34. On September 13, 2001 the Company filed with the Securities and
Exchange Commission a Form S-3 registration statement relating to 6,964,724
shares of common stock.Mr. Stavros Papageorgiou. The shares were issued byto Mr. Papageorgiou pursuant to his exercise in full of a warrant granted on May 15, 2006. The Company received $1,500,000 for the shares it sold. The Company in respectrelied on Section 4(2) of the following: (i) 766,058 shares were issued bySecurities Act to issue the Company in connection withcommon stock and warrant, inasmuch as the acquisition of the net assets of Suncoast; (ii) 52,000 shares were issued by the
Company as payment for certain advertising and promotional expenses and
consulting services; and (iii) 6,146,666 shares issuable by the Company to
shareholders upon the exercise by them of issued and outstanding warrants and
options. On September 27, 2001, the Securities and Exchange Commission declared
the registration statement effective.
35. During the fourth quarter of 2001, employees exercised 27,600common stock options at a price of $.89 per share.
36. In November 2001, the Companywas issued to Ensign Resources and Brian
Smith warrants to purchase 175,000 shares of common stock at exercise prices
ranging from $1.00 to $1.50, as paymenta single accredited investor who purchased for certain advertising and promotional
expenses. The purchase and sale were exempt pursuant to Section 4(2) asinvestment in a transaction by an issuerthat did not involvinginvolve a public offering.
37. On December 20, 2001, the Board of Directors approved the issuance of
1,032,118 shares to the Chairman of the Boardgeneral solicitation.
| ITEM 16. | Exhibits and Financial Statement Schedules |
(a) Exhibits.
| Exhibit | ||||
Number | Description | |||
| 1 | .1*** | Form of Placement Agency Agreement | ||
| 2 | .1 | Agreement and Plan of Merger by and among GeoVax, Inc., GeoVax Acquisition Corp. and Dauphin Technology, Inc., dated January 20, 2006(1) | ||
| 2 | .2 | First Amendment to Agreement and Plan of Merger by and among GeoVax, Inc., GeoVax Acquisition Corp. and Dauphin Technology, Inc., dated June 29, 2006(2) | ||
| 2 | .3 | Second Amendment to Agreement and Plan of Merger by and among GeoVax, Inc., GeoVax Acquisition Corp. and Dauphin Technology, Inc., dated September 27, 2006(3) | ||
| 3 | .1 | Certificate of Incorporation(5) | ||
| 3 | .2 | Bylaws(5) | ||
| 4 | .1*** | Form of Subscription Agreement | ||
| 4 | .2*** | Form of Unit Warrant | ||
| 5 | .1*** | Opinion of Womble Carlyle Sandridge & Rice, PLLC | ||
| 10 | .1* | Employment Agreement by and between GeoVax Labs, Inc. and Robert T. McNally dated April 1, 2008(6) | ||
| 10 | .2* | Employment Agreement between GeoVax, Inc. and Mark W. Reynolds, as amended and restated, dated as of January 1, 2010(9) | ||
| 10 | .3* | Employment Agreement between GeoVax, Inc. and Harriet L. Robinson dated as of November 19, 2007(9) | ||
| 10 | .4* | Employment Agreement by and between GeoVax, Inc. and Mark Newman dated as of January 4, 2010(9) | ||
| 10 | .5*,*** | GeoVax Labs, Inc. 2006 Equity Incentive Plan | ||
| 10 | .6 | License Agreement by and between GeoVax, Inc. and Emory University, as amended and restated, dated June 23, 2004(3) | ||
| 10 | .7 | Technology Sale and Patent License Agreement by and between GeoVax, Inc. and MFD, Inc., dated December 26, 2004(3) | ||
II-4
| Exhibit | ||||
Number | Description | |||
| 10 | .8 | Office and Laboratory Lease by and between UCB, Inc. and GeoVax, Inc., dated August 31, 2009(8) | ||
| 10 | .10 | Consulting Agreement by and between Donald G. Hildebrand and GeoVax Labs, Inc., as amended, dated December 11, 2009(6) | ||
| 10 | .11 | Common Stock Purchase Agreement by and between GeoVax Labs, Inc. and Fusion Capital Fund II, LLC, dated as of May 8, 2008(7) | ||
| 10 | .12 | Registration Rights Agreement by and between GeoVax Labs, Inc. and Fusion Capital Fund II, LLC(7) | ||
| 10 | .13* | Summary of the GeoVax Labs, Inc. Director Compensation Plan(9) | ||
| 10 | .14*,** | Form of Incentive Stock Option Agreement under GeoVax, Inc. 2002 Stock Option and Incentive Plan | ||
| 10 | .15*,** | Form of Non-Qualified Stock Option Agreement under GeoVax, Inc. 2002 Stock Option and Incentive Plan | ||
| 10 | .16*,** | Form of Non-Qualified Stock Option Agreement under GeoVax, Inc. 2006 Equity Incentive Plan | ||
| 10 | .17** | Form of Warrant issued to Peter Tsolinas(10) | ||
| 10 | .18** | Form of Five Year Warrant Agreement issued to Peter Tsolinas(11) | ||
| 21 | .1 | Subsidiaries of the Registrant(4) | ||
| 23 | .1** | Consent of Porter Keadle Moore LLP, an independent registered public accounting firm | ||
| 23 | .2** | Consent of Tripp, Chafin & Company, LLC, an independent registered public accounting firm | ||
| 23 | .3 | Consent of Womble Carlyle Sandridge & Rice, PLLC (contained in the opinion filed as Exhibit 5.1 hereof) | ||
| 24 | .1 | Power of Attorney (included on signature page to this Registration Statement) | ||
| * | Indicates a management contract or compensatory plan or arrangement. | |
| ** | Filed herewith. | |
| *** | To be filed by amendment | |
| (1) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on January 24, 2006. | |
| (2) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on July 13, 2006. | |
| (3) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on October 4, 2006. | |
| (4) | Incorporated by reference from the registrant’s Annual Report onForm 10-K filed with the Securities and Exchange Commission on March 28, 2007. | |
| (5) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on June 23, 2008. | |
| (6) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on March 24, 2008. | |
| (7) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on May 12, 2008. | |
| (8) | Incorporated by reference from the registrant’s Quarterly Report onForm 10-Q filed with the Securities and Exchange Commission on November 6, 2009. | |
| (9) | Incorporated by reference from the registrant’s Annual Report onForm 10-K filed with the Securities and Exchange Commission on March 8, 2010. | |
| (10) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on November 29, 2007. |
II-5
| (11) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on May 27, 2008. |
(b) Financial Statement Schedules.
Schedule II — Valuation and CEO of the Company to replace
the shares that Best S.A. retained under the personal guarantee. The shares were
valued at $1,241,741 based on the closing price of $1.20 on April 3, 2001. The
purchase and sale were exempt pursuant to Section 4(2) as a transaction by an
issuer not involving a public offering.
Except as set forth above, no underwriters were employed in any of the above
transactions. Appropriate legends were affixed to the share certificates and
warrants issued in the above transactions.
II-7
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit No. Description of Document
*3(1) Certificate of Incorporation filed July 27, 1990, incorporated herein
by reference to exhibit 7(c)(1) of Form 8-K filed May 14, 1991.
*3(2) By-Laws as amended, incorporated herein by reference to exhibit 3(2) of
Form 10-KQualifying Accounts for the fiscal yearyears ended December 31, 1997.
*4(1) Specimen Common Stock Certificate incorporated herein by reference to
exhibit 4(1) of Form S-18 filed June 1, 1990.
*10(1) Agreement2009, 2008 and Plan of Reorganization incorporated herein by reference
to exhibit 7(c) of Form 8-K filed April 4, 1991.
*10(2) Plan and Agreement of Merger incorporated herein by reference to
exhibit 7(c)(1) of Form 8-K filed May 14, 1991.
*10(3) Computer Technology License Agreement dated November 12, 1997, between
Phoenix Technology, Inc. and Dauphin Technology, Inc.2007 (unaudited) is included as an
exhibit to Form S-1 filed march 17, 1998, incorporated herein by
reference.
*10(4) License Agreement dated May 3, 1996, between Microsoft Corporation and
Dauphin Technology, Inc. included as an exhibit to Form S-1 filed March
17, 1998, incorporated herein by reference.
*10(5) Equity line of credit agreement by and between Techrich International
Limited and Dauphin Technology, Inc. dated April 12, 2000 including
Common Stock Purchase Agreement, Registration Rights Agreement, Escrow
Agreement and Form of a stock Purchase Warrant included as an exhibit
to Form 8-K filed on April 20, 2000 incorporated herein by reference.
*10(6) Amendment No. 1 to Common Stock Purchase Agreement dated July 10, 2000
between Dauphin Technology, Inc. and Techrich International Limited.
*10(7) Asset Purchase Agreement, by and among the Company, ADD Acquisition
Corp., T & B Design, Inc. (f/k/a Advanced Digital Designs, Inc.),
Advanced Technologies, Inc., 937 Plum Grove Road Partnership, the
Stockholders of T & B Design, Inc. and Advanced Technologies, Inc. and
the partners of 937 Plum Grove Road Partnership, dated August 18, 2000
included as an exhibit to Form 8-K/A filed on September 25, 2000
incorporated herein by reference.
*10(8) Asset Purchase Agreement, by and among the Company, Suncoast
Acquisition Corp., ProtoSource Corporation and Suncoast Automation,
Inc. dated July 1, 2001 included as an exhibit to Form 8-K filed on
July 14, 2001 incorporated herein by reference.
*10(9) Securities Purchase Agreement, by and between the Company and Crescent
International Ltd. dated September 28, 2001 including Registration
Rights Agreement and Form of Stock Purchase Warrant included as an
exhibit to Form 8-K filed on October 12, 2001 incorporated herein by
reference.
24(1) Consent of Grant Thornton LLP., independent public accountants.
24(2) Consent of Rieck and Crotty, P.C.
* Previously filed or incorporated by reference.
II-8
Item 17. UNDERTAKINGS
(A) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Company hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred in the section.
(B)accompanying prospectus onpage F-18.
All other financial statement schedules have been omitted because they are not applicable or not required or because the information is included elsewhere in the Consolidated Financial Statements or the Notes thereto.
| ITEM 17. | Undertakings. |
a. The undersigned Companyregistrant hereby undertakes:
(1)
1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)
i. To include any Prospectusprospectus required by Sectionsection 10(a)(3) of the Securities Act of 1993;
(ii) To disclose in the Prospectus any change in the offering
price at which any registering shareholders subject to the
requirement of a Pricing Amendment are offering their
registered securities for sale;
(iii)1933;
ii. To reflect in the Prospectusprospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; (iv)and
iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(2)statement.
2. That, for the purpose of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fideoffering thereof.
(3)
3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(C)
4. That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
i. Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
ii. Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
II-6
iii. The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
iv. Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
b. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Companyregistrant pursuant to the forgoingforegoing provisions, or otherwise, the Company haswe have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Companyus of expenses incurred or paid by a director, officer or controlling person of the Companyregistrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Companyregistrant will, unless in the opinion of itsour counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjustmentadjudication of such issue.
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c. The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initialbona fideoffering thereof.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing onForm S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Palatine
andAtlanta, State of Illinois,Georgia, on the 12th31st day of June, 2002.
DAUPHIN TECHNOLOGY,March, 2010.
GEOVAX LABS, INC.
By: /s/Andrew J. Kandalepas
-------------------------------
Andrew J. Kandalepas,
| By: | /s/ Robert T. McNally |
Robert T. McNally Ph.D.
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert T. McNally and Mark W. Reynolds, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities, to sign any or all amendments to this Registration Statement onForm S-1 (including post-effective amendments), and to file the same, with all exhibits thereto, and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirementrequirements of the Securities Act of 1933, as
amended, this registration statementRegistration Statement has been duly signed by the following persons in the capacitycapacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Andrew J. Kandalepas Chairman of the Board/President/ June 12, 2002
- ------------------------
Andrew J. Kandalepas Chief Executive Officer
/s/ Harry L. Lukens, Jr. Chief Financial Officer/ June 12, 2002
- ------------------------
Harry L. Lukens, Jr. Assistant Secretary
/s/ Christopher L. Geier Executive Vice President June 12, 2002
- ------------------------
Christopher L. Geier
/s/ Jeffrey Goldberg Secretary/Director June 12, 2002
- -------------------==---
Jeffrey Goldberg
/s/ Gary E. Soiney Director June 12, 2002
- ------------------------
Gary E. Soiney
/s/ Mary Ellen W. Conti Director June 12, 2002
- ------------------------
Mary Ellen W. Conti
II-10
Name | Title | Date | ||||
/s/ Robert T. McNally Robert T. McNally, Ph.D. | Director President & Chief Executive Officer (Principal Executive Officer) | March 31, 2010 | ||||
/s/ Mark W. Reynolds Mark W. Reynolds | Chief Financial Officer (Principal Financial and Accounting Officer) | March 31, 2010 | ||||
/s/ Steven S. Antebi Steven S. Antebi | Director | March 31, 2010 | ||||
/s/ David A. Dodd David A. Dodd | Director | March 31, 2010 | ||||
Donald G. Hildebrand | Director | , 2010 | ||||
/s/ Dean G. Kollintzas Dean G. Kollintzas | Director | March 31, 2010 | ||||
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Name | Title | Date | ||||
Harriet L. Robinson | Director | , 2010 | ||||
/s/ John N. Spencer, Jr. John N. Spencer, Jr. | Director | March 31, 2010 | ||||
/s/ Peter M Tsolinas Peter M Tsolinas | Director | March 31, 2010 | ||||
II-9
Exhibit Index
| Exhibit | ||||
Number | Description | |||
| 1 | .1*** | Form of Placement Agency Agreement | ||
| 2 | .1 | Agreement and Plan of Merger by and among GeoVax, Inc., GeoVax Acquisition Corp. and Dauphin Technology, Inc., dated January 20, 2006(1) | ||
| 2 | .2 | First Amendment to Agreement and Plan of Merger by and among GeoVax, Inc., GeoVax Acquisition Corp. and Dauphin Technology, Inc., dated June 29, 2006(2) | ||
| 2 | .3 | Second Amendment to Agreement and Plan of Merger by and among GeoVax, Inc., GeoVax Acquisition Corp. and Dauphin Technology, Inc., dated September 27, 2006(3) | ||
| 3 | .1 | Certificate of Incorporation(5) | ||
| 3 | .2 | Bylaws(5) | ||
| 4 | .1*** | Form of Subscription Agreement | ||
| 4 | .2*** | Form of Unit Warrant | ||
| 5 | .1*** | Opinion of Womble Carlyle Sandridge & Rice, PLLC | ||
| 10 | .1* | Employment Agreement by and between GeoVax Labs, Inc. and Robert T. McNally dated April 1, 2008(6) | ||
| 10 | .2* | Employment Agreement between GeoVax, Inc. and Mark W. Reynolds, as amended and restated, dated as of January 1, 2010(9) | ||
| 10 | .3* | Employment Agreement between GeoVax, Inc. and Harriet L. Robinson dated as of November 19, 2007(9) | ||
| 10 | .4* | Employment Agreement by and between GeoVax, Inc. and Mark Newman dated as of January 4, 2010(9) | ||
| 10 | .5*,*** | GeoVax Labs, Inc. 2006 Equity Incentive Plan | ||
| 10 | .6 | License Agreement by and between GeoVax, Inc. and Emory University, as amended and restated, dated June 23, 2004(3) | ||
| 10 | .7 | Technology Sale and Patent License Agreement between GeoVax, Inc. and MFD, Inc., dated December 26, 2004(3) | ||
| 10 | .8 | Office and Laboratory Lease by and between UCB, Inc. and GeoVax, Inc., dated August 31, 2009(8) | ||
| 10 | .10 | Consulting Agreement by and between Donald G. Hildebrand and GeoVax Labs, Inc., as amended, dated December 11, 2009(6) | ||
| 10 | .11 | Common Stock Purchase Agreement, by and between GeoVax Labs, Inc. and Fusion Capital Fund II, LLC(7) | ||
| 10 | .12 | Registration Rights Agreement, by and between GeoVax Labs, Inc. and Fusion Capital Fund II, LLC(7) | ||
| 10 | .13* | Summary of the GeoVax Labs, Inc. Director Compensation Plan(9) | ||
| 10 | .14*,** | Form of Incentive Stock Option Agreement under GeoVax, Inc. 2002 Stock Option and Incentive Plan | ||
| 10 | .15*,** | Form of Non-Qualified Stock Option Agreement under GeoVax, Inc. 2002 Stock Option and Incentive Plan | ||
| 10 | .16*,** | Form of Non-Qualified Stock Option Agreement under GeoVax, Inc. 2006 Equity Incentive Plan | ||
| 10 | .17** | Form of Warrant issued to Peter Tsolinas(10) | ||
| 10 | .18** | Form of Five Year Warrant Agreement issued to Peter Tsolinas(11) | ||
| 21 | .1 | Subsidiaries of the Registrant(4) | ||
| 23 | .1** | Consent of Porter Keadle Moore LLP, an independent registered public accounting firm | ||
| 23 | .2** | Consent of Tripp, Chafin & Company, LLC, an independent registered public accounting firm | ||
| 23 | .3 | Consent of Womble Carlyle Sandridge & Rice, PLLC (contained in the opinion filed as Exhibit 5.1 hereof) | ||
| 24 | .1 | Power of Attorney (included on signature page to this Registration Statement) | ||
| * | Indicates a management contract or compensatory plan or arrangement. | |
| ** | Filed herewith. | |
| *** | To be filed by amendment. | |
| (1) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on January 24, 2006. | |
| (2) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on July 13, 2006. | |
| (3) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on October 4, 2006. | |
| (4) | Incorporated by reference from the registrant’s Annual Report onForm 10-K filed with the Securities and Exchange Commission on March 28, 2007. | |
| (5) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on June 23, 2008. | |
| (6) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on March 24, 2008. | |
| (7) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on May 12, 2008. | |
| (8) | Incorporated by reference from the registrant’s Quarterly Report onForm 10-Q filed with the Securities and Exchange Commission on November 6, 2009. | |
| (9) | Incorporated by reference from the registrant’s Annual Report onForm 10-K filed with the Securities and Exchange Commission on March 8, 2010. | |
| (10) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on November 29, 2007. | |
| (11) | Incorporated by reference from the registrant’s Current Report onForm 8-K filed with the Securities and Exchange Commission on May 27, 2008. |