UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2009
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commissions file number 005-82677
IMMUNOSYN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 20-5322896 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| 10815 Rancho Bernardo Road, Suite 101, San Diego, CA 92127 | 92127 |
| (Address of Principal Executive Offices) | (Zip Code) |
(888) 853-3663
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock (Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨ No x
Note —Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant (1) has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨ Yes ¨ No
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” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ¨ | Accelerated Filer ¨ | Non-Accelerated Filer x | Smaller reporting Company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2009 was approximately $26,640,218.
As of March 30, 2010, the Company had 267,552,719 shares of Common Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of the Issuer are incorporated by reference in this Report: NONE
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements, other than statements of historical facts included in this report, regarding the Company’s financial position, business strategy, plans and objectives are forward-looking statements. Although the Company believes that the expectations reflected in the forward-looking statements and the assumptions upon which such forward-looking statements are based are reasonable, it can give no assurance that such expectations and assumptions will prove to have been correct.
In addition, from time to time in the future, the Company may publish “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act or make oral statements that constitute forward-looking statements. These forward-looking statements may relate to such matters as anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products, anticipated market performance, and similar matters.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company cautions readers that a variety of factors could cause the Company’s actual results to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. These risks and uncertainties, many of which are beyond the Company’s control, include, but are not limited to: (i) the Company’s ability to raise financing to fund its development and allow it to continue as a going concern; (ii) the effects of the economy on the Company’s ability to find and maintain financing options and liquidity; (iii) general economic conditions, both domestic and international; (iv) Argyll Biotech’s ability to complete development of SF-1019 and other products it may acquire or develop and license to the Company; (v) Argyll Biotech’s ability to obtain FDA and/or other regulatory approvals for SF-1019 and other products it may acquire or develop and license to the Company; (vi) competition from existing pharmaceutical, chemical and biotech companies and other participants in the drug markets; (vii) legal developments affecting the litigation experience of the Company including the results of any subpoenas issued to the Company or its affiliates by the SEC and any pending lawsuits involving the Company; (viii) the effectiveness of the Company’s efforts to hire qualified personnel; (ix) changes in regulatory requirements which could affect the cost and method of doing business; (x) the Company’s ability to achieve its business plan; (xi) corporate governance issues; (xii) credit, operations, legal and regulatory risks; (xiii) risks related to foreign operations; and (xiv) risks related to disclosure controls and/or internal controls or the lack thereof. There can be no assurance that the Company has correctly or completely identified and assessed all of the factors affecting the Company’s business. The Company does not undertake any obligation to publicly update or revise any forward-looking statements. See also Item 1A – Risk Factors.
PART I
About Immunosyn Corporation; Background and History
Immunosyn Corporation (“Immunosyn” or the “Company”) is a Delaware corporation headquartered in San Diego, California that owns an exclusive worldwide license to market, distribute and sell a biopharmaceutical drug product, currently referred to as SF-1019, for multiple uses including the treatment of any and all diseases and pathological conditions, subject to receipt of appropriate regulatory approval in each jurisdiction where SF-1019 will be marketed none of which has been applied for or received. Under the terms of its exclusive license, the Company is further granted the rights to any improvement of SF-1019 and other compounds which are developed under the same technology platform and which are chemically similar to SF-1019. The Company is in the development stage and , to date, has no revenues from SF-1019 or otherwise. The Company faces a number of challenges which are discussed under the caption “Risk Factors.”
The exclusive license for SF-1019 has been granted to Immunosyn by Argyll Biotechnologies, LLC (“Argyll Biotech”). Argyll Biotech is a closely-held Delaware limited liability company headquartered in San Diego, California that owns and controls worldwide rights to SF-1019. SF-1019 has not been approved for human use in any jurisdiction nor has any such approval yet been sought. In order to gain eventual regulatory approval for SF-1019’s use, Argyll Biotech will need to conduct clinical trials, develop manufacturing protocols and apply for regulatory approvals. Through a series of private investments, Argyll Biotech and its affiliates and other persons have provided the funding to bring SF-1019 from its inception to preliminary experimental research. 60;Subject to availability of funds, Argyll Biotech intends to manage and fund the process for additional research, product development, clinical testing, regulatory approval, production and product support of SF-1019. SF-1019 is the first such product that Argyll Biotech hopes to bring into the marketplace through these efforts. Argyll Biotech received 147,000,000 shares of Common Stock of the Company for its license fee and is the Company’s largest shareholder
Immunosyn’s primary asset is its exclusive worldwide license from Argyll Biotech to market, distribute and sell SF-1019. The Company also has the right of first offer to enter into additional license agreements for uses of other compounds which are not already covered under the existing license agreement. Argyll Biotech has retained Professors Jonathan Heeney, Professor of Comparative Pathology at University of Cambridge, England, and Angus Dalgleish, Chair of Oncology, Gastroenterology and Endocrinology at St. George’s Hospital Medical School, London, England, who are both well known anti-viral researchers and immuno-pathology specialists, as its principal scientific advisors. We believe that the combined experience of all of Argyll Biotech’s scientific advisory board members should provide substantial guidance toward accomplishing necessary research and development and testing and applying for and achieving regulatory approval of SF-1019 for marketing, distribution and sale to the target market.
SF-1019 is an experimental extract from caprine (goat) serum which we believe contains a number of unique peptides or lipopeptide molecules. Argyll Biotech’s consultants first identified the precursor to SF-1019 in the mid-1990’s, which they believed to be an effective booster and modulator of an individual’s immune system. Subsequent research by such consultants revealed that the precursor to SF-1019 had potential efficacy in the regulation and normalization of an individual’s immune system response to multiple viral pathologies, including Human Immunodeficiency Virus (“HIV”). The Company believes that Argyll Biotech currently intends to develop SF-1019 for treatment of diabetic ulcers (DU) first and then other diseases such as Chronic Inflammatory D emyelinating Polyneuropathy (“CIDP”) and Immunosyn will be responsible for commercializing SF-1019 when and if approval for such treatments are procured.
Argyll Biotech is responsible for all research and product development, clinical testing, regulatory approvals, production and product support. Argyll Biotech will need to conduct toxicology studies and possibly other studies and then apply for and commence clinical trials and studies of SF-1019 and prepare and thereafter submit all filings required for regulatory approval of that product for treatment of various diseases including DU) and CIDP, both in the United States and in other countries in Europe that are targeted for distribution and sale of the product. There can be no assurance that Argyll Biotech will ever engage in clinical trials, or that any such trials will be successful, or that it will apply for regulatory approval, or that any such approval will be granted. The Company beli eves that a limited feasibility pre-clinical study of SF-1019 was conducted on behalf of Argyll Biotech in the U.S. for treatment of CIDP, other neurological diseases and for the treatment of pain in 2007. In late 2007 and early 2008, the Company believes a proof of concept trial was initiated on behalf of Argyll Biotech in Europe for the treatment of DU but not completed.
Immunosyn’s exclusive license agreement with Argyll Biotech shall remain in full force and effect for the later of 10 years from the date when SF-1019 is first commercially sold or the date when patent coverage, if any, for SF-1019 expires, which in most jurisdictions is generally for twenty (20) years from the date of filing. Argyll Biotech has no issued patents specifically for SF-1019. Either party may terminate the agreement only on account of an uncured material breach by the other party. Immunosyn may terminate the agreement if a non-rebuttable regulatory or patient safety issue is raised. Any fees paid prior to termination are non-refundable.
Immunosyn is a development stage company that was incorporated in August 2006 in order to work as Argyll Biotech’s sales, marketing and distribution channel for SF-1019. Although Immunosyn cannot guarantee that Argyll Biotech will successfully undertake and conclude necessary development of and regulatory approval for SF-1019, Immunosyn is hopeful that its initial product offering based on SF-1019 will be an effective and affordable treatment for the maintenance and enhancement of the quality of life for patients suffering from DU and CIDP and other diseases.
As a sales, marketing, and distribution channel for SF-1019, Immunosyn’s primary business strategy is to build a sales and marketing force and related resources so that if and when SF-1019 is approved for human use it can be sold; and secondly, to increase awareness and acceptance of SF-1019 in the CIDP and diabetes treatment communities.
Business
CIDP is a neurological disorder characterized by slowly progressive weakness and a loss of sensation in the legs and arms. CIDP is more common in young adults, and it affects men more than women. Symptoms include tingling or numbness (beginning in the toes and fingers); weakness of the arms and legs; aching pain in the muscles; loss of deep tendon reflexes; fatigue; and abnormal sensation. CIDP is similar to Guillain-Barré-Strohl-Landry syndrome, which appears suddenly and generally improves spontaneously. Although CIDP was once called “chronic Guillain-Barré syndrome,” it is now regarded as a related, but distinct condition. The course of CIDP varies widely among individuals. Some may have a bout of CIDP followed by spontaneou s recovery, while others may have many bouts with partial recovery in between relapses.
Diabetes mellitus refers to a family of diseases featuring high glucose levels caused by the body’s inability to produce and/or utilize insulin. According to National Diabetes Education Program, the July 2008 estimate of prevalence or total number of cases of diabetes in adults in the U.S. is 23.6 million, or 7.8 percent of the U.S. population, including 5.7 million undiagnosed cases. According to the same source, it is estimated that an additional 1.6 million adults are diagnosed with diabetes each year. See http://www.ndep.nih.gov/diabetes/pubs/FS_GenSnapshot.pdf .
One of the most severe complications of diabetes is lower-limb amputation, which is caused by diabetic ulcers. These ulcers form as a result of diabetic neuropathy, or peripheral neuropathy, a nervous system disease evident in 60% of diabetic patients (Caring For Diabetes Educational Forum; http://www.caringfordiabetes.com/T&P/MicroComplications/T_P_Neuropathy.cfm). According to the National Diabetes Education Program, diabetic neuropathy causes micro-vascular damage that can result in loss of protective sensation in the feet, poor circulation and foot ulcers.
According to Diabetes Atlas, fourth edition © International Diabetes Federation (“IDF”), 2009 and http://www.idf.org/about_diabetes, globally, an approximated 285 million people have diabetes mellitus with the total expected to rise to 438 million within 20 years. According to Diabetes Atlas, third edition © International Diabetes Federation, 2006 an estimated 50% of people who have diabetes mellitus have diabetic neuropathy (DN) and one in six who have DN will develop a foot ulcer. According to the IDF website, diabetes is the most common cause of amputation that is not the result of an accident and people with diabetes are 15 to 40 times more likely to require lower-limb amputation compared to the general population.
We believe that SF-1019 may be a new category of drug that may be characterized as an “Immunomodulator.” We believe that many disease pathologies that affect individuals are the result of an over-active immune system. Specifically, when a viral agent begins to adversely affect an individual’s cells, the immune system frequently becomes overactive, which destroys the viral agent but also injures surrounding healthy cell structures. We believe other disease pathologies suppress an individual’s immune system, which allows other diseases and agents to kill healthy cells. Although research is not complete, we believe that SF-1019 may regulate an individual’s immune system to prevent it from both over-reacting and under-reacting to a viral invasion of an individual’s body systems.
We believe that SF-1019 contains a number of unique peptide or lipopeptide molecules which may neutralize viral pathogens and their inhibitory properties by activation of a cytokine system. This, in turn, may enhance an individual’s cell mediated immunity and augment the individual’s humoral immune system possibly by eliminating negative inhibitory cytokine factors and pathogenic free-floating organisms, while simultaneously sparing normal and healthy cells, although research is not complete.
Argyll Biotech’s core objective is the continued development of SF-1019 and its cognates and variants for treatment of multiple medical conditions. Rather than detract from its core proficiency, Argyll Biotech’s founders and its scientific advisory team elected to license the marketing, distribution and sale of SF-1019 and other products to another entity, whose strategy would be to target key markets and demographics for treatment with SF-1019 and its cognates and variants. The exclusive license agreement between Argyll Biotech, as the licensor, and Immunosyn, as the licensee, is a result of that decision.
The Argyll Biotech License Agreement
The Company is in the development stage and has only engaged in organizational and fundraising activities to date. Its principal asset is the exclusive worldwide license with Argyll Biotech. The Company intends to develop its operations so that it is in a position to market, distribute and sell SF-1019 if and when appropriate regulatory approvals, if any, are received by Argyll Biotech for SF-1019. The key terms of the exclusive license agreement with Argyll Biotech are as follows:
Grant of Rights
Argyll Biotech has granted Immunosyn the exclusive worldwide right to market, sell, distribute and promote SF-1019 in its current form for multiple uses including the treatment of any and all diseases and pathological conditions, including CIDP, DN and DU. Argyll Biotech has also agreed to license any trademarks that it may obtain to Immunosyn. Immunosyn is further granted the rights to any improvement of SF-1019 and other compounds, which are developed using the same technology platform and which are chemically similar to SF-1019. Finally, during the first five years of the term of the exclusive license agreement, Immunosyn has a right to enter into partnering arrangements with Argyll Biotech for development of other novel drug treatment products, if any.
Development and Regulatory Matters
Argyll Biotech needs to complete development, conduct full toxicology studies and undertake clinical trials of SF-1019 in the United States and/or in selected other countries around the world and, in connection therewith, to prepare and submit filings necessary to conduct clinical trials for the targeted diseases in those countries that are targeted for distribution and sale of SF-1019. Pursuant to the license agreement, Argyll Biotech is required to provide periodic reports to Immunosyn documenting its efforts toward procuring regulatory approval of SF-1019. Argyll Biotech will remain responsible for preparation and implementation of full toxicology studies, clinical trials including trial protocols and regulatory activities, and for costs associated with those activities.
Distribution and Promotion
Immunosyn will assume responsibility for the promotion and sale of SF-1019 for its approved uses if and when approvals are obtained. To accomplish this, Immunosyn expects to establish a sales force and an order processing and distribution network for each country in which Argyll Biotech receives appropriate regulatory approval for the sale of SF-1019. Immunosyn will also develop marketing plans for sales and distribution of SF-1019 in each such country, although Argyll Biotech will retain a right to participate in all marketing and promotion activities. Each party is responsible for its own costs associated with these activities.
License Fees
Immunosyn issued 147,000,000 shares of its Common Stock to Argyll Biotech in 2006 which Argyll Biotech has sold or expects to sell to raise funds for product development and regulatory approval for SF-1019 and other uses. The license fee was earned when paid and there are no restrictions on the release or use of the proceeds received by Argyll Biotech from the sale of Immunosyn’s shares, and these proceeds may be used at Argyll Biotech’s sole discretion for any purpose. No refund will be owed by Argyll Biotech in the event the cost of development and regulatory approval is substantially less than the fee, nor are there any penalties owed by Argyll Biotech if it fails to complete product development or obtain regulatory approval for the distribution of SF-1019.
Payments and Reports
Argyll Biotech is not obligated to provide to Immunosyn an accounting for its use of license proceeds, nor does Immunosyn have any audit rights to inspect Argyll Biotech’s use of the license proceeds.
Manufacture and Supply
Argyll Biotech retains responsibility for manufacturing and supplying all of Immunosyn’s requirements of SF-1019. Argyll Biotech and Immunosyn have agreed that the purchase price of SF-1019 sold by Argyll Biotech to Immunosyn will be forty percent (40%) of the gross sales price that Immunosyn sells SF-1019 to a third party consumer for. Argyll Biotech shall also confirm through testing and other programs that the commercial quantities of SF-1019 that it manufactures are fully compliant with all manufacturing and laboratory standards applicable to drug products which are intended for use in humans.
Intellectual Property Ownership
Argyll Biotech retains ownership of its intellectual property either through assignment or exclusive license and, under the exclusive license agreement with Immunosyn, ownership of all intellectual property jointly-developed by the parties. Argyll Biotech has no issued patents specifically on SF-1019. Argyll Biotech will take reasonable and necessary steps to protect its intellectual property from third-party infringement, and will defend Immunosyn against charges of infringement that refer, relate or pertain to Immunosyn’s marketing, sale and distribution of SF-1019.
Publication and Confidentiality
Argyll Biotech and Immunosyn have agreed to share information on scientific and medical reports relating to the business, operations, research and development and clinical trial results of SF-1019.
Recall and Indemnification
The exclusive worldwide license agreement provides that Argyll Biotech is to retain responsibility for costs and activities relating to any recall of SF-1019, and will defend, indemnify and hold Immunosyn harmless for, from and against damages associated therewith.
Term and Termination
The exclusive worldwide license agreement provides that, unless sooner terminated, it is to remain in full force and effect for the later of 10 years from the date when SF-1019 is first commercially sold or the date when patent coverage, if any, for SF-1019 expires in any country, which in most jurisdictions is twenty (20) years from the date of filing of a patent application on a country-by-country basis. Argyll Biotech has no issued patents specifically for SF-1019. Either party may terminate the agreement only on account of an uncured material breach by the other party. Immunosyn may terminate the agreement if a non-rebuttable regulatory or patient safety issue is raised, in which event all remaining license fee obligations will immediately be cancelled.
Restatement
In March 2010, after reconsidering ASC 350-20, “Goodwill and Other Intangible Assets” and paragraph 11c of ASC , the Company determined it was appropriate to write off of the intangible asset at inception of the agreement as the license had no alternative future use and was therefore research and development expense at the date it was acquired. See Note 3 to audited financial statements.
Government Regulations
The United States Federal Food and Drug Administration (the “FDA”) and comparable regulatory agencies in foreign countries, as well as drug regulators in state and local jurisdictions, impose substantial requirements upon clinical development, manufacture and marketing of pharmaceutical products. These agencies and other federal, state and local entities regulate research and development activities and the human testing, manufacture, quality control, storage, records and reports, conditions of approval and marketing, including claims, labeling, and advertising and promotion of products such as Argyll Biotech’s SF-1019, as well as any other products that either Argyll Biotech or Immunosyn may independently develop or may otherwise license for marketing and distribution.
The process required by the FDA under the drug provisions of the United States Food, Drug, and Cosmetic Act before any initial products may be marketed in the United States generally involves the following:
| | · | Preclinical laboratory and animal tests; |
| | · | Submission of an Investigational New Drug Application (“IND”), which must become effective before human clinical trials may begin; |
| | · | Adequate and well-controlled human clinical trials to provide substantial evidence of the safety and efficacy of the product candidate for its intended use; |
| | · | Submission to the FDA of a New Drug Application (“NDA”); and |
| | · | FDA review and approval of a NDA and final product labeling. |
The testing and approval process requires substantial time and funds. Preclinical tests include laboratory evaluation of the product candidate, its chemistry, formulation and stability, as well as animal studies to assess the potential safety and efficacy of the product candidate. Certain preclinical tests must be conducted in compliance with good laboratory practice regulations. Failure to conduct preclinical studies not in accord with good laboratory practice regulations can, in some circumstances, lead the FDA to require such studies to be replicated. Often, long-term preclinical studies required for NDA approval are conducted while clinical studies are ongoing.
Argyll Biotech must submit the results of preclinical tests, together with manufacturing information and analytical data, full toxicology studies and a complete clinical investigational plan, to the FDA as part of an IND, which must become effective before any clinical trials can begin in the United States. The Company believes that a limited feasibility pre-clinical study of SF-1019 was conducted on behalf of Argyll Biotech in the U.S. for treatment of CIDP, other neurological diseases and for the treatment of pain in 2007. In late 2007 and early 2008, the Company believes a proof of concept trial was initiated on behalf of Argyll Biotech in Europe for the treatment of DU but not completed. Analogous requirements are in place in the countries of the European Union and in the Unite d Kingdom, where Argyll Biotech also must prepare to conduct preclinical and clinical studies. If the FDA or its foreign equivalent raises questions about an IND within a certain period of time after its submission, that regulatory body may impose a clinical hold, thereby delaying the initiation of the study. In such a case, the IND sponsor and the regulatory authority must resolve any outstanding scientific questions before clinical trials can begin. All clinical trials must be conducted under the supervision of a qualified investigator in accordance with good clinical practice regulations for the protection of human subjects. These regulations include the requirement that all subjects be provided with adequate information for informed consent. Further, an independent Institutional Review Board (“IRB”) must review and approve any clinical investigational plan prior to study initiation. The IRB also continues to monitor the study a nd must be kept aware of the study’s progress, particularly as to adverse events and changes in the research program. Certain adverse events that may occur in an on-going clinical trial must be reported promptly to the FDA and progress reports detailing the status and results of the clinical trials, and any new information of which the sponsor becomes aware, must be submitted at least annually to the FDA or its foreign equivalent.
Clinical trials are typically conducted in three sequential phases that may overlap:
| | · | Phase I: The drug is initially introduced into healthy human subjects or patients and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. |
| | · | Phase II: The drug is studied in a limited patient population to identify possible adverse effects and safety risks, to determine the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. |
| | · | Phase III: When Phase II evaluations demonstrate that a dosage range of the drug is effective and has an acceptable safety profile, Phase III trials are undertaken to further evaluate dosage and clinical efficacy and to further test for safety in an expanded patient population, often at geographically dispersed clinical study sites. |
Prior to clinical trials which have not yet started, Argyll Biotech must develop information about the chemistry and physical characteristics of SF-1019, conduct full toxicology studies and finalize a process for manufacturing this product in accordance with current good manufacturing practice (“cGMP”) requirements acceptable to the FDA and regulatory agencies of other countries in which it intends to apply for approvals to market the product. The manufacturing process must be capable of consistently producing quality batches of SF-1019 and Argyll Biotech must develop validated methods for testing the identity, quality, purity and potency of the drug candidate. Additionally, appropriate packaging must be selected and tested and chemistry stability studies must be conducted to demonstra te that the SF-1019 product does not undergo unacceptable deterioration over its shelf life.
In the fall of 2006, Argyll Biotech and a physician together submitted a confidential Investigational New Drug Application (IND) to the FDA for a proposed Phase III Clinical Trial of SF-1019 for the therapy of autoimmune/inflammatory conditions of the nervous system. In 2007, Argyll Biotech learned that such proposed trial was put on clinical hold by the FDA.
In July 2008, the Company announced that it was negotiating an exclusive license agreement for the administration and distribution of SF-1019 in the State of Utah with a third party and in August 2008, it announced that Argyll Biotech had received approval for limited marketing and distribution of SF-1019 in Malaysia. In August 2008, the Company announced that it had elected to delay pursuit of agreements for the administration and distribution of SF-1019 in the State of Utah. In addition, Argyll Biotech subsequently elected to delay the pursuit of agreements for the marketing and distribution of SF-1019 to populations in Malaysia.
In November 2008, a physician submitted a physician-sponsored IND application to the FDA for a Phase II clinical trial for Multiple Sclerosis utilizing SF-1019. In mid-September 2009, an officer of the Company learned from a third party that the FDA had previously notified the physician-sponsor that his proposed study was on full clinical hold and could not be initiated. The officer further learned that this full clinical hold listed approximately 9 specific deficiencies, one of which is related to Argyll Biotech’s need to complete full animal toxicology studies of SF-1019 as described in FDA guidelines, and the information needed to resolve the identified deficiencies.
Prior to undertaking clinical trials, general animal toxicology studies using SF-1019 will need to be conducted by Argyll Biotech in two species for duration of the same or longer than the proposed treatment for humans. If treatment for DU is estimated to last between 4 to 6 weeks in humans, then the general animal toxicology studies using SF-1019 will be required to last at least that long prior to undertaking clinical trials for DU. If treatment is estimated to last much longer, perhaps even years, for CIDP, toxicology studies utilizing SF-1019 lasting substantially longer than what would be required for DU will be required prior to beginning clinical trials for treatment of CIDP. Conducting toxicology studies is an extensive and expensive process and Argyll Biotech cannot be certain of the outc ome therefrom. Argyll Biotech has informed the Company that it expects to use a reputable laboratory, university or consultant to undertake toxicology studies utilizing SF-1019.
We understand that Argyll Biotech needs to complete and then submit the results of SF-1019 product development, pre-clinical studies and clinical studies to the FDA or its foreign equivalent as part of an NDA for approval of the marketing and commercial shipment of the product. The appropriate regulatory authority will review each NDA submitted and may request additional information, rather than accept the NDA for filing. In this event, the application must be resubmitted with such additional information. The resubmitted application is also subject to review before the regulatory body accepts it for filing. Once the NDA is accepted, the regulatory agency begins an in-depth review of the NDA. Regulatory agencies have substantial discretion in the approval process an d may disagree with Argyll Biotech’s interpretation of the data submitted in the NDA. The review process may be significantly extended by the regulatory agency’s requests for additional information or clarification regarding information already provided. Also, as part of the review, the regulatory agency may refer the application to an appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation. Manufacturing establishments also are often subject to inspections prior to NDA approval to assure compliance with GMPs and with manufacturing commitments made in relevant marketing applications.
In the United States, under the Prescription Drug User Fee Act (“PDUFA”), submission of an NDA with clinical data requires payment of a user fee. For fiscal year 2010, that fee is $1,405,500 for applications requiring clinical data. Similar fees and requirements are in place in foreign jurisdictions. The relevant regulatory agencies assign time goals for reviewing NDAs prior to issuing a “complete response” in which an NDA may be approved, or denied if the regulatory agency’s criteria are not satisfied, or require additional clinical data. Even if these data are submitted, the regulatory agency may ultimately decide that the NDA does not satisfy the criteria for approval. If the regulatory agency approves the NDA, the product becomes a vailable for physicians to prescribe, but even after approval, a regulatory agency may later decide to withdraw product approval if compliance with regulatory standards is not maintained or if safety problems occur after the product reaches the market. A regulatory agency may also require post-marketing studies, known as Phase IV studies, as a condition to approval to develop additional information regarding the safety of a product. In addition, a regulatory agency can require surveillance programs to monitor approved products that have been commercialized, and such agencies have the power to require changes in labeling or to prevent further marketing of a product based on the results of these post-marketing programs.
Regulatory agencies also regulate drug labeling and promotion activities. As marketing and distribution will be the primary and substantial business function of Immunosyn, the Company anticipates that it will experience a significant burden as a result of these regulatory activities. Regulatory agencies actively enforce regulations prohibiting the marketing of products for unapproved or “off-label” uses. Further regulations on certain pharmaceutical marketing practices are imposed in the United States by the United States Federal Trade Commission and Office of the Inspector General of the United States Department of Health and Human Services. Reimbursement practices and HHS coverage of medicine will be important to the success of procurement and utilization of Arg yll Biotech’s SF-1019 and other products and product candidates, if they are ever approved for marketing.
European Regulations
The initial preclinical studies and clinical trials of SF-1019 need to be conducted by Argyll Biotech under European auspices and jurisdiction prior to application for marketing approvals can be submitted. Prior to any additional preclinical trials and clinical trials which have not yet started, Argyll Biotech must develop information about the chemistry and physical characteristics of SF-1019, conduct full toxicology studies and finalize a process for manufacturing this product in accordance with current good manufacturing practice (“cGMP”) requirements acceptable to the European auspices in which it intends to apply for the preclinical studies and clinical trials. The manufacturing process must be capable of consistently producing quality batches of SF-1019 and Argyll Biotech must develop valid ated methods for testing the identity, quality, purity and potency of the drug candidate. Additionally, appropriate packaging must be selected and tested and chemistry stability studies must be conducted to demonstrate that the SF-1019 product does not undergo unacceptable deterioration over its shelf life. Prior regulatory approval in order to initiate Phase I (human volunteer) studies is required in many of the European Union member states. Following successful completion of Phase I studies, data must be submitted in a summarized format to the applicable regulatory authority in the member state in respect of applications for the conduct of later Phase II and Phase III studies. It is expected that the first submission for clinical trial approval will be made in the United Kingdom to the Medicines and Healthcare products Regulatory Agency (MHRA) which acts on behalf of the European Medicines Agency (EMEA) to ensure uniformity amongst the member states and that the first set of clinical trials will take place under their jurisdiction, although there can be no assurance that this will be the case. European Union regulatory authorities typically are required to raise objections within one to three months after receipt of a proposal for a study, but they often have a right to extend this review period at their discretion. In addition, one or more independent ethics committees, which typically operate similarly to an Institutional Review Board in the United States, will review the research proposal, prior to authorizing its commencement.
In order to gain marketing approval in the European Union, Argyll Biotech must submit a comprehensive dossier to the relevant authority for review, which, in the European Union, is known as a Marketing Authorization Application (“MAA”). The format of the MAA is specific and is laid out by each applicable regulatory authority, although in general it will contain information on the quality of the chemistry, manufacturing and pharmaceutical aspects of the product as well as non-clinical and clinical data.
For many products, the European Union provides a choice of a centralized or decentralized authorization route. Under the centralized route, one marketing authorization is granted for the entire European Union, while under the decentralized route, a series of national marketing authorizations are granted. In the centralized system, an application will be reviewed by the members of the Committee for Proprietary Medicinal Products (“CPMP”), on behalf of the European Medicines Agency (“EMEA”). The EMEA will, based upon the review of the CPMP, provide an opinion to the European Commission on the safety, quality and efficacy of the product. The decision to grant or refuse an authorization is made by the European Commission. In circumstances where use of the centralized route is not mandatory, the applicant can choose to use the decentralized route, in whic h case an application will be reviewed by each member state’s regulatory agency. If a regulatory agency grants authorization, other member states’ regulatory agencies and authorities are asked to “mutually recognize” the authorization granted by the first member state’s regulatory agency.
Failure to comply with the terms of the license after obtaining marketing approval can, among other things, result in the suspension of regulatory approval, as well as possible civil and criminal sanctions. The European Union will require applicants to participate in the "Yellow Card" system which enables the rapid and efficient reporting of adverse events and side effects. If any major events are reported, this may result in the license, if and when granted, being withdrawn. Regulators have the authority if an applicant fails to comply with the license to revoke, suspend or withdraw approvals of previously-approved products and can also prevent companies and individuals from participating in the drug approval process. European Union regulators are permitted to seize products which are in breach of the license and close manufacturing plants not operating in conformity with the licensed manufacturing agreements, storage, or distribution protocols and stop the shipment of such products.
Pricing Controls
Before a pharmaceutical product may be marketed and sold in certain foreign countries the proposed pricing for the product must be approved. The requirements governing product pricing vary widely from country to country and can be implemented disparately at a national level.
The European Union generally provides options for its member states to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. For example, the regulation of prices of pharmaceuticals in the United Kingdom is generally designed to provide controls on the overall profits that pharmaceutical companies may derive from their sales to the United Kingdom National Health Service. The United Kingdom system is generally based on profitability targets or limits for individual companies which are normally assessed as a return on capital employed by the company in servicing the National Health Service market, comparing capital employed and profits.
In comparison, Italy generally establishes prices for pharmaceuticals based on a price monitoring system. The reference price is the European average price calculated on the basis of the prices in four reference markets: France, Spain, Germany and the United Kingdom. Italy generally establishes the price of medicines belonging to the same therapeutic class on the lowest price for a medicine belonging to that category. Spain generally establishes the selling price for new pharmaceuticals based on the prime cost, plus a profit margin within a range established each year by the Spanish Commission for Economic Affairs.
Third Party Reimbursements
In the United States, European Union, and elsewhere, sales of therapeutic and other pharmaceutical products are dependent in part on the availability and adequacy of reimbursement to the consumer or the health care provider from third party payors, such as government and private insurance plans. Third party payors are increasingly challenging the prices charged for medical products and services and new products that are more expensive than existing treatments may have difficulty finding ready acceptance unless there is a clear therapeutic benefit.
Patent Restoration and Marketing Activity
The Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Amendments (“Hatch-Waxman”), permits the FDA to approve an abbreviated NDA for generic versions of innovator drugs, as well as NDAs with less original clinical data. Hatch-Waxman also provides certain patent restoration and exclusivity protections to innovator drug manufacturers.
The abbreviated NDA process permits competitor companies to obtain marketing approval for a drug with the same active ingredient for the same uses as an innovator drug but does not require the conduct and submission of clinical studies demonstrating safety and efficacy for that product. Instead of safety and efficacy data, a competitor could make a copy of any of Argyll Biotech’s drugs, if they are ever approved, and only submit data demonstrating that the copy is a bioequivalent to the approved SF-1019 product, which may allow the competitor to obtain marketing approval from the FDA.
Hatch-Waxman also provides competitors with the ability to market copies of innovator products with the submission of significantly less clinical data outside of the abbreviated NDA context. Such applications are known as “505(b)(2) NDAs,” or “paper NDAs.” They may rely on clinical investigations not conducted by or for that applicant and for which the applicant has not obtained a right of reference or use. Such products are subject to the same patent notification procedures as for abbreviated NDAs.
Hatch-Waxman also provides for the restoration of a portion of a product’s United States patent term that is lost during a drug’s clinical development and NDA review by the FDA, and further provides for the statutory protection, known as exclusivity, against the FDA’s approval or acceptance of certain competitor applications. Patent term restoration can return up to five years of a patent term for a patent that covers a new product or its use to compensate for time lost during product development and the regulatory review process. This period is generally one-half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of the NDA and the approval of that application, subject to a maximum extension of five years.&# 160; No extension can extend the patent life beyond fourteen years after the drug approval date. The application for patent term restoration is subject to approval by the United States Patent and Trademark Office in conjunction with the FDA.
Hatch-Waxman also provides for differing periods of statutory protection for new drugs approved under an NDA. Among the types of exclusivity are those for a new chemical entity and those for a new formulation or a new indication for a previously-approved drug. Marketing exclusivity in the United States for the type of product that Immunosyn intends to market and distribute, if granted by the FDA, would prohibit that agency from approving the application of another company that submits an abbreviated NDA or a paper NDA for five years. This marketing exclusivity protection does not prohibit the FDA from approving a full NDA.
Competition
Competition in the biotechnology industry is intense. Potential competitors in the United States and Europe are numerous and include pharmaceutical, chemical and biotechnology companies, most of which have substantially greater capital resources, sales, marketing and distribution experience, research and development staffs and facilities than Immunosyn. Among others, Eli Lilly & Company and Wyeth Pharmaceuticals, Inc. market antidepressants, and Pfizer, Inc. markets anticonvulsants that are prescribed for treating diabetic neuropathy. In addition, Daval International Limited, a United Kingdom company (“Daval”), is also testing a caprine serum product, called Aimspro, for treating multiple sclerosis and other neurological disorders. GTC Biotherapeutics, Inc., a Nasdaq company, develops, supplies and commercializes therapeutic proteins produced through transgenic animal technology. GTC’s clot busting biotherapeutic, ATyrn ® , produced in goats, was recently approved by the FDA for the prevention of peri-operative and peri-partum thromboembolic events in hereditary antithrombin deficient patients.
Argyll Biotech may seek to limit potential sources of competition by developing products that are eligible for orphan drug designation and approval or other forms of protection. Specifically, Argyll Biotech may target CIDP as a potential candidate for treatment with SF-1019 and may seek orphan drug status for SF-1019 in the treatment of CIDP. Argyll Biotech needs to further develop information about the chemistry and physical characteristics of SF-1019, conduct full toxicology studies and finalize a process for manufacturing this product in accordance with current good manufacturing practice (“cGMP”) requirements acceptable to the FDA prior to applying for orphan drug designation with the FDA. CIDP is listed by the National Organization for Rare Disorders (http://www.raredis eases.org /) as an orphan disease with less than 200,000 cases in the United States. As far as Immunosyn is aware, the only currently approved treatment for CIDP is IVIG (intravenous gamma globulin) which we believe has a cost of $2,000-$6,000 per month depending on dosage. The mechanism of action of IVIG is to block release of inflammatory cytokines directly and therefore therapeutic benefits received from IVIG lasts only about 1-2 weeks.
Due to their substantially greater resources, competitors may develop technologies and products to treat CIDP, DN or other diseases more rapidly than Argyll Biotech or may market them more effectively than the Company. Competing technologies or products may be more effective than any of those that are being or will be developed by Argyll Biotech. In addition, existing competitors enjoy the strategic advantages of existing brand recognition, marketing and distribution networks, thus enabling them to introduce new products much more rapidly than Immunosyn.
As of December 31, 2009, we had two executive officers, Mr. Stephen D. Ferrone, President and CEO, and Mr. Douglas McClain, Jr., our Chief Financial and Accounting Officer and Corporate Secretary. Stephen D. Ferrone is currently our only full-time employee. The Company expects to hire additional executive staff and employees, including potentially a full-time CFO, as needed.
Where You Can Find More Information
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are available without charge from us on our website at http://www.immunosyn.com , as soon as reasonably practicable following the time they are filed with or furnished to the SEC. Reports filed with the SEC may also be viewed at www.sec.gov or obtained at the SEC Public Reference Room in Washington, D.C. Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
The risks and uncertainties described below are not the only ones we may face. The following risks, together with additional risks and uncertainties not currently known to us or that we currently deem immaterial, could impair our business, financial condition and results of operation.
Risks Related to the Company’s Business
Our independent auditor has issued a going concern opinion which raises doubts about our ability to continue as a going concern.
Our independent auditor has expressed doubt about our ability to continue as a going concern. Note 2 to our financial statements includes an explanatory paragraph expressing doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to implement our business plan, raise capital and generate revenues. Since inception, we have borrowed $1,069,129 of which $668,834 is owed as of December 31, 2009, from Argyll Equities, LLC and Argyll Biotech who together own approximately 59% of Immunosyn’s Common Stock. These advances are unsecured and are to be repaid on demand. In addition, the Company had accounts payable and accrued expenses of $856,133 and $6,060, respectively, as of December 31, 2009 .
As of December 31, 2009, Immunosyn had an accumulated deficit of $5,109,437 and a working capital deficit of $3,524,318 which is considered insufficient to fund operations over the next 12 months.
Immunosyn or Argyll Biotech may not be able to secure financing, which in turn could affect Immunosyn’s and Argyll Biotech’s respective abilities to operate as a going concern.
As of December 31, 2009, Argyll Biotech had an estimated accumulated deficit of approximately $3,781,049 and a working capital deficit of approximately $1,781,049. Argyll Biotech does not anticipate any revenues in the foreseeable future but continues to incur significant losses from operations. This raises substantial doubt about Argyll Biotech’s ability to continue as a going concern. Argyll Biotech may require substantial additional financing to bring SF-1019 to market. If adequate financing is not available to Argyll Biotech, it may be required to delay, scale back or eliminate some or all of its research and development plans or the proposed toxicology studies or clinical trials of SF-1019 or to relinquish rights to certain technologies. Argyll Biotech&# 8217;s inability to obtain financing would have a material adverse effect on Immunosyn’s ability to develop its operations and implement its business plan.
Argyll Biotech and Immunosyn have no operating history, which makes it impossible to evaluate their business and to predict any future operating results.
To date, Immunosyn’s founders and Argyll Biotech have been primarily engaged in organizational and fundraising activities. Immunosyn has not generated any revenues to date and does not anticipate generating any revenues until such time as SF-1019 is approved for distribution by applicable regulatory authorities. SF-1019 is the first product that Argyll Biotech has attempted to bring to market. Accordingly, neither Argyll Biotech nor the Company has any operating history upon which an evaluation of their performance and prospects can be made.
Immunosyn expects to incur substantial losses for the foreseeable future and may never achieve profitability.
Immunosyn anticipates that it will continue to incur significant operating losses for the foreseeable future. We may never generate revenues or achieve profitability and, if we ever achieve profitability, we may not be able to maintain profitability.
Immunosyn and Argyll Biotech have no experience in completing development, obtaining regulatory approval or marketing a novel biopharmaceutical product and, to be successful, both organizations will need qualified personnel to complete development, successfully complete trials and launch SF-1019 in the marketplace.
Both Argyll Biotech and Immunosyn are recently formed entities and, consequently, lack the requisite personnel, facilities, equipment or experience to execute their product development, testing, regulatory approval and marketing objectives. Argyll Biotech will be required to hire additional qualified scientific and technical personnel as well as personnel with expertise in toxicology studies or clinical testing and government regulation, to expand various research and development programs and to pursue product development, regulatory approval and marketing plans. Immunosyn will also have to hire marketing and administrative personnel to promote its presence in the portion of the medical community that treats maladies associated with CIDP and diabetes. There is intense competition for qu alified personnel in the areas of Argyll Biotech’s and the Company’s respective activities, and there can be no assurances that Argyll Biotech or the Company will be able to attract and retain the qualified personnel necessary for the development of its and their respective businesses.
The Company and Argyll Biotech face competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities and research institutions. The failure to attract and retain key scientific, marketing and technical personnel would have a material adverse effect on the development of the Company’s and Argyll Biotech’s respective businesses and our and their abilities to develop, market and sell products.
The Company may not be successful in identifying and attracting executive officers, and even if it were to do so, it may not be successful in retaining such individuals.
The Company intends to identify and attract individuals to fill permanent key executive positions. Based on its current cash balance, management believes the Company cannot attract individuals to fill permanent key management positions and cannot build its operations. There is intense competition for qualified personnel in the Company’s field and there can be no assurances that the Company will be able to attract and retain the qualified personnel necessary for the development of its business. Instead, the Company may chose to retain executives with other backgrounds, including persons previously or currently affiliated with its affiliates, which could have a material adverse effect on the development of the Company’s business. The failure to attract and retain ex ecutive officers would have a material adverse effect on the development of the Company’s business.
The Company and its affiliates, including Argyll Biotech, are recipients of several subpoenas issued by the United States Securities and Exchange Commission.
Pursuant to a subpoena dated January 20, 2006 issued by the Securities and Exchange Commission to an affiliate of Argyll Biotech in proceedings captioned In the Matter of Directors Financial Group, Ltd. and In The Matter of Prime Bank Securities, and pursuant to subpoenas issued by the SEC to affiliates of Argyll Biotech on March 30, 2006 and to Immunosyn on December 15, 2006 in a proceeding captioned In The Matter of The Argyll Group, LLC, Immunosyn and its affiliates have been asked to produce all documents concerning a wide variety of topics including many related directly to Immunosyn. Immunosyn and Argyll Biotech’s affiliates actively cooperated with the SEC and produced documents responsive to these subpoenas, completing their responses in early August 2007. The Directors Financial Group matter w as resolved in June 2006 through a settlement between the SEC and the parties to the proceeding, and, accordingly, Immunosyn will not be required to respond further to that subpoena. Immunosyn had had no further communication with the SEC regarding the remaining subpoenas since January 2007 until March 2009. On or about March 17, 2009, representatives of both Immunosyn and Argyll Biotech became aware that they had received additional subpoenas from the SEC on or about March 6, 2009 (the “March 2009 Subpoenas”). In addition, on or about June 4, 2009, Immunosyn directors and officers, Douglas A. McClain, Jr. and Stephen Ferrone, received subpoenas from the SEC (the “June 2009 Subpoenas”) as did James T. Miceli, a director and officer of Argyll Biotech, and Douglas A. McClain, Sr. Immunosyn and Argyll Biotech subsequently learned from the SEC that the March 2009 Subpoenas and the June 2009 Subpoenas would be treated as voluntary requests. On or about September 11, 2009, Immunosyn and Immunosyn directors and officers, Douglas A. McClain, Jr. and Stephen Ferrone, received additional subpoenas from the SEC as did James T. Miceli, a director and officer of Argyll Biotech, and Douglas A. McClain, Sr. The Company and its affiliates have responded to these subpoenas. Even if the Company and its affiliates are fully in compliance with all of their legal obligations, the existence of these proceedings may delay or otherwise negatively impact their ability to raise funds and conduct their operations. Furthermore, the existence of these proceedings may discourage future investors from acquiring the securities of the Company or Argyll Biotech.
Litigation involving Argyll Biotech and its research scientists could have an adverse effect on the development of SF-1019 and the Company.
On or about July 27, 2006, Daval International Ltd. filed suit in the High Court of Justice, Chancery Division in London, England against Argyll Biotech and five of Argyll Biotech’s research scientists and others, including Douglas McClain, Sr., seeking an injunction and damages or an account of profits based on allegations of breach by the scientists and Mr. McClain of confidentiality agreements with Daval, breaches by such persons of their fiduciary duties and conspiracy by Argyll Biotech and certain of its shareholders to wrongfully disclose and use Daval’s alleged trade secrets. These proceedings do not allege infringement of any Daval patent whether by Argyll Biotech or any of the other defendants. Argyll Biotech has filed its defenses and continues to investigate the merits of th e suit and the basis of its defenses including, among other grounds, that one of the active ingredients in SF-1019 is based on independent research by Argyll Biotech’s research scientists, and the method of producing SF-1019 is materially different from Daval’s process. The action had been listed for trial in the UK in January 2009 but, in December 2008, the High Court in London ordered that the trial be rescheduled for a later date likely to be in 2010. Immunosyn is not involved in this litigation. Even if Daval’s claims are found to have no merit, these proceedings may delay or otherwise negatively impact Argyll Biotech’s ability to conduct its operations, which could have a negative impact on the development of SF-1019, which would adversely affect the Company.
Recent litigation involving the Company could have a material adverse effect on the Company.
On August 24, 2009, a complaint was filed by Denise Campbell on behalf of a putative class in the United States District Court for the Southern District of Texas that names as defendants, amongst others, the Company and its directors and officers, Douglas A. McClain, Jr. and Stephen Ferrone. The complaint alleges, among other things, that the defendants have made false and/or misleading statements concerning Immunosyn and SF-1019 in filings with the SEC in violation of the Exchange Act, including Section 10b-5 thereof, including, without limitation, that the FDA had not approved SF-1019 for human injection, that SF-1019 had not received compassionate waiver status, that SF-1019 was on clinical hold, that SF-1019 had negative results in certain safety studies, that SF-1019 was being sold by the defendants outside of the exclusive license held by Immunosyn and that Alan Osmond was being paid to promote SF-1019 and that defendants have committed fraud in their SEC disclosures and on their websites. In addition, the Company recently learned that a complaint had been filed on November 24, 2009 by Robert Albergo and David Irwin in the United States District Court for the Southern District of California that names as defendants, amongst others, the Company and its directors and officers, Douglas A. McClain, Jr. and Stephen Ferrone. The complaint alleges, among other things, that the Company, McClain and Ferrone have made false and/or misleading statements concerning Immunosyn and SF-1019 in filings with the SEC in violation of the Exchange Act, including Section 10b-5 thereof. Although the Company and its directors and officers intend to vigorously defend against the allegations contained in these complaints which they believe to be untrue and without meri t, the existence of these proceedings may delay or otherwise negatively impact the ability of the Company to raise funds and conduct its operations. Furthermore, the existence of these proceedings may discourage future investors from acquiring the securities of the Company and an adverse outcome in either of these proceedings could have a material adverse effect on the Company’s financial position and results of operations.
SF-1019 has not been approved for any human use nor for treatment of any particular disease, and such approval may never be obtained.
The Company is entirely dependent upon Argyll Biotech’s sole experimental drug, SF-1019, which has not been tested in any clinical trials. Argyll Biotech is the assignee of issued patents filed in selected countries around the world. However, Argyll Biotech has no issued patent specifically on SF-1019 and the rights which Argyll Biotech has received from its current and future patents may not offer sufficient protection to allow it to manufacture, market and/or sell its products. Argyll Biotech has not received regulatory approval of SF-1019’s use in clinical trials. Two INDs for SF-1019 have received a full clinical hold from the FDA. Among the deficiencies that need to be addressed by Argyll Biotech is the completion of toxicology studies for SF-1019. Argyll Biotech and the Company cannot guarantee that SF-1019 will ever receive regulatory approval for the uses for which it may be licensed to Immunosyn, namely, treatment of various diseases including, without limitation, CIDP and diabetic ulcers. No clinical trials have been conducted anywhere and following commencement of any clinical trials, completion and evaluation of those trials may not occur or a substantial period of time may elapse before Immunosyn has a product that may be sold and distributed for human use.
Even if a new drug product is well along the path of a clinical trial and the trial is close to completion, regulatory authorities have the ability to shut down any trials due to safety, efficacy or other concerns; to request additional trials or data to verify results; or to force any portion or all of a trial to be repeated for any number of reasons. Any such action by the regulatory authorities or any delay of a clinical trial could materially and adversely affect the Company’s exclusive license from Argyll Biotech. Even if Argyll Biotech is successful in bringing SF-1019 into a clinical trial for treatment of various diseases including, without limitation, CIDP or diabetic ulcers, there can be no assurances that those trials will successfully demonstrate that SF-1019 is efficacious again st various diseases including, without limitation, CIDP or diabetic ulcers. Unless and until the appropriate regulatory authority provides a final approval for the use of SF-1019 for treating various diseases including, without limitation, CIDP or diabetic ulcers, the licensed rights will be of no value.
Immunosyn has been informed that Argyll Biotech is implementing controls to prevent unregulated use of SF-1019 but if Argyll Biotech is unable to do so or the FDA takes any action to prevent the export or experimental use of unapproved drugs such as SF-1019, the Company’s licensed rights will be of diminished value.
Prior to Argyll Biotech’s development of SF-1019, caprine serum had been the subject of unregulated use by parties unrelated to Argyll Biotech and the Company. In 2007, the Company learned that research samples of SF-1019 had been used by several individuals in the United States and Mexico, and such uses have been publicized as “testimonials” on a shareholder’s web site. To the extent unapproved research samples of SF-1019 have been exported from the United States or used in the United States, the FDA may issue cease and desist letters and take other action to prevent any further export, use or promotion within the United States although no such letters or action have been received or taken to date. Such actions by the FDA, if any, may delay or affect Argyll Biotech’s ability to obtain FDA approval for SF-1019 and will have a material adverse effect on the Company’s exclusive license from Argyll Biotech.
The Company has been informed that Argyll Biotech has taken steps to prevent distribution or export of SF-1019 for unapproved human use in any country, including the United States. In addition, the Company has informed all of its shareholders to discontinue all further promotion of SF-1019 that does not comply with FDA regulations. The Company’s Board of Directors has assumed responsibility for coordinating these controls with Argyll Biotech and monitoring their implementation. However, there can be no assurance that the Company or Argyll Biotech will be able to effectively monitor and control the activities of third-parties including third party shareholders of the Company.
The Company depends on Argyll Biotech’s ongoing research and intellectual property portfolio to develop and protect technologies and products.
Argyll Biotech is developing pharmaceutical compositions directed to a new class of biological response. We believe that SF-1019 may be a new category of drug that may be characterized as an “Immunomodulator.” We believe that many disease pathologies that affect individuals are the result of an over-active immune system. Specifically, when a viral agent begins to adversely affect an individual’s cells, the immune system frequently becomes overactive, which destroys the viral agent but also injures surrounding healthy cell structures. We also believe that other disease pathologies suppress an individual’s immune system, which allows other diseases and agents to kill healthy cells. Although research is not complete, we believe that SF-1019 may regulate an individual’s immune system to prevent it from both over-reacting and under-reacting to a viral invasion of an individual’s body systems. This Immunomodulator, derived from mammalian cells, has shown preliminary promise in laboratory testing by stimulating the immune system of otherwise healthy, but infected test animals. SF-1019 is believed by Argyll Biotech to contain one or more such factors and Argyll Biotech needs to perform additional research to confirm this.
Argyll Biotech has transferred its worldwide rights to market and distribute SF-1019 to Immunosyn by way of an exclusive licensing agreement. Argyll Biotech needs to pursue regulatory approval for SF-1019 and related technologies in the United States and other jurisdictions prior to its being allowed to market and distribute SF-1019 in those jurisdictions. As Argyll Biotech continues to develop SF-1019, it will need to file for patents specifically for SF-1019 in the United States and in other countries. Neither Immunosyn nor Argyll can guarantee that any applications for patents specifically for SF-1019 will be granted in the United States Patent and Trademark Office or in any other patent offices, or that their compositions and/or treatments will receive regulatory approval from the United States Food and Drug Administration or any other regulatory body either within or outside the United States.
The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Predictions cannot be made at this time about results that future research may yield with regard to SF-1019 and related treatments, or about the viability of the prospective patent portfolio surrounding this technology. Nevertheless, the Company’s success in the biological response modifiers market will depend on Argyll Biotech’s ability to obtain and enforce its intellectual property rights in the United States and abroad for the products and treatments that Argyll Biotech is developing and that the Company intends to market and distribute.
Immunosyn’s exclusive license from Argyll Biotech is the Company’s primary asset and the exclusive license agreement, including, without limitation, the fee established in that agreement, is between related entities and does not bear any relationship to established or traditional methods of valuing such fees and, as such, may be unfair to the Company.
Pursuant to our exclusive license agreement with Argyll Biotech, the Company issued 147,000,000 shares of Common Stock to Argyll Biotech at par value of $0.0001 per share in payment of the exclusive world-wide license rights to SF-1019 for a term that will last for the later of 10 years from the date when SF-1019 is first commercially sold or the date when patent coverage, if any, for SF-1019 expires, which in most jurisdictions is twenty years from the date of filing. On October 25, 2007, Immunosyn entered into an Amended and Restated License Agreement with Argyll Biotech. The amended license agreement expands the grant of rights to Immunosyn to include the exclusive worldwide right to market, sell, distribute and promote SF-1019 in its current form for multiple uses including the treatment of an y and all diseases and pathological conditions (not just CIDP, DN and DU). Immunosyn is further granted the rights to any improvement of SF-1019 and other compounds, which are developed under the same technology platform and which are chemically similar to SF-1019. In conjunction, Immunosyn also obtained an exclusive, worldwide license to all intellectual property owned by or assigned to Argyll Biotech for the purpose of marketing, distribution, sale and promotion of SF-1019. Immunosyn continues to have the right of first offer to enter into additional license agreements for uses of other compounds that are developed and which are not already covered under the amended license agreement. To date, SF-1019 has not been approved for human use in any jurisdiction. In March 2010, after reconsidering ASC 350-20, “Goodwill and Other Intangible Assets” and paragraph 11c of ASC , the C ompany determined it was appropriate to write off of the intangible asset at inception of the agreement as the license had no alternative future use and was therefore research and development expense at the date it was acquired. The exclusive license agreement is between related entities, was not negotiated in an arms-length transaction, and does not bear any relationship to established or traditional methods of valuing such fees.
Argyll Biotech may use the proceeds from the sale of our Common Stock for purposes other than the development and regulatory approval of SF-1019; the terms of Immunosyn’s exclusive license agreement do not provide the Company with any oversight or right to control Argyll Biotech’s use of such license fees.
Argyll Biotech reserves the right to use the cash and other proceeds it receives from the sale of the Company’s stock received as payment of its license fee for purposes other than development and regulatory approval of SF-1019, including corporate purposes of its other affiliates. Furthermore, under the terms of the exclusive license agreement between Argyll Biotech and Immunosyn, the license fee was deemed earned by Argyll Biotech when Immunosyn issued its shares of Common Stock and non-refundable, regardless of the true cost of completing development and obtaining regulatory approval of SF-1019. The Company has no right to control the proceeds received by Argyll Biotech from its sale of the Company’s stock, and the Company has no audit or other rights to require that all of these pr oceeds be applied solely to the development and regulatory approval of SF-1019. If the amount required to achieve these goals is less than the amount of the proceeds received from Argyll Biotech’s sale of the Company’s stock, the Company will not be entitled to any refund. In the event Argyll Biotech is unsuccessful in achieving product development or obtaining regulatory approval, the Company has no right to make any claim with respect to Argyll Biotech’s use of the proceeds.
Argyll Biotech will be our sole supplier of SF-1019; the exclusive license agreement provides that the cost of SF-1019 to Immunosyn shall be equal to 40% of the “gross sale price” (as defined) of SF-1019 as sold to a third party customer by Immunosyn. In the event Argyll Biotech succeeds in obtaining regulatory approval for distribution and sale of SF-1019, Argyll Biotech will be the sole supplier of SF-1019 to the Company. In the event of any disruption in the manufacturing process of Argyll Biotech and its contractors, the Company will have no other source for purchasing SF-1019 and satisfying its customer commitments. Argyll Biotech will determine the purchase price for SF-1019 in its reasonable discretion based on its manufacturing costs, development expenses, overhead and customary industry mark-up.
The safety and efficacy profiles for SF-1019 that emerge from controlled clinical trials may be substantially less favorable than in prior uncontrolled observations of SF-1019’s precursors which may materially and adversely effect our business.
Argyll Biotech’s only data regarding the safety and efficacy of SF-1019 is based on uncontrolled observations of SF-1019 among a small group of individuals. The Company believes that a limited feasibility pre-clinical study of SF-1019 was conducted on behalf of Argyll Biotech in the U.S. for treatment of CIDP, other neurological diseases and for the treatment of pain in 2007. In late 2007 and early 2008, the Company believes a proof of concept trial was initiated on behalf of Argyll Biotech in Europe for the treatment of DU but not completed. Argyll Biotech will need to complete toxicology studies for SF-1019 prior to undertaking clinical trials. Toxicology studies are expensive and there is no way to predict if these studies will generate positive results. If and when formal and controlled clinical trials are conducted using SF-1019 over broad populations and geographic areas, it is possible that heretofore unknown adverse safety and unfavorable efficacy effects may be observed, in which case the Company’s ability to market SF-1019 for its intended use may be materially and substantially reduced or eliminated. Moreover, formal clinical trials are expensive and Argyll Biotech may have severely underestimated the cost of conducting and concluding such trials. If the Company is unable to commence the marketing, distribution and sale of SF-1019 because formal clinical trials reveal adverse safety or lack of efficacy information, or if the clinical trials last longer or sustain substantially higher costs than are currently projected, the Company’s business will be materially and adversely effected.
A decrease in the projected prices that Immunosyn may charge for SF-1019 and the level of third party reimbursement that Immunosyn may receive from third party payors may adversely impact our business.
To the extent that SF-1019 becomes approved for distribution in the United States or in any foreign markets, Immunosyn’s ability to commercialize SF-1019 successfully will depend in part on the price Immunosyn may charge for that product and on the extent to which reimbursement for the cost of that product will be available from government health administration authorities, private health insurance and other third-party payers. Pursuant to the license agreement, Argyll Biotech will set the price that the Company will charge for SF-1019. Government officials and private health insurers are increasingly challenging the price of medical products and services. Significant uncertainty exists as to the pricing flexibility which distributors will have with respect to newly approved healt h care products as well as their reimbursement. There can be no assurance that the Company’s assumptions concerning product pricing will be achieved.
Third-party payers may attempt to control costs further by selecting exclusive providers of their pharmaceuticals products. If third-party payers were to make this type of arrangement with one or more of Immunosyn’s competitors, those payers would not reimburse patients for purchasing SF-1019.
Argyll Biotech may not apply for or be successful in receiving orphan/special drug status on any products.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition. A disease or condition that affects populations of fewer than 200,000 people in the United States generally constitutes a rare disease or condition. Argyll Biotech may seek orphan drug approval for certain aspects or treatment modalities of SF-1019, including the treatment of CIDP, in an attempt to get SF-1019 into the marketplace more quickly and competitively. There can be no assurances that SF-1019 is entitled to orphan drug status, that Argyll Biotech will proceed with this strategy or that, if it does proceed, any orphan drug designation will be approved or authorized.
If Argyll Biotech fails to keep up with rapid technological change and evolving therapies, the proprietary technologies that form the substance of SF-1019 could become less competitive or obsolete.
The pharmaceutical industry is characterized by rapid and significant technological change. Immunosyn expects that pharmaceutical technology will continue to develop rapidly and the Company’s future success will depend on Argyll Biotech’s ability to develop and maintain a competitive position. Technological development by others may result in products developed by Argyll Biotech or the Company, both branded or generic, becoming obsolete before they are marketed or before Immunosyn or Argyll Biotech recover any portion of their expenses incurred with respect to such product. Alternative therapies or new medical treatments could alter existing treatment regimes, and thereby reduce the need for one or more of the products that may be developed by Argyll Biotech, which would adv ersely affect Immunosyn’s business.
Many of Immunosyn’s competitors have substantially greater capabilities and resources and may be able to market products more effectively, which would limit Immunosyn’s ability to generate revenue and cash flow.
Competition in Immunosyn’s industry is intense. Potential competitors in the United States and Europe are numerous and include pharmaceutical, chemical and biotechnology companies, most of which have substantially greater capital resources, sales, marketing and distribution experience, research and development staffs and facilities than does Immunosyn. Among others, Eli Lilly & Company and Wyeth Pharmaceuticals, Inc. market antidepressants, and Pfizer, Inc. markets anticonvulsants that are prescribed for treating diabetic neuropathy. In addition, Daval has reported that they are also testing a caprine serum product, called Aimspro, for treating several indications.
Argyll Biotech’s and Immunosyn’s competitors may develop similar technologies and products more rapidly or may market them more effectively. Competing technologies or products may be more effective than any of those that are being or will be developed by Argyll Biotech.
Immunosyn will depend on Argyll Biotech and other third parties for clinical testing of SF-1019. Any disruption in such third party relationship could delay the Company’s ability to distribute and market products on a timely basis or at all.
Neither Immunosyn nor Argyll Biotech currently has any internal product testing capabilities. Argyll Biotech’s inability to retain and pay third parties for the clinical testing of products on acceptable terms, or at all, would adversely affect their ability to develop, distribute and market products. It will be Argyll Biotech’s responsibility to arrange for and supervise clinical testing. Any failures by third parties to adequately perform their responsibilities may delay the submission of products for regulatory approval, impair Immunosyn’s ability to deliver products on a timely basis or otherwise impair Immunosyn’s competitive position. The Company’s dependence on third parties, including Argyll Biotech, for the development of products may ad versely affect its potential profit margins and its ability to deliver products on a timely basis.
Argyll Biotech and Immunosyn will depend on others to manufacture their products and any disruption in manufacturing could have a material adverse effect on our business.
Argyll Biotech and Immunosyn have never manufactured any products and SF-1019 may not be suitable for commercial manufacturing in a cost-effective manner. Manufacturers of products developed by Argyll Biotech will be subject to current good manufacturing practices prescribed by the FDA and other rules and regulations prescribed by applicable regulatory authorities. Argyll Biotech may not be able to enter into or maintain relationships either domestically or abroad with manufacturers whose facilities and procedures comply or will continue to comply with current good manufacturing practices or applicable foreign requirements. Failure by a manufacturer to comply with current good manufacturing practices or applicable foreign requirements could result in significant time delays or Immunosyn ’s inability to commercialize or continue to market a product and could have a material adverse effect on Immunosyn’s sales of products and, therefore, its cash flow.
In the United States, failure to comply with current good manufacturing practices or other applicable legal requirements can lead to federal seizure of violating products, injunctive actions brought by the federal government and potential criminal and civil liability on part of a company and its officers and employees. Argyll Biotech’s or Immunosyn’s failure to satisfy any of these legal requirements prior to attempting to market or distribute any products will place the Company and its resources and assets at substantial risk.
Immunosyn has limited sales and marketing capability and may not be successful in selling or marketing any products.
Immunosyn currently has no sales and marketing capability. The creation of infrastructure to commercialize medical products is a difficult, expensive and time-consuming process. Immunosyn may not be able to establish direct or indirect sales and distribution capabilities anywhere in the world or be successful in gaining market acceptance for any products, including SF-1019.
Some of the concepts that are inherent in Argyll Biotech’s technologies have been known, in various forms, for several years, and at least one other party is developing similar drug products based on those concepts which, if approved for human use, may adversely affect Immunosyn’s exclusive license from Argyll Biotech.
Some of the basic biochemistry behind SF-1019, specifically the concept of using extracts from caprine serum, is in the public domain. Because the basic biochemistry may be in the public domain, third parties may be developing similar technologies and techniques which would compete with SF-1019. Argyll Biotech is aware of at least one potential competitor, Daval, which is developing and/or marketing a product extracted from caprine serum in the United Kingdom. Neither Argyll Biotech nor Immunosyn can determine whether any other entities have made similar progress with this biochemistry or if another competitor is currently poised to enter the market with a competing product. In the event that this does occur, the value of Immunosyn’s exclusive license from Argyll Biotec h may be severely diminished.
Third parties may assert claims against Argyll Biotech and the Company for infringement of patents and other intellectual property rights, which could harm our business.
Parties not affiliated with either Immunosyn or Argyll Biotech have obtained or may obtain United States or foreign patents or possess or may possess proprietary rights relating to products being developed or to be developed by Immunosyn or Argyll Biotech. Patents now in existence or hereafter issued to others may adversely affect the development or commercialization of products developed or to be developed by Immunosyn or Argyll Biotech. Further, Immunosyn’s or Argyll Biotech’s activities may infringe patents owned by others. Under its exclusive license agreement, Argyll Biotech is obligated to defend Immunosyn against charges of infringement that refer, relate or pertain to Immunosyn’s marketing, sale and distribution of SF-1019. Immunosyn and Argyll Biote ch could incur substantial costs in defending infringement suits brought against them or in asserting any infringement claims against others, which they may not have the funds or insurance to cover.
The concept of using extracts from caprine serum to treat Acquired Immune Deficiency Syndrome (AIDS), as well as other diseases, was pioneered by the late Dr. Gary R. Davis. A number of applications and provisional applications for patents have been filed on his behalf, including at least two provisional applications whose status as of the date of this report is undetermined. The late Dr. Davis executed a Technology Assignment Agreement in favor of Argyll Biotech that purportedly transfers all of his rights in his intellectual property related to the development of treatments for AIDS. However, Argyll Biotech is also aware of previous assignments by the late Dr. Davis to third parties covering his intellectual property, and Argyll Biotech has not determined to what extent those assignments conflict with or render the late Dr. Davis’ agreement with Argyll Biotech invalid.
Argyll Biotech is aware of the existence of several pending patent applications by a prospective competitor, Daval, based on work previously conducted by some of Argyll Biotech’s scientific consultants. It is the Company’s belief that SF-1019 is different from what is described in these disclosures, regardless of whether these disclosures describe patentable inventions. As of the date of this report, Argyll Biotech has not received an opinion of non-infringement with respect to these patent claims nor has any analysis been conducted to determine whether any of these disclosures, or the prior work by the late Dr. Davis, cover Argyll Biotech’s development, manufacture or sale of SF-1019.
On or about July 27, 2006, Daval filed suit in the High Court of Justice, Chancery Division in London, England against Argyll Biotech and five of Argyll Biotech’s research scientists and others, including Douglas McClain, Sr., seeking an injunction and damages or an account of profits based on allegations of breach by the scientists and Mr. McClain of confidentiality agreements with Daval, breaches by such persons of their fiduciary duties and conspiracy by Argyll Biotech and certain of its shareholders to wrongfully disclose and use Daval’s alleged trade secrets. These proceedings do not allege infringement of any Daval patent whether by Argyll Biotech or any of the other defendants. Argyll Biotech has filed its defenses and continues to investigate the merits of the suit and the basi s of its defenses including, among other grounds, that one of the active ingredients in SF-1019 is based on independent research by Argyll Biotech’s research scientists, and the method of producing SF-1019 is materially different from Daval’s process. The action had been listed for trial in the UK in January 2009 but, in December 2008, the High Court in London ordered that the trial be rescheduled for a later date likely to be in 2010. Immunosyn is not involved in this litigation.
Immunosyn could incur substantial costs in connection with any suits relating to matters for which it may agree to indemnify Argyll Biotech. An adverse outcome in any litigation could have a material adverse effect on Immunosyn’s ability to market and distribute products or on Argyll Biotech to utilize relevant patents in the future. In addition, Argyll Biotech or Immunosyn could be required to obtain licenses under patents or other proprietary rights of third parties. These licenses may not be made available on terms acceptable to Argyll Biotech and Immunosyn, or at all. If Argyll Biotech or Immunosyn is required to, and does not obtain any required licenses, Argyll Biotech or Immunosyn could be prevented from, or encounter delays in, developing, manufacturing or marke ting SF-1019 or other products.
SF-1019 and other products which may be marketed and distributed by the Company may be subject to recall which would likely harm our business.
If SF-1019 is approved for distribution and Immunosyn is successful in marketing SF-1019, product recalls may be issued at Immunosyn’s or Argyll Biotech’s discretion or by the FDA, the Federal Trade Commission or other government agencies having regulatory authority over distribution and sales of pharmaceutical products. The Company’s products may need to be recalled due to disputed labeling claims, manufacturing issues, quality defects, or other reasons. Under its exclusive license agreement, Argyll Biotech is responsible for costs and activities relating to any recall of SF-1019, and must defend, indemnify and hold Immunosyn harmless for, from and against damages associated with those recalls. Product recalls, if any in the future, may harm Argyll Biotech and Immunos yn’s reputations and cause Argyll Biotech and Immunosyn to lose opportunities or customers, or force Argyll Biotech and Immunosyn to pay refunds. Immunosyn does not carry any insurance to cover the risk of potential product recall. Any product recall will have a material adverse affect on Argyll Biotech and Immunosyn, their prospects, financial condition and results of operations.
Argyll Biotech and Immunosyn may face exposure from product liability claims and product liability insurance may not be available or may not be sufficient to cover the costs of liability claims related to their technologies or products.
If Immunosyn has a product in distribution, Argyll Biotech and Immunosyn will face exposure to product liability claims if the use of SF-1019 is alleged to have resulted in adverse effects to users of such products related to those technologies. Product liability claims may also be brought by clinical trial participants, although to date, no such claims have been brought against Argyll Biotech and neither Argyll Biotech nor Immunosyn have any knowledge of any such pending claims. If any such claims were brought against Immunosyn or Argyll Biotech, the cost of defending such claims may adversely affect Immunosyn’s or Argyll Biotech’s business.
Regulatory approval for commercial sale of SF-1019 or any other products that the Company intends to market and distribute does not mitigate product liability risks. Any precautions that Argyll Biotech or Immunosyn take may not be sufficient to avoid significant product liability exposure. Although Argyll Biotech anticipates obtaining product liability and clinical trials insurance on their technologies and products at levels with which their management deems reasonable, no assurance can be given that this insurance will cover any particular claim or that Argyll Biotech has or will have obtained an appropriate level of liability insurance coverage for development activities or any coverage at all.
If SF-1019 is brought to market, Argyll Biotech and Immunosyn intend to seek up to $3 million per year, claims-made product liability insurance coverage. However, such coverage may not be adequate. In the future, adequate insurance coverage or indemnification by collaborative partners may not be available in sufficient amounts, or at acceptable costs, if at all.
To the extent that product liability insurance, if available, does not cover potential claims, Argyll Biotech and Immunosyn will be required to self-insure the risks associated with those claims. The successful assertion of an uninsured product liability or other claim against Argyll Biotech or Immunosyn could limit their ability to market and distribute any products or could cause monetary damages. In addition, future product labeling may include disclosure of additional adverse effects, precautions and contra indications, which may adversely impact product sales.
If Argyll Biotech loses key management or scientific staff, or if Immunosyn or Argyll Biotech are unable to protect their respective rights in their trade secrets, the Company’s business will suffer.
Immunosyn is entirely dependent on Argyll Biotech’s scientific consultants for continuation and completion of all research, testing and development of SF-1019. Argyll Biotech’s scientific consultants and advisory staff members have accepted profit and incentive packages and formal consulting arrangements have been either accepted or are under negotiation.Such persons maintain positions of management and are responsible for all drug development activities relating to SF-1019 and have been instrumental in the development and maintenance of key relationships within the scientific research and medical communities as well as with inventors, co-development partners and others. Nonetheless, Immunosyn has no management or other control over those persons or any of their activities, and their failure to accomplish any goals established for Argyll Biotech or Immunosyn will substantially and adversely affect Immunosyn’s business prospects.
Immunosyn and Argyll Biotech also rely upon the maintenance of trade secret protection for confidential and proprietary information. Others may independently develop substantially equivalent proprietary information and techniques or gain access to both our trade secrets or disclose Argyll Biotech’s proprietary technology. Immunosyn and Argyll Biotech may not be able to meaningfully protect their trade secrets, which could limit Immunosyn’s ability to benefit from its exclusive license to market and distribute SF-1019 for its intended uses.
Immunosyn requires, and has been informed that Argyll Biotech requires, their respective employees, consultants, members of the scientific advisory board and parties to collaborative agreements to execute confidentiality agreements upon the commencement of employment or consulting relationships. These agreements may not provide meaningful protection of relevant trade secrets or adequate remedies in the event of unauthorized use or disclosures of confidential and proprietary information.
The Company’s management and internal systems might be inadequate to handle its potential growth.
The Company’s success will depend in significant part on the development of its operations and the effective management of growth. Any growth will place a significant strain on the Company’s systems and resources. To manage future growth, the Company’s management must build operational and financial systems and expand, train, retain and manage its employee base. The Company’s management may not be able to manage its growth effectively if its systems, procedures, controls and resources are inadequate to support operations. In such case, the Company’s expansion would be halted or delayed and the Company may lose its opportunity to gain significant market share or the timing with which it would otherwise gain significant market share. Any inability to manage growth effectively may harm the Company’s ability to institute its current or any subsequent business plans. The strain on the Company’s systems, procedures, controls and resources is further heightened by the fact that its executive offices and the operational development facilities of Argyll Biotech are located in separate time zones, namely, San Diego, California, Hardwick, Massachusetts, and London, England.
To the extent that Argyll Biotech and the Company have international operations, it will be subject to risks associated with conducting business in foreign countries.
The Company expects to have rights to market, distribute and sell SF-1019 in territories outside of the United States to the extent that SF-1019 will be approved by local regulatory authorities for distribution in such territories. To the extent that it develops these international operations, the Company and Argyll Biotech will be subject to the risks of conducting business in foreign countries including:
| | · | difficulty in establishing or managing distribution relationships; |
| | · | different standards for the development, use, packaging, pricing and marketing of products and technologies; |
| | · | inability to locate qualified local employees, partners, distributors and suppliers; |
| | · | the potential burden of complying with a variety of foreign laws, trade standards and regulatory requirements, including the regulations of pharmaceutical products and treatment and foreign intellectual property laws and regulations; and |
| | · | general geopolitical risks, such a political and economic instability, changes in diplomatic and trade relations, and foreign currency risks. |
The Company does not expect to engage in forward currency transactions, which means that the Company may be susceptible to fluctuations in the United States dollar against foreign currencies.
Toxicology studies and clinical trials for SF-1019 will be expensive and time consuming, and their outcome is uncertain. Any delay or other factor which negatively affects Argyll Biotech’s ability to fund toxicology studies and clinical trials will adversely affect the Company’s operations and revenues.
Before obtaining regulatory approval for the commercial sale of a product, Argyll Biotech must demonstrate through pre-clinical testing, full scale toxicology studies and clinical trials that SF-1019 is safe and effective for use in humans. Full-scale toxicology studies using SF-1019 need to be conducted in two species. Conducting toxicology studies is an extensive and expensive process and Argyll Biotech cannot be certain of the outcome therefrom. Conducting clinical trials is a lengthy, time-consuming and expensive process. The proceeds received by Argyll Biotech from sale of the Common Stock issued by Immunosyn in payment for the exclusive license are anticipated to pay only a minor part of these expenses, and it is almost certain that those proceeds will not be adequate t o cover the entire amount of testing, studies, and trials that will be required. In addition, we cannot assure that such license fees will be utilized to pay for toxicology studies or clinical trials for SF-1019. In addition, regulatory authorities may require additional toxicology studies or clinical trials, which could result in increased costs and significant development delays.
Full-scale toxicology studies using SF-1019 need to be conducted in two species for duration of the same or longer that the proposed treatment for humans. If treatment for DU is estimated to last between 4 to 6 weeks in humans, then the general animal toxicology studies using SF-1019 will be required to last at least that long prior to undertaking clinical trials for DU. If treatment is estimated to last much longer, perhaps even years, for CIDP, toxicology studies utilizing SF-1019 lasting substantially longer than for DU will be required prior to beginning clinical trials for treatment of CIDP. Completion of clinical trials for any product, including SF-1019, will generally take from several years up to a decade. Completion of clinical trials does not guarantee approval of a drug product. The length of time varies substantially according to the type, complexity, novelty and intended use of the product candidate. Argyll Biotech’s commencement and rate of completion of clinical trials may be delayed or affected by many factors, including:
| | · | inability of vendors to manufacture sufficient quantities of materials for use in clinical trials; |
| | | |
| | · | lack of funding; |
| | · | slower than expected rate of patient recruitment of variability in the number and types of patients in a study; |
| | · | inability to adequately follow patients after treatment; |
| | · | safety issues, side effects or other adverse effects; |
| | · | lack of efficacy during the clinical trials; and |
| | · | government or regulatory delays. |
Any delay in the commencement or completion of testing, toxicology studies and clinical trials will result in additional delays in Immunosyn’s ability to market and distribute SF-1019, which will adversely affect Immunosyn’s ability to generate any revenues.
SF-1019 or its variants may never be successfully commercialized.
SF-1019 or its variants are not expected to be available for commercial sale for at least two years or longer, if at all. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons, including:
| | · | discovery during pre-clinical testing or clinical trials that the products are ineffective or cause harmful side effects; |
| | · | failure to receive necessary regulatory approvals; |
| | · | inability to manufacture on a large or economically feasible scale; |
| | · | failure to achieve market acceptance; and |
| | · | preclusion from commercialization due to proprietary rights of third parties. |
Any products and technologies, including SF-1019, developed by Argyll Biotech will require extensive additional development, including pre-clinical testing, full scale toxicology testing and clinical trials, as well as regulatory approvals, prior to commercialization. Argyll Biotech may not have the funds or the personnel to engage in these activities. Argyll Biotech’s product development efforts may not be successful; may fail to receive required regulatory approvals from United States or foreign authorities for any indication; and any products, if introduced, may not be capable of being produced in commercial quantities at reasonable costs or being successfully marketed. The failure of Argyll Biotech’s research and development activities to result in any commercially viabl e products or technologies would materially adversely affect Immunosyn’s future prospects, as those prospects are linked entirely to Argyll Biotech’s success through the exclusive license between the two companies.
The industry in which we operate is subject to extensive government regulation and SF-1019 requires regulatory approvals, which makes it more expensive for us and Argyll Biotech to operate our businesses.
Virtually all aspects of Immunosyn’s and Argyll Biotech’s business are regulated by federal and state statutes and governmental agencies in the United States and other countries. Failure to comply with applicable statutes and government regulations could have a material adverse affect on Immunosyn’s and Argyll Biotech’s ability to develop and sell SF-1019, which will have a negative impact on Immunosyn’s cash flow. The development, testing, manufacturing, processing, quality, safety, efficacy, packaging, labeling, record-keeping, distribution, storage and advertising of pharmaceutical products, and disposal of waste products arising from these activities, are subject to regulation by one or more federal agencies. These activities are also regulated by simil ar state and local agencies and equivalent foreign authorities. Even if regulatory approval is obtained, a marketed product, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections. Subsequent discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on the product or manufacturer, including withdrawal of the product from the market.
The regulatory requirements applicable to any product may be modified in the future. Immunosyn cannot determine what effect changes in regulations or statutes or legal interpretations may have on its or Argyll Biotech’s business in the future, including the recent passage in the United States of healthcare reform regulation. Regulatory changes could require modifications to manufacturing methods, expanded or different labeling, the recall, replacement or discontinuation of certain products, additional record keeping and expanded documentation of the properties of certain products and scientific substantiation. Any changes or new legislation, including the recent passage in the United States of healthcare reform regulation, could have a material adverse effect on Argyll Biotech’s or Imm unosyn’s ability to develop and sell SF-1019 and therefore, generate revenue and cash flow.
Even if Argyll Biotech expends substantial resources on research, clinical development and the preparation and processing of regulatory applications, it may not be able to obtain regulatory approval for any of the products that Immunosyn intends to license from it. Moreover, regulatory approval for marketing a proposed pharmaceutical product in any jurisdiction may not result in similar approval in other jurisdictions. The failure to obtain and maintain regulatory approvals for SF-1019 would have a material adverse effect on Immunosyn’s ability to distribute and sell products and, therefore, generate revenue and cash flow.
The Company may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have the operating effectiveness of our internal controls attested by our independent auditors.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”), the SEC adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports, including in their Form 10-K. We are subject to this requirement commencing with our fiscal year ending December 31, 2007 and a report of our management was included under Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2008 and is included again this year. In addition, SOX 404 requires the independent registered public accounting firm auditing a company’s financial statements to also attest to and report on the operating effectiveness of such company’s internal controls. Last year’s annu al report included an attestation report under Item 8 of our 2008 Annual Report on Form 10-K. Such report indicated the Company had material weaknesses resulting in a conclusion that our control over financial reporting as of December 31, 2008 was not effective. This year, our management reached the same conclusion. We may not have the funds necessary to enhance our controls and procedures to cure such weaknesses.
Risks Related to the Company’s Securities
There is not now nor may there ever be an active market for the Company’s Common Stock.
The Company’s Common Stock is currently quoted on the Over-The-Counter Bulletin Board. Trading of the Company’s Common Stock on such exchange has been light and sporadic. Further, although the Company intends to seek to have its Common Stock listed on the NASDAQ Capital Market in the future, it can make no representation nor provide any assurance that its Common Stock will ever be able to meet the initial listing standards of this or any other stock exchange. Even if the Company’s Common Stock becomes listed on the NASDAQ Capital Market, at any given time, several days or weeks may elapse with no trading whatsoever of the Common Stock. The Company is providing no assurances of any kind or nature whatsoever that an active market for its Common Stock will ever develop. Any investor in the Company should understand that there may be no alternative exit strategy for them to recover or liquidate their investments in the Common Stock. Accordingly, investors must be prepared to bear the entire economic risk of an investment in the Common Stock for an indefinite period of time.
Additional uncertainty will be experienced with respect to the price of the Common Stock because the Company is a biotechnology entity and the market price of the securities of biotechnology companies is especially volatile. The Company is in the development stage. If the Company’s operations do not develop and its revenues do not develop or grow or grow more slowly than the Company anticipates, if operating or capital expenditures exceed the Company’s expectations and cannot be adjusted accordingly or if some other event adversely affects the Company, the market price of its Common Stock will decline.
Even if the Company were to become a NASDAQ Capital Market company, it may not be able to attract the attention of major brokerage firms or securities analysts.
Security analysts and major brokerage houses may not provide coverage of the Company. The Company may also not be able to attract any brokerage houses to conduct secondary offerings and other capital raising transactions with respect to its securities. The Company’s business and ability to continue as a going concern would be adversely affected if it is unable to raise funds.
Our Common Stock is a penny stock. Trading of our Common Stock may be restricted by the SEC’s penny stock regulations and FINRA’s sales practice requirements, which may limit a stockholder’s ability to buy and sell our Common Stock.
Our Common Stock is a penny stock. The Securities and Exchange Commission has adopted Rule 3a51-1 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, including Rule 15g-9, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors.” The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth, or joint net worth with the person’s spouse, that exceeds $1,000,000 or annual income exceeding $200,000 or $30 0,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise ex empt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our Common Stock, and some investors may perceive our securities to be less attractive because they are traded in the over-the-counter market.
In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their c ustomers buy our Common Stock, which may limit your ability to buy and sell our stock.
Immunosyn has never paid dividends and has no plans to pay dividends at any time in the near or distant future.
Immunosyn has never paid dividends on its capital stock, and the Company does not anticipate paying any dividends for the foreseeable or distant future. The Company’s present business plan does not include, for the foreseeable future and beyond, any payments of dividends to stockholders. Stockholders’ sole strategy for any return on their investments will be the potential for the increase in the value of their stock and the possibility of liquidating their stock positions.
| Item 1B. | Unresolved Staff Comments. |
None.
The Company has been provided with rent-free office space under a monthly oral agreement with no specific term from its affiliate and shareholder, Argyll Biotech. It is uncertain how long Argyll Biotech will continue providing office space or on what terms space will continue to be provided to the Company in the future. At present, we do not require dedicated office space. We believe that our existing facilities are adequate for our current needs and that additional space will be available as needed.
| Item 3. | Legal Proceedings. |
Pursuant to a subpoena dated January 20, 2006 issued by the Securities and Exchange Commission to an affiliate of Argyll Biotech in proceedings captioned In the Matter of Directors Financial Group, Ltd. and In The Matter of Prime Bank Securities, and pursuant to subpoenas issued by the SEC to affiliates of Argyll Biotech on March 30, 2006 and to Immunosyn on December 15, 2006 in a proceeding captioned In The Matter of The Argyll Group, LLC, Immunosyn and its affiliates have been asked to produce all documents concerning a wide variety of topics including many related directly to Immunosyn. Immunosyn and Argyll Biotech’s affiliates actively cooperated with the SEC and produced documents responsive to these subpoenas, completing their responses in early August 2007. The Directors Financial Group mat ter was resolved in June 2006 through a settlement between the SEC and the parties to the proceeding, and, accordingly, Immunosyn will not be required to respond further to that subpoena. Immunosyn had had no further communication with the SEC regarding the remaining subpoenas since January 2007 until March 2009. On or about March 17, 2009, representatives of both Immunosyn and Argyll Biotech became aware that they had received additional subpoenas from the SEC on or about March 6, 2009 (the “March 2009 Subpoenas”). In addition, on or about June 4, 2009, Immunosyn directors and officers, Douglas A. McClain, Jr. and Stephen Ferrone, received subpoenas from the SEC (the “June 2009 Subpoenas”) as did James T. Miceli, a director and officer of Argyll Biotech, and Douglas A. McClain, Sr. Immunosyn and Argyll Biotech subsequently learned from the SEC that the March 2009 Subpoenas and the June 2009 Subpoenas would be treated as voluntary requests.& #160; On or about September 11, 2009, Immunosyn and Immunosyn directors and officers, Douglas A. McClain, Jr. and Stephen Ferrone, received additional subpoenas from the SEC as did James T. Miceli, a director and officer of Argyll Biotech, and Douglas A. McClain, Sr. The Company and its affiliates have responded to these subpoenas.
On or about July 27, 2006, Daval International Ltd. filed suit in the High Court of Justice, Chancery Division in London, England against Argyll Biotech and five of Argyll Biotech’s research scientists and others, including Douglas McClain, Sr., seeking an injunction and damages or an account of profits based on allegations of breach by the scientists and Mr. McClain of confidentiality agreements with Daval, breaches by such persons of their fiduciary duties and conspiracy by Argyll Biotech and certain of its shareholders to wrongfully disclose and use Daval’s alleged trade secrets. These proceedings do not allege infringement of any Daval patent whether by Argyll Biotech or any of the other defendants. Argyll Biotech has filed its defenses and continues to investigate the merits of the suit and the basis of its defenses including, among other grounds, that one of the active ingredients in SF-1019 is based on independent research by Argyll Biotech’s research scientists, and the method of producing SF-1019 is materially different from Daval’s process. The action had been listed for trial in the UK in January 2009 but, in December 2008, the High Court in London ordered that the trial be rescheduled for a later date likely to be in 2010. Immunosyn is not involved in this litigation
On March 16, 2007, Frank Bramante and Salvatore Bramante commenced an action in the United Stated District Court for the Southern District of California against various defendants including Immunosyn seeking amongst other relief an injunction to prevent the transfer and/or sale of the patents and/or proprietary information relating to SF-1019 to third parties. The case was stayed by Order dated January 17, 2008 pending resolution of a largely duplicative action filed in the United Stated District Court for the Western District of Texas, San Antonio Division, by the same plaintiffs against the same defendants excluding Immunosyn on July 28, 2006. The Texas action was dismissed with prejudice in September 2008 and a stipulation dismissing the California action was filed with the Court and the entire California action was dismissed with prejudice on or about June 3, 2009.
On December 19, 2007, a shareholder of Immunosyn, Leon S. Segen, commenced an action in the Southern District of New York derivatively on behalf of Immunosyn to recover alleged short-swing profits from several alleged statutory insiders of Immunosyn, including Immunosyn officer and director Douglas A. McClain Jr. The action includes Immunosyn as a nominal defendant only and does not allege any claims of liability against Immunosyn. On December 4, 2009, the parties entered into a settlement agreement, subject to approval of the court which was subsequently obtained, pursuant to which the defendants agreed to pay Immunosyn the sum of $475,000 consisting of a cash payment of $75,000 (for legal fees for plaintiff’s counsel) and the forgiveness of $400,000 of indebtedness of Immunosyn to defendant Argyll an d to retire 2,950,000 shares of Immunosyn common stock held by defendant Argyll Equities to the treasury of Immunosyn. The 2,950,000 shares of Immunosyn stock were retired to the treasury of Immunosyn on December 14, 2009, the payment was made on December 4, 2009 and December 11, 2009 and the debt was forgiven as of December 4, 2009. See Notes 6 and 8 to audited financial statements.
A complaint (the "Complaint") was filed on August 25, 2009 by Myron W. Wentz, a shareholder of Immunosyn, in the United States District Court for the Southern District of California that named as defendants Argyll Biotech, the Company and Does 1-10. The Complaint alleged, among other things, that Argyll Biotech breached its contract with the plaintiff and that the Company tortiously interfered with Argyll Biotech’s contract with the plaintiff. The Complaint sought damages in the amount of $1,948,000 plus pre- and post-judgment interest; consequential damages and attorneys fees in an amount to be proven at trial against Argyll Biotech for breach of contract; an Order compelling Argyll Biotech to provide 14,984,615 shares of common stock of the Company to 0;Dr. Wentz; and attorneys fees in an amount to be proven at trial. On February 1, 2010, a default judgment was entered against Immunosyn in favor of the plaintiff, Dr. Wentz, in the United States District Court for the Southern District of California in the amount of $1,948,000.00 plus post-judgment interest in accordance with the law. The Company accrued for this default judgment in its 2009 audited financial statements. See Notes 5 and 8 to audited financial statements.
On March 19, 2008, a shareholder of the Company, Deborah Donoghue, commenced two actions – one in the U.S. District Court for the Southern District of California and the other in the U.S. District Court for the Southern District of New York — derivatively on behalf of the Company to recover alleged short-swing profits from several alleged statutory insiders of the Company, including Company office and director Douglas A. McClain, Jr. The actions include the Company as a nominal defendant only and do not allege any claims of liability against the Company. Donoghue withdrew the New York action in April 2008 and the California action has been stayed pending resolution of the related earlier-filed action by shareholder Leon Segen which has been settled.
On August 24, 2009, a complaint was filed by Denise Campbell on behalf of a putative class in the United States District Court for the Southern District of Texas that names as defendants Immunosyn, Argyll Biotech, James T. Miceli, Douglas A. McClain, Jr., Frank Morales, Argyll Equities, LLC, Stephen Ferrone and Douglas A. McClain, Sr. The complaint alleges, among other things, that the defendants have made false and/or misleading statements concerning Immunosyn and SF-1019 in filings with the SEC in violation of the Securities Exchange Act of 1934, as amended, including Section 10b-5 thereof, including, without limitation, that the Food & Drug Administration had not approved SF-1019 for human injection, that SF-1019 had not received compassionate waiver status, that SF-1019 was on clinical hold, that SF-1019 had negative results in certain safety studies, that SF-1019 was being sold by the defendants outside of the exclusive license held by Immunosyn and that Alan Osmond was being paid to promote SF-1019; defendants have committed fraud in their SEC disclosures and on their websites; defendants have engaged in civil conspiracy; defendants have been unjustly enriched through the sale of Immunosyn stock; and James T. Miceli, Douglas A. McClain, Sr. and Douglas A. McClain, Jr. have committed RICO violations and conspired to violate RICO. The complaint seeks damages in an amount to be proven at trial, plus interest, costs and attorneys fees. The parties, including Immunosyn, answered the complaint on October 16, 2009. An initial telephonic pretrial conference among attorneys was held on January 19, 2010 and discovery has commenced. The defendants have filed a Motion to Dismiss upon which the Court has not yet ruled. Defendants’ Motion to Dismiss is based on lack of federal jurisdi ction and plaintiff’s failure to allege sufficient facts to establish a class action. Immunosyn intends to vigorously defend against the allegations contained in the complaint which it believes to be untrue and without merit.
Immunosyn recently learned that a complaint (the "Complaint") had been filed on November 24, 2009 by Robert Albergo and David Irwin in the United States District Court for the Southern District of California that names as defendants, amongst others, the Company and its directors and officers, Douglas A. McClain, Jr. and Stephen Ferrone. The Complaint alleges, among other things, that certain of the defendants, including the Company, McClain and Ferrone, have made false and/or misleading statements concerning Immunosyn and SF-1019 in filings with the SEC in violation of the Exchange Act, including Section 10b-5 thereof, have committed RICO violations and conspired to violate RICO and have engaged in civil conspiracy. The Complaint seeks multiple forms of relief including compensatory dama ges in an amount to be proven at trial, punitive damages and treble damages, plus interest, costs and attorneys fees. Immunosyn intends to vigorously defend against the allegations contained in the Complaint which it believes to be untrue and without merit and to have been brought against it for an improper purpose.
PART II
| Item 4. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Market for Common Equity
Our Common Stock began trading on the Over-The-Counter Bulletin Board (the “OTCBB”) on Friday, October 26, 2007, under the symbol “IMYN.”
The following tables set forth the high and low bid prices of our Common Stock on the OTCBB during the 2008 and 2009 fiscal years according to Yahoo! Finance.
| | | High | | | Low | |
| 2009 | | | | | | | | |
| Fourth Quarter | | $ | .62 | | | $ | 06 | |
| Third Quarter | | | .36 | | | | .05 | |
| Second Quarter | | | .29 | | | | .06 | |
| First Quarter | | | .35 | | | | .09 | |
| | | | | | | | | |
| 2008 | | | | | | | | |
| Fourth Quarter | | $ | 1.00 | | | $ | 0.12 | |
| Third Quarter | | | 2.63 | | | | 0.55 | |
| Second Quarter | | | 4.40 | | | | 1.80 | |
| First Quarter | | | 5.10 | | | | 1.40 | |
As of March 30, 2010, 425,000,000 shares of our Common Stock were authorized for issuance, 267,552,719 shares of Common Stock were issued and outstanding and there were approximately 1,161 holders of record of our Common Stock. As of March 30, 2010, 25,000,000 shares of our Preferred Stock were authorized for issuance and no shares of Preferred Stock were issued and outstanding. No options or warrants to purchase Common Stock have been granted.
Dividends
The Company has not paid any dividends on its capital stock and does not expect to pay dividends for the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
The Company has established the 2006 Stock Option Plan (the “Plan”) under which the Board of Directors of the Company may grant options to purchase Common Stock to employees, directors and consultants of the Company. The Company has reserved 7,450,000 shares of Common Stock for issuance under this Plan. No such options have been granted to date. The Plan is described in Note 6 to the Company’s consolidated financial statements.
The following table provides information as of December 31, 2009 relating to the Plan, the only compensation plan under which equity securities of the Company are authorized for issuance:
EQUITY COMPENSATION PLAN INFORMATION
| | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
| Equity compensation plans approved | | | | | | | | |
| by security holders | | 0 | | | 0 | | | 7,450,000 |
| | | | | | | | | |
| Equity compensation plans not approved | | | | | | | | |
| by security holders | | 0 | | | 0 | | | 0 |
| | | | | | | | | |
| Total | | 0 | | | 0 | | | 7,450,000 |
Recent Sales of Unregistered Securities
On October 12, 2007, Immunosyn agreed to pay The Blaine Group, Inc. $1,500 per month in restricted stock. As a result, a total of 743 shares of Immunosyn Common Stock were allocated to be issued to The Blaine Group, Inc. in 2007 and a total of 20,976 shares of Immunosyn Common Stock were allocated to be issued to The Blaine Group, Inc. in 2008. This agreement with The Blain Group was amended on December 12, 2009 to reflect that no further stock would be due to The Blaine Group as part of their monthly retainer effective January 1, 2010 forward. See Notes 6 and 8 to the audited financial statements.
Pursuant to a contract with Basic Investors, Inc., dated October 15, 2007, Immunosyn allocated 10,000 shares of restricted Immunosyn Common Stock to Basic Investors in 2007. On April 23, 2008, Immunosyn agreed to issue 150,000 shares of restricted Common Stock to First Montauk Securities Corp. or its designated affiliates. Such shares were issued in August 2008. See Note 6 to the audited financial statements.
Immunosyn issued 150,000 shares of common stock on August 14, 2008 to First Montauk Securities Corp. or its designated affiliates pursuant to an advisory agreement entered into on April 23, 2008 for First Montauk to provide financial advisory services to Immunosyn. The total value of such shares is $524,750. See Note 6 to the audited financial statements.
On September 29, 2008, Immunosyn entered into an agreement with Bear Creek Advisors, LLC which called for Immunosyn to pay Bear Creek Advisors, LLC a total of 30,000 shares of restricted Common Stock of Immunosyn. Immunosyn issued 10,000 of these shares to Bear Creek on October 8, 2008 and allocated another 10,000 shares to be issued on November 28, 2008. One January 7, 2010, Immunosyn and Bear Creek agreed that the 10,000 shares which Immunosyn had allocated on November 28, 2008 would not be issued to Bear Creek and that no additional shares would be due to Bear Creek. See Note 6 to the audited financial statements.
In issuing these securities, we relied on the exemptions from registration provided in Regulation D and Section 4(2) under the Securities Act of 1933 as a transaction by an issuer not having any public offering.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Company has no repurchase plans or programs.
1,689,000 shares of common stock of the Company were acquired and placed in the treasury on March 23, 2009 as part of a settlement agreement with a shareholder. The purchase price was zero. These 1,689,000 shares were retired and returned to authorized capital on December 31, 2009. See Note 6 to audited financial ftatements.
On December 14, 2009, as part of a settlement, Argyll Equities, LLC retired 2,950,000 shares of common stock of the Company. See Note 6 to audited financial statements.
Share Performance Graph
The following graph shows changes over the fourteen month period of US $100 invested in (1) the Company’s Common Stock, (2) the S&P 500 Index and (3) the S&P Biotechnology Index.
This Item 5 is not applicable to us as, pursuant to Item 301(c) of Regulation S-K, a smaller reporting company is not required to provide the information required by Item 301 of Regulation S-K.
| Item 6. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Overview
Immunosyn is a development stage company that was formed in August 2006 and is headquartered in San Diego, California. In September 2006, it executed an exclusive license agreement with an affiliated company, Argyll Biotech, in exchange for 147,000,000 shares of its Common Stock or approximately 54% of the outstanding shares of the Company’s Common Stock. The license agreement was amended and restated in October 2007. Pursuant to the terms of the license agreement, as amended, the Company has an exclusive worldwide license to market, distribute and sell a biopharmaceutical drug product, currently referred to as SF-1019, for multiple uses including the treatment of a variety of diseases, subject to the receipt of appropriate regulatory approval in each jurisdiction where SF-10 19 will be marketed, none of which has been applied for or received. Under the terms of its exclusive license, Immunosyn also has a right of first offer to extend its exclusive license to include variants of SF-1019 that may be approved by various regulatory authorities for treatment of other diseases and pathologies. Argyll Biotech is responsible for all research and product development, clinical testing, regulatory approvals, production and product support. In accordance with the amended license agreement, the parties agreed that the cost of SF-1019 to the Company will be 40% of the gross sales price of SF-1019 as sold to a third party customer by the Company.
As a sales, marketing, and distribution channel for SF-1019, Immunosyn’s primary business strategy is to build a sales and marketing force and related resources so that if SF-1019 is approved for human use it can be sold; and secondly, to increase awareness and acceptance of SF-1019 in the medical community.
As of the date of this report, we have no revenue and limited operations. Those operations have been principally funded by advances from affiliates. Our ability to obtain additional funding will determine our ability to continue as a going concern. From time to time, we have retained bankers and other financial advisors to assist us with our fundraising efforts; however, those efforts have not been successful to date. We have one principal asset, our exclusive license from Argyll Biotech, and one full-time and one part-time employee. We do not expect to commence full scale operations or generate revenues unless and until Argyll Biotech accomplishes development and obtains regulatory approval for SF-1019. Since incorporation, we have not made any significant purchases or sale of assets (other than our exclusive license from Argyll Biotech), nor have we been involved in any mergers, acquisitions or consolidations. Results of Operations
To date, the Company has had no revenue and limited operations. During the year ended December 31, 2009 and since inception, Immunosyn has been unable to generate cash flows sufficient to support its operations and has been dependent on advances from its affiliates. In addition to negative cash flow from operations, Immunosyn has experienced recurring net losses, and has a negative working capital. During the year ended December 31, 2009, the Company has a net loss of $2,774,498, an accumulated deficit of $5,109,437 and a working capital deficit of $3,524,318. In addition, the Company has accounts payable and accrued expenses of $856,133 and $6,060, respectively, as of December 31, 2009. See Note 2 to audited financial statements for our going concern.
Currently, an affiliated company provides general support services to the Company, without charge. In addition, since inception, Immunosyn has received advances from Argyll Equities, LLC and Argyll Biotech who together own approximately 59% of Immunosyn’s Common Stock, totaling $1,060,570, including $175,466 which was borrowed during the year ended December 31, 2009. On December 4, 2009, a settlement was reached in a law suit involving Argyll Equities whereby Argyll Equities was required to forgive $400,000 of the amount owed to Argyll Equities by Immunosyn as a result of which $660,275 remains due to Argyll Biotech and Argyll Equities at December 31, 2009 which included a net decrease in the amount due to affiliates of $224,829 during the year ended December 31, 2009. See No tes 4 and 8 to audited financial statements. Interest expense was imputed in the amount of $159,166 since inception and $71,780 on the aggregate advances for the year ended December 31, 2009 using an interest rate of 7.5% and is included in additional paid-in capital. These advances are unsecured and repayable on demand. In October 2007, the Company hired a Chief Executive Officer. The Company has advances from the CEO in the amount of $8,559 as well which are due and payable on demand. These advances are unsecured and carry no interest rate. The Company has accrued for an additional $49,500 in compensation to the CEO. In addition, the Company accrued for a default judgment rendered against it on February 1, 2010 in the amount of $1,948,615 plus post judgment interest in accordance with the law in its 2009 audited financial statements. See Note 5 to audited financial statements.
The Company’s funds have not been sufficient to cover its expenses resulting in a net loss, an accumulated deficit and a working capital deficit as described above. See Notes 2 and 4 to audited financial statements.
Liquidity and Capital Resources
The Company needs additional financing to continue its current limited operations and may raise funds in the future privately or publicly if it is able to do so or will continue to look to advances from affiliates who are under no obligation to provide funds to the Company.
In addition, the Company intends to raise working capital through one or more financings to meet the following requirements before it commences full scale operations if and when Argyll Biotech accomplishes development and obtains regulatory approval for SF-1019:
| | · | Paying current administrative staff; |
| | · | hiring staff, a full-time controller and five sales and marketing personnel; |
| | · | purchasing capital equipment, including securing its principal offices, both executive and sales, and distribution facilities; |
| | · | monitoring the progress of the research and development effort conducted by Argyll Biotech; |
| | · | developing a marketing plan for the sale and distribution of SF-1019; |
| | · | hiring industry consultants to assist in developing a channel strategy for sales and marketing of SF-1019, including direct sales, third party distributors, and strategic partnerships; |
| | · | developing market awareness in the patient and medical community and educating those effected with various diseases including CIDP, diabetic neuropathy and diabetic ulcers and other diseases; and |
| | · | selecting and compensating board members. |
The Company requires substantial future sources of capital in order to meet such anticipated expenditures and to continue its operations during the period Argyll Biotech accomplishes development of SF-1019 and seeks regulatory approval from United States and/or foreign regulatory authorities. The Company currently anticipates this process to be between three and five years and the amount of funds required to be between $14 million and $24 million.
The Company believes that significant funding will be required to provide adequate sources of working capital during that period. There can be no assurance that the Company will be able to raise any or all the capital required for its operations. See Note 2 to audited financial statements. Failure to obtain future financing will require the Company to delay or substantially curtail its operations or close its business, resulting in a material adverse effect on the Company and its shareholders.
See “Cautionary Statements Regarding Forward Looking Information” and “Risk Factors.”
Off Balance Sheet Arrangements
None.
| Quantitative and Qualitative Disclosures About Market Risk. |
We do not presently enter into any transactions involving derivative financial instruments for risk management or other purposes.
Our available cash balances are held in our corporate bank account which is non-interest bearing but is insured by the FDIC. We do not currently have any cash flows that arise outside of the United States and today we are not subject to market risk associated with changes in foreign exchange rates.
| Item 7. | Financial Statements and Supplementary Data. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Immunosyn Corporation
San Diego, California
(A Development Stage Company)
We have audited the accompanying balance sheets of Immunosyn Corporation (a development stage company) as of December 31, 2009 and 2008 and the related statements of expenses, changes in shareholders ’ equity (deficit), and cash flows for the years then ended and for the period from August 3, 2006 (inception) through December 31, 2009. These financial statements are the responsibility of Immunosyn Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, and audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting th e amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Immunosyn Corporation as of December 31, 2009 and 2008, and the results of operations and cash flows for the years then ended and for the period from August 3, 2006 (inception) through December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that Immunosyn Corporation will continue as a going concern. As discussed in Note 2 to the financial statements, Immunosyn Corporation has not generated revenues and has accumulated losses since inception and has a working capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
x As discussed in Note 3 to the financial statements, errors in accounting and presentation for previously filed financial statements were discovered by management and adjustments have been made to correct those errors.
/s/ MaloneBailey, LLP
www.malone-bailey.com
Houston, TX
April 13, 2010
Immunosyn Corporation
(A Development Stage Company)
Balance Sheets
| | | | | | (Restated) | |
| | | December 31, 2009 | | | | |
| ASSETS | | | | | | |
| | | | | | | |
| Current Assets | | | | | | |
| Cash | | $ | 976 | | | $ | 2,052 | |
| Prepaid expenses | | | 3,233 | | | | 41,455 | |
| Total Current Assets | | | 4,209 | | | | 43,507 | |
| | | | | | | | | |
| Property and equipment | | | 6,433 | | | | 6,433 | |
| Accumulated depreciation | | | (3,752 | ) | | | (2,466 | ) |
| Deposits | | | 2,825 | | | | 2,825 | |
| Total Assets | | $ | 9,715 | | | $ | 50,299 | |
| | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' DEFICIT | | | | | | | | |
| | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 604,417 | | | $ | 320,352 | |
| Accounts payable - related party | | | 251,716 | | | | - | |
| Accrued expense | | | 6,060 | | | | - | |
| Accrued compensation | | | 49,500 | | | | 14,268 | |
| Accrued legal settlement payable | | | 1,948,000 | | | | - | |
| Advances from affiliates | | | 668,834 | | | | 893,663 | |
| Short term debt | | | - | | | | 35,105 | |
| Total Current Liabilities | | | 3,528,527 | | | | 1,263,388 | |
| | | | | | | | | |
| Shareholders' Deficit | | | | | | | | |
| Common stock, $0.0001 par value, 425,000,000 shares authorized, | | | | | |
| 267,552,719 and 272,201,719 shares issued and outstanding | | | | | |
| at December 31, 2009 and December 31, 2008 respectively | | | 26,755 | | | | 27,220 | |
| Additional paid-in capital | | | 1,563,870 | | | | 1,094,630 | |
| Deficit accumulated during the development stage | | | (5,109,437 | ) | | | (2,334,939 | ) |
| Total Shareholders' Deficit | | | (3,518,812 | ) | | | (1,213,089 | ) |
| | | | | | | | | |
| Total Liabilities and Shareholders' Deficit | | $ | 9,715 | | | $ | 50,299 | |
See accompanying summary of accounting policies
and notes to financial statements.
(A Development Stage Company)
Statements of Expenses
| | | Year | | | Year | | | August 3, 2006 inception) | |
| | | Ended | | | Ended | | | Through | |
| | | December 31, 2009 | | | December 31, 2008 | | | December 31, 2009 | |
| EXPENSES | | | | | | | | | |
| General & administrative | | $ | 732,835 | | | $ | 1,045,013 | | | $ | 2,580,388 | |
| Interest expense | | | 93,663 | | | | 61,326 | | | | 181,049 | |
| Other expense | | | 1,948,000 | | | | - | | | | 1,948,000 | |
| Write-off of intangible asset | | | - | | | | - | | | | (400,000 | ) |
| | | | | | | | | | | | | |
| Total expenses | | | 2,774,498 | | | | 1,106,339 | | | | 5,109,437 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| NET LOSS | | $ | (2,774,498 | ) | | $ | (1,106,339 | ) | | $ | (5,109,437 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net loss per common share, basic and diluted | | $ | (0.01 | ) | | $ | - | | | | N/A | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Weighted average number of common shares outstanding | | | 270,671,853 | | | | 272,112,566 | | | | N/A | |
See accompanying summary of accounting policies
and notes to financial statements.
(A Development Stage Company)
Statements of Cash Flows
| | | Year | | | Year | | | August 3, 2006 (inception) | |
| | | Ended | | | Ended | | | Through | |
| | | December 31, 2009 | | | December 31, 2008 | | | December 31, 2009 | |
| Cash flows from operating activities: | | | | | | | | | |
| Net loss | | $ | (2,774,498 | ) | | $ | (1,106,339 | ) | | $ | (5,109,437 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | |
| Write-off of intangible asset | | | - | | | | - | | | | 400,000 | |
| Depreciation | | | 1,286 | | | | 1,287 | | | | 3,752 | |
| Imputed interest on advances from affiliates | | | 71,780 | | | | 61,326 | | | | 159,166 | |
| Services rendered for stock | | | (3,300 | ) | | | 555,551 | | | | 618,664 | |
| Changes in: | | | | | | | | | | | | |
| Prepaid expenses | | | 38,222 | | | | 10,025 | | | | (3,233 | ) |
| Other assets | | | - | | | | 1,817 | | | | (2,825 | ) |
| Accounts payable | | | 284,065 | | | | 195,072 | | | | 639,522 | |
| Accounts payable - related party | | | 251,716 | | | | - | | | | 251,716 | |
| Accrued expenses | | | 6,060 | | | | (2,449 | ) | | | 6,060 | |
| Accrued compensation | | | 35,232 | | | | - | | | | 49,500 | |
| Accrued Legal Settlement | | | 1,948,000 | | | | - | | | | 1,948,000 | |
| | | | | | | | | | | | | |
| Net cash used in operating activities | | | (141,437 | ) | | | (283,710 | ) | | | (1,039,115 | ) |
| | | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | | |
| Purchase of property and equipment | | | - | | | | - | | | | (6,433 | ) |
| Net cash used in investing activities | | | - | | | | - | | | | (6,433 | ) |
| | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | |
| Net advances from affiliates | | | 175,466 | | | | 261,647 | | | | 1,069,129 | |
| Payments on debt | | | (35,105 | ) | | | - | | | | (35,105 | ) |
| Sale of common stock | | | - | | | | - | | | | 12,500 | |
| Net cash provided by financing activities | | | 140,361 | | | | 261,647 | | | | 1,046,524 | |
| | | | | | | | | | | | | |
| Net change in cash | | | (1,076 | ) | | | (22,063 | ) | | | 976 | |
| Cash at beginning of period | | | 2,052 | | | | 24,115 | | | | - | |
| Cash at end of period | | $ | 976 | | | $ | 2,052 | | | $ | 976 | |
| | | | | | | | | | | | | |
| Supplemental Disclosures | | | | | | | | | | | | |
| Cash paid for interest | | $ | - | | | $ | - | | | $ | - | |
| Cash paid for income taxes | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| Non-Cash Investing and Financing Activities | | | | | | | | | | | | |
| Stock issued for license rights | | $ | - | | | $ | - | | | $ | 400,000 | |
| Related party forgivness of debt | | $ | 400,295 | | | $ | - | | | $ | 400,295 | |
See accompanying summary of accounting policies
and notes to financial statements.
(A Development Stage Company)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For The Period From August 3, 2006 (Inception) through December 31, 2009(Restated)
| | | | | | | | | | | | Development | | | | |
| | | | | | | | | | | | Stage | | | | |
| | | Common Stock | | | Additional | | | Accumulated | | | | |
| | | Shares | | | Par Value | | | Paid-in Capital | | | Deficit | | | Total | |
| Balance at August 3, 2006 (Inception) | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock issued | | | 125,000,000 | | | | 12,500 | | | | - | | | | - | | | | 12,500 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock issued for license agreement | | | 147,000,000 | | | | 14,700 | | | | 385,300 | | | | - | | | | 400,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | | | | | (555,763 | ) | | | (555,763 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2006 (restated) | | | 272,000,000 | | | | 27,200 | | | | 385,300 | | | | (555,763 | ) | | | (143,263 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Imputed interest on advances from affiliate | | | - | | | | - | | | | 26,060 | | | | - | | | | 26,060 | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | - | | | | - | | | | 66,413 | | | | - | | | | 66,413 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | (672,837 | ) | | | (672,837 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2007 | | | 272,000,000 | | | | 27,200 | | | | 477,773 | | | | (1,228,600 | ) | | | (723,627 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Imputed interest on advances from affiliate | | | - | | | | 0 | | | | 61,326 | | | | 0 | | | | 61,326 | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | 201,719 | | | | 20 | | | | 555,531 | | | | 0 | | | | 555,551 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | 0 | | | | 0 | | | | (1,106,339 | ) | | | (1,106,339 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2008 (restated) | | | 272,201,719 | | | | 27,220 | | | | 1,094,630 | | | | (2,334,939 | ) | | | (1,213,089 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Imputed interest on advances from affiliate | | | - | | | | - | | | | 71,780 | | | | - | | | | 71,780 | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | (10,000 | ) | | | (1 | ) | | | (3,299 | ) | | | - | | | | (3,300 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares retired | | | (2,950,000 | ) | | | (295 | ) | | | 295 | | | | | | | | - | |
| | | | | | | | | | | | | | | | | | | | - | |
| Shares returned to treasury | | | (1,689,000 | ) | | | (169 | ) | | | 169 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Contributed capital | | | | | | | | | | | 400,295 | | | | | | | | 400,295 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | (2,774,498 | ) | | | (2,774,498 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2009 | | | 267,552,719 | | | $ | 26,755 | | | $ | 1,563,870 | | | $ | (5,109,437 | ) | | $ | (3,518,812 | ) |
See accompanying summary of accounting policies
and notes to financial statements.
Immunosyn Corporation
(A Development Stage Company) Notes To Financial Statements
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background
Immunosyn Corporation is a Delaware corporation formed on August 3, 2006 and headquartered in San Diego, California that has been granted an exclusive worldwide license to market, distribute and sell a biopharmaceutical drug product, currently referred to as SF-1019. Its current form has multiple uses including the treatment of any and all diseases and pathological conditions (not just Chronic Inflammatory Demyelinating Polyneuropathy (CIDP), Diabetic Neuropathy (DN) and diabetic ulcers (DU)). This license was granted from an affiliated company, Argyll Biotechnologies, LLC (“Argyll Biotech”). Immunosyn is further granted the rights to any improvements of SF-1019 and other compounds, which are developed under the same technology platform and which are chemically similar to SF-1019.
Cash and Cash Equivalents
For purposes of the statement of cash flows, Immunosyn considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight–line method over the estimated useful lives of the respective assets, generally five years.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amount of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Stock-Based Compensation
Stock based compensation is accounted for under ASC 718, “Share-Based Payment.” ASC 718 requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). ASC 718 also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. We account for non-employee share-based awards in accordance with ASC 505 that are Issued to Other Than Employees for Acquisition, or in Conjunction with Selling, Goods or Services.”
Basic and Diluted Net Loss per Share
Basic and diluted net loss per share calculations are presented in accordance with ASC 260, and are calculated on the basis of the weighted average number of common shares outstanding during the year. They include the dilutive effect of common stock equivalents in years with net income. Basic and diluted loss per share is the same due to the absence of common stock equivalents.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Immunosyn Corporation(A Development Stage Company) Notes To Financial Statements
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements. In May 2009, the Financial Accounting Standards Board (“FASB”) issued ASC 855, “Subsequent Events”, which establishes general standards of for the evaluation, recognition and disclosure of events and transactions that occur after the balance sheet date. Although there is new terminology, the standard is based on the same principles as those that currently exist in the auditing standards. The Company evaluated all events or transactions that occurred after December 31, 2009 up through April 13, 2010, the date the Company issued these financial statements. During this period, the Company did not have any material recognizable subsequent events.
In June 2009, the FASB issued authoritative guidance on accounting standards codification and the hierarchy of generally accepted accounting principles. The guidance authorized the FASB Accounting Standards Codification (“ASC”) as the sole source for authoritative United States of America Generally Accepted Accounting Principles (“GAAP”). This guidance will be effective for financial statements issued for reporting periods that end after September 15, 2009. The adoption of this guidance did not have a material impact on the Company’s financial statements and all references to pre-Codification GAAP in the financial statements are replaced with descriptive titles.
Immunosyn does not expect any recent accounting pronouncements to have a material effect on its financial position or results of operations.
Note 2. GOING CONCERN
The accompanying financial statements have been prepared assuming that Immunosyn will continue as a going concern. Immunosyn was formed in August 2006 with an initial source of financing from issuance of common stock and an advance from an affiliate. As shown in the financial statements, Immunosyn had an accumulated deficit and a working capital deficit as of December 31, 2009 which is considered insufficient to fund operations over the next 12 months. Management may try to raise additional capital through sales of common stock and may seek financing from third parties. These conditions raise substantial doubt about Immunosyn’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 3. LICENSE RIGHTS AND RESTATEMENT
Grant of Rights
Under the terms of the license agreement executed on September 28, 2006, Immunosyn was granted the exclusive worldwide right to market, distribute, sell and promote SF-1019 for treatment of Chronic Inflammatory Demyelinating Polyneuropathy (CIDP), diabetic neuropathy (DN) and diabetic ulcers (DU) by Argyll Biotech, in exchange for 147,000,000 shares of the common stock of the Company. On October 25, 2007, Immunosyn and Argyll Biotech amended the license agreement to expand the grant of rights to Immunosyn to include the exclusive worldwide right to market, sell, distribute and promote SF-1019 in its current form for multiple uses including the treatment of any and all diseases and pathological conditions (not just CIDP, DN and DU). Immunosyn is further granted the rights in this amended license agreemen t to any improvements of SF-1019 and other compounds, which are developed under the same technology platform and which are chemically similar to SF-1019. Also, during the first five years of the term of the license agreement, Immunosyn has the right to enter into partnering arrangements with Argyll Biotech for development of other novel drug treatment products.
As consideration to Argyll Biotech for the rights granted to Immunosyn under the agreement, Immunosyn issued 147,000,000 shares of common stock to Argyll Biotech.
Payments and Reports
Argyll Biotech is not obligated to provide any accounting for its use of proceeds, nor does Immunosyn have any audit rights to inspect Argyll Biotech’s use of the license proceeds. Immunosyn is required to submit periodic sales reports to Argyll Biotech.
Manufacture and Supply
Argyll Biotech retains responsibility for manufacturing and supplying all of Immunosyn’s requirements of SF-1019. Argyll Biotech and Immunosyn have agreed that the cost of SF-1019 to Immunosyn shall be equal to forty percent (40%) of the gross sales price of SF-1019 as sold to a third party customer by Immunosyn. Argyll Biotech shall also confirm through testing and other programs that the commercial quantities of SF-1019 that it manufactures are fully compliant with all manufacturing and laboratory standards applicable to drug products which are intended for use in humans.
Ownership, Patents and Trademarks
Argyll Biotech retains full ownership of its intellectual property, including intellectual property that is jointly-developed by the parties. Argyll Biotech is required by its license agreement with the Company to take reasonable steps to protect its intellectual property from third-party infringement, and to defend Immunosyn against charges of infringement that refer, relate or pertain to Immunosyn’s marketing, sale and distribution of SF-1019.
Immunosyn Corporation
(A Development Stage Company) Notes To Financial Statements
Publication and Confidentiality
Argyll Biotech and Immunosyn must collaborate on all publications of scientific or medical reports relating to either company’s business, operations, research and development or clinical trial results.
Recall and Indemnification
Argyll Biotech retains full responsibility for costs and activities relating to any recall of SF-1019, and is required to defend, indemnify and hold Immunosyn harmless for, from and against damages associated with those recalls.
Term and Termination
The license agreement is in full force and effect for as long as any patent coverage remains in place for SF-1019 in any country. Either party may terminate the agreement only on account of an uncured material breach by the other party. Immunosyn may terminate the agreement if a non-rebuttable regulatory or patient safety issue is raised, in which event all remaining license fee obligations will immediately be cancelled. Any fees paid prior to termination are non-refundable.
Restatement
In March 2010, after reconsidering ASC 350-20, “Goodwill and Other Intangible Assets” and paragraph 11c of ASC , the Company determined it was appropriate to write off of the intangible asset at inception of the agreement as the license had no alternative future use and was therefore research and development expense at the date it was acquired. This reduced the total assets for December 31, 2008, 2007 and 2006 by $400,000 and increased net loss for the period August 3, 2006 (inception) through December 31, 2006 and increased accumulated deficit for each period since inception.
Note 4. ADVANCES FROM AFFILIATES
Since inception, Immunosyn was advanced $1,060,570 of which $660,275 remains due at December 31, 2009 from Argyll Equities, LLC and Argyll Biotech who together own approximately 59% of Immunosyn’s common stock. These advances are unsecured and are to be repaid on demand. Interest expense in the amount of $159,166 since inception, $71,780 in 2009, $61,326 in 2008 was imputed using an annual rate of 7.5%. Advances from Stephen D. Ferrone, CEO and President of Immunosyn, in the amount of $8,559 as of December 31, 2009 are due and payable as of December 31, 2009 are included in advances from affiliates.
On December 4, 2009, a settlement was reached in a lawsuit involving Argyll Equities and Immunosyn whereby Argyll Equities was required to forgive $400,000 of the amount owed to Argyll Equities by Immunosyn. See note 8 for details.
Note 5. ACCRUED LEGAL SETTTLEMENT
A complaint (the "Complaint") was filed on August 25, 2009 by Myron W. Wentz, a shareholder of Immunosyn, in the United States District Court for the Southern District of California that named as defendants Argyll Biotech, the Company and Does 1-10. The Complaint alleged, among other things, that Argyll Biotech breached its contract with the plaintiff and that the Company tortiously interfered with Argyll Biotech’s contract with the plaintiff. The Complaint sought damages in the amount of $1,948,000 plus pre- and post-judgment interest; consequential damages and attorney’s fees in an amount to be proven at trial for breach of contract or tortious interference with contract; an Order compelling Argyll Biotech to provide 14,984,615 shares of common stock of the Company to Dr. Wentz; and attorneys fees in an amount to be proven at trial. On February 1, 2010, a default judgment was entered against Immunosyn in favor of the plaintiff, Dr. Wentz, in the United States District Court for the Southern District of California in the amount of $1,948,000 plus post-judgment interest in accordance with the law. Both have been accrued as of December 31, 2009. See note 8 for details.
Note 6. STOCKHOLDERS’ EQUITY
Between August 3, 2006 and August 31, 2006, Immunosyn sold a total of 125,000,000 shares of common stock, at a purchase price of $0.0001 per share, to various investors, resulting in gross proceeds to the Company of $12,500.
In September 2006, a total of 147,000,000 shares of common stock were issued to Argyll Biotech as a non-refundable payment of the license fee for Immunosyn's exclusive license to SF-1019.
Immunosyn Corporation
(A Development Stage Company) Notes To Financial Statements
Immunosyn entered into a 12 month contract with The Blaine Group, Inc. (TBG) on October 12, 2007 for TBG to undertake a national financial public relations and investors relations campaign for Immunosyn. As part of this contract, TBG agreed to handle all public relations matters for Immunosyn. This contract shall continue until terminated by either party with thirty days written notice. Immunosyn agreed to pay TBG $1,500 per month in restricted stock. As a result, a total of 743 and 20,213 shares of common stock were earned by TBG in 2007 and 2008, respectively, and a total of 20,976 shares of common stock were issued to TBG in 2008. This agreement with The Blain Group was amended on December 12, 2009 to reflect that no further stock would be du e to The Blaine Group as part of their monthly retainer. See note 8 for details.
Immunosyn entered into a contract with Basic Investors, Inc. (Basic) on October 15, 2007 to engage Basic to provide management and financial consulting services to Immunosyn. The term of this contract was from October 15, 2007 through October 15, 2008. Pursuant to this contract, Immunosyn issued 10,000 shares of common stock to Basic on April 29, 2008.
Immunosyn issued 150,000 shares of common stock on August 14, 2008 to First Montauk Securities Corp. or its designated affiliates pursuant to an advisory agreement entered into on April 23, 2008 for First Montauk to provide financial advisory services to Immunosyn. The total value of such shares is $524,750.
On September 29, 2008, Immunosyn entered into a 6 month contract with Bear Creek Advisors, LLC (Bear Creek) to provide consulting services for Immunosyn. Immunosyn agreed to pay Bear Creek 30,000 shares of restricted common stock for these services. Immunosyn issued 10,000 of these shares to Bear Creek on October 8, 2008 and allocated another 10,000 shares to be issued on November 28, 2008. On January 7, 2010, Immunosyn and Bear Creek agreed that the 10,000 shares which Immunosyn had allocated on November 28, 2008 would not be issued to Bear Creek and that no additional shares would be due to Bear Creek. The 10,000 shares forfeited by Bear Creek and the associated $3,300 are accounted for as of December 31, 2009.
1,689,000 shares of common stock of the Company were acquired and placed in the treasury on March 23, 2009 as part of a settlement agreement with a shareholder. The purchase price was zero. These 1,689,000 shares were retired and returned to authorized capital on December 31, 2009.
On December 14, 2009 as part of a settlement for a law suit filed on December 19, 2007 by a shareholder, Leon S. Segen, Argyll Equities, LLC retired 2,950,000 shares of common stock of the Company. See note 8 for details.
Stock Options
Immunosyn has adopted a stock option plan for employees, outside consultants, and directors. There are 7,450,000 common shares available for grant under the plan. The plan allows for incentive options with exercise prices of at least 100% of the fair market value of Immunosyn’s common stock and nonqualified options with exercise prices of at least 85% of the fair market value of Immunosyn’s common stock.
Immunosyn accounts for stock options using the fair value method. Fair value is determined at the date of grant for employee options and at the date at which the grantee’s performance is complete for non-employee options. Compensation cost is recognized over the vesting period based on the fair value of the options. The fair value of the options is calculated using the Black-Scholes option pricing model.
No options had been granted as of December 31, 2009.
Note 7. INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amount of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Since inception, Immunosyn has incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully re served. The cumulative net operating loss carry-forward is approximately $5,000,000 at December 31, 2009 and will expire beginning 2026.
Deferred tax assets consisted of the following as of December 31:
| | 2009 | | | 2008 | |
| Net Operating Losses | $ | 1,713,000 | | | $ | 657,879 | |
| Less: valuation allowance | | (1,713,000 | ) | | | (657,879 | ) |
| Net deferred tax asset | | - | | | | - | |
Immunosyn Corporation
(A Development Stage Company) Notes To Financial Statements
Note 8. COMMITMENTS AND CONTINGENT LIABILITIES
On October 12, 2007, Immunosyn entered into a 12 month contract with The Blaine Group, Inc. (TBG) for TBG to undertake a national financial public relations and investors relations campaign for Immunosyn. As part of this contract, TBG agreed to handle all public relations matters for Immunosyn. This contract shall continue until terminated by either party with thirty days written notice. Immunosyn agreed to pay TBG $10,000 as a monthly retainer fee. $8,500 of this retainer is payable in cash and $1,500 in restricted stock to be valued at current market value on the date of issue. On December 12, 2009, the agreement was amended to require the Company to pay TBG in cash, rather than in restricted stock, the $1,500 portion that was originally to be paid in stock from Januar y 1, 2009 through December 12, 2009. This amendment also called for the retainer fee payable to TBG by Immunosyn from December 12, 2009 forward to be $5,000 per month. This $5,000 retainer is payable in cash. This contract shall continue until terminated by either party with thirty days written notice.
Pursuant to a subpoena dated January 20, 2006 issued by the Securities and Exchange Commission to an affiliate of Argyll Biotech in proceedings captioned In the Matter of Directors Financial Group, Ltd. and In The Matter of Prime Bank Securities, and pursuant to subpoenas issued by the SEC to affiliates of Argyll Biotech on March 30, 2006 and to Immunosyn on December 15, 2006 in a proceeding captioned In The Matter of The Argyll Group, LLC, Immunosyn and its affiliates have been asked to produce all documents concerning a wide variety of topics including many related directly to Immunosyn. Immunosyn and Argyll Biotech’s affiliates actively cooperated with the SEC and produced documents responsive to these subpoenas, completing their responses in early August 2007. The Directors Financial Group mat ter was resolved in June 2006 through a settlement between the SEC and the parties to the proceeding, and, accordingly, Immunosyn will not be required to respond further to that subpoena. Immunosyn had had no further communication with the SEC regarding the remaining subpoenas since January 2007 until March 2009. On or about March 17, 2009, representatives of both Immunosyn and Argyll Biotech became aware that they had received additional subpoenas from the SEC on or about March 6, 2009 (the “March 2009 Subpoenas”). In addition, on or about June 4, 2009, Immunosyn directors and officers, Douglas A. McClain, Jr. and Stephen Ferrone, received subpoenas from the SEC (the “June 2009 Subpoenas”) as did James T. Miceli, a director and officer of Argyll Biotech, and Douglas A. McClain, Sr. Immunosyn and Argyll Biotech subsequently learned from the SEC that the March 2009 Subpoenas and the June 2009 Subpoenas would be treated as voluntary requests.& #160; On or about September 11, 2009, Immunosyn and Immunosyn directors and officers, Douglas A. McClain, Jr. and Stephen Ferrone, received additional subpoenas from the SEC as did James T. Miceli, a director and officer of Argyll Biotech, and Douglas A. McClain, Sr. The Company and its affiliates have responded to these subpoenas.
On March 19, 2008, a shareholder of the Company, Deborah Donoghue, commenced two actions — one in the U.S. District Court for the Southern District of California and the other in the U.S. District Court for the Southern District of New York – derivatively on behalf of the Company to recover alleged short-swing profits from several alleged statutory insiders of the Company, including Company officer and director Douglas A. McClain Jr. The actions include the Company as a nominal defendant only and do not allege any claims of liability against the Company. Donoghue withdrew the New York action in April 2008 and the California action has been stayed pending resolution of the related earlier-filed action by shareholder Leon Segen which has been settled.
On or about July 27, 2006, Daval filed suit in the High Court of Justice, Chancery Division in London, England against Argyll Biotech and five of Argyll Biotech’s research scientists and others, including Douglas McClain, Sr., seeking an injunction and damages or an account of profits based on allegations of breach by the scientists and Mr. McClain of confidentiality agreements with Daval, breaches by such persons of their fiduciary duties and conspiracy by Argyll Biotech and certain of its shareholders to wrongfully disclose and use Daval’s alleged trade secrets. These proceedings do not allege infringement of any Daval patent whether by Argyll Biotech or any of the other defendants. Argyll Biotech has filed its defenses and continues to investigate the merits of the suit and the basis of its defenses including, among other grounds, that one of the active ingredients in SF-1019 is based on independent research by Argyll Biotech’s research scientists, and the method of producing SF-1019 is materially different from Daval’s process. The action had been listed for trial in the UK in January 2009 but, in December 2008, the High Court in London ordered that the trial be rescheduled for a later date likely to be in 2010. Immunosyn is not involved in this litigation.
On March 16, 2007, Frank Bramante and Salvatore Bramante commenced an action in the United Stated District Court for the Southern District of California against various defendants including Immunosyn seeking amongst other relief an injunction to prevent the transfer and/or sale of the patents and/or proprietary information relating to SF-1019 to third parties. The case was stayed by Order dated January 17, 2008 pending resolution of a largely duplicative action filed in the United Stated District Court for the Western District of Texas, San Antonio Division, by the same plaintiffs against the same defendants excluding Immunosyn on July 28, 2006. The Texas action was dismissed with prejudice in September 2008 and a stipulation dismissing the California action was filed with the Court and the e ntire California action was dismissed with prejudice on or about June 3, 2009.
Immunosyn Corporation
(A Development Stage Company) Notes To Financial Statements
A complaint (the "Complaint") was filed on August 25, 2009 by Myron W. Wentz, a shareholder of Immunosyn, in the United States District Court for the Southern District of California that named as defendants Argyll Biotech, the Company and Does 1-10. The Complaint alleged, among other things, that Argyll Biotech breached its contract with the plaintiff and that the Company tortiously interfered with Argyll Biotech’s contract with the plaintiff. The Complaint sought damages in the amount of $1,948,000 plus pre- and post-judgment interest; consequential damages and attorney’s fees in an amount to be proven at trial against Argyll Biotech for breach of contract; an Order compelling Argyll Biotech to provide 14,984,615 shares of common stock of the Co mpany to Dr. Wentz; and attorneys fees in an amount to be proven at trial. On February 1, 2010, a default judgment was entered against Immunosyn in favor of the plaintiff, Dr. Wentz, in the United States District Court for the Southern District of California in the amount of $1,948,000.00 plus post-judgment interest in accordance with the law. In addition, a default judgment was entered against Argyll Biotech in the amount of $1,948,000 plus post-judgment interest in accordance with the law plus attorney fees in the amount of $49,901. See Note 5 to audited financial statements.
On August 24, 2009, a complaint was filed by Denise Campbell on behalf of a putative class in the United States District Court for the Southern District of Texas that names as defendants Immunosyn, Argyll Biotech, James T. Miceli, Douglas A. McClain, Jr., Frank Morales, Argyll Equities, LLC, Stephen Ferrone and Douglas A. McClain, Sr. The complaint alleges, among other things, that the defendants have made false and/or misleading statements concerning Immunosyn and SF-1019 in filings with the SEC in violation of the Securities Exchange Act of 1934, as amended, including Section 10b-5 thereof, including, without limitation, that the Food & Drug Administration had not approved SF-1019 for human injection, that SF-1019 had not received compassionate waiver status, that SF-1019 was on clinical hold, that SF- 1019 had negative results in certain safety studies, that SF-1019 was being sold by the defendants outside of the exclusive license held by Immunosyn and that Alan Osmond was being paid to promote SF-1019; defendants have committed fraud in their SEC disclosures and on their websites; defendants have engaged in civil conspiracy; defendants have been unjustly enriched through the sale of Immunosyn stock; and James T. Miceli, Douglas A. McClain, Sr. and Douglas A. McClain, Jr. have committed RICO violations and conspired to violate RICO. The complaint seeks damages in an amount to be proven at trial, plus interest, costs and attorneys fees. The parties, including Immunosyn, answered the complaint on October 16, 2009. An initial telephonic pretrial among attorneys was held on January 19, 2010 and discovery has commenced. The Defendants have filed Motions to Dismiss upon which the Court has not yet ruled. Defendants’ Motion to Dismiss is based on lack of federal jurisdiction a nd Plaintiff’s failure to allege sufficient facts to establish a class action.
Immunosyn recently learned that a complaint (the "Complaint") had been filed on November 24, 2009 by Robert Albergo and David Irwin in the United States District Court for the Southern District of California that names as defendants, amongst others, the Company and its directors and officers, Douglas A. McClain, Jr. and Stephen Ferrone. The Complaint alleges, among other things, that certain of the defendants, including the Company, McClain and Ferrone, have made false and/or misleading statements concerning Immunosyn and SF-1019 in filings with the SEC in violation of the Exchange Act, including Section 10b-5 thereof, have committed RICO violations and conspired to violate RICO and have engaged in civil conspiracy. The Complaint seeks multiple forms of relief including compensatory damages in an amount to be proven at trial, punitive damages and treble damages, plus interest, costs and attorneys fees. Immunosyn intends to vigorously defend against the allegations contained in the Complaint which it believes to be untrue and without merit and to have been brought against it for an improper purpose.
On December 19, 2007, a shareholder of Immunosyn, Leon S. Segen, commenced an action in the Southern District of New York derivatively on behalf of Immunosyn to recover alleged short-swing profits from several alleged statutory insiders of Immunosyn, including Immunosyn officer and director Douglas A. McClain Jr. The action includes Immunosyn as a nominal defendant only and does not allege any claims of liability against Immunosyn. On December 4, 2009, the parties entered into a settlement agreement, subject to approval of the court which was subsequently obtained, pursuant to which the defendants agreed to pay Immunosyn the sum of $475,000 consisting of a cash payment of $75,000 (for legal fees for plaintiff’s counsel) and the forgiveness of $400,000 of indebtedness of Immunosyn to defendant Argy ll and to retire 2,950,000 shares of Immunosyn common stock held by defendant Argyll Equities to the treasury of Immunosyn. The 2,950,000 shares of Immunosyn stock were retired to the treasury of Immunosyn on December 14, 2009, the payment was made on December 4, 2009 and December 11, 2009 and the debt was forgiven as of December 4, 2009. See note 6 for details.
Immunosyn has been provided with rent-free office space for two executive offices under a monthly oral agreement with no specific term from its affiliate and shareholder, Argyll Biotech. It is uncertain how long Argyll Biotech will continue providing office space or on what terms space will continue to be provided to Immunosyn in the future. At present, Immunosyn does not require dedicated office space.
| Item 8. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
None.
| Item 8A. | Controls and Procedures. |
Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed by the Company in reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedu res, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Immunosyn Corporation
(A Development Stage Company) Notes To Financial Statements
As of the end of the period covered by this report, and under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial and Accounting Officer, who are responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, such persons conducted an evaluation of the effectiveness of the design and operation of these disclosure controls and procedures. Based on this evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial and Accounting Officer concluded that these controls are not effective because there are material weaknesses in our internal control over financial reporting. To address the mater ial weakness, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Immunosyn recognizes the importance of internal controls. As Immunosyn is currently a development stage company with limited ongoing financial operations, management is making an effort to mitigate this material weakness to the fullest extent possible. At present this is done by having the Chief Executive Officer review Immunosyn’s financial statements, account reconciliations and accounts payable reports that have been prepared by Chief Financial Officer for reasonableness. All unexpected results are investigated. At any time, if it appears that any control can be implemented to continue to mitigate such weakness, it will be immediately implemented. As Immunosyn grows in size and as its finances allow, management will hire sufficient accounting staff an d implement appropriate procedures for monitoring and review of work performed by our Chief Financial Officer.
Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Under the supervision of our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009 using the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In our assessment of the effectiveness of internal control over financial reporting as of December 31, 2009, we determined that there were internal control deficiencies that constituted material weaknesses, as described below.
The material weakness relates to the lack of segregation of duties in financial reporting, as our financial reporting and all accounting functions are performed by a third party with no oversight by a professional with accounting expertise. Our Principal Executive Officer and Principal Financial Officer do not possess accounting expertise and our company does not have an independent audit committee. This weakness is due to the Company’s lack of working capital to hire additional staff. To remedy this material weakness, we intend to engage another accountant to assist with financial reporting as soon as our finances will allow.
In light of the existence of these control deficiencies, we concluded that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls.
As a result of the material weaknesses described above, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2009 based on criteria established in Internal Control -Integrated Framework issued by COSO.
This annual report does not include an attestation report of our registered public accounting firm regarding our internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm due to temporary rules of the SEC that permit us to provide only the conclusions to management’s report in this annual report.
Changes in Internal Controls
In our efforts to continuously improve our internal controls, management intends to take steps, when funding permits, to enhance controls and procedures subsequent to December 31, 2009 as part of our remediation efforts in addressing the material weaknesses described in our Annual Report on Form 10-K for the year ended December 31, 2008. One of the steps management intends to take is to increase documentation around certain authorization and review controls.
Immunosyn did not request an audit of internal controls and procedures from its auditors for the year ended December 31, 2009.
| Item 8B. | Other Information. |
None.
PART III
| Item 9. | Directors, Executive Officers, and Corporate Governance. |
Set forth below is information regarding the Company’s current directors and executive officers. There are no family relationships between any of our directors or executive officers. The directors are elected periodically by stockholders. The executive officers serve at the pleasure of the Board of Directors.
| Age | Title |
| Stephen D. Ferrone | 59 | President and Chief Executive Officer, Director |
| Douglas A. McClain, Jr. | 35 | Chairman of the Board, Chief Financial and Accounting Officer, Secretary, Director |
STEPHEN D. FERRONE, President and Chief Executive Officer, Director
Mr. Ferrone was appointed by the Company to serve as the President and Chief Executive Officer of the Company and a member of the Board of Directors effective the opening of business on October 15, 2007. Mr. Ferrone is an attorney with more than 20 years of experience in the investment industry, having held senior leadership and management roles in marketing and sales with a number of publicly traded financial services companies including Morningstar, Inc., ABN-AMRO and Charles Schwab & Co., Inc. From August 2005 to October 2007, Mr. Ferrone was the founder and principal of SF Consulting, a private business consulting company. From May 2005 to August 2005, Mr. Ferrone served as the Director of Distribution and National Sales of Morningstar, Inc. and Morningstar Investment Services.& #160; From August 1996 to April 2005, Mr. Ferrone had various roles at ABN-AMRO Asset Management and ABN-AMRO Investment Fund Services including Senior Managing Director and National Sales Director. From May 1991 to August 1996, Mr. Ferrone served as a Regional Marketing Director of Charles Schwab & Co., Inc. and Schwab Institutional. In addition, from September 1977 to May 1983, Mr. Ferrone served as an Assistant State’s Attorney and felony trial prosecutor in the Cook County State’s Attorney’s Office in Chicago, Illinois. He holds a JD degree from Loyola University School of Law and a BA from Northwestern University.
Mr. Ferrone is not currently a director of any other reporting company. There are no family relationships between Mr. Ferrone and any of the other directors or executive officers of the Company. Mr. Ferrone, through SF Consulting, was previously a party to a consulting arrangement with the Company which called for payments aggregating $150,000. Mr. Ferrone served as a director and officer of a predecessor of the Company, Nurovysn Merger Corporation, which was dissolved in August 2006.
DOUGLAS A. MCCLAIN, JR., Chairman of the Board, Chief Financial and Accounting Officer, Secretary, Director
Mr. McClain is a financial executive with more than 10 years of experience. In 2002, Mr. McClain co-founded Argyll Equities, LLC and its affiliates (including Argyll Biotech), a boutique private equity investment banking and corporate finance firm, where he serves as an executive officer and director. In 1999, he joined International Profit Associates, a business consulting firm, as a Senior Executive responsible for mergers and acquisitions and corporate finance, where he was employed until 2001. From 2001 to 2002, Mr. McClain was a business consultant. Mr. McClain graduated with a Bachelor of Business Administration in Finance from Mercer University’s Stetson School of Business and Economics in 1996. Mr. McClain was a founder of the Company and has been a d irector and officer since inception in August 2006. Mr. McClain resigned as Chief Financial Officer and Chief Accounting Officer of the Company effective the close of business on Friday, October 19, 2007, but resumed such positions on February 1, 2008. He is also Chairman of the Board of Directors and Secretary of the Company.
The following person is serving as an advisor to the Company:
FRED G. JAGER – Mr. Jager is founder, president and chief executive officer of Hunter Wise Financial Group, LLC and Hunter Wise Securities, LLC. For three decades he has represented public and privately held companies throughout North America, and a successful advisor in middle-market corporate finance. Formerly president of Geneva Corporate Finance, Inc., Mr. Jager also founded Denver-based Jager & Company, Inc., which was the largest corporate finance firm of its kind in the Rocky Mountain region. He also was executive vice president of an investment banking firm in Northern California, and chief operating officer of one of the largest vocational educational companies in the world. A former intelligence officer, Mr. Jager has been a director on numerous public and private companies, is experienced business speaker and author of numerous published articles.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act, as amended, requires our executive officers, directors and persons who beneficially own more than 10% of our shares of Common Stock to file reports of their beneficial ownership and changes in ownership (Forms 3, 4 and 5, and any amendment thereto) with the SEC. Executive officers, directors, and greater-than-ten percent holders are required to furnish us with copies of all Section 16(a) forms they file.
Based solely upon a review of Forms 3, 4 and 5 furnished to us for the fiscal year ended December 31, 2009, we have determined that our directors, officers and greater than 10% beneficial owners, except as provided below, complied with all applicable Section 16 filing requirements.
Padmore Holdings, Ltd., Argyll Biotechnologies, LLC, Argyll Equities, LLC, James T. Miceli and Douglas A. McClain Jr. were late in filing one or more transactions on Form 4 or 5. We have informed the above individuals and entities of the status of their filings and understand that appropriate filings will be made.
Code of Ethics
The Company has adopted a code of ethics that applies to the Company’s principal executive officer, principal financial and accounting officer, or persons performing similar functions. This code of ethics is available, free of charge, on our website at www.immunosyn.com.
Corporate Governance
Nominating Process
The Company’s Board of Directors has no nominating committee. When the Company develops its operations, it will create a nominating committee. In the meantime, the entire Board of Directors is acting as the Company’s nominating committee. There are no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.
Audit Committee Financial Expert
The Company does not have an audit committee or a compensation committee of its Board of Directors. In addition, the Company’s Board of Directors has determined that the Company does not have an audit committee financial expert serving on the Board. When the Company develops its operations, it will create an audit and a compensation committee and will seek an audit committee financial expert for its Board and audit committee. Until it has such committees and such an expert, the Company will not be able to list its stock on the Nasdaq or the major securities exchanges. In the meantime, the entire Board of Directors is acting as the Company’s audit committee.
Compensation Discussion and Analysis
We do not have a compensation committee; all decisions regarding compensation are made by our Directors.
In 2009, Stephen D. Ferrone, our President and Chief Executive Officer had his annual salary of $3,000 per month accrued. Pursuant to amendments to his Employment Agreement with the Company, Mr. Ferrone agreed to allow the Company to accrue his compensation after August 19, 2008. Mr. Ferrone does not receive any non-cash compensation. We believe that this salary is below the market salary for someone of Mr. Ferrone’s qualifications; however in negotiations between the Company and Mr. Ferrone, this amount was considered appropriate given the developmental status of the Company. We believe that Mr. Ferrone’s equity holdings in the Company provide him with an incentive to improve the Company’s performance.
Douglas A. McClain, Jr., our Chief Financial and Accounting Officer, did not receive compensation from the Company in 2009 and does not currently receive any such compensation. We believe that this is appropriate given the developmental status of the Company and in light of the Mr. McClain’s significant indirect equity stake in the Company through Argyll Equities and Argyll Biotech.
We do not currently believe that it is appropriate to issue equity based compensation, although the Company has established a stock option plan for employees, directors and consultants and reserved 7,450,000 shares for issuance under such plan.
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named executive officers during the 2009 fiscal year:
Summary Compensation Table – 2009
Name and Position (a) | | Year (b) | | | Salary ($) (c) | | | Bonus ($) (d) | | | Stock Awards ($) (e) | | | Option Awards ($) (f) | | | Non-Equity Incentive Plan Compensation ($) (g) | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (h) | | | All Other Compensation ($) (i) | | | Total ($) (j) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stephen D. Ferrone, President and CEO | | 2009 | | | 36,000 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 36,000 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Douglas A. McClain, Jr., Chief Financial and Accounting Officer | | 2009 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | | | | 0 | | | 0 |
Narrative Disclosure to Summary Compensation Table
Effective October 15, 2007, Stephen D. Ferrone and the Company entered into an Employment Agreement (the “Ferrone Employment Agreement”) pursuant to which Mr. Ferrone is employed by the Company as its President and Chief Executive Officer, as described below. In addition, Argyll Biotechnologies, LLC has agreed to nominate and/or cause Mr. Ferrone to be elected to the Company’s Board of Directors at each annual meeting of stockholders during the Term. The term of the Ferrone Employment Agreement began on October 15, 2007 and will terminate on December 31, 2010, unless earlier terminated, and will automatically extend for each succeeding one year period unless either party provides the other with a written notice at least 30 days prior to the end of the then current Term advis ing that the party providing the notice shall not agree to so extend the Term (the “Term”). The Ferrone Employment Agreement automatically extended for one year in 2009.
On November 15, 2007, Mr. Ferrone and the Company entered into a First Amendment to the Ferrone Employment Agreement pursuant to which the parties agreed to change the base compensation Mr. Ferrone is to receive from the Company under the Ferrone Employment Agreement to a base salary equal to $3,000 per month (or pro rata portion thereof) payable semi-monthly (less applicable taxes and withholdings). Under this Amendment, Mr. Ferrone’s base salary continues to be subject to annual review by the Company’s Board or the Compensation Committee thereof for discretionary periodic increases but not decreases.
Effective August 19, 2008, Mr. Ferrone and the Company entered into a Second Amendment to the Ferrone Employment Agreement pursuant to which the parties agreed to defer all of Mr. Ferrone’s base salary for the period beginning on August 19, 2009 and ending on December 31, 2009, to be paid in its entirety without interest in a lump sum on December 31, 2009.
Effective December 31, 2009, Mr. Ferrone and the Company entered into a Third Amendment to the Ferrone Employment Agreement pursuant to which the parties agreed to defer all of Mr. Ferrone’s base salary for the period beginning on August 19, 2009 and ending on December 31, 2009 and all of Mr. Ferrone’s base salary for the period beginning on January 1, 2010 and ending on December 31, 2010, to be paid in its entirety without interest in a lump sum on December 31, 2010.
Under the Ferrone Employment Agreement, Mr. Ferrone is to receive a bonus for each year of the Term equal to (1) one half of one percent (0.5%) on gross revenues (GR) less the Company’s cost of product of $0-$500 million dollars, (2) three quarters of one percent (0.75%) on GR of $500 million to one billion dollars and (3) one percent (1%) on GR above one billion dollars, paid between January 1 and March 15 of the following year (“Bonus”).
Mr. Ferrone is to participate in all of the Company’s employee benefit and incentive compensation plans and arrangements made available during the Term to its other senior executives, including health insurance, and is entitled to four weeks of paid vacation per year and five sick days per year. The Company is to promptly reimburse Mr. Ferrone for his reasonable out-of-pocket expenses incurred in connection with his employment by the Company. To date, Mr. Ferrone has advanced these amounts to the Company.
Under the Ferrone Employment Agreement, additional amounts are payable to Mr. Ferrone by the Company under certain circumstances upon the termination of the Ferrone Employment Agreement. If the termination is on account of Mr. Ferrone’s death or “Disability” (all as defined in the Ferrone Employment Agreement), no additional amount (other than payment of Base Salary and/or Bonus accrued and due through the date of Mr. Ferrone’s death or termination for Disability) shall be payable to Mr. Ferrone. If the termination is on account of the Company’s termination of Mr. Ferrone’s employment “For Cause” or Mr. Ferrone’s resignation “Without Good Reason” (all as defined in the Ferrone Employment Agreement), no additional amount (other than payment of Base Salary through the date of termination) shall be payable to Mr. Ferrone. If the termination is on account of Mr. Ferrone’s resignation “For Good Reason,” or the Company’s termination of Mr. Ferrone’s employment “Without Cause,” Mr. Ferrone shall receive, subject to his continued compliance with his confidentiality and nonsolicitation obligations under the Ferrone Employment Agreement, continued payments in an amount equal to the greater of (1) 12 months of his then current monthly Base Salary or (2) $400,000, payable in accordance with the Company’s normal payroll practices and policies, accrued Bonus and benefit plan payments, accrued vacation and continued coverage under the Company’s medical, dental and life insurance benefits for the 12-month period immediately following Mr. Ferrone’s resignation or termination, as applicable.
Under the Ferrone Employment Agreement, the Company is required to maintain directors’ and officers’ liability insurance for Mr. Ferrone during the Term. The Company is also required to indemnify Mr. Ferrone in certain circumstances.
Under the Ferrone Employment Agreement, Mr. Ferrone is eligible to participate in the Company’s Stock Option Plan; otherwise Mr. Ferrone is to be granted options subject to approval by the Compensation Committee of the Board of Directors and in a manner customary for like companies in the industry (such option exercise price being equal to the fair market value of the stock on December 31st of the Term year for which they are being granted). No such options have yet been granted to Mr. Ferrone by the Company.
There has not been and there is currently no arrangement with Mr. McClain to provide compensation for his executive services to the Company as Chief Financial and Accounting Officer.
Outstanding Equity Awards at Fiscal Year-End
We did not award any stock options or other equity incentive plan awards to any above named executive officer during fiscal 2009 and there are no stock options or other equity incentive plan awards outstanding as of the end of fiscal 2009.
Non-Employee Director Compensation
For fiscal 2009, we did not pay any compensation to any of our directors. The Company has no formal plan for Director compensation, but anticipates that it will reimburse the reasonable and customary expenses of any non-employee Directors associated with their service on the Board, including travel expenses and standard fees for attending board and committee meetings. In addition, the Company has established the Immunosyn 2006 Stock Option Plan (the “Plan”) for employees, directors and consultants and reserved 7,450,000 shares for issuance under the Plan. At the date hereof, no options have been issued under this Plan.
Compensation Committee Interlocks and Insider Participation
We do not have a compensation committee. Various members of our Board of Directors participated in deliberations concerning executive officer compensation. Douglas McClain, Jr., a member of our Board and our Chief Financial and Accounting Officer, is a shareholder and officer of Argyll Equities and Argyll Biotech. For more information regarding this relationship, please see Item 12-Certain Relationships and Related Transactions, and Director Independence.
Compensation Committee Report
We do not have a compensation committee. Our Board of Directors has reviewed and discussed the Compensation Discussion and Analysis above with management and, based on such review and discussion, has determined that the Compensation Discussion and Analysis should be included in this Annual Report on Form 10-K.
Stephen D. Ferrone Douglas A. McClain, Jr.
| Item 11. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Securities Authorized for Issuance Under Equity Compensation Plans
The Company has adopted an employee stock option plan, which acts as an incentive stock and stock option plan, under which the Company’s employees, directors and consultants will be eligible to receive, in relevant part, either securities or stock options exercisable for the Company’s securities. The Company has reserved 7,450,000 shares of Common Stock for issuance under this Plan. No options have been issued under this Plan.
| Plan Category | | Number of Securities to be issued upon exercise of outstanding options warrants and rights (a) | | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (c) |
| Equity compensation plans approved by security holders | | 0 | | | 0 | | | 0 |
| Equity compensation plans not approved by security holders | | 0 | | | 0 | | | 7,450,000 |
| Total | | 0 | | | 0 | | | 7,450,000 |
Security Ownership of Certain Beneficial Owners and Management
The following table lists stock ownership of our Common Stock as of March 30, 2010. The information includes beneficial ownership by (i) holders of more than 5% of our Common Stock, (ii) each of our directors and executive officers and (iii) all of our directors and executive officers as a group. Except as noted below, to our knowledge, each person named in the table has sole voting and investment power with respect to all shares of our Common Stock beneficially owned by them.
Name and Address of Beneficial Owner | | Director/Officer | | Amount and Nature of Beneficial Ownership (1) | | | Percentage of Class |
| | | | | | | | | |
Argyll Biotechnologies LLC (2) 10815 Rancho Bernardo Road, Suite 101 San Diego, CA 92127 | | | | | 145,363,798 | | | | 54.33 | % |
| | | | | | | | | | | |
Padmore Holdings, Ltd. (3) 1100 N.W. Loop 410, Suite 207 San Antonio, TX 78213 | | | | | 13,880,550 | | | | 5.19 | % |
| | | | | | | | | | | |
Clairsvelle Holdings, Ltd. (4) 1100 N.W. Loop 410, Suite 207 San Antonio, TX 78213 | | | | | 19,740,000 | | | | 7.38 | % |
| | | | | | | | | | | |
Argyll Equities LLC (5) 10815 Rancho Bernardo Road, Suite 101 San Diego, CA 92127 | | | | | 11,758,287 | | | | 4.39 | % |
| | | | | | | | | | | |
James T. Miceli (7) 10815 Rancho Bernardo Road, Suite 101 San Diego, CA 92127 | | | | | 91,880,427.5 | | | | 34.37 | % |
| | | | | | | | | | | |
Douglas A. McClain, Jr. (6) 10815 Rancho Bernardo Road, Suite 101 San Diego, CA 92127 | | Chief Financial and Accounting Officer and Secretary, Director | | | 108,647,290.5 | | | | 40.61 | % |
| | | | | | | | | | | |
Stephen D. Ferrone (8) 220 Savanna Court Lake Forest, IL 60045 | | President and Chief Executive Officer, Director | | | 1,450,000 | | | | .54 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| All directors and officers as a group (two persons) | | | | | 106,080,532 | | | | 39.65 | % |
____________
| (1) | Includes in each case shares of Common Stock that may be issued upon exercise of options or warrants that are exercisable within 60 days for the subject individual only, if any. Percentages are computed on the basis of 267,552,719 shares of Common Stock outstanding as of March 30, 2010. All shares are directly owned unless otherwise indicated. |
(2) | A Delaware limited liability company owned 50% by James T. Miceli and 50% by Douglas McClain Jr. |
| A British Virgin Islands entity, with Mr. Lynn Booker having voting and dispositive control, and owned 45% by James T. Miceli, 45% by Douglas McClain Jr., and 10% by Douglas McClain Sr. |
| (4) | A British Virgin Islands entity, with Mr. Lynn Booker having voting and dispositive control, and owned by Douglas McClain Jr. |
| (5) | A Texas limited liability company owned 50% by Douglas McClain Jr. and 50% James T. Miceli. |
| (6) | Including Mr. McClain’s shares held by Clairsvelle Holdings, Ltd.; his indirect beneficial ownership of an aggregate of 100,000 shares held by the Bruce McClain Family Trusts 1, 2, 3 and 4 through his role as trustee of such trusts; his indirect beneficial ownership of 4,000,000 shares held by the GRD Family Trust 2006 through his role as trustee of such trust; and his undivided interests in Padmore Holdings, Argyll Biotech and Argyll Equities. |
| (7) | Including Mr. Miceli’s undivided interests in Argyll Biotech, Padmore Holdings and Argyll Equities; his indirect beneficial ownership in 2,000,000 shares held by each of the Kaitlyn Miceli Trust, the Ryan Miceli Trust and the Steven Miceli Trust through his role as trustee of such trusts; 500,000 shares held directly by Mr. Miceli, 138,000 shares held through his personal 401(k) plan and 435,137 shares held through his Individual Retirement Account. Does not include 12,710,000 shares held by Mr. Miceli's wife as to which he disclaims beneficial ownership. |
| (8) | Does not include 300,000 shares held by Mr. Ferrone's wife as to which he disclaims beneficial ownership. |
| Item 12. | Certain Relationships and Related Transactions, and Director Independence. |
Certain Relationships and Related Transactions
Except as set forth below, there have been no material transactions during the past two years between us and any officer, director or any stockholder owning greater than 5% of our outstanding shares, nor any of their immediate family members.
The Company has entered into an exclusive license agreement with Argyll Biotech, an affiliate of the Company that owns approximately 54% of the Company’s issued and outstanding Common Stock as of March 30, 2010. The exclusive license agreement, including, without limitation, the fees established in that agreement, will be between related entities, was not negotiated in an arms-length transaction and does not necessarily bear any relationship to established or traditional methods of valuing such fees. No independent audit or verification of the license fee has been made to determine its fairness to Immunosyn. In March 2010, after reconsidering ASC 350-20, “Goodwill and Other Intangible Assets” and paragraph 11c of ASC , the Company determined it was appropriate to write off of the intangible asset at inception of the agreement as the license had no alternative future use and was therefore research and development expense at the date it was acquired. See Note 3 to audited financial statements.
If the proceeds received by Argyll Biotech from the sale of the Company’s stock are inadequate to accomplish development and regulatory approval of SF-1019, we will pay the deficiency through a fee equal to three and one-half per cent (3-1/2%) of Immunosyn’s gross sales of SF-1019, in addition to the cost of product purchases from Argyll Biotech. The license fee is deemed earned when paid and there are no restrictions on the release or use of the license fee paid to Argyll Biotech, which may be used in Argyll Biotech’s discretion for any purpose. No refund will be owed by Argyll Biotech in the event the cost of development and regulatory approval is substantially less than the fee, nor are there any penalties owed by Argyll Biotech if it fails to accomplish product development or obtain regulatory approval for its distribution. The Company’s inability or failure to pay any license fees when due will adversely affect the Company’s licensed rights. As those rights will be the Company’s sole and primary asset, if the Company is unable to maintain those rights, the Company will lose substantially all of its value.
Douglas A. McClain, Jr., our Chief Financial and Accounting Officer, Corporate Secretary and a Director of the Company, is a shareholder and an officer of Argyll Equities and Argyll Biotech, shareholders of the Company. As discussed above, the Company is a party to the exclusive license agreement with Argyll Biotech, the Company’s principal asset.
The Company has been provided with rent-free office space for two executive offices under a monthly oral agreement with no specific term from its affiliate and shareholder, Argyll Biotech. It is uncertain how long Argyll Biotech will continue providing office space or on what terms space will continue to be provided to the Company in the future.
In addition, since inception, Immunosyn has borrowed a total of $1,060,570 from Argyll Equities, LLC and Argyll Biotech who together own approximately 59% of Immunosyn’s Common Stock. On December 4, 2009, a settlement was reached in a law suit involving Argyll Equities whereby Argyll Equities was required to forgive $400,000 of the amount owed to Argyll Equities by Immunosyn as a result of which $660,275 remains due to Argyll Biotech and Argyll Equities at December 31, 2009. These advances are unsecured and are to be repaid on demand. Interest expense in the amount of $159,166 since inception including $71,780 in 2009 was accrued using an annual rate of 7.5%. Advances from Stephen D. Ferrone, President and CEO of the Company, in the amount of $8,559 are due and payable.
Douglas A. McClain Sr., the beneficial owner of a 10% interest in Padmore which owns 13,880,550 shares of Common Stock in the Company, is the father of Douglas A. McClain, Jr., who is a Director, as well as the Chief Financial and Accounting Officer and Secretary of the Company. Including Douglas A. McClain Jr.’s undivided interest in Padmore, Argyll Biotech and Argyll Equities, the McClain’s control a total of 104,630,532 shares of Common Stock, or approximately 39.11% of the Company’s Common Stock.
Director Independence
Neither Douglas A. McClain, Jr. nor Stephen D. Ferrone is an “independent director” as such term is defined in the Nasdaq Marketplace Rules.
| Item 13. | Principal Accountant Fees and Services. |
The following table presents the fees for professional audit services rendered by MaloneBailey, LLP for the audit of the Company’s annual financial statements for the fiscal years ended December 31, 2008 and 2009 and fees for other services rendered by MaloneBailey, LLP during such periods:
| Fee Category | | Fiscal 2008 | | | Fiscal 2009 | |
| Audit Fees | | $ | 40,000 | | | $ | 45,000 | |
| Audit-Related Fees | | $ | 0 | | | $ | 0 | |
| Tax Fees | | $ | 5,200 | | | $ | 0 | |
| All Other Fees | | $ | | | | | | |
| Total Fees | | $ | 45,200 | | | $ | 45,000 | |
Audit fees include fees related to the services rendered in connection with the annual audit of the Company’s consolidated financial statements and the reviews of and other services related to registration statements, offering memoranda and statutory or regulatory filings.
Audit-related fees are for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of the Company’s financial statements.
Tax Fees include (i) tax compliance, (ii) tax advice, (iii) tax planning and (iv) tax reporting.
All Other Fees includes fees for all other services provided by the principal accountants not covered in the other categories such as litigation support, etc.
All of the services for 2008 and 2009 were performed by the full-time, permanent employees of MaloneBailey, LLP
| Item 14. | Exhibits and Financial Statement Schedules. |
(a) The following documents are filed as part of this Report:
| 1. | Financial Statements: |
| | |
| | Report of Independent Registered Public Accounting FirmBalance SheetStatement of ExpensesStatement of Cash FlowsStatement of Changes in Shareholders’ Equity (Deficit) Notes to Financial Statements |
| 2. | Financial Statement Schedules: |
None
The following exhibits are filed with, or incorporated by reference into, this Report.
| Exhibit Number | Description |
| 3.1 (a) | Certificate of Incorporation of Immunosyn Corporation, filed with the Secretary of State of the State of Delaware on August 3, 2006. |
| 3.2 (a) | By-laws of Immunosyn Corporation. |
| 10.1 (a) | License Agreement between Immunosyn Corporation and Argyll Biotechnologies, LLC, dated as of September 28, 2006. |
| 10.2 (b) | Amended and Restated License Agreement between Immunosyn Corporation and Argyll Biotechnologies, LLC, dated as of October 25, 2007, effective as of September 26, 2006. |
| 10.3 (a) | Form of Lock-Up Agreement. |
| 10.4 (e) | Form of Amended and Restated Lock-Up Agreement. |
| 10.5 (a) | Immunosyn 2006 Stock Option Plan. |
| 10.6 (c) | Employment Agreement effective as of October 15, 2007 between Stephen Ferrone and the Company. |
| 10.7 (d) | First Amendment to Employment Agreement of Stephen Ferrone effective November 15, 2007 between the Company and Stephen Ferrone. |
| 10.8 (c) | Employment Agreement effective as of October 22, 2007 between David Criner and the Company. |
| 10.9 (d) | First Amendment to Employment Agreement of David Criner effective November 15, 2007 between the Company and David Criner. |
| 10.10(f) | Second Amendment to Employment Agreement of Stephen Ferrone, dated August 19, 2008 between the Company and Stephen Ferrone. |
| 10.11* | Third Amendment to Emplyoment Agreement of Stephen Ferrone, effective December 31, 2009 between the Company and Stephen Ferrone. |
| 14.1 (e) | Code of Ethics. |
| 23.1* | Consent of MaloneBailey, LLP |
| 31.1* | Certification of Stephen D. Ferrone, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Certification of Douglas A. McClain, Jr., Chief Financial and Accounting Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1* | Certification of Stephen D. Ferrone, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2* | Certification of Douglas A. McClain, Jr., Chief Financial and Accounting Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
____________________________
| * | Exhibit filed with this Report. |
| | |
| (a) | Incorporated by reference to the Company’s Registration Statement on Form SB-2 (File No. 333-137881) filed with the Securities and Exchange Commission (the “SEC”) on October 6, 2006, as amended November 3, 2006 and December 22, 2006. |
| (b) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on October 25, 2007. |
| (c) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on October 23, 2007. |
| (d) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on November 19, 2007. |
| (e) | Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006, filed with the SEC on March 30, 2007. |
| (f) | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2009, filed with the SEC on May 18, 2009. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | IMMUNOSYN CORPORATION | |
| | | | |
| Dated: April 14, 2010 | By: | /s/ Douglas A. McClain, Jr. | |
| | | Douglas A. McClain, Jr. Chief Financial and Accounting Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:
| Signature | | Title | | Date |
| | | | | |
| /s/ Stephen D. Ferrone | | President, Chief Executive Officer, Director | | April 14, 2010 |
| Stephen D. Ferrone | | (Principal Executive Officer) | | |
| | | | | |
| /s/ Douglas A. McClain, Jr. | | Chief Financial and Accounting Officer, Director | | April 14, 2010 |
| Douglas A. McClain, Jr. | | (Principal Financial nd Accounting Officer) | | |
