U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2000
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|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
___________.
Commission file number 0-27282
ATLANTIC TECHNOLOGY VENTURES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 36-3898269
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Broadway, Suite 1110, New York, New York 10038
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(Address of principal executive offices)
(212) 267-2503
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(Issuer's telephone number)
150 Broadway, Suite 1009, New York, New York 10038
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(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 _____
Number of shares of common stock outstanding as of June 30, 2000:
Transitional Small Business Disclosure Format (check one): Yes No X
INDEX
Page
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PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
as of June 30, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Operations (unaudited)
for the three monthse nded June, 2000 and 1999, the
six months ended June 30, 2000 and 1999, and the
period from July 13, 1993 (inception) to June 30, 2000 4
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 2000 and 1999, and the
period from July 13, 1993 (inception) to June 30, 2000 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II-- OTHER INFORMATION
Item 1. Legal Matters 1
Item 6. Exhibits and Reports on Form 8-K 2
SIGNATURES
EXHIBIT INDEX
PART I -- OTHER INFORMATION
Item 1. Financial Statements
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ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
June 30, December 31,
Assets 2000 1999
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(Unaudited)
Current assets:
Cash and cash equivalents $ 1,605,801 (8,9) 3,473,321
Accounts receivable 821,847 337,323
Prepaid expenses 37,599 17,414
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Total current assets 2,465,247 3,828,058
Property and equipment, net 122,282 131,832
Investment in affiliate 86,277 --
Other assets 2,901 --
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Total assets $ 2,676,707 3,959,890
================== ===================
Liabilities and Stockholders' Equity
Current liabilities - accounts payable and accrued expenses $ 542,482 542,759
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Stockholders' equity:
Preferred stock, $.001 par value. Authorized 10,000,000
shares; 1,375,000 shares designated as Series A
convertible preferred stock -- --
Series A convertible preferred stock, $.001 par value.
Authorized 1,375,000 shares; 376,703 and 610,088 shares issued and
outstanding at June 30, 2000 and December 31, 1999, respectively
(liquidation preference aggregating $4,897,139 and $7,931,144 at June 30,
2000 and December 31, 1999, respectively) 377 610
Convertible preferred stock warrants, 112,896 and 117,195
issued and outstanding at June 30, 2000 and
December 31, 1999, respectively 520,263 540,074
Common stock, $.001 par value. Authorized 50,000,000
shares; 5,964,103 and 4,815,990 shares issued and outstanding
at June 30, 2000 and December 31, 1999, respectively 5,964 4,816
Common stock subscribed. 182 shares at June 30, 2000
and December 31, 1999 -- --
Additional paid-in capital 24,863,862 21,662,272
Deficit accumulated during development stage (23,255,699) (18,790,099)
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2,134,767 3,417,673
Less common stock subscriptions receivable (218) (218)
Less treasury stock, at cost (324) (324)
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Total stockholders' equity 2,134,225 3,417,131
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Total liabilities and stockholders' equity $ 2,676,707 3,959,890
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See accompanying notes to consolidated financial statements.
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ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Cumulative
period from
July 13, 1993
(inception) to
Three months ended June 30, Six months ended June 30, June 30,
----------------------------------------------------
2000 1999 2000 1999 2000
----------- ----------- ----------- ------------ ------------
Revenues:
Development revenue $ 1,434,634 $ -- $ 2,347,115 $ -- 3,429,625
License revenue -- -- -- -- 2,500,000
Grant revenue -- -- 13,009 -- 190,010
----------- ----------- ----------- ------------ ------------
Total revenues 1,434,634 -- 2,360,124 -- 6,119,635
----------- ----------- ----------- ------------ ------------
Costs and expenses:
Cost of development revenue 1,147,707 -- 1,877,692 -- 2,743,700
Research and development 212,914 365,139 322,353 925,478 8,696,918
Acquired in-process research and development 2,390,023 (8) -- 2,390,023 -- 2,390,023
General and administrative 781,785 (9) 337,938 2,286,283 (7) 708,788 15,954,711
License fees -- -- -- -- 173,500
----------- ----------- ----------- ------------ ------------
Total operating expenses 4,532,429 703,077 6,876,351 1,634,266 29,958,852
----------- ----------- ----------- ------------ ------------
Operating loss (3,097,795) (703,077) (4,516,227) (1,634,266) (23,839,217)
Other (income) expense:
Interest and other income (34,137) (58,302) (74,327) (122,523) (1,232,793)
Interest expense -- -- -- -- 625,575
Equity in (earnings)/loss of affiliate 23,700 -- 23,700 -- 23,700
----------- ----------- ----------- ------------ ------------
Total other (income) expense (10,437) (58,302) (50,627) (122,523) (583,518)
----------- ----------- ----------- ------------ ------------
Net loss $ (3,087,358) $ (644,775) $(4,465,600) $(1,511,743) (23,255,699)
=========== =========== =========== ============ ============
Imputed convertible preferred stock
dividend -- -- -- -- 5,331,555
Preferred stock dividend issued in
preferred shares -- -- 659,319 -- 973,685
----------- ----------- ----------- ------------ ------------
Net loss applicable to common shares $ (3,087,358) (644,775) (5,124,919) (1,511,743) (29,560,939)
=========== =========== =========== ============ ============
Net loss per common share -
basic and diluted $ (0.56) (0.14) (0.98) (0.37)
=========== =========== =========== ============
Shares used in calculation of net
loss per common share - basic
and diluted 5,503,803 4,699,454 5,236,680 4,080,398
=========== =========== =========== ============
See accompanying notes to consolidated financial statements.
-4-
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
Cumulative
period from
July 13, 1993
Six months ended June 30, (inception) to
--------------------------------- June 30,
2000 1999 2000
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Cash flows from operating activities:
Net loss $ (4,465,600) (1,511,743) (23,255,699)
Adjustments to reconcile net loss to
net cash used in operating activities:
Acquired in-process research and development 1,800,000 (8) -- 1,800,000
Expense relating to issuance of warrants -- -- 298,202
Expense relating to the issuance of options -- -- 81,952
Expense related to Channel merger -- -- 657,900
Change in equity of affiliate 23,700 -- 23,700
Compensation expense relating to
stock options and warrants 1,061,654 (7) -- 1,270,436
Discount on notes payable - bridge financing -- -- 300,000
Depreciation 32,729 60,550 463,139
Loss on disposal of furniture and equipment -- -- 73,387
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (484,524) (558) (821,847)
(Increase) decrease in prepaid expenses (20,185) 20,475 (37,599)
Increase (decrease) in accrued expenses (277) (277,488) 542,482
Increase (decrease) in accrued interest -- -- 172,305
(Increase) decrease in other assets (2,901) -- (2,901)
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Net cash used in operating activities (2,055,404) (1,708,764) (18,434,543)
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Cash flows from investing activities:
Purchase of furniture and equipment (23,179) (8) (4,696) (664,909)
Acquisition of investment (109,977) -- (109,977)
Proceeds from sale of furniture and equipment -- -- 6,100
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Net cash used in investing activities (133,156) (4,696) (768,786)
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Cash flows from financing activities:
Proceeds from exercise of warrants -- -- 5,500
Proceeds from exercise of stock options 321,040 -- 373,540
Proceeds from issuance of demand notes payable -- -- 2,395,000
Repayment of demand notes payable -- -- (125,000)
Proceeds from the issuance of notes payable -
bridge financing -- -- 1,200,000
Proceeds from issuance of warrants -- -- 300,000
Repayment of notes payable - bridge financing -- -- (1,500,000)
Repurchase of common stock -- -- (324)
Preferred stock dividend paid -- -- (318)
Proceeds from the issuance of common stock -- -- 7,547,548
Proceeds from issuance of convertible preferred stock -- -- 10,613,184
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Net cash provided by financing activities 321,040 -- 20,809,130
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Net decrease in cash and cash equivalents (1,867,520) (1,713,460) 1,605,801
Cash and cash equivalents at beginning of period 3,473,321 5,835,669 --
------------- ---------------- -------------
Cash and cash equivalents at end of period $ 1,605,801 4,122,209 1,605,801
============= ================ =============
Supplemental disclosure of noncash financing activities:
Issuance of common stock in exchange for
common stock subscriptions $ -- -- 7,027
Conversion of demand notes payable and the related
accrued interest to common stock -- -- 2,442,304
Cashless exercise of preferred warrants 19,811 -- 49,880
Conversion of preferred to common stock 289 140 1,704
Preferred stock dividend issued in shares 659,324 -- 973,690
============= ================ =============
See accompanying notes to consolidated financial statements.
-5-
ATLANTIC TECHNOLOGY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2000
(1) BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance
with Generally Accepted Accounting Principles for interim financial information.
Accordingly, the statements do not include all information and footnotes
required by Generally Accepted Accounting Principles for complete financial
statements. In the opinion of management, the accompanying financial statements
reflect all adjustments, consisting of only normal recurring adjustments,
considered necessary for fair presentation. Interim operating results are not
necessarily indicative of results that may be expected for the year ending
December 31, 2000 or for any subsequent period. These financial statements
should be read in conjunction with Atlantic Technology Ventures, Inc., and
Subsidiaries' (the "Company") Annual Report on Form 10-KSB as of and for the
year ended December 31, 1999.
(2) LIQUIDITY
The Company anticipates that their current resources, together with
proceeds from an agreement between the Company and Bausch & Lomb Surgical, will
be sufficient to finance their currently anticipated needs for operating and
capital expenditures for at least the next 9 months. In addition, the Company
will attempt to generate additional capital through a combination of
collaborative agreements, strategic alliances, and equity and debt financing.
However, the Company can give no assurance that it will be able to obtain
additional capital through these sources or upon terms acceptable to them.
(3) COMPUTATION OF NET LOSS PER COMMON SHARE
Basic net loss per common share is calculated by dividing net loss
applicable to common shares by the weighted average number of common shares
outstanding for the period. Diluted net loss per common share is the same as
basic net loss per common share, as common equivalent shares from stock options,
stock warrants, stock subscriptions and convertible preferred stock would have
an antidilutive effect because the Company incurred a net loss during each
period presented.
(4) RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements. SAB No. 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements, including the recognition of non-refundable fees received
upon entering into arrangements. SAB No. 101, as amended, must be adopted no
later than the fourth quarter of fiscal years beginning after December 15, 1999
with an effective date of January 1, 2000 and the recognition of a cumulative
effect adjustment calculated as of January 1, 2000. The Company is in the
process of evaluating this SAB and the effect it will have on its consolidated
financial statements and current revenue recognition policy.
(5) EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with four executives during
April and May, 2000. These agreements provide for the payment of signing and
year end bonuses in 2000 totaling $225,000, and annual base salaries aggregating
$550,000. Each agreement has an initial term of three years and can be
terminated by the Company, subject to certain provisions, with the payment of
severance amounts that range from three to six months.
(6) PREFERRED STOCK DIVIDEND
On February 15, 2000, the Company's board of directors declared a
payment-in-kind dividend of 0.065 of a share of Series A convertible preferred
stock per share of Series A convertible preferred stock to the holders of shares
of Series A convertible preferred stock as of the record date of February 2,
2000. The estimated fair value of
-6-
this dividend of $659,319 was included in the Company's calculation of net loss
per common share for the six months ended June 30, 2000.
On August 7, 2000, the Company's board of directors declared a
payment-in-kind dividend of 0.065 of a share of Series A convertible preferred
stock per share of Series A convertible preferred stock to the holders of shares
of Series A convertible preferred stock as of the record date of August 7, 2000.
During the 3 months ended June 30, 2000, 4,299 Series A convertible
preferred stock warrants were exercised in cashless transactions for 9,453
shares of the Company's Common Stock.
(7) ISSUANCE OF STOCK WARRANTS
As more fully described in Note 8 to the Company's Annual Report on Form
10-KSB as of and for the year ended December 31, 1999, on January 4, 2000, the
Company entered into a Financial Advisory and Consulting Agreement with Joseph
Stevens & Company, Inc. pursuant to which the Company issued to Joseph Stevens &
Company, Inc. three warrants to purchase an aggregate of 450,000 shares of its
common stock. In accordance with EITF Issue No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services and other relative accounting
literature, the Company is required to measure the expense associated with these
warrants at each reporting date and recognize the appropriate portion of the
expense at the end of each reporting period until the measurement date is
reached (December 4, 2000 in this transaction). As a result, the Company
recorded a general and administrative expense of $990,820 in the first quarter
of 2000 and $70,834 in the second quarter of 2000 based on the estimated value
of the vested warrants as of March 31, 2000 and June 30, 2000, respectively.
(8) INVESTMENT IN PREFERRED STOCK
On May 12, 2000, the Company entered into an agreement to acquire
preferred stock representing a 35% ownership interest in TeraComm Research,
Inc., a privately-held company that is developing next-generation high-speed
fiberoptic communications technologies. The purchase price for this ownership
interest was $5 million in cash, 200,000 shares of the Company's common stock,
and a warrant to purchase a further 200,000 shares of the Company's common
stock, the stock and the warrant being valued at $1.8 million. The warrant has a
term of three years and is exercisable at $8.975 per share of common stock, but
only if the market price of the Company's common stock is $30 or more.
Of the $5 million cash portion of the purchase price, the Company had as
of June 30, 2000, paid $700,000, and in early July the Company paid a further
$300,000. A further $1 million is payable when TeraComm achieves an agreed
technical milestone and the remainder thereafter payable in three quarterly
installments of $1 million. If upon TeraComm achieving the technical milestone
or if by December 30, 2000 (even if TeraComm does not achieve the technical
milestone) the Company elects not to pay the next installment of the cash
portion of the purchase price, the Company would forfeit the right to pay any
further installments on the cash purchase price and the Company's ownership
interest in the TeraComm would be reduced to reflect the proportion of the total
purchase price that the Company had actually paid.
The Company has expensed as acquired in-process research and development
approximately $2.37 million of the stock and warrant issued to TeraComm and the
initial $700,000 paid towards the cash purchase price, as TeraComm's product
development activity is in the very early stages. The majority of the $300,000
subsequently paid towards the cash purchase price and the majority of any
further such payments will likely represent additional acquired in-process
research and development.
(9) GENERAL AND ADMINISTRATIVE EXPENSES
The increase in general and administrative expenses for the quarter ended
June 30, 2000 is largely due to the $70,834 of expense associated with warrants
issued to Joseph Stevens & Company, costs of approximately $159,000 incurred in
hiring and relocating executives, and an increase in fees for professional
services of approximately $90,000 attributable to legal services performed in
connection with the Company's investment in TeraComm.
-7-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read the following discussion of our results of operations and
financial condition in conjunction with our Annual Report on Form 10-KSB for the
year ended December 31, 1999.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JUNE 30, 2000 VS. 1999
In accordance with a license and development agreement, as amended, Bausch
& Lomb Surgical reimburses our subsidiary, Optex Ophthalmologics, Inc., for
costs Optex incurs in developing its Catarex(TM) technology, plus a profit
component. In the second quarter of 2000, this agreement provided $1,434,634 of
development revenue, and the related cost of development revenue was $1,147,707.
For the quarter ended June 30, 1999, no revenue or cost of development revenue
was recognized as all reimbursements from Bausch & Lomb prior to the September
1999 amendment were accounted for as reductions of research and development
expense and general and administrative expenses.
For the quarter ended June 30, 2000, research and development expense was
$212,914 as compared to $365,139 net of Bausch and Lomb reimbursements of
$369,332 in the second quarter of 1999, a decrease of 42%. This decrease is due
to reduced expenditures on certain development projects.
As of June 30, 2000, we have made an investment of $700,000 cash and
commonstock and warrants valued at $1.8 million. For the quarter ended June
30,2000, we have expensed approximately $2.39 milion of this payment asacquired
in-process research and development as Teracomm's product development activity
is in the very early stages.
For the quarter ended June 30, 2000, general and administrative expense
was $781,785 as compared to $337,938 net of Bausch and Lomb reimbursements of
$12,240 in the second quarter of 1999. This increase is largely due to the
$70,834 of expense associated with warrants issued to Joseph Stevens & Company,
costs of approximately $159,000 incurred in hiring and relocating executives,
and an increase in fees for professional services of approximately $90,000
attibutable to the due diligence and closing of the TeraComm investment.
For the second quarter of 2000, interest income was $34,137 compared to
$58,302 in the second quarter of 1999, a decrease of 42%. This decrease is due
to the decline in our cash reserves.
SIX MONTH PERIOD ENDED JUNE 30, 2000 VS. 1999
In accordance with a license and development agreement, as amended, Bausch
& Lomb Surgical reimburses our subsidiary, Optex Ophthalmologics, Inc., for
costs Optex incurs in developing its Catarex(TM) technology, plus a profit
component. In the six month period ended June 30, 2000, this agreement provided
$2,347,115 of development revenue, and the related cost of development revenue
was $1,877,692. For the six month period ended June 30, 1999, no revenue or cost
of development revenue was recognized as all reimbursements from Bausch & Lomb
prior to the September 1999 amendment were accounted for as reductions of
research and development expense and general and administrative expenses.
For the six month period ended June 30, 2000, research and development
expense was $322,353 as compared to $925,478 net of Bausch and Lomb
reimbursements of $878,199 in the six month period ended June 30, 1999, a
decrease of 65%. This decrease is due to reduced expenditures on certain
development projects.
As of June 30, 2000, we have made an investment of $700,000 cash and
common stock and warrants valued at $1.8 million. For the six month period ended
June 30, 2000, we have expensed approximately $2.39 million of this payment as
acquired in-process research and development as Teracomm's product development
activity is in the very early stages.
For the six month period ended June 30, 2000, general and administrative
expense was $2,286,283 as compared to $708,788 net of Bausch and Lomb
reimbursements of $43,720 in the six month period ended June 30, 1999. This
increase is largely due to the $1,061,654 of expense associated with warrants
issued to Joseph Stevens & Company, costs of approximately $159,000 incurred in
hiring and relocating executives, and an increase in fees for professional
services of approximately $287,000 attributable to the due diligence and closing
of the TeraComm investment.
For the six month period ended June 30, 2000, interest income was $74,327
compared to $122,523 in the six month period ended June 30, 1999, a decrease of
39%. This decrease is due to the decline in our cash reserves.
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LIQUIDITY AND CAPITAL RESOURCES
From inception to June 30, 2000, we incurred an accumulated deficit of
$23,255,699, and we expect to continue to incur additional losses through the
year ending December 31, 2000 and for the foreseeable future.
Our available working capital and capital requirements will depend upon
numerous factors, including progress of our research and development programs;
our progress in and the cost of ongoing and planned preclinical and clinical
testing; the timing and cost of obtaining regulatory approvals; the cost of
filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights; competing technological and market developments;
changes in our existing collaborative and licensing relationships; the resources
that we devote to the developing manufacturing and commercializing capabilities;
technological advances; status of competitors; our ability to establish
collaborative arrangements with other organizations; and our need to purchase
additional capital equipment.
We anticipate that our current resources, together with proceeds from the
Bausch & Lomb agreement, will be sufficient to finance our currently anticipated
needs for operating and capital expenditures for at least the next nine months.
In addition, we will attempt to generate additional capital through a
combination of collaborative agreements, strategic alliances and equity and debt
financing. However, we can give no assurance that we will be able to obtain
additional capital through these sources or upon terms acceptable to us. At June
30, 2000, we had $1,605,801 in cash and cash equivalents and working capital of
$1,922,765.
On May 12, 2000, we entered into an agreement to acquire preferred stock
representing a 35% ownership interest in TeraComm Research, Inc., a
privately-held company that is developing next-generation high-speed fiberoptic
communications technologies. The purchase price for this ownership interest was
$5 million in cash, 200,000 shares of our common stock, and a warrant to
purchase a further 200,000 shares of our common stock. The warrants have a term
of three years and is exercisable at $8.975 per share of common stock, but only
if the market price of our common stock is $30 or more.
Of the $5 million cash portion of the purchase price, we have paid
$1,000,000, with a further $1 million payable when TeraComm achieves an agreed
technical milestone and the remainder thereafter payable in three quarterly
installments of $1 million. If upon TeraComm achieving the technical milestone
or if by December 31, 2000 (even if TeraComm does not achieve the technical
milestone) we elect not to pay the next installment of the cash portion of the
purchase price, we would forfeit the right to pay any further installments on
the cash purchase price and our ownership interest in the TeraComm would be
reduced to reflect the proportion of the total purchase price that we had
actually paid.
We do not currently have the full amount of the cash purchase price. If
the market price of our common stock permits it, we intend to redeem our
redeemable warrants, which would encourage the holders to exercise the warrants,
thereby providing us with capital that we could apply towards the cash purchase
price. Alternatively, we could raise the necessary amount through debt or equity
financing, or a combination of both. It is, however, possible that we will not
be able to raise the required amount.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the staff of the Commission issued Staff Accounting
Bulletin or SAB No. 101, Revenue Recognition in Financial Statements. SAB No.101
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements, including
the recognition of non-refundable fees received upon entering into arrangements.
This SAB, as amended, must be adopted no later than the fourth quarter of fiscal
years beginning after December 15, 1999 with an effective date of January 1,
2000 and the recognition of a cumulative effect adjustment calculated as of
January 1, 2000. We are in the process of evaluating this SAB and the effect it
will have on our consolidated financial statements and current revenue
recognition policy.
RESEARCH AND DEVELOPMENT ACTIVITIES
Preclinical and clinical studies involving our primary technologies are
proceeding according to plan.
-9-
Optex
Optex's development of the Catarex device is continuing in cooperation
with Bausch & Lomb. Bausch & Lomb is preparing to file a 510(k) with the U.S.
Food and Drug Administration, or the "FDA," for the Catarex device. In a 510(k)
filing, a company requests that the FDA treat a given technology as
substantially equivalent to an already approved technology, the aim being to
speed up the approval process. We anticipate that in the fourth quarter of 2000
Bausch & Lomb will meet with the FDA to discuss this filing.
On July 14, 2000, we entered into a one-year option to exclusively license
a patented polymer gel technology in the field of ophthalmology from the
Massachusetts Institute of Technology. We intend to use the technology to
develop an injectable lens substitute that would be used, in an integrated
product package, with the Catarex device in both cataract and refractive
surgery. Current methods of cataract surgery are not compatible with the use of
injectable gel lens substitutes because they functionally destroy the integrity
of the lens capsule, thereby rendering it impossible to refill the capsule. We
believe that since cataract removal using the Catarex device leaves the entire
capsule essentially intact except for a tiny peripheral hole in the lens
capsule, it is the only technology that allows for the possibility of replacing
the lens with an injectable, gel-like substance instead of a rigid intra-ocular,
fixed focus lens implant. We believe that a soft and pliable lens would more
closely mimic the eye's natural function, expanding and contracting quickly to
accommodate the different focal lengths needed for near and far vision. A
flexible lens substitute could be implanted into any adult and be used to
correct not only their distance refractive error, but also potentially eliminate
the need for reading glasses and bifocals, which everyone needs as they age and
their natural lenses start to lose their flexibility. Use in refractive surgery
of our Catarex lens removal device combined with an injectable lens substitute
that we develop would create an entirely new market for our products.
CT-3
We are continuing to develop CT-3, a patented synthetic derivative of
tetrahydrocannabinol (THC), the active ingredient in marijuana, as an
alternative to nonsteroidal anti-inflammatory drugs (NSAIDs). In May 2000, the
FDA approved an Investigational New Drug application, or "IND," to begin
clinical trials for CT-3 in the U.S. Additional toxicology testing and
formulation development will be necessary before we can begin large-scale
clinical trials. In addition, we began the first clinical trial in Europe during
July of 2000. We believe it is important that we conduct Phase I studies to
determine CT-3's potential for detrimental central nervous system effects. The
first trial will specifically address CT-3's potential to produce central
nervous system effects resembling those of THC.
Gemini
Our subsidiary Gemini Technologies, Inc. is continuing its research on
antisense enhancing technology. On August 14, 2000, Gemini was awarded a Small
Business Innovation Research (SBIR) phase II grant by the National Institute for
Allergy and Infectious Diseases (NIAID), a unit of the National Institutes of
Health (NIH). The grant, which totals approximately $750,000, will be used to
fund a pre-clinical efficacy study using aerosolized 2-5A antisense compound for
the inhibition of respiratory syncytial virus (RSV) in monkeys. It also will
provide money for the toxicological and pharmacological studies needed to file
an investigational new drug (IND) application with the FDA to begin clinical
studies in humans.
This research is intended to build upon previous published research
reported in the Proceedings of the National Academy of Sciences (PNAS) Vol. 95,
July 1998, that documented the compound's effectiveness against a broad spectrum
of RSV strains. Data collected to date indicate that the molecule to be tested
has 130 times greater in vitro potency than Ribavarin (Virazole), one of two
FDA-approved treatments for RSV infections (the other treatment is a monoclonal
antibody recommended for use in high-risk infants only). This molecule has also
been shown to be stable against degradative enzymes, and is capable of being
absorbed into lung tissue when administered in a droplet formulation.
The primate study will be conducted at the Tulane Regional Primate
Research Center in Covington, Louisiana. Vicki Traina-Dorge, Ph.D., will
overview the animal study. Hagen Cramer, Ph.D., of Gemini will design the study
and develop the aerosolization method. He will also act as Principle
Investigator of the grant. All of the analyses will be conducted at the Gemini
research facility in Cleveland. Other team members of Gemini
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include Jim Okicki, chemical research associate, Frank Longano, biology research
associate, Lateef Saffore, biology research associate, Robert Silverman, Ph.D.,
consultant, and Doug Leaman, Ph.D. consultant.
By focusing the 2-5A antisense program on primate-oriented RSV, we will be
able to more effectively pursue corporate partnerships to develop an RSV
therapeutic treatment as a lead product candidate for our 2-5A antisense
technology. After we enter into such a partnership, we plan to expand our
research and development of 2-5A antisense technology into additional areas of
potential clinical use. These additional areas include other infectious diseases
(herpes, human immunodeficiency virus), certain cancers (chronic myelogenous
leukemia, glioblastoma), conditions modulated by 5-alpha reductase and
dihydrotestosterone receptors (acne and androgenic alopecia), and aspects of the
interferon pathway that are mediated by PKR (a protein kinase enzyme), all of
which have shown promising in vitro studies to date.
TeraComm
On May 12, 2000, we acquired a 35% ownership interest in TeraComm
Research, Inc. (See Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources.) TeraComm is
developing a fiberoptic transmitter that uses a high-temperature superconductor
(HTS) material to switch a laser beam on and off with a high-speed electronic
digital signal. HTS materials have zero electrical resistance at low
temperatures (< 70 K), and also can have very high optical reflectance in their
superconducting state while they can transmit light in their normal
(non-superconducting) state. TeraComm discovered that a small electric current
in an HTS material could switch the material between states, and do so very
quickly--in less than a millionth millionth of a second. Because the HTS optical
switch works best at far infrared wavelengths and these optical waves are too
large to send through an optical fiber, the TeraComm invention employs an
optical wavelength converter to change the waves to the band that is just right
for the fiber.
Thus far, TeraComm has successfully developed methods of producing
effective HTS thin-films with metal electrodes, has successfully demonstrated
control of optical transmission in HTS films using electric current, and has
been awarded patents covering implementation of this technology for fiberoptic
telecommunications.To date, we have provided TeraComm with approximately $1
million of development funds. Our investment is enabling TeraComm to accelerate
its development program. TeraComm is currently focusing on successfully
completing a definitive proof-of-principle test during 2000 and delivering
prototypes to the market in 2001.
On May 23, 2000, we announced that we had appointed Walter L. Glomb,
Jr., as Vice President. Mr. Glomb is responsible for supporting our
investment in TeraComm and identifying complimentary electronic
infrastructure and communication technologies for us to develop. Mr. Glomb
is based in our new office in Vernon, Connecticut, in the center of major
cluster of photonics companies that stretches from Boston to New Jersey.
Atlantic's new strategy focuses on our developing strategic partnerships with
early-stage companies, and we feel that this region promises to be a rich
source of such partnerships.
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PART II -- OTHER INFORMATION
Item 1. Legal Matters
Litigation Brought by Christopher R. Richied
On May 13, 1999, Christopher R. Richied filed suit against a group of
defendants, including Atlantic, in the U.S. District Court for the Southern
District of New York. This lawsuit is described in our Quarterly Reports on Form
10-QSB for the quarterly periods ended June 30, 1999 and September 30, 1999.
This case was settled by the parties on August 8, 2000. The defendants have
agreed that Atlantic is not required to contribute to any settlement payment and
will not be responsible for any costs incurred in defending this litigation.
Arbitration Brought by the Cleveland Clinic Foundation
Our subsidiary Gemini has an exclusive worldwide sublicense from the
Cleveland Clinic Foundation to a U.S. patent and related patent applications, as
well as corresponding foreign applications, relating to 2-5A chimeric antisense
technology and its use for selective degradation of targeted RNA. On May 8,
2000, the Cleveland Clinic Foundation filed a claim for arbitration before the
American Arbitration Association to terminate this sublicense, claiming that we
have breached the sublicense. We believe that the asserted claims are without
merit and we intend to vigorously defend this action.
Item 5. Other Information
As of July 18, 2000, Atlantic and TeraComm Research, Inc. amended the
Preferred Stock Purchase Agreement dated May 12, 2000, pursuant to which we
purchased 1,400 shares of TeraComm preferred stock representing a 35% ownership
interest in TeraComm.
In this amendment, the parties agreed that the $4 million balance of the
$5 million cash component of the purchase price, including the $1 million
payments due on August 12, 2000 and November 12, 2000, would not be due until
TeraComm achieves a certain milestone. Within ten days after TeraComm achieves
that milestone, we must pay TeraComm $1 million and must thereafter make to
TeraComm three payments of $1 million at three-month intervals. If we fail to
make any of these payments, TeraComm's only recourse remains reducing
proportionately our ownership interest. Our failure to make the first $1 million
payment by midnight at the end of December 30, 2000 (whether or not TeraComm has
reached the milestone) will at the option of TeraComm be deemed to constitute
failure by us to timely make that payment.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10.1 Preferred Stock Purchase Agreement dated May 12, 2000, between
Atlantic and TeraComm Research, Inc. (filed herewith).
10.2 Amendment to Preferred Stock Purchase Agreement dated May 12, 2000,
between Atlantic and TeraComm Research, Inc. (filed herewith).
10.3 Warrant Certificate issued May 12, 2000, by Atlantic to TeraComm
Research, Inc. (filed herewith).
10.4 Stockholders Agreement dated May 12, 2000, between TeraComm
Research, Inc., the common stockholders of TeraComm, and Atlantic
(filed herewith).
10.5 Registration Rights Agreement dated May 12, 2000, between
Atlantic and TeraComm Research, Inc. with respect to shares of
TeraComm preferred stock issued to Atlantic (filed herewith).
10.6 Registration Rights Agreement dated May 12, 2000, between
Atlantic and TeraComm Research, Inc. with respect to shares of
Atlantic common stock issued to TeraComm (filed herewith).
10.7 Employment Agreement dated as of April 10, 2000, between Atlantic
and A. Joseph Rudick (filed herewith).
10.8 Employment Agreement dated as of April 3, 2000, between Atlantic
and Frederic P. Zotos (filed herewith).
10.9 Employment Agreement dated as of April 10, 2000, between Atlantic
and Nicholas J. Rossettos, (filed herewith).
10.10 Employment Agreement dated as of May 15, 2000, between Atlantic
and Walter Glomb (filed herewith).
10.11 Employment Agreement dated as of April 18, 2000, between Atlantic
and Kelly Harris (filed herewith).
(b) Form 8-K
On May 26, 2000, Atlantic filed with the SEC a report on Form 8-K
describing its acquisition of 1,400 shares of Series A preferred stock of
TeraComm Research, Inc., a privately-held Delaware company that is
currently developing next-generation high-speed fiberoptic
telecommunications technologies.
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SIGNATURES
In accordance with the requirements of the Exchange Act, Atlantic caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ATLANTIC TECHNOLOGY VENTURES, INC.
Date: August 21, 2000 /s/ Frederic P. Zotos, Esq.
---------------------------
Frederic P. Zotos, Esq.
President
Date: August 21, 2000 /s/ Nicholas J. Rossettos
-------------------------
Nicholas J. Rossettos
Chief Financial Officer
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