SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
Marc Pharmaceuticals, Inc.
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(Name of Small Business Issuer in Its Charter)
Delaware 2834 13-4169954
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(State of Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation Industrial Classification Identification No.)
or Organization) Code Number)
350 Bedford Street, Stamford, Connecticut 06901
(203) 352-8817
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(Address and Telephone Number of Principal Executive Offices)
350 Bedford Street, Stamford, Connecticut 06901
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(Address of Principal Place of Business)
Robert M. Cohen, President
Marc Pharmaceuticals, Inc.
350 Bedford Street, Stamford, Connecticut 06901
(203) 352-8817
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(Name, Address and Telephone Number of Agent for Service)
Copies to:
Stephen Rosenberg, Esq. Joel Mayersohn, Esq.
Ralph A. Siciliano, Esq. Adorno & Yoss, P.A.
Tannenbaum Helpern Syracuse & Hirschtritt LLP 350 Las Olas Blvd., Suite 1700
900 Third Avenue, 12th Floor Ft. Lauderdale, FL 33301
New York, NY 10022 Phone: (954) 763-1200
Phone: (212) 508-6700 Facsimile: (954) 766- 7800
Facsimile: (212) 371-1084
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Amount 0f
Title Of Each Class Of Dollar Amount Proposed Maximum Aggregate Registration
Securities To Be Registered (1) To Be Registered Offering Price Per Unit Offering Price Fee(3)
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Units $5,000,000 $.25 per unit $5,000,000 $633.50
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Common Stock, $.0001 par value (2) $0 $.22 per share $0 --
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Common Stock class A redeemable warrants (2) $0 $.01 per warrant $0 --
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Common Stock, $.0001 par value, Issuable on
Exercise of class A redeemable warrants $10,000,000 $.50 per share $10,000,000 $1,267
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Common Stock class B redeemable warrants (2) $0 $.01 per warrant $0 --
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Common Stock, $.0001 par value, Issuable on
Exercise of class B redeemable warrants $20,000,000 $1.00 per share $20,000,000 $2,534
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Common Stock class B redeemable warrants (2) $0 $.01 per warrant $0 --
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Common Stock, $.0001 par value, Issuable on
Exercise of class B redeemable warrants $20,000,000 $1.00 per share $20,000,000 $2,534
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(1) This registration statement also covers an indeterminate number of shares
of Marc Pharmaceuticals, Inc.'s common stock, par value $.0001 per share,
that may be issuable by reason of stock splits, stock dividends or other
adjustment provisions of the respective warrants in accordance with Rule
416 under the Securities Act of 1933, as amended.
(2) Included in units for the purpose of calculating the registration fee.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
MARC PHARMACEUTICALS, INC.
20,000,000 UNITS
Marc Pharmaceuticals, Inc. is offering 20,000,000 units, $.25 per unit.
Each unit consists of one share of common stock, one class A redeemable warrant
to purchase a share of common stock at $.50 per share and two class B redeemable
warrants to each purchase a share of common stock at $1.00 per share. Each
subscriber must purchase a minimum of 25,000 units. The warrants are immediately
detachable from the common stock and will be separately tradeable.
THIS OFFERING IS HIGHLY SPECULATIVE AND INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
We are offering our units for sale to the public on a "best efforts" basis,
with no required minimum amount to be raised. Even if not all, or very few, of
the 20,000,000 units are sold, we will not refund any payments for the units.
The offering of the units will terminate on December 31, 2004, if not earlier
terminated by us. The offering may be extended at the determination of the
placement agent and the company for up to an additional 6 months.
Wien Securities Corp. is the placement agent for this offering. In addition
to the placement agent's cash compensation, the company has agreed to give the
placement agent redeemable warrants to purchase up to 2,000,000 units at $.30
per unit for a period of 5 years from the date of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
Price to Placement Proceeds
Public Commissions To Issuer
----------------- --------------------- ---------------------
Per Unit $.25 $.025 $.225
Total $5,000,000 $500,000 $4,500,000
The date of this prospectus is _______________________.
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY............................................................1
RISK FACTORS..................................................................4
NOTE REGARDING FORWARD LOOKING STATEMENTS....................................16
USE OF PROCEEDS..............................................................17
DIVIDEND POLICY..............................................................20
OUR COMPANY AND BUSINESS.....................................................23
Background.......................................................23
Recent Financing Transactions....................................24
Current Product Candidates.......................................24
Cancer Therapeutics..............................................24
HIV Therapeutics.................................................26
Material Agreements..............................................27
Scientific Advisory Board........................................29
Patents and Proprietary Technology...............................30
STAGES OF DRUG DEVELOPMENT...................................................36
Manufacturing....................................................36
Sales and Marketing..............................................36
Competition......................................................36
Product Liability................................................37
PLAN OF OPERATION............................................................37
MANAGEMENT...................................................................39
Directors and Executive Officers.................................39
Robert M. Cohen..................................................39
Joel San Antonio.................................................39
Executive Compensation...........................................40
PRINCIPAL STOCKHOLDERS.......................................................41
DESCRIPTION OF SECURITIES....................................................43
Common Stock.....................................................43
PLAN OF DISTRIBUTION.........................................................44
SHARES ELIGIBLE FOR FUTURE SALE..............................................45
LEGAL MATTERS................................................................47
OFFICE.......................................................................47
LITIGATION...................................................................47
EXPERTS......................................................................47
INVESTOR SUITABILITY STANDARDS APPLICABLE IN CERTAIN STATES..................48
ADDITIONAL INFORMATION.......................................................48
FINANCIAL INFORMATION.......................................................F-I
PROSPECTUS SUMMARY
ABOUT MARC
Marc Pharmaceuticals, Inc. was incorporated in the State of Delaware on
February 21, 2001 with an authorized capital stock of 750,000,000 shares of
common stock, each with a par value of $.0001. 283,650,000 shares are presently
issued and outstanding. Our corporate headquarters is located at 350 Bedford
Street, Stamford, Connecticut 06901 and our telephone number is (203)352-8817.
We maintain an informational web site which can be found at
www.marcpharmaceuticals.com.
We are a development stage start-up pharmaceutical company focusing on the
development and commercialization of innovative products for the treatment of
debilitating diseases. Currently, we are the exclusive licensee of certain
patent applications covering compounds for use in treating cancer. The compounds
can be attached to an antibody that selectively attaches only to cancer cells
and does not attach to healthy cells, thereby permitting administration of lower
amounts of active chermotherapeutic agents. Other chemical variations of the
compounds appear to be effective in treating HIV and could be used both
systemically (i.e., as a general whole body therapy) as an AIDS therapy, or
locally to inhibit the growth and transmission of HIV through sexual activity.
We have had no revenues and sales.
Our business plan, which involves the development of various pharmaceutical
products to the point at which they may be sold in the United States,
necessarily means that it will be at least several years before we generate
sales or revenues. During those years, our development expenditures will likely
exceed $10,000,000 for every product that we seek to commercialize.
Our company and our products are subject to comprehensive regulation by the
U.S. Food and Drug Administration (FDA) in the United States and by comparable
authorities in other countries.
OUR FINANCIAL SITUATION
Currently, we have no revenues generated from operations. As of December
31, 2003 we have an accumulated deficit of ($1,490,856) and have incurred
$300,000 of debt to assist in our developmental activities. Our financial
statements were prepared assuming that we will continue as a going concern. Our
accountants have expressed substantial doubt about our ability to continue as a
going concern. If $2,500,000 is raised, we expect, even if no revenues are
earned during the next 12 months, to have sufficient funds to carry out our
immediate business plan for that period, including the full implementation of
our development plan. The $2,500,000 will be expended as follows: placement
agent commissions and expense allowances of $325,000, offering expenses of
$200,000, accrued expenses of $200,000, debt of $525,000, including interest,
and first year expenses of $1,250,000. If we fail to raise at least $2,500,000
in this offering or fail to earn substantial revenues, we will not be able to
pay our outstanding obligations and have operating capital for the next year. We
will then have to try to make arrangements with our creditors and seek other
sources of capital. If we are not successful in those efforts, we may have to
cease operations and the investment in the company may be lost.
At present, we are totally dependent upon the proceeds of this offering to
continue to operate as a going concern.
OFFERING AND DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 750,000,000 shares of common
stock, par value $.0001 of which 283,650,000 shares are issued and outstanding.
No warrants or units are outstanding.
We are offering 20,000,000 units at a price of $.25 per unit. Each unit
consists of one share of common stock, one class A redeemable warrant and two
class B redeemable warrants.
Each class A redeemable warrant gives its holder the right to purchase one
share of common stock at $.50. A maximum of 20,000,000 shares of common stock
are issuable upon the exercise of the class A redeemable warrants. If our common
stock trades for at least 5 consecutive trading days at a price of $.75 or more,
we will have the right to call the class A redeemable warrants at a price of
$.001 per warrant, unless an investor chooses to exercise the warrant at that
time. The class A redeemable warrants are tradeable and are exercisable at any
time beginning on the date of this prospectus until 5 years after the date of
the prospectus.
Each class B redeemable warrant gives its holder the right to purchase one
share of common stock at $1.00. A maximum of 40,000,000 shares of common stock
is issuable upon the exercise of the class B redeemable warrants. If our common
stock trades for at least 5 consecutive trading days at a price of $1.25 or
more, Marc will have the right to call the class B redeemable warrants at a
price of $.001 per warrant, unless an investor chooses to exercise the warrant
at that time. The class B redeemable warrants are tradeable and are exercisable
at any time beginning on the date of this prospectus until 7 years after the
date of the prospectus.
Based on the number of shares of common stock outstanding as of May 1, 2004
and assuming that all 20,000,000 units offered pursuant to this prospectus are
sold, a total of 303,650,000 shares of common stock will be outstanding after
the offering. This total does not include any shares of common stock issuable
upon the exercise of either the class A redeemable warrants or the class B
redeemable warrants.
We are offering our units on a "best efforts" basis with no required
minimum amount to be raised. Even if not all, or very few, of the 20,000,000
units are sold we will not refund any payments for the units. The offering of
the units will terminate on December 31, 2004 if not earlier terminated by us.
The offering may be extended at the determination of the placement agent and the
company for up to an additional 6 months.
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SUMMARY OF FINANCIAL DATA
The following tables set forth certain of our summary financial data. You
should read this information together with the financial statements and the
notes to the financial statements appearing elsewhere in this prospectus.
For the Year Ended
Statement of Operations Data: December 31, 2003
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Revenues $0
Loss from operations $(476,223)
Net loss $(767,166)
Net loss attributable to stockholders $(767,166)
Basic and diluted net loss per share $0
Weighted average shares outstanding used in $275,755,890
basic and diluted net loss per share calculation
Balance Sheet Data: December 31, 2003
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Cash $3,015
Working capital (deficiency) $(395,966)
Total assets $86,814
Total liabilities $406,286
Total stockholders' capital deficiency $(319,472)
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RISK FACTORS
IF YOU CHOOSE TO INVEST IN OUR SECURITIES, YOU SHOULD BE ABLE TO BEAR A
COMPLETE LOSS OF YOUR INVESTMENT. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS AND OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO INVEST
IN OUR SHARES.
RISKS RELATED TO OUR STATUS AS A STARTUP DEVELOPMENT STAGE COMPANY
BECAUSE OF OUR CURRENT FINANCIAL POSITION, THERE IS SUBSTANTIAL DOUBT ABOUT OUR
ABILITY TO OPERATE AS A GOING CONCERN
We have spent all of the funds that we have raised so far and have not
earned any revenues. As a result, as of December 31, 2003, we had a working
capital deficiency of ($395,966) and a stockholders' capital deficiency of
($319,472). These conditions raise substantial doubt about our ability to
operate as a going concern. Our accountants have discussed this risk in the
independent auditor's report included in the financial statements contained in
this prospectus. We are completely dependent upon the proceeds of this offering
to continue to operate as a going concern.
WE ARE IN AN EARLY STAGE OF PRODUCT DEVELOPMENT AND THERE ARE UNCERTAINTIES
AFFECTING OUR BUSINESS AND CONCERNING THE DEVELOPMENT OF OUR PRODUCTS; WE MAY
NEVER EARN A PROFIT
We are at an early stage of development, and the successful
commercialization of any products will require significant further research,
development, testing and regulatory approvals and additional investment. At
present, we have entered into a license agreement with Cornell Research
Foundation, Inc. and research agreements with Weill Medical College of Cornell
University under which we plan to develop derivatives of a chemotherapeutic
agent which have shown early promise in combating cancer and treating HIV and
AIDS. No other activities have been conducted, except for due diligence
concerning patentability and other matters. Substantially all of our resources
have been, and for the foreseeable future will continue to be, dedicated to the
development of pharmaceutical products which are still in the early stages of
development and testing, for the prevention, diagnosis and treatment of cancer,
HIV, AIDS and other similar diseases.
The product development programs conducted by our contractors and us are
subject to the risks of failure inherent in the development of pharmaceutical
product candidates. These risks include:
a. the possibility that we will not be able to acquire rights to
appropriate product candidates;
b. the technologies used by us may prove to be ineffective or any or all of
our product candidates may prove to be unsafe or otherwise fail to receive
necessary regulatory approvals;
c. the product candidates, if safe and effective, may be difficult to
manufacture on a large scale or uneconomical to market;
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d. the proprietary rights of third parties may preclude us or our
collaborators from making, using or marketing the products utilizing our
technologies; or
e. third parties may market superior or equivalent products.
To our knowledge, no site-directed chemotherapeutic agents have been
approved for marketing and there can be no assurance that any of our products
will be successfully developed.
The commercial success of our products, if any, when and if approved for
marketing by the Food and Drug Administration ("FDA"), and our ability to earn a
profit, will depend upon their acceptance by the medical community and third
party payors as clinically useful, cost-effective and safe.
THIS IS A BEST EFFORTS OFFERING AND WE MAY NOT RAISE EVEN A PORTION OF THE
OFFERING; IF WE RAISE LESS THAN THE ENTIRE AMOUNT, THE RISK IS GREATER THAT THE
INVESTMENT WILL BE LOST
This offering is a best efforts offering with no required minimum amount to
be raised. If at least $2,500,000 of the offering is not raised, those investors
who do acquire shares will have a significantly greater risk that their entire
investment will be lost.
WE HAVE $475,000, PLUS INTEREST, IN DEBT WHICH WE HAVE NOT REPAID; UNLESS THESE
NOTES ARE PAID IN FULL OUT OF THIS OFFERING, THEY WILL BE SENIOR TO THE HOLDERS
OF OUR COMMON STOCK
On July 18, 2002, in consideration for a loan, we issued a promissory note
to Joel San Antonio, the Chairman of the Board of Marc, in the principal amount
of $350,000, bearing interest at the rate of 15% per annum. The note matured on
August 17, 2002 and the maturity date was extended until March 31, 2004. On
March 17, 2004 the maturity date of the note was extended until May 31, 2004. We
have repaid $100,000 of this loan.
Commencing in November 2003, we borrowed $225,000 by issuing 7 promissory
notes each bearing interest at a rate of 20% per annum, and each due with
interest one year from the date issued.
These obligations are senior in position to our equity holders and
interest will continue to accrue until they are paid in full.
OUR COMMON STOCK MAY HAVE NO VALUE
Our shares of common stock will have little value unless our business plan
is successful. The shares to be sold in this offering represent a small
percentage of our outstanding shares of common stock and are subject to further
dilution. Our shares have no current market or market value.
OUR PRINCIPAL STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS WILL OWN OVER 67.8%
OF OUR COMMON STOCK, WHICH WILL ALLOW THEM TO CONTROL OUR MANAGEMENT AND TO
PREVENT A CHANGE OF CONTROL
Our directors, officers, and other major stockholders will still
beneficially own collectively over 67.8% of our outstanding common stock, even
if all of the shares in this
5
offering are sold. These stockholders will be able to control the vote on all
matters requiring stockholders approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may delay or prevent a change in control even if beneficial to our stockholders.
RISKS RELATING TO OUR OPERATIONS
THERE ARE UNCERTAINTIES ASSOCIATED WITH PRECLINICAL AND CLINICAL TESTING; OUR
DRUGS MAY NOT BE PROVEN TO BE SAFE OR EFFECTIVE
The grant of regulatory approvals for the commercial sale of any of our
potential products will depend in part on us and/or our collaborators
successfully conducting extensive preclinical and clinical testing to
demonstrate their safety and efficacy in humans. The results of preclinical
studies by us and/or our collaborators may be inconclusive and may not be
indicative of results that will be obtained in human clinical trials. In
addition, results attained in early human clinical trials relating to the
products under development by us may not be indicative of results that will be
obtained in later clinical trials. As results of particular preclinical studies
and clinical trials are received, we and/or our collaborators may abandon
projects which we or they might otherwise have believed to be promising, some of
which may be described in this prospectus.
REGULATORY BODIES MAY NOT PERMIT CLINICAL TRIALS AND, IF THEY DO NOT, WE WILL
NOT BE ABLE TO MARKET OUR PRODUCTS
We are presently developing certain drugs on which we plan to file
investigational new drug applications ("INDs") with the FDA or make equivalent
filings outside of the United States, and there can be no assurance that
necessary preclinical studies on these products will be completed
satisfactorily, if at all, or that we otherwise will be able to make our
intended filings. Further, there can be no assurance that we will be permitted
to undertake and complete human clinical trials of any of our potential
products, either in the United States or elsewhere, or, if such trials are
permitted, that such products will not have undesirable side effects or other
characteristics that may prevent them from being approved or limit their
commercial use if approved.
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH THE USE OF HUMAN TEST SUBJECTS; WE
MAY NOT BE ABLE TO ENGAGE SUFFICIENT SUBJECTS; OUR DRUGS MAY BE HARMFUL; TESTS
MAY BE SUSPENDED; WE MAY NOT BE ABLE TO MARKET OUR PRODUCTS
The rate of completion of the human clinical trials involving our product
candidates, if permitted, will be dependent upon, among other factors, the rate
of patient enrollment. Patient enrollment is a function of many factors,
including the size of the patient population, the nature of the protocol, the
availability of alternative treatments, the proximity of eligible patients to
clinical sites and the eligibility criteria for the study. Delays in planned
patient enrollment might result in increased costs and delays, which could have
a material adverse effect on us. We, our collaborators or the FDA or other
regulatory agencies may suspend clinical trials at any time if the subjects or
patients participating in such trials are being exposed to unacceptable health
risks. In addition, clinical trials are often conducted with patients having the
most advanced stages of disease. During the course of treatment, these patients
can suffer adverse medical effects or die
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for reasons that may not relate to the product being tested, but which can
nevertheless affect adversely any results generated from clinical trials.
TRIALS MAY NOT DEMONSTRATE THAT OUR PRODUCTS ARE SAFE OR USEFUL AND, IF THEY ARE
NOT, WE WILL NOT BE ABLE TO MARKET OUR PRODUCTS
In addition, there can be no assurance that clinical trials of our products
under development will demonstrate safety and efficacy at all or to the extent
necessary to obtain regulatory approvals. Companies in the biotechnology
industry have suffered significant setbacks in advanced clinical trials, even
after obtaining promising results in earlier trials. Consequently, the period of
time necessary to complete clinical testing and receive regulatory approval can
be quite extensive and involve many years. Clinical trials involving our product
candidates are likely to take longer to complete than clinical trials involving
other types of therapeutics. The failure to adequately demonstrate the safety
and efficacy of a therapeutic product under development could delay or prevent
regulatory approval of the product and would have a material adverse effect on
us.
WE WILL NOT OURSELVES CONDUCT ANY TRIALS AND WE WILL THEREFORE HAVE MINIMAL
CONTROL OVER THESE TRIALS
We and our management have no experience in conducting clinical trials. We
will rely on academic institutions and on clinical research organizations to
conduct and monitor certain clinical trials. There can be no assurance that such
entities will conduct the clinical trials successfully. In addition, certain
clinical trials for our products may in the future be conducted by
government-sponsored agencies. Because the conduct of such trials will be
dependent on government participation and funding, we will have less control
over such trials than if we were the sole sponsors thereof. As a result, there
can be no assurance that these trials will commence or be completed as planned.
Failure to commence or complete any of our planned clinical trials would
prevent us from marketing the drugs to be tested.
THERE ARE RISKS RELATING TO POTENTIAL CORPORATE COLLABORATIONS; THEY MAY NEVER
BE ACHIEVED AND, IF THEY ARE, THEY MAY BE COSTLY OR THEY MAY NOT BE SUCCESSFUL;
WITHOUT A SUCCESSFUL CORPORATE COLLABORATION, WE MAY NOT BE ABLE TO COMPLETE
CLINICAL TESTING OR MARKET OUR PRODUCTS
Our business strategy includes entering into collaborations or marketing
and distribution arrangements with corporate partners, primarily pharmaceutical
companies, for the development (including clinical development),
commercialization, marketing and distribution of certain of our product
candidates. No such arrangements presently exist. We may enter into a
significant corporate collaboration or we may not be able to enter into any. If
we are able to enter into a collaboration, the terms may be onerous and we may
be compelled to give up a large portion of our interest in our products. We may
be dependent on a corporate collaboration to fund clinical testing, to make
certain regulatory filings and to manufacture and market products resulting from
the collaboration. There can be no assurance that the arrangements with a
corporate collaboration will be scientifically, clinically or commercially
successful. Our product candidates will generate income for us only after
significant preclinical and/or clinical
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development, the procurement of requisite regulatory approvals, the
establishment of manufacturing capabilities and/or the successful marketing of
the product.
To the extent that we enter into an agreement with a collaborator and such
collaborator breaches or terminates its agreements with us, or fails to conduct
its collaborative activities in a timely manner, the commercialization of our
product candidates may be adversely affected. There can be no assurance that our
collaborative partners will not change their strategic focus or pursue
alternative technologies or develop alternative products either on their own or
in collaboration with others, including our competitors, as a means for
developing treatments for the diseases targeted by these collaborative programs.
A reduction in sales efforts or a discontinuance of sales of any developed
products by any collaborative partner could result in reduced revenues and have
a material adverse effect on our business, financial position and results of
operations.
WE DO NOT HAVE REVENUE AND OUR FUTURE PROFITABILITY IS UNCERTAIN BECAUSE IT IS
BASED UPON FACTORS WHICH WE MAY NOT CONTROL
Our ability to achieve profitability is dependent in part on obtaining
regulatory approvals for products and entering into agreements for
commercialization of such products. There can be no assurance that such
regulatory approvals will be obtained or such agreements will be entered into.
The failure to obtain any such necessary regulatory approvals or to enter into
any such necessary agreements could delay or prevent us from achieving
profitability and would have a material adverse effect on the business,
financial position and results of our operations. Further, there can be no
assurance that our operations will become profitable even if any product under
development by us or any collaborators is commercialized.
WE WILL HAVE A NEED FOR ADDITIONAL FINANCING AND WE ARE UNCERTAIN OF OUR ACCESS
TO CAPITAL FUNDING; IF WE CANNOT ACHIEVE FAVORABLE FINANCING, WE WILL NOT BE
ABLE TO ADEQUATELY TEST AND/OR MARKET OUR PRODUCTS
Our development projects will require substantial capital after this
offering. We do not have committed external sources of funding for our projects.
We will require substantial funds in addition to the net proceeds of this
offering to conduct development activities, preclinical studies, clinical trials
and other activities relating to successful commercialization. There can be no
assurance that we will be able to obtain the additional funds we will require on
acceptable terms, if at all. In addition, our cash requirements may vary
materially from those now planned.
If adequate funds are not available, we may be required to delay, reduce
the scope of or terminate one or more or all of our programs; to obtain funds
through arrangements with collaborative partners or others that may require us
to relinquish rights to certain of our technologies, product candidates or
products that we would otherwise seek to develop or commercialize ourselves; or
to license the rights to such technologies, product candidates or products on
terms that are less favorable to us than might otherwise be available. If we
raise additional funds by issuing equity or debt securities, further dilution to
stockholders may result and new investors could have rights superior to existing
stockholders.
WE DEPEND ON AND ARE UNCERTAIN OF THE PROTECTION THAT MAY BE AFFORDED PATENTS
AND PROPRIETARY RIGHTS; WE DO NOT NOW HAVE PATENT PROTECTION THAT WILL PROTECT
US AGAINST OTHERS
8
FROM COPYING OUR TECHNOLOGY AND WE MAY NEVER SECURE THIS PROTECTION. EVEN IF
SUCH PROTECTION IS SECURED, IT MAY NOT BE SUFFICIENT TO PREVENT COMPETITORS FROM
MAKING, USING AND SELLING TECHNOLOGY THAT IS THE SAME OR SIMILAR TO THE
TECHNOLOGY BEING DEVELOPED BY US
Except for one patent application that has been allowed by the U.S. Patent
and Trademark Office, there can be no assurance that any patent applications
owned by or licensed to us will result in patents being issued. If and when
issued, these patents may not afford protection against competitors with similar
technology. Although a patent has a statutory presumption of validity in the
United States, the issuance of a patent is not conclusive as to such validity or
as to the enforceable scope of the claims of the patent. There can be no
assurance that our present or future patents owned or licensed by us will not be
successfully challenged in the future. The validity or enforceability of a
patent after its issuance by the Patent and Trademark Office can be challenged
in litigation. The cost of patent litigation is substantial. If the outcome of
the litigation is adverse to the owner of the patent, third parties may then be
able to use the invention covered by the patent without payment or permission of
the patent owner. There can be no assurance that our patents will not be
infringed or successfully avoided through design innovation.
OTHER GROUPS MAY HAVE DEVELOPED SIMILAR INVENTIONS AND WE MAY, THEREFORE, BE AT
A COMPETITIVE DISADVANTAGE
Other groups may have claimed discoveries similar to the inventions covered
by our patent applications. These groups may have made their discoveries prior
to the discoveries covered by our patent applications and may have filed their
patent applications prior to our patent applications. Such prior inventions and
patent applications could impede or prevent the grant of patents on our patent
applications. We do not expect to know for several years the relative strength
of our patent position as compared to these other groups.
THERE ARE COMPANIES, UNIVERSITIES AND RESEARCH INSTITUTIONS THAT MAY BE
RESEARCHING AND TRYING TO DEVELOP PRODUCTS THAT ARE SIMILAR TO OURS
Competition in the pharmaceutical industry is intense. We face competition
from many companies and major universities and research institutions in the
United States and abroad. Many of our competitors have substantially greater
resources, experience in conducting preclinical studies and clinical trials and
obtaining regulatory approvals for their products, operating experience,
research and development and marketing capabilities and production capabilities
substantially greater than ours. There can be no assurance that our competitors
have not developed or will not develop technologies and products that are safer
or more effective than any being developed by us or which would render our
technology and products obsolete and noncompetitive, and our competitors may
succeed in obtaining FDA approval for products more rapidly than us. We will
face competition from companies marketing existing products or developing new
products for diseases targeted by our technologies.
WE MAY NOT HAVE ACCESS TO APPROPRIATE MANUFACTURING CAPABILITIES AND RELIANCE ON
OTHERS MAY HURT OUR CHANCES TO SUCCESSFULLY MARKET OUR PRODUCTS
In order to successfully commercialize our product candidates, we and/or
our collaborators must be able to manufacture our products in commercial
quantities, in compliance
9
with regulatory requirements, at acceptable costs and in a timely manner. The
manufacture of the types of biopharmaceutical products being developed by us
presents several risks and difficulties. Manufacture of our products for
commercialization will require third party contract manufacturers at a
significant cost to us. In employing third party manufacturers, we will not
control the manufacturing process. We may not be able to obtain from third party
manufacturers adequate supplies in a timely fashion for commercialization, or
commercial quantities of any such products, if approved for marketing, may not
be available from contract manufacturers at acceptable costs. The cost of
manufacturing certain products may make them prohibitively expensive.
OUR PRODUCTS AND WE ARE SUBJECT TO GOVERNMENT REGULATIONS AND THERE IS NO
ASSURANCE OF REGULATORY APPROVAL OR THAT REGULATORS MAY NOT DETERMINE TO STOP
ANY OF OUR ACTIVITIES
Our products and we are subject to comprehensive regulation by the FDA in
the United States and by comparable authorities in other countries. These
national agencies and other Federal, state, and local entities regulate, among
other things, the preclinical and clinical testing, safety, effectiveness,
approval, manufacture, labeling, marketing, export, storage, record keeping,
advertising, and promotion of our products.
Among other requirements, FDA approval of our products, including a review
of the manufacturing processes and facilities used to produce such products will
be required before such products may be marketed in the United States. The
process of obtaining FDA approvals can be costly, time consuming, and subject to
unanticipated delays and we have had only limited experience in filing and
pursuing applications necessary to gain regulatory approvals. We currently
estimate that it can take approximately 7 years for our current licensed
products to receive FDA approval. Such approvals may not be granted on a timely
basis, or at all. Moreover, even if FDA approval is granted, such approval may
include significant limitations on indicated uses for which a product could be
marketed.
Both before and after approval is obtained, a product, its manufacturer and
the sponsor of the marketing application for the product are subject to
comprehensive regulatory oversight. Violations of regulatory requirements at any
stage, including the preclinical and clinical testing process, the approval
process, or post-approval marketing activities may result in various adverse
consequences, including the FDA's delay in approving or refusal to approve a
product, withdrawal of an approved product from the market, and/or the
imposition of criminal penalties against the manufacturer and/or the holder of
the marketing approval for the product. In addition, later discovery of
previously unknown problems relating to a marketed product may result in
restrictions on such product, manufacturer, or the holder of the marketing
approval for the product, including withdrawal of the product from the market.
Also, new government requirements may be established that could delay or prevent
regulatory approval of our products under development. We are also subject to
numerous and varying foreign regulatory requirements governing the design and
conduct of clinical trials and the manufacturing and marketing of our products.
The foreign regulatory approval process may include all of the risks associated
with obtaining FDA approval set forth above, and there can be no assurance that
foreign regulatory approvals will be obtained on a timely basis, if at all.
10
WE DEPEND ON THIRD PARTIES WITHOUT WHOSE PARTICIPATION WE WILL NOT BE
SUCCESSFUL; WE MAY NOT HAVE THE NECESSARY PARTICIPATION
We currently rely and intend to continue to rely heavily on third parties
for a variety of functions, including certain functions relating to research and
development, manufacturing, clinical trials management and regulatory affairs.
There can be no assurance that we will be able to establish and maintain
any of these relationships on terms acceptable to us, that we can enter into
these arrangements without undue delays or expenditures, or that these
arrangements will allow us to compete successfully against other companies.
WE LACK SALES AND MARKETING EXPERIENCE AND WILL LIKELY RELY ON THIRD PARTY
MARKETERS
If FDA and other approvals are obtained with respect to any of our
products, we expect to market and sell our products through distribution,
co-marketing, co-promotion or licensing arrangements with third parties. We have
no experience in sales, marketing or distribution and our current management and
staff is not trained in these areas. To the extent that we enter into
distribution, co-marketing, co-promotion or licensing arrangements for the
marketing and sale of our products, any revenues received by us will be
dependent on the efforts of third parties. If any of such parties were to breach
or terminate its agreement with us or otherwise fail to conduct marketing
activities successfully and in a timely manner, the commercialization of product
candidates would be delayed or terminated.
OUR LICENSES REQUIRE SUBSTANTIAL PERFORMANCE ON OUR PART TO REMAIN EFFECTIVE,
INCLUDING THE PAYMENT OF SUBSTANTIAL SUMS; IF WE LOSE A LICENSE, WE WILL LOSE
THE RIGHT TO DEVELOP AND MARKET THE DRUG WHICH IT COVERS
Our possible success is dependent in part on obtaining, maintaining and
enforcing patent and other proprietary rights. Under our agreements with Cornell
Research Foundation, Inc. and Weill Medical College of Cornell University, we
obtained a worldwide, exclusive license under certain patent applications
relating to the preparation of betulinol derivatives used in the treatment of
cancer. We will seek to acquire additional such licenses in the future. We are
required to make substantial cash payments and achieve certain milestones and
requirements, including, without limitation, filing INDs, obtaining product
approvals and introducing products, to maintain our rights under these licenses.
There is no assurance that we will be able to make required cash payments when
due or achieve the milestones and other requirements. If we do not, we will risk
the loss of our licenses and our right to develop and market our product
candidates. Termination of any of such licenses could result in us being unable
to continue development of our product candidates and production and marketing
of approved products, if any. Consequently, termination of any of the licenses
would have a material adverse effect on the business, financial condition and
results of our operations.
WE MAY NEED ADDITIONAL LICENSES IN THE FUTURE AND IF WE DO NOT ACHIEVE THEM WE
MAY NOT BE ABLE TO MARKET OUR PRODUCTS
We may not retain all rights to developments, inventions, patents and other
proprietary information resulting from any collaborative arrangements, whether
in effect as of the date hereof or which may be entered into at some future time
with third parties. As a result, we may be
11
required to license such developments, inventions, patents or other proprietary
information from such third parties, possibly at significant cost to us. Our
failure to obtain any such licenses could have a material adverse effect on the
business, financial condition and results of our operations, in particular, the
failure to obtain a license could prevent us from using or commercializing our
technology.
OUR TECHNOLOGY MAY CONFLICT WITH PATENTS OWNED BY OTHERS AND WE MAY BE FORCED TO
DISCONTINUE OUR PRODUCTS OR TO PAY OUT SUBSTANTIAL SUMS
There may be patent applications and issued patents belonging to
competitors that may require us to redesign, revise, or reconstruct our
products, pay licensing fees or cease certain activities. If our products
conflict with patents that have been or may be granted to competitors,
universities or others, such other persons could bring legal actions against us
claiming damages and seeking to enjoin manufacturing and marketing of the
affected products. If any such actions are successful, in addition to any
potential liability for damages, we could be required to obtain a license in
order to continue to manufacture or market the affected products. There can be
no assurance that we would prevail in any such action or that any license
required under any such patent would be made available on acceptable terms or at
all. Failure to obtain a license could prevent us from making, using or
marketing our products or technology. There is significant litigation in the
biopharmaceutical industry regarding patent and other intellectual property
rights. Any litigation involving us could require dedication of substantial
resources and could have a material adverse effect on our business, financial
position and results of operations.
OUR OTHER INTELLECTUAL PROPERTY RIGHTS MAY NOT BE STRONG ENOUGH TO PROTECT US
AND WE MAY, THEREFORE, BE SUBJECT TO OTHERS APPROPRIATING OUR RIGHTS
In addition to patents, patent applications and licenses, we will also rely
on unpatented technology, trade secrets and information. No assurance can be
given that others will not independently develop substantially equivalent
information and techniques or otherwise gain access to our technology or
disclose such technology, or that we can meaningfully protect its rights in such
unpatented technology, trade secrets and information. We will require each of
our employees, consultants and advisors to execute a confidentiality agreement
at the commencement of an employment or consulting relationship with us. The
agreements will generally provide that all inventions conceived by the
individual in the course of employment or in providing services to us and all
confidential information developed by, or made known to, the individual during
the term of the relationship shall be our exclusive property and shall be kept
confidential and not disclosed to third parties except in limited specified
circumstances. There can be no assurance, however, that these agreements will
provide meaningful protection for our information in the event of unauthorized
use or disclosure of such confidential information.
WE ARE DEPENDENT UPON SCIENTIFIC PERSONNEL NOT EMPLOYED BY US AND THE LOSS OF
THEIR SERVICES MAY IMPAIR OUR ABILITY TO SUCCEED TO DEVELOP OUR DRUGS
We are dependent upon certain key scientific personnel who are not employed
by us, including the principal investigator with respect to our first product
candidate. The loss of the investigator's services could have a materially
adverse effect on us, unless a qualified replacement could be found. We have no
control over whether our principal investigator or other scientific personnel
will choose to remain involved with our projects. These individuals are not
12
bound by contract to us nor employed by us. They might move on to other
research.
WE MAY NOT BE ABLE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL EITHER AS EMPLOYEES
OR AS CONSULTANTS AND, WITHOUT SUCH PERSONNEL, WE MAY NOT BE SUCCESSFUL IN OUR
PRODUCT DEVELOPMENT
Competition for qualified employees among companies in the
biopharmaceutical industry is intense. Our future success depends upon our
ability to attract, retain and motivate highly skilled employees. Our present
management has no clinical or other experience in the development of
pharmaceutical products. Attracting desirable employees will require us to offer
competitive compensation packages, including stock options. In order to
successfully commercialize our products, we must substantially expand our
personnel, particularly in the areas of clinical trial management, regulatory
affairs, business development and marketing. There can be no assurance that we
will be successful in hiring or retaining qualified personnel. Managing the
integration of new personnel and our growth generally could pose significant
risks to our development and progress. The addition of such personnel may result
in significant changes in our utilization of cash resources and our development
schedule.
THERE IS SUBSTANTIAL UNCERTAINTY RELATED TO HEALTH CARE REFORM MEASURES AND
REIMBURSEMENT BY MANAGED HEALTH CARE ORGANIZATIONS AND IT IS POSSIBLE THAT
ADVERSE DEVELOPMENTS IN EITHER AREA WOULD IMPEDE OUR ABILITY TO MARKET OUR
PRODUCTS
In recent years, there have been numerous proposals to change the health
care system in the United States. Some of these proposals have included measures
that would limit or eliminate payments for certain medical procedures and
treatments or subject the pricing of pharmaceuticals to government control.
Significant changes in the health care system in the United States or elsewhere
might have a substantial impact on the manner in which we conduct our business.
Such changes also could have a material adverse effect on our ability to raise
capital. Furthermore, our ability to commercialize products may be adversely
affected to the extent that such proposals have a material adverse effect on the
business, financial condition and profitability of other companies that are our
collaborators or prospective collaborators.
In addition, if government and third party payors for uses of our products
do not provide adequate coverage and reimbursement levels, the market acceptance
of such products would be adversely affected.
WE MAY BE EXPOSED TO PRODUCT LIABILITY RISKS AND MAY HAVE LIMITED INSURANCE
AVAILABLE
Our business will expose us to potential product liability risks which are
inherent in the testing, manufacturing, marketing and sale of human vaccine and
therapeutic products, and there can be no assurance that we will be able to
avoid significant product liability exposure. Product liability insurance for
the biopharmaceutical industry is generally expensive, if available at all. We
have obtained product liability insurance coverage in the amount of $1,000,000
per occurrence, subject to a $10,000,000 aggregate limitation. However, there
can be no assurance that our insurance coverage is now or will continue to be
adequate as we further develop products. In addition, our license and
development agreements require us to obtain product liability insurance and it
is possible that license and collaborative agreements that we may enter
13
into in the future may also include such a requirement. There can be no
assurance that in the future adequate insurance coverage will be available in
sufficient amounts or at a reasonable cost, or that a product liability claim or
recall would not have a material adverse effect on us.
WE MAY USE HAZARDOUS MATERIALS THAT MAY SUBJECT OUR COMPANY TO LIABILITY
Our research and development work and manufacturing processes may involve
the use of hazardous, controlled and radioactive materials. We are subject to
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of such materials and certain waste products.
Although we and our contractors will maintain safety procedures for handling and
disposing of such materials that we and they believe comply with the standards
prescribed by such laws and regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In such event, we
could be held liable for any damages that result and any such liability could
exceed our resources. There can be no assurance that we will not be required to
incur significant costs to comply with environmental laws and regulations, or
that our operations, business or assets will not be materially or adversely
affected by current or future environmental laws or regulations.
WE MAY BE REQUIRED TO COMPLY WITH RULES REGARDING ANIMAL TESTING AND THIS MAY
LIMIT THE SUCCESS OF OUR TESTING PROGRAM
The research and development efforts sponsored by us involve laboratory
animals. We may be adversely affected by changes in laws, regulations or
accepted procedures applicable to animal testing or by social pressures that
would restrict the use of animals in testing or by actions against us or our
collaborators by groups or individuals opposed to such testing.
RISKS RELATING TO OUR SECURITIES
THE COMMON STOCK THAT WE ARE OFFERING IN THIS PROSPECTUS IS A "PENNY STOCK;"
BECAUSE "PENNY STOCK" RULES WILL APPLY, YOU MAY FIND IT DIFFICULT TO SELL THE
SHARES YOU PURCHASE IN THIS OFFERING
A "penny stock" is a common stock that is not listed on a securities
exchange and trades for less than $5.00 a share. Prices often are not available
to buyers and sellers and the market may be very limited. Penny stocks in
start-up companies are among the riskiest equity investments. Broker-dealers who
sell penny stocks must provide purchasers of these stocks with a standardized
risk-disclosure document prepared by the Securities and Exchange Commission. The
document provides information about penny stocks and the nature and level of
risks involved in investing in the penny stock market. A broker must also give a
purchaser, orally or in writing, bid and offer quotations and information
regarding broker and salesperson compensation, make a written determination that
the penny stock is a suitable investment for the purchaser, and obtain the
purchaser's written agreement to the purchase. Many brokers choose not to
participate in penny stock transactions. Because of the penny stock rules, there
is less trading activity in penny stock and you are likely to have difficulty
selling your shares of our stock.
The class A redeemable warrants contained in the units may be exercised at
any time from the date this prospectus goes
14
effective for a period of 5 years and the class B redeemable warrants contained
in the units may be exercised at any time from the date this prospectus goes
effective for a period of 7 years. We intend to keep our registration statement
current so long as any of the warrants are outstanding. However, if a current
registration statement is not in effect, you will not be able to exercise either
of the warrants contained in the units.
THERE IS NO PUBLIC MARKET FOR OUR SHARES AND NONE MAY DEVELOP IN WHICH EVENT AN
INVESTOR MAY NOT BE ABLE TO DISPOSE OF ITS SHARES
We intend to have our stock quoted on the over-the-counter bulletin board.
Assuming there is a market for our shares, the market price of the shares may be
highly volatile.
There is currently no public market for our shares and no market may
develop or be sustained after the offering. If a market develops, the market
price of our shares may decline below the initial public offering price. The
sale of a small number of our units in the offering, or sales to a small number
of holders, could result in few of our shares available for public trading. It
would thus be very difficult for an active trading market to develop for our
shares.
THE RIGHT TO EXERCISE THE WARRANTS MAY BE LOST IF WE CALL THE WARRANTS
We have the right to call the class A warrants at a price of $.001 per
warrant if our common stock trades for at lest 5 consecutive days at $.75 per
share. We also have the right to call the class B warrants at a price of $.001
per warrant if our common stock trades for at least 5 consecutive days $1.25 per
share. Unless a warrant holder exercises his warrant at the time it is called,
he will lose his right to exercise the warrant. An investor may not be able or
willing to exercise his warrant at that time.
OUR SHAREHOLDERS MAY BE SUBJECT TO DILUTION IN THEIR OWNERSHIP
The initial public offering price per share is substantially higher than
the net tangible book value of our common stock as of the date of this
prospectus and has been arbitrarily determined by us. Therefore, you will incur
an immediate dilution of approximately $0.238 in net tangible book value per
share of common stock from the price per share that you can pay for the common
stock. This amounts to a dilution of 95.2%.
Also, an investor's interest in our shares could be diluted by future
offerings of common stock or securities convertible into common stock. Future
issuance of authorized but unissued shares of capital stock will also have the
effect of diluting an investor's equity interest. There are no limits to our
ability to issue additional authorized shares.
THERE WILL BE A SIGNIFICANT NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE AND THIS
MAY HURT THE MARKET PRICE OF OUR SHARES
The market price of our shares could decline as a result of sales, or the
perception that such sales could occur, of a large number of shares available in
the public market after this offering. Such sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate.
Before this offering, as of May 1, 2004, 283,650,000 of our shares were
outstanding. Some of these shares are subject to certain volume restrictions on
transfer the date this offering
15
goes effective, and therefore are not freely tradeable in the public market;
however, they can be sold under certain circumstances.
All of our shares are subject to a one-year lock-up agreement from the date
of this prospectus which prohibits any sales of those shares during that
one-year period.
After this offering, assuming that all units are sold, we will have
outstanding 20,000,000 shares immediately freely tradeable in the market. In
addition, if all units are sold and all of the class A redeemable warrants,
class B redeemable warrants and placement agent warrants are exercised, an
additional 68,000,000 shares will be available for sale in the public market.
The remainder of our shares will not be tradeable at all until the expiration of
the one-year lock up.
Number of Shares
----------------
Shares outstanding prior to the date of this prospectus (subject, in some
cases, to volume limitations and, in all cases, to a one year lockup)..................... 283,650,000
Shares sold pursuant to this prospectus........................................................ 20,000,000
----------
After 12 months from the date of this prospectus (subject, in some
cases, to volume limitations and assuming no warrants have been exercised)................ 303,650,000
Exercise of all class A redeemable warrants and class B redeemable warrants.................... 60,000,000
----------
After 12 months from the date of this prospectus (subject, in some
cases, to volume limitations and assuming the class A redeemable
warrants and the class B redeemable warrants have been exercised)......................... 363,650,000
Exercise of all underwriter warrants........................................................... 8,000,000
---------
After 12 months from the date of this prospectus (subject, in some
cases, to volume limitations and assuming all of the warrants have been exercised)........ 371,650,000
-----------
NOTE REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial known and unknown risks and uncertainties. In some cases you can
identify these statements by forward-looking words such as "anticipate,"
"believe," "estimate," "expect," "intend," "may," "plans," "project," and
similar expressions. You should read statements that contain these words
carefully because they discuss the development stage in which we are operating;
our lack of revenues; our ability to continue as a going concern; our possible
need for additional financing; the uncertainty of market acceptance of our
products once introduced; competition; technological
16
obsolescence; patentability of our products; ability to not violate others'
rights; dependence on key personnel, as well as other factors detailed in "Risk
Factors" above and elsewhere in this prospectus. Before you invest in our
company, you should be aware that the occurrence of the events described in
these risk factors and elsewhere in this prospectus could have a material
adverse effect on our business, results of operations and financial position
and, thus, on your investment.
USE OF PROCEEDS
We have, to date, relied on capital contributions from private investment,
loans from our management and debt placement to fund operations. Management has
determined that, based upon an assumption that we earn no revenues during the 12
month period following the commencement of this offering, we will need
$1,250,500 in order to fund our operations for that period, and, thus, given the
expenses of the offering and the amounts required to pay outstanding debts and
expenses, we will need to raise at least $2,500,000 in this offering. If we do
earn revenues, we will need fewer funds from this offering to cover our expenses
and, thus, we will have more funds available for business development. We expect
to need additional funds for the next 12 months' operational expenses and to
accomplish additional plans described in this prospectus. Even if we raise the
entire amount in this offering, we will need either to raise additional funds or
realize revenues from our business activities to meet our cash requirements for
the planned activities in the second year.
The net proceeds to us from the sale of the 20,000,000 units offered
hereby, at a price of $.25 per unit and after deducting the placement agent's
commission, expenses of this offering and other estimated expenses payable by
us, are estimated to be approximately $4,150,000 if all shares are sold. We
expect to use the net proceeds to fund research and development of
chemotherapeutic technology and clinical trials relating to the chemotherapeutic
agents and other product candidates for working capital and general corporate
purposes. In particular, we must make payments in 2004 of $750,000 in connection
with the development of our two products and of $62,500 under our license
agreement for the two products.
We believe that the net proceeds of this offering, if all shares are sold,
together with our present capital resources, should be sufficient to fund
operations at least through March 2006 based on our current operating plan. No
assurance can be given that there will be no change that would consume our
liquid assets before such time. We may require substantial funds in addition to
the proceeds of this offering to conduct development activities, preclinical
studies, clinical trials and other activities relating to the commercialization
of any potential products. We cannot currently estimate with any accuracy the
amount of these additional funds because it may vary significantly depending on
results of research and development and product testing, potential relationships
with in-licensors and collaborators, changes in the focus and direction of our
research and development programs, competitive and technological advances, the
cost of filing, prosecuting, defending and enforcing patent claims, the
regulatory approval process, manufacturing, marketing and other costs associated
with commercialization of products following receipt of regulatory approvals and
other factors. We anticipate that we will seek these funds from external
sources, such as future offerings of equity or debt securities, including
agreements with corporate partners and collaborators with respect to the
development of our technology. There can be no assurance, however, that we will
be able to negotiate such arrangements or obtain the additional funds it will
require on acceptable terms, if at all.
17
Pending such uses, we will invest the net proceeds from this
offering in short-term, interest bearing investment grade securities.
18
Our use of the proceeds of this offering will depend in large measure upon
the amount of units that are sold.
We intend to use the proceeds of this offering at various levels of unit
sales as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Offering Proceeds If $250,000 If $500,000 If $1,000,000 If $2,500,000 If $3,000,000 If $4,000,000 If $5,000,000
is raised is raised is raised is raised is raised is raised is raised
- ------------------------------------------------------------------------------------------------------------------------------------
Placement Agent's commission $25,000 $50,000 $100,000 $250,000 $300,000 $400,000 $500,000
equal to 10% of the total
amount sold in this offering
- ------------------------------------------------------------------------------------------------------------------------------------
Placement Agent's $7,500 $15,000 $30,000 $75,000 $90,000 $120,000 $150,000
Non-Accountable Expense
Allowance of 3% of the total
amount sold in this offering
- ------------------------------------------------------------------------------------------------------------------------------------
Legal, accounting, printing $150,000 $150,000 $150,000 $200,000 $200,000 $200,000 $200,000
fees and other offering
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued expenses to the $0 $60,000 $200,000 $200,000 $200,000 $200,000 $200,000
date of this prospectus
- ------------------------------------------------------------------------------------------------------------------------------------
Repayment of our debt, $0 $0 $0 $525,000 $525,000 $525,000 $525,000
plus interest ($50,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Our payments due under $42,500 $75,000 $345,000 $812,500 $812,500 $812,500 $812,500
License Agreement with
Cornell University, our
Research Agreement with the
Foundation and our
Consulting Agreement with
Dr. Saxon
- ------------------------------------------------------------------------------------------------------------------------------------
Our patent application fees $25,000 $50,000 $75,000 $100,000 $200,000 $200,000 $200,000
and Patent legal fees
- ------------------------------------------------------------------------------------------------------------------------------------
Compensation to a Chief $0 $0 $0 $0 $0 $125,000 $125,000
Financial Officer to be
engaged
- ------------------------------------------------------------------------------------------------------------------------------------
Compensation of current $0 $100,000 $100,000 $337,500 $500,000 $500,000 $500,000
officers, directors and
employees and administrative
costs
- ------------------------------------------------------------------------------------------------------------------------------------
Compensation to additional $0 $0 $0 $0 $35,000 $35,000 $35,000
office staff to be engaged
- ------------------------------------------------------------------------------------------------------------------------------------
Compensation to a Chief $0 $0 $0 $0 $100,000 $100,000 $100,000
Product Engineer Scientist
to be engaged
- ------------------------------------------------------------------------------------------------------------------------------------
Public Relations $0 $0 $0 $0 $0 $72,000 $72,000
- ------------------------------------------------------------------------------------------------------------------------------------
Expanded Facility and Rent $0 $0 $0 $0 $0 $100,000 $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
Research and Development of $0 $0 $0 $0 $0 $200,000 $700,000
New Compounds
- ------------------------------------------------------------------------------------------------------------------------------------
Reserve for product testing $0 $0 $0 $0 $0 $360,500 $730,500
and trials
- ------------------------------------------------------------------------------------------------------------------------------------
Working Capital $0 $0 $0 $0 $37,500 $50,000 $50,000
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000 $500,000 $1,000,000 $2,500,000 $3,000,000 $4,000,000 $5,000,000
====================================================================================================================================
19
In the event we do not sell all of the units offered in this offering, the
placement agent's commissions will be lower because they are based upon the
amount raised, but other offering expenses will not be reduced, nor will debt
repayment or accrued expenses.
If less than $2,500,000 is raised, we may not have sufficient funds
available to pay our expenses and carry out our immediate business plan.
DIVIDEND POLICY
We do not intend to pay any cash dividends with respect to our common stock
in the foreseeable future. We intend to retain earnings, if any, for use in the
operation of our business and to fund future growth.
CAPITALIZATION
The following table sets forth our total capitalization as of December 31,
2003.
- -------------------------------------------------------------------------------------
Current liabilities $406,286
- -------------------------------------------------------------------------------------
Long-term Obligations $0
- -------------------------------------------------------------------------------------
Stockholders' capital deficiency: common stock, $.0001 par $28,315
value, 750,000,000 shares authorized, 283,150,000
shares issued and outstanding
- -------------------------------------------------------------------------------------
Additional paid-in capital $1,143,069
- -------------------------------------------------------------------------------------
Deficit accumulated in development stage $(1,490,856)
- -------------------------------------------------------------------------------------
Total stockholders' capital deficiency $(319,472)
- -------------------------------------------------------------------------------------
Total capitalization $86,814
- -------------------------------------------------------------------------------------
DILUTION
Our net tangible book value deficiency as of December 31, 2003 was
$(359,472), or ($.001) per share of common stock. Net tangible book value per
share is equal to the amount of total tangible assets (total assets less
intangible assets) less total liabilities, divided by the number of shares of
common stock outstanding on December 31, 2003. Assuming the sale of all of the
units offered pursuant to this prospectus at a price of $.25 per unit, then,
after deducting placement commissions and estimated offering expenses
aggregating $850,000 (but without taking into account the shares issuable upon
exercise of the warrants), the net tangible book value of our company as of
December 31, 2003 would have been $3,830,528, or $.013 per share of common
stock. This represents an immediate increase in net tangible book value of $.014
per
20
share to existing stockholders and an immediate dilution in net tangible book
value of $.237 per share to new investors. The following table illustrates this
per share dilution:
Assumed initial public offering price per share $.25
Net tangible book value per share before this offering ($.001)
Increase in net tangible book value attributable to new investors $.014
Net tangible book value per share after this offering $.013
Dilution per share to new investors $.238
Percentage dilution 94.8%
Assuming the sale of half (10,000,000) of the units offered pursuant to
this prospectus at a price of $.25 per unit, then, after deducting placement
commissions and estimated offering expenses aggregating $525,000 (but without
taking into account the shares issuable upon exercise of the warrants), the net
tangible book value of our company as of December 31, 2003 would have been
$1,655,528, or $.006 per share of common stock. This represents an immediate
increase in net tangible book value of $.007 per share to existing stockholders
and an immediate dilution in net tangible book value of $.244 per share to new
investors. The following table illustrates this per share dilution:
Assumed initial public offering price per share $.25
Net tangible book value per share before this offering ($.001)
Increase in net tangible book value attributable to new investors $.007
Net tangible book value per share after this offering $.006
Dilution per share to new investors $.244
Percentage dilution 97.6%
Assuming the sale of 1,500,000 of the units offered pursuant to this
prospectus at a price of $.25 per unit, then, after deducting placement
commissions and estimated offering expenses aggregating $248,750 (but without
taking into account the shares issuable upon exercise of the warrants), the net
tangible book value of our company as of December 31, 2003 would have been a
deficiency of ($193,222) or ($.001) per share of common stock. This represents a
nominal increase in net tangible book value of to existing stockholders and an
immediate dilution in net tangible book value of $.25 per share to new
investors. The following table illustrates this per share dilution:
Assumed initial public offering price per share $.250
Net tangible book value per share before this offering ($.001)
Increase in net tangible book value attributable to new investors $.000
21
Net tangible book value per share after this offering ($.001)
Dilution per share to new investors $.250
Percentage dilution 104.0%
The following table summarizes, on a pro forma basis as of December 31,
2003, the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders for a share of stock and by new investors purchasing units in this
offering:
ALL OF THE UNITS ARE SOLD:
- -------------------------
- -------------------------------------------------------------------------------------------------------------------------
Average Price
Shares Purchased Total Consideration per Share
- -------------------------------------------------------------------------------------------------------------------------
Number Percent Number Percent
- -------------------------------------------------------------------------------------------------------------------------
Existing stockholders 283,150,000 93.4% $1,171,384 19% $.0041
- -------------------------------------------------------------------------------------------------------------------------
New investors 20,000,000 6.6% $5,000,000 81% $.2500
- -------------------------------------------------------------------------------------------------------------------------
Total 303,150,000 100.0% $6,171,384 100.0% $.0204
=========== ========== ====
- -------------------------------------------------------------------------------------------------------------------------
HALF OF THE UNITS ARE SOLD:
- ---------------------------
- -------------------------------------------------------------------------------------------------------------------------
Average Price
Shares Purchased Total Consideration per Share
- -------------------------------------------------------------------------------------------------------------------------
Number Percent Number Percent
- -------------------------------------------------------------------------------------------------------------------------
Existing stockholders 283,150,000 96.6% $1,171,384 76% $.0041
- -------------------------------------------------------------------------------------------------------------------------
New investors 10,000,000 3.4% $375,000 24% $.2500
- -------------------------------------------------------------------------------------------------------------------------
Total 293,150,000 100.0% $4,671,384 100.0% $.0054
=========== ========== ====
- -------------------------------------------------------------------------------------------------------------------------
1,500,000 UNITS ARE SOLD:
- -------------------------
- -------------------------------------------------------------------------------------------------------------------------
Average Price
Shares Purchased Total Consideration per Share
- -------------------------------------------------------------------------------------------------------------------------
Number Percent Number Percent
- -------------------------------------------------------------------------------------------------------------------------
Existing stockholders 283,150,000 93.4% $1,171,384 65% $.0041
- -------------------------------------------------------------------------------------------------------------------------
22
- -------------------------------------------------------------------------------------------------------------------------
New investors 1,500,000 6.6% $625,000 35% $.2500
- -------------------------------------------------------------------------------------------------------------------------
Total 284,650,000 100.0% $1,796,384 100.0% $.0063
=========== ========== ====
- -------------------------------------------------------------------------------------------------------------------------
OUR COMPANY AND BUSINESS
BACKGROUND
Marc Pharmaceuticals, Inc. is a start-up development stage pharmaceutical
company focusing on the development and commercialization of innovative products
for the treatment of cancer, HIV, AIDS and other diseases. We maintain an
informational web site which can be found at www.marcpharmaceuticals.com .
We were incorporated in the State of Delaware on February 21, 2001 with an
authorized capital of 750,000,000 shares of common stock, each with a par value
of $.0001. 202,750,000 shares of common stock have been issued at a purchase
price of $.0001 per share to our founders.
We issued 450,000 shares of our common stock, at a purchase price of $.0001
per share to 4 persons for payment for administrative services rendered in
conjunction with our organizing.
In June 2002, we raised $300,000 for operations by issuing 60,000,000
shares of our common stock at a purchase price of $.005 per share.
On July 18, 2002, in consideration for a loan, we issued a promissory note
to Joel San Antonio, the Chairman of the Board of Marc, in the principal amount
of $350,000, bearing interest at the rate of 15% per annum. The note matured on
August 17, 2002 and the maturity date was extended until March 31, 2004. On
March 17, 2004 the maturity date of the note was extended until May 31, 2004. As
consideration for the extension of the note from March 31, 2003 to June 30,
2003, we issued Mr. San Antonio 5,000,000 shares of our common stock. We repaid
$100,000 of this loan.
Between August 2002 and September 2003, we raised $750,000 for operations
issuing 15,000,000 shares of our common stock at a purchase price of $.05 per
share.
In January 2004 we issued 500,000 shares of our common stock to an
individual when he joined our Board of Directors.
To date we have had no sales and no revenues. We are uncertain as to when,
if ever, we will generate revenues.
23
RECENT FINANCING TRANSACTIONS
Commencing in November 2003 through February 2004, we borrowed $225,000 for
operations by issuing 7 promissory notes each bearing interest at a rate of 20%
per annum, and each due with interest one year from the date issued.
CURRENT PRODUCT CANDIDATES
We have two product candidates that are both derivatives of betulinol.
Betulinol is a naturally occurring compound that is isolated from the outer
layer of the bark of the white birch tree whose Latin name is Betula Alba. It
was first mentioned as an antiseptic more than 100 years ago. By altering a
specific atom or group of atoms in a betulinol molecule, the resulting new
molecule is known as a derivative of betulinol . These derivatives are developed
on our behalf at Cornell University's laboratory facilities which are dedicated
to our research activity.
The first product candidate is a betulinol derivative that can be attached
(or conjugated) to a cancer-fighting drug in order to act as a site-directed
chemotherapeutic agent to treat cancer. Such a combination is known as a
conjugate. By attaching to a cancer therapy through this process of conjugation
and directing it to be delivered in a highly directed manner to cancer cells,
avoiding healthy cells, this allows a higher concentration of cancer-fighting
drugs to be directed toward the cancer cells without harming healthy cells. One
of the biggest problems with current chemotherapies for cancer is the damage
they cause to healthy cells. This damage appears to be minimized by our first
product candidate.
The second product candidate is a betulinol derivative which appears to be
effective as an anti-HIV agent that could be used both systemically (i.e., as a
general whole body therapy) as an AIDS therapy, or locally to inhibit the growth
and transmission of HIV through sexual activity.
With respect to each of these products, we entered into an exclusive
license agreement with Cornell University. Under this agreement we received an
exclusive license under certain patent applications pertaining to our products.
Through two sponsored research agreements, we have engaged the University to
develop methods of attaching certain betulinol derivatives to antibodies
targeted to cancer cells and for use in the treatment of HIV.
CANCER THERAPEUTICS
Our principal investigator discovered certain derivatives of betulinol that
were active against a wide array of malignant tumors. As with many
chemotherapeutic agents, when employed in the high concentrations frequently
required to be effective against cancer cells, these highly toxic drugs give
rise to undesirable, and often severe, side effects. This drawback appears to be
overcome by our technology which couples the active anti-tumor agent (betulinol
derivative) with an antibody targeted to a specific cancer (e.g., a monoclonal
antibody) to form a conjugate, or an attachment of the two entities. In use, the
antibody (which is designed to bind to specific cells in the body) acts to carry
the active anti-tumor agent to the site of the tumor, thereby sparing other body
tissues from the adverse effects of the anti-tumor agent. Although the concept
of site directed chemotherapy is not new, only a few cancer-fighting drugs have
been successfully coupled to antibodies. This technique may make it possible to
achieve anti-tumor activity with lower doses of the anti-tumor agent and without
many of the undesirable side effects customarily associated with chemotherapy.
24
We are working toward bringing the betulinol derivatives and the betulinol
conjugate therapy from a laboratory development to an approved human cancer
treatment. This will involve research including safety and efficacy testing in
cancer cell lines and tumor transplants in mice prior to testing in humans,
development of a successful human dosage form for the conjugate, and design and
performance of the tests required for approval of the betulinol product by the
regulatory authorities in the United States and elsewhere.
Cancer is not a simple disorder, but is rather a set of different diseases,
each of which is characterized by aberrations in cell growth and
differentiation. The establishment and spread of a tumor is a function of its
growth characteristics and its ability to suppress or evade the body's normal
defenses, including surveillance and elimination of cancer cells by the immune
system. Eradication of malignant cells which can spread to vital organs, leading
to death, is central to the effective treatment of cancer.
To date, the principal therapies for cancer have been surgery, radiation
and chemotherapy. Despite recent advances in treatment, cures in many cancer
areas continue to suffer from serious limitations. A significant drawback to
conventional anti-cancer therapy is that hidden or residual disease is difficult
or impossible to eliminate fully, which can lead to relapse. Surgery may be used
to remove primary masses of some solid tumors; however, it cannot be used to
remove widespread hidden disease. Conventional treatment with combination
chemotherapy and radiation may not be capable of eradicating cancers completely
because of inadequate potency at the tumor site resulting from limitations on
drug or radiation doses due to potential side-effects to healthy tissues.
Moreover, while more recently introduced biological drugs, such as interferons,
have in some cases represented an improvement over traditional drug therapy,
they have proven effective only on a limited basis and only in certain types of
cancer and they have adverse side effects.
The use of chemotherapeutic agents in the treatment of cancer has become a
routine procedure for the treatment of cancer, especially where the cancer has
progressed to an advanced stage. Unfortunately, chemotherapeutic agents not only
act on malignant cells but have adverse effects on the non-targeted cells as
well, particularly on the rapidly proliferating cells of the gastrointestinal
tract and bone marrow. When chemotherapeutics are administered in high
concentrations, usually required to be effective in killing cancer cells, these
poisonous drugs cause severe side effects. Our technology is designed to serve
as a targeting system to deliver the chemotherapeutic betulinol derivative
compound to treat cancer at a specific site in the body. Our technology is
designed to fulfill a need for chemotherapeutic agents and especially for
site-directed chemotherapeutic agents.
Currently, the technology includes a conjugate for prostate and testicular
cancer and we are developing other derivatives for use in treating cancer
located in different organs such as the ovaries.
Eight betulinol derivatives with suitable structural modifications for
conjugation or attachment to antibodies were synthesized, and evaluated using
mass spectrometry (MS) and nuclear magnetic resonance (NMR) techniques. These
are typical evaluation techniques for this type of analysis. In addition, the
research identified and optimized an efficient scheme for coupling the betulinol
derivatives to prostate tumor-specific antibodies, achieving efficacious
results.
25
The eight betulinol derivatives were evaluated in an artificial environment
for their activity in killing cancer cells. Certain of our betulinol derivatives
demonstrated substantial ability to kill the tested cancer cells, with one being
the most effective. Conjugation of the most effective betulinol derivative to an
antibody targeted to the prostate further increased the effectiveness of the
conjugated betulinol derivative.
HIV THERAPEUTICS
Currently, there are three classes of anti-HIV drugs in clinical use,
namely: (1) RT inhibitors such as AZT, (2) Protease inhibitors, and (3) fusion
inhibitors. These drugs which are described below, are expensive, have adverse
side effects and patients develop drug resistance. Our researchers have
discovered that certain betulinol compounds have significant anti-HIV activity,
which we hope could be used either systemically as an AIDS therapy for the whole
body, or locally to inhibit the growth and transmission of HIV through sexual
activity.
Human Immunodeficiency Virus (HIV), the virus that causes AIDS, has reached
pandemic proportions in the world. Some one million people are infected with HIV
in the U.S. alone and more than 40 million are infected worldwide. Each day
approximately 12,000 adults and 1,800 children become infected. Currently, there
are three classes of drug treatments for HIV, as stated above.(1) However, these
currently acceptable treatment drugs are limited by either their toxicity or the
emerging drug-resistant strains of the virus. These drugs are costly, difficult
to manufacture, and have adverse side effects. Patients also frequently develop
drug resistance, and can no longer use the drug. Therefore, the search for new
types of anti-HIV compounds is timely and important.
Betulinol derivatives, such as di-methyl ester, aldehyde and bi-acetate,
were synthesized in Cornell University's laboratory in 1995-96. The laboratory
found that these compounds have significant anti-HIV activity. On our behalf,
the University intends to investigate in detail their spectrum of activity
against HIV, against drug resistant HIV and to make an effort to determine their
mechanism of action.
Our researchers' ultimate goal is to determine the range of anti-viral
effects utilizing various types of cells and define the mechanism of actions of
these compounds, compare their activities to known anti-HIV drugs, and
investigate potential synergy of these compounds with different classes of
existing HIV drugs. These determinations and definitions will help characterize
one or more derivatives as lead compounds in the development of an anti-HIV
agent.
- --------------
(1) Common HIV drug therapy includes cocktail drug regimen, which may
utilize nucleoside analogs like 3'-azido-3'-deoxythymidine (AZT) 2',
3'-dideoxyinosine (ddC) and 2',3'-dideoxycytidine.
26
MATERIAL AGREEMENTS
LICENSE AGREEMENT
-----------------
On June 19, 2002 we entered into an exclusive license agreement with
Cornell Research Foundation, Inc., which is a wholly owned subsidiary of Cornell
University and holds all intellectual property rights developed by the faculty
of Cornell University. (Weill Medical College is one of the schools of Cornell
University.) Under this license agreement we acquired the worldwide, exclusive
license under certain U.S. and foreign patent applications covering certain
betulinol derivatives, and their use to treat cancer as site-directed
chemotherapeutic agents. One of the U.S. patent applications licensed from the
Foundation (Serial No. 09/089,894) has been allowed by the U.S. Patent and
Trademark Office. The government issue fee has been paid and it is anticipated
that the patent will be granted shortly. A second U.S. patent application (that
is a continuation of Serial No. 09/089,894) is pending in the U.S. Patent and
Trademark Office. It is anticipated that the application will be examined
shortly. While we expect to obtain the grant of some further patent protection
with this application, there can be no assurance that any such patent claims
will be granted by the Patent and Trademark Office. The European Patent Office
has also indicated that a European Patent Application licensed to us by the
Foundation is allowable and the grant of a patent on the application is
anticipated shortly. We have exercised our option to extend the license
agreement to cover treatment for HIV and AIDS. The agreement gives us an
exclusive license under certain patent applications, and also includes the
non-exclusive right to use certain relevant technical information and know-how,
as well as rights to certain future developments, if any. In addition to royalty
fees described below, we have agreed to pay an aggregate of $2,187,500 over the
term of the agreement from the submission of an investigational new drug
application ("IND") to FDA approval as follows:
Submission of an IND $50,000
Initiation of Phase I Clinical Trial $62,500
Initiation of Phase II Clinical Trial $125,000
Initiation of Phase III Clinical Trial $200,000
FDA (or equivalent) Approval $1,000,000
1 Year Anniversary from FDA (or equivalent) Approval $750,000
To date we have paid a license initiation fee of $50,000.
We are required to pay the foundation royalties equal to 7% of the net
sales of the licensed product, less 50% of any royalties paid by us to a third
party with respect to the sale of the product with respect to which such net
sales were earned. However, that in no event should the royalty payable to the
foundation be less than 4%. We are required to pay the foundation a minimum
annual royalty of $100,000 beginning the contract year following the contract
year in which the first sale of the licensed product occurs.
27
Although it is impractical to predict when, or if, each of the milestones
may be achieved, it is likely that FDA Approval, if it is ever achieved, will
not occur until 2011.
We have committed to spend an aggregate of $10,000,000 by December 31, 2008
for the development of the technology.
We have the right to grant sublicenses under the agreement with prior
written approval by the foundation.
The term of the agreement shall run until the licensed patent rights either
(1) expire, (2) are finally adjudged or declared invalid or unenforceable by a
non-appealable decision of a court or agency of competent jurisdiction or (3)
become abandoned or unenforceable, whichever occurs first.
Upon 60 days written notice to the foundation, we may terminate the license
agreement by (1) ceasing to sell the product, (2) terminating all sublicense
agreements and causing all sub-licensees to cease selling the product and (3)
paying funds then owed to the foundation under the license agreement.
Thus, we do not own the patents mentioned above but only have rights to
these patents under the license agreement. Under certain circumstances the
license (including our rights to practice under the patents) can be terminated
by the Foundation. The Foundation may terminate the license agreement on 10 days
written notice if we: (1) are in default of our payment of license fees,
milestone payments, royalties, lost reimbursements or in providing any report;
or (2) breach any provision of the license agreement and do not cure the default
within 60 days after we receive written notice.
The foundation is solely responsible for the preparation, prosecution and
maintenance of the patent for the products and we are responsible to reimburse
the foundation for all reasonable attorney's fees and expenses, official fees
and any other charges incident to the preparation, prosecution and maintenance
of the products.
SPONSORED RESEARCH AGREEMENTS
-----------------------------
CANCER THERAPEUTIC
On June 19, 2002 we entered into a sponsored research agreement with Weill
Medical College of Cornell University under which we fund certain research
relating to betulinol derivatives intended for use in treating cancer. The
research agreement has a 3-year term and may be extended or renewed by mutual
written agreement. Under this agreement, we have agreed to pay a total of
$1,250,000 as follows: on July 19, 2002, $500,000; on July 19, 2003, $375,000;
and on July 19, 2004, $375,000. We have paid the University $875,000 under the
terms of the agreement.
The University, through its principal investigator, is responsible for
conducting the research on the cancer therapeutic agents.
If either party breaches the terms of the agreement, the non-breaching
party may terminate the agreement upon written notice if the breaching party
does not cure the breach within 60 days
28
after receiving such written notice. Either party may terminate the agreement
for any reason upon 90 days prior written notice to the other party.
We are responsible to procure and maintain an insurance policy of
comprehensive general liability insurance in a minimum amount of $1,000,000 per
incident and $10,000,000 annual aggregate for personal injury, bodily injury and
property damage arising out of our performance under the agreement. Thus
insurance is in place.
HIV THERAPEUTIC
On January 22, 2004 we entered into a sponsored research agreement with
Weill Medical College of Cornell University under which we fund research
relating to betulinol derivatives intended to be used to treat HIV/AIDS. The
research agreement has a term of 3 years and may be extended or renewed by
mutual written agreement. Under the research agreement, we have agreed to pay a
total of $1,000,000 over the term of the agreement as follows: $187,500 on the
receipt of funding under this offering or June 30, 2004 whichever occurs first.
$187,500 within 180 days after the effective date, $312,500 within 60 days after
the first anniversary of the effective date and $312,500 within 60 days after
the second anniversary of the effective date.
Under the agreement, the University, through its principal investigator, is
responsible for conducting the research of the HIV therapeutic,.
If either party breaches the terms of the agreement, the other party may
terminate the agreement upon written notice if the breaching party fails to cure
such breach within 60 days after receiving such written notice. Either party may
terminate the agreement for any reason upon 90 days prior written notice.
We are responsible to procure and maintain an insurance policy of
comprehensive general liability insurance in a minimum amount of $1,000,000 per
incident and $10,000,000 annual aggregate for personal injury, bodily injury and
property damage arising out of our performance under the agreement. This
insurance is in place.
CONSULTING AGREEMENT
--------------------
On September 1, 2002 we entered into a 3-year consulting agreement with Dr.
Brij B. Saxena, a professor at Cornell University and the principal investigator
for the cancer therapeutic. Under this agreement he will perform certain
consulting services for us with respect to matters related to scientific
research in chemotherapy which will include assistance in the preparation of
this prospectus, attendance at meetings with prospective and current investors
and with prospective and current business partners and general advice and
consultation concerning the cancer therapeutic and our business and prospects.
Under the consulting agreement, we have agreed to pay Dr. Saxena $1,000 for each
day that he performs consulting services for Marc. Either party may terminate
this agreement at any time by giving 30 days prior written notice.
SCIENTIFIC ADVISORY BOARD
We intend at some point in our development efforts that we will be assisted
in our research and development activities by a scientific advisory board. We
intend that the members of the advisory board will be composed of physicians and
scientists who will review our research
29
and development, discuss technological advances relevant to us and our business
and otherwise assist us. Our management will appoint the members of the advisory
board and will appoint any successors or additions. We are not presently in the
process of identifying prospective advisory board members.
PATENTS AND PROPRIETARY TECHNOLOGY
Our policy is to protect our proprietary technology, and we consider the
protection of such rights to be important to our business. Under certain
circumstances we may license products and under others we may own products. We
intend to seek United States patent protection for inventions owned by the
company, and we intend to file counterpart foreign patent applications for such
inventions in order to protect the inventions in our important markets outside
the U.S.
Under our current license agreement with Cornell University, we obtained a
worldwide, exclusive license under certain patent applications relating to the
preparation of betulinol derivatives for use in the treatment of cancer. We have
exercised our option to extend the license agreement to cover certain patent
applications for treating HIV and AIDS. The cancer treatment technology is the
subject of two U.S. Patent Applications filed by Cornell Research Foundation,
Inc. in the United States Patent and Trademark Office. These applications claim
compositions of matter, methods of production and methods of using betulinol
derivatives and conjugates for the treatment of cancer. Counterpart applications
are pending in the European and Canadian Patent Offices.
A need exists for chemotherapeutic agents and, in particular, for
site-directed chemotherapeutic agents. Only a small number of anti-neoplastic
drugs and toxins have been successfully coupled to antibodies. The cancer
therapeutics that we plan to develop are directed to meeting this need.
Betulinol derivatives selectively attack only cancer cells and by apoptosis
destroy DNA and thereby cell proliferation. The betulinol derivatives can be
administered orally, parenterally, subcutaneously, intravenously,
intramuscularly, intraperitoneally, by intranasal instillation, by intracavitary
or intravesical instillation, intraocularly, intraarterially, intralesionally,
or by application to mucous membranes, such as, that of the nose, throat, and
bronchial tube. They may be administered alone or with pharmaceutically or
physiologically acceptable carriers, excipients, or stabilizers, and can be in
solid or liquid form, such as tablets, capsules, powders, solutions,
suspensions, or emulsions.
Results of screening of 2 betulinol derivatives, Betulinol Dimethyl Ether
(Cornelon) and Betulonic Aldehyde, by the National Cancer Institute of the
National Institutes of Health, in Bethesda, Maryland, against human lung, breast
and central nervous system cancer cell lines show their anticarcinogenic
activity of these derivatives. A patent application filed by Cornell Research
Foundation, Inc. directed to methods of preparing these compounds has been
approved by U.S. Patent and Trademark Office on December 31, 2003. A patent
application directed to methods of treating cancer with these compounds has been
filed by Cornell Research Foundation, Inc. in the U.S. Patent and Trademark
Office on August 2, 2002. Cornell University has paid the government issue fee
which means that the patent application should shortly be granted as a United
States patent.
30
Our researchers preliminary data shows that the dialcohol starting material
for these reactions is betulinol, isolated from natural sources. Betulinol is
isolated from the outer layer of the bark of the white birch tree Betula alba by
sublimation, or by alcoholic extraction. The alkylated betulin derivatives can
be prepared in a variety of ways.
Various methods of preparing the alkylated betulin derivatives are claimed
in the patent application filed by Cornell Research Foundation, Inc. that was
approved by the U.S. Patent and Trademark Office on December 31, 2003.
There is also a considerable need for the development of a new HIV
therapeutic that addresses the major problems of viral resistance and drug
toxicity. The HIV therapeutic product is directed to meeting this need.
There can be no assurance that patent applications owned by or licensed to
us will result in patents being issued or that, if issued, the patents will
afford protection against competitors with similar technology. Although a patent
has a statutory presumption of validity in the United States, the issuance of a
patent is not conclusive as to such validity or as to the enforceable scope of
the claims of the patent. There can be no assurance that our issued patents or
any patents subsequently issued to or licensed by us will not be successfully
challenged in the future. The validity or enforceability of a patent after its
issuance by the patent office can be challenged in litigation. The cost of
litigation to uphold the validity of patents and to prevent patent infringement
can be substantial. If the outcome of the litigation is adverse to the owner of
the patent, third parties may then be able to use the invention covered by the
patent without payment. There can be no assurance that our patents will not be
infringed or successfully avoided through design innovation.
There may be patent applications and issued patents belonging to
competitors that may require us to alter our products, pay licensing fees or
cease certain activities. If our products conflict with patents that have been
or may be granted to competitors, universities or others, such other persons
could bring legal actions against us claiming damages and seeking to enjoin
manufacturing and marketing of the affected products. If any such actions are
successful, in addition to any potential liability for damages, we could be
required to obtain a license in order to continue to manufacture or market the
affected products. There can be no assurance that we would prevail in any such
action or that any license required under any such patent would be made
available on acceptable terms or at all. We believe that there may be
significant litigation in the industry regarding patent and other intellectual
property rights. If we become involved in such litigation, it could consume
substantial resources.
The enactment of the legislation implementing the General Agreement on
Tariffs and Trade has resulted in certain changes to United States patent laws
that became effective on June 8, 1995. Most notably, the term of patent
protection for patent applications filed on or after June 8, 1995 is no longer a
period of seventeen years from the date of grant. The new term of United States
patents will commence on the date of issuance and terminate twenty years from
the earliest effective filing date of the application. Because the time from
filing to issuance of patent applications is often more than three years, a
twenty-year term from the effective date of filing may result in a substantially
shortened term of patent protection, which may adversely impact our patent
position.
31
In addition to the patents, patent applications, licenses and intellectual
property processes described above, we also rely on unpatented technology, trade
secrets and information. No assurance can be given that others will not
independently develop substantially equivalent information and techniques or
otherwise gain access to our technology or disclose such technology, or that we
can meaningfully protect our rights in such unpatented technology, trade secrets
and information. We require each of our employees, consultants and advisors to
execute a confidentiality agreement at the commencement of an employment or
consulting relationship with us. The agreements generally provide that all
inventions conceived by the individual in the course of employment or in
providing services to us and all confidential information developed by, or made
known to, the individual during the term of the relationship shall be the
exclusive property of us and shall be kept confidential and not disclosed to
third parties except in limited specified circumstances. There can be no
assurance, however, that these agreements will provide meaningful protection for
our information in the event of unauthorized use or disclosure of such
confidential information.
GOVERNMENT REGULATION
Our products and we are subject to comprehensive regulation by the FDA in
the United States and by comparable authorities in other countries. These
national agencies and other federal, state, and local entities regulate, among
other things, the preclinical and clinical testing, safety, effectiveness,
approval, manufacture, labeling, marketing, export, storage, record keeping,
advertising, and promotion of our products.
FDA approval of our products, including a review of the manufacturing
processes and facilities used to produce such products, will be required before
such products may be marketed in the United States. The process of obtaining
approvals from the FDA can be costly, time consuming, and subject to
unanticipated delays. There can be no assurance that approvals of our proposed
products, processes, or facilities will be granted on a timely basis, or at all.
Any failure to obtain or delay in obtaining such approvals would adversely
affect our ability to market our proposed products. Moreover, even if regulatory
approval is granted, such approval may include significant limitations on
indicated uses for which a product could be marketed.
The process required by the FDA before our products may be approved for
marketing in the United States generally involves (i) preclinical laboratory and
animal tests, (ii) submission to the FDA of an investigational new drug
application ("IND"), which must become effective before clinical trials may
begin, (iii) adequate and well-controlled human clinical trials to establish the
safety and efficacy of the product for its intended indication, (iv) submission
to the FDA of a marketing application and (v) FDA review of the marketing
application in order to determine, among other things, whether the product is
safe and effective for its intended uses. There is no assurance that the FDA
review process will result in product approval on a timely basis, or at all.
An IND is a submission which the sponsor of a clinical trial of an
investigational new drug must make to the FDA, and which must become effective
before clinical trials may commence. The IND submission must include, among
other things, a description of the sponsor's investigational plan; protocols for
each planned study; chemistry, manufacturing, and control information;
pharmacology and toxicology information; and a summary of previous human
experience with the investigational drug.
32
A New Drug Application ("NDA") is an application to the FDA to market a new
drug. The NDA must contain, among other things, information on chemistry,
manufacturing, and controls; nonclinical pharmacology and toxicology; human
pharmacokinetics and bioavailability; and clinical data. The new drug may not be
marketed in the United States until the FDA has approved the NDA.
A Product License Application ("PLA") is an application to the FDA to
market a biological product. The PLA must contain, among other things, data
derived from nonclinical laboratory and clinical studies which demonstrate that
the product meets prescribed standards of safety, purity and potency, and a full
description of manufacturing methods. The biological product may not be marketed
in the United States until a product license is issued, and until the
establishment where the product is to be manufactured has been issued an
establishment license.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to gain preliminary information about a product's pharmacology
and toxicology and to identify any safety problems that would preclude testing
in humans. Products must generally be manufactured according to cGMP and
preclinical safety tests must be conducted by laboratories that comply with FDA
regulations regarding good laboratory practices. The results of the preclinical
tests are submitted to the FDA as part of an IND and are reviewed by the FDA
prior to the commencement of human clinical trials. Unless the FDA objects to,
or makes comments or raises questions concerning, an IND, the IND will become
effective 30 days following its receipt by the FDA and initial clinical studies
may begin, although companies often obtain affirmative FDA approval before
beginning such studies. There can be no assurance that submission of an IND will
result in FDA authorization to commence clinical trials.
Clinical trials involve the administration of the investigational new drug
to healthy volunteers and to patients under the supervision of a qualified
principal investigator. Clinical trials must be conducted in accordance with the
FDA's Good Clinical Practice requirements under protocols that detail, among
other things, the objectives of the study, the parameters to be used to monitor
safety, and the effectiveness criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND. Further, each clinical study must be
conducted under the auspices of an Institutional Review Board ("IRB"). The IRB
will consider, among other things, ethical factors, the safety of human
subjects, the possible liability of the institution and the informed consent
disclosure which must be made to participants in the clinical trial.
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. During Phase I, when the drug is initially
administered to human subjects, the product is tested for safety, dosage
tolerance, absorption, metabolism, distribution, and excretion. Phase II
involves studies in a limited patient population to (i) evaluate preliminarily
the efficacy of the product for specific, targeted indications, (ii) determine
dosage tolerance and optimal dosage, and (iii) identify possible adverse effects
and safety risks. When a new product is found to have an effect and to have an
acceptable safety profile in Phase II evaluation, Phase III trials are
undertaken in order to further evaluate clinical efficacy and to further test
for safety within an expanded patient population. The FDA may suspend clinical
trials at any point in this process if it concludes that clinical subjects are
being exposed to an unacceptable health risk.
The results of the preclinical studies and clinical studies, the chemistry
and manufacturing data, and the proposed labeling, among other things, are
submitted to the FDA in the form of an
33
NDA or PLA, approval of which must be obtained prior to commencement of
commercial sales. The FDA may refuse to accept the NDA or PLA for filing if
certain administrative and content criteria are not satisfied, and even after
accepting the NDA or PLA for review, the FDA may require additional testing or
information before approval of the NDA or PLA. In any event, the FDA must deny
an NDA or PLA if applicable regulatory requirements are not ultimately
satisfied. Moreover, if regulatory approval of a product is granted, such
approval may be made subject to various conditions, including post-marketing
testing and surveillance to monitor the safety of the product, or may entail
limitations on the indicated uses for which it may be marketed. Finally, product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur following initial marketing.
There is regulation regarding the license application process for certain
biological products. Those biological products that fall within the regulation
will be reviewed on the basis of a single biologics license application ("BLA"),
rather than a PLA/ELA. The BLA includes the same information as the current PLA,
but certain of the data now required as part of the ELA do not have to be
submitted or reviewed during the approval process. This rule is intended, at
least in part, to lessen the regulatory burden on manufacturers of certain
biologics and accelerate the approval process. There can be no assurance,
however, that the FDA will consider the regulation applicable to any of our
products, or that the BLA process, if applicable to our products, will have the
intended effect of reducing review times.
Both before and after approval is obtained, a product, its manufacturer,
and the sponsor of the marketing application for the product are subject to
comprehensive regulatory oversight. Violations of regulatory requirements at any
stage, including the preclinical and clinical testing process, the approval
process, or thereafter (including after approval) may result in various adverse
consequences, including FDA delay in approving or refusal to approve a product,
withdrawal of an approved product from the market and/or the imposition of
criminal penalties against the manufacturer and/or sponsor. In addition, later
discovery of previously unknown problems may result in restrictions on such
product, manufacturer, or sponsor, including withdrawal of the product from the
market. Also, new government requirements may be established that could delay or
prevent regulatory approval of our products under development.
The FDA has implemented accelerated approval procedures for certain
pharmaceutical agents that treat serious or life-threatening diseases and
conditions, and that provide meaningful therapeutic benefit over existing
treatments. We believe that our products in development may qualify for
accelerated approval. We cannot predict the ultimate impact, however, of the
FDA's accelerated approval procedures on the timing or likelihood of approval of
any of its potential products or those of any competitor. In addition, the
approval of a product under the accelerated approval procedures is subject to
various conditions, including the requirement to verify clinical benefit in
postmarketing studies, and the authority on the part of the FDA to withdraw
approval under streamlined procedures if such studies do not verify clinical
benefit or under various other circumstances.
Whether or not FDA approval has been obtained, approval of a pharmaceutical
product by comparable government regulatory authorities in foreign countries
must be obtained prior to marketing such product in such countries. The approval
procedure varies from country to country, and the time required may be longer or
shorter than that required for FDA approval. Although there are some procedures
for unified filing for certain European countries, in general,
34
each country has its own procedures and requirements. We do not currently have
any facilities or personnel outside of the United States.
In addition to regulations enforced by the FDA, we also are subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and potential future federal, state or local
regulations. Our research and development involves the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Although we believe that our safety procedures for storing, handling, using and
disposing of such materials comply with the standards prescribed by applicable
regulations, the risk of accidental contaminations or injury from these
materials cannot be completely eliminated. In the event of such an accident, we
could be held liable for any damages that result and any such liability could
have a material adverse effect on our business.
The following tables summarize the status of our products and our expected
timetables for development. Any of these dates may be delayed and either or both
of our products may be abandoned.
STAGES OF DRUG DEVELOPMENT
FOR CANCER THERAPEUTIC
STAGE PROJECTED TIMETABLE
Preclinical laboratory and animal testing Currently in progress, expected
to be completed by the end of 2004
Submission to FDA of Investigative New Drug Application (IND) First quarter of 2005
Phase I - testing for safety, dosage tolerance, absorption, First quarter of 2005 to the first quarter of 2006
metabolism, distribution and excretion
Phase II - studies in limited patient population for efficacy, Balance of 2006 through the end of 2008
dosage tolerance and adverse effects and safety risks
Phase III - studies in expanded patient population to further 2009 and 2010
evaluate efficacy and safety
Filing of New Drug Application (NDA) End of 2010
FDA Review of NDA During 2011
FDA Approval End of 2011
35
STAGES OF DRUG DEVELOPMENT
FOR HIV THERAPEUTIC
STAGE PROJECTED TIMETABLE
Preclinical laboratory and animal testing Currently in progress, expected
to be completed by the
first quarter of 2005
Submission to FDA of Investigative New Drug Application (IND) Second quarter of 2005
Phase I - testing for safety, dosage tolerance, absorption, Second quarter of 2005 to the
metabolism, distribution and excretion first quarter of 2006
Phase II - studies in limited patient population for efficacy, Balance of 2006 through the end of 2008
dosage tolerance and adverse effects and safety risks
Phase III - studies in expanded patient population to further 2009 and 2010
evaluate efficacy and safety
Filing of New Drug Application (NDA) End of 2010
FDA Review of NDA During 2011
FDA Approval End of 2011
MANUFACTURING
We do not intend to manufacture any of our products. Once a product
requires manufacturing, we expect to contract with third parties or corporate
collaborators to assist with production. We have not engaged any third party at
this time.
SALES AND MARKETING
We plan to market products for which we obtain regulatory approval through
co-marketing, co-promotion, licensing and distribution arrangements with third
party collaborators. No such arrangements presently exist. We believe that this
approach will both increase market penetration and commercial acceptance of our
products and enable us to avoid expending significant funds to develop a large
sales and marketing organization.
COMPETITION
Competition in the pharmaceutical industry is intense. We face competition
from many companies, major universities and research institutions in the United
States and abroad. Many of our competitors have substantially greater resources,
experience in conducting preclinical studies and clinical trials and obtaining
regulatory approvals for their products, operating experience, research and
development and marketing capabilities and production capabilities than those of
36
Marc. We will face competition from companies marketing existing products or
developing new products for diseases targeted by our technologies. The
development of new products for those diseases for which we are developing
products could render our product candidates noncompetitive and obsolete.
A significant amount of research in this industry is also being carried out
at academic and government institutions. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more aggressive in pursuing patent protection and negotiating licensing
arrangements to collect royalties for use of technology that they have
developed. These institutions may also market competitive commercial products on
their own or in collaboration with competitors. Any resulting increase in the
cost or decrease in the availability of technology or product candidates from
these institutions may affect our business strategy.
Competition with respect to our technologies and product candidates is and
will be based, among other things, on effectiveness, safety, reliability,
availability, price and patent position. Another important factor will be the
timing of market introduction of our competitive products. Accordingly, the
speed with which we can develop products, complete the clinical trials and
approval processes and ultimately supply commercial quantities of the products
to the market is expected to be an important competitive factor. Our competitive
position will also depend upon its ability to attract and retain qualified
personnel, to obtain patent protection or otherwise develop proprietary products
or processes, and to secure sufficient capital resources for the often
substantial period between technological conception and commercial sales.
PRODUCT LIABILITY
The testing, manufacturing and marketing of the Company's products involves
an inherent risk of product liability attributable to unwanted and potentially
serious health effects. To the extent we elect to test, manufacture or market
products independently, we will bear the risk of product liability directly. We
have obtained insurance in the amount of $10,000,000 against the risk of product
liability. This insurance is subject to certain deductibles and coverage
limitations. There is no guarantee that insurance will continue to be available
at a reasonable cost, or at all, or that the amount of such insurance will be
adequate.
PLAN OF OPERATION
We have financed our operations since inception primarily with the net
proceeds received from private placements of equity securities. These placements
from inception through May 1, 2004 aggregated a total of $525,000 in proceeds
from notes payables (of which $75,000 was repaid) and net proceeds from the sale
of the Company's common stock of $921,339.
Cash on hand at May 1, 2004 totaled $40,108.65.
We have a working capital deficiency of ($395,966) and a capital deficiency
of ($319,472) at December 31, 2003. We are in the development stage and have had
no revenues from our inception. We do not anticipate any revenues during the
next 12 months. Additionally, we do not believe we will generate any revenues in
2005 and will need additional financing to meet our obligations.
37
Our plan of operation for the next twelve months depends, in part, upon two
variables: (a) the amount of money available to us both from this offering and
from other financing sources and (b) the respective rate of success in the
clinical testing of our two products.
If we sell all of the units in this offering and we continue to have
positive results from our testing program, we intend, over the next twelve
months, to increase our staff, arrange for permanent leased space, continue our
clinical in vitro and animal testing, submit investigative new drug applications
("INDs") to the FDA for both of our products, begin Phase I human testing, and
make all of the payments associated with these activities. In tabular form, we
expect to expend the following amounts for these purposes:
a. Payments to Cornell $1,050,000
b. Patent expenses 200,000
c. Compensation for a chief financial officer,
chief product scientist and other staff 260,000
d. Expanded facility 100,000
e. Other expenses for testing 200,000
f. FDA expenses 50,000
g. Miscellaneous expenses 100,000
----------
TOTAL $1,960,000
If we sell less than all of the units in this offering, we may not be able
to undertake all of the described activities and we will reduce our expenditures
as shown in the chart under "Use of Proceeds," although we will still be able to
carry on our necessary activities for the 12 months of operations.
If our testing results do not continue to demonstrate success, we may
abandon one or both of our products or we may delay the filing of one or both of
the INDs. In any of those circumstances, our planned expenditures would be
reduced. See "Risk Factors."
It is also possible that we may identify an additional product candidate,
although we are not projecting that event during these twelve months.
We anticipate that expenditures for product development, research and
general and administrative expenses and license payments with respect to the
cancer therapeutic product will exceed $10,000,000 and with respect to the HIV
product will exceed $10,000,000. We are uncertain as to how long it will take
for us to generate revenues, if any. We anticipate that the products will be
submitted for an IND in about 2 years and then clinical trials and approval from
the FDA can take anywhere from 5 to 10 years, although we believe that our
current products maybe eligible for accelerated treatment, and therefore, the
process may be as short as 3 years. It may cost hundreds of millions of dollars
to bring a new drug to the marketplace. We do not at
38
this point believe that we will bring the technologies to market and anticipate
that at some point we will either seek a joint venture partner to assist in
commercialization of the technologies or we will sublicense the technologies to
larger pharmaceutical companies. In the event either of these events occur and
the technologies are commercialized, Marc will retain a certain interest in the
products. Such interest can not be determined at this time, and, therefore, we
are unable to set forth in this offering document your exact interest in the
technologies once the products are sold in the marketplace. Since we are
uncertain at which point we will contract with a third party, we are uncertain
of the amount of additional funds we will need in order to complete certain
phases of the product's path to commercialization. Other products which we may
acquire will involve the same process discussed in this paragraph.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
We have a board of directors comprised of 3 members. Each director holds
office until the next annual stockholders meeting or until a successor is duly
elected or appointed. The members of our board of directors and our executive
officers are:
- --------------------------------------------------------------------------------
Name Age Position
- --------------------------------------------------------------------------------
Robert M. Cohen 43 Director, President, Chief Executive Officer,
Chief Financial Officer and Secretary
- --------------------------------------------------------------------------------
Joel San Antonio 51 Chairman of the Board
- --------------------------------------------------------------------------------
William Tweed 63 Director
- --------------------------------------------------------------------------------
ROBERT M. COHEN
Mr. Cohen has served as the President and Secretary since the company's
inception in 2001 and Chief Executive Officer and Chief Financial Officer since
February 2004. In 1987, Mr. Cohen founded Robert M. Cohen & Co. Inc., a
full-service stock brokerage firm, and served as President from the company's
inception through December 2003. Mr. Cohen founded Homerun USA, a private chain
of indoor batting cages, and serves as Chairman of the Board.
JOEL SAN ANTONIO
Mr. San Antonio has served as Chairman of the Board since the company's
inception in 2001. Mr. San Antonio began his entrepreneurial career as
co-founder of a business in the women's fashion industry. In 1983, he and his
partner exited the fashion industry and founded Warrantech Corporation, a third
party administrator of service contracts and extended warranty programs. The
company went public in 1984 and, in September 1997, was recognized by Fortune
Magazine as one of the "100 Fastest Growing Companies in America". Today, Mr.
San Antonio serves as Chairman of the Board and Chief Executive Officer of
Warrantech Corporation and each of its operating subsidiaries. In addition, he
was a founder of Corniche Group, Inc., a provider of insurance products and
services, and served as a director from May 1998 through September 1999. He also
serves as a Director of SearchHelp, Inc., a start-up company that provides
services to small businesses, institutions, organizations and individuals in
smaller communities throughout the United States, and as Chairman of the Board
of MedStrong International Corporation, a company that provides medical
information online. In 1998, Mr.
39
San Antonio was a national finalist in Ernst & Young's "Entrepreneur of the
Year" program following his recognition as "Entrepreneur of the Year" in
financial services for E & Y's Northeast Region. He is a member of the
Metropolitan Museum of Art and is also involved in a variety of philanthropic
and charitable activities.
WILLIAM TWEED
Mr. Tweed has been a director of the company since January 2004. Mr.
Tweed is a founder of Warrantech Corporation, a third party administrator of
service contracts and extended warranty programs, and has been a director of
Warrantech from its inception. Prior to his retirement from Warrantech in April
1998, he served as Executive Vice President of European Operations, and, at
various times, as the President, Vice President and Secretary of Warrantech.
EXECUTIVE COMPENSATION
Long-term Compensation Awards
-----------------------------
Securities Underlying Options ($)
---------------------------------
Annual Compensation
-------------------
Name Salary($) Bonus($)
- ---- --------- --------
Robert M. Cohen $20,000(1) (2) 0
Joel San Antonio 0(3) 0 0
(1) Mr. Cohen will receive $250,000, plus an automobile expense allowance of
$12,000 per year beginning January 1, 2004.
(2) Mr. Cohen will also receive a cash incentive bonus equal to 1% of our
after-tax net income per year beginning January 1, 2004.
(3) ) Mr. San Antonio did not receive any compensation in 2003. Mr. San Antonio
will receive $120,000, plus an automobile expense allowance of $12,000 per year
beginning January 1, 2004.
EMPLOYMENT AGREEMENTS
In January 2004, we entered into a 5-year employment agreement with Robert
M. Cohen. The employment agreement provides for a base salary of $250,000 per
year and an automobile expense allowance of $12,000 per year. Mr. Cohen will
also receive a cash incentive bonus equal to 1% of our after-tax net income per
year. Upon the expiration of the term, the agreement will automatically renew
for successive periods of one year each unless either party gives the other
written notice of non-renewal not less than 90 days prior to the expiration of
the renewal term.
The agreement may be terminated by us for a good cause upon written notice
and may be terminated by Mr. Cohen upon a breach by us of the agreement or upon
a change in control in our company. We may also terminate Mr. Cohen if we do not
have good cause, but we then are required to pay Mr. Cohen's compensation
package for the remainder of the 5 year term. In addition, we may terminate Mr.
Cohen's employment upon his disability with 30 days prior written notice or upon
his death.
40
During the 30 days following a termination of Mr. Cohen's employment with
us, except if the agreement is terminated because a change in control or us
breaching the agreement we have the option to deliver Mr. Cohen a written notice
of our election to invoke a covenant not to compete. As consideration for the
covenant not to compete, we will issue to Mr. Cohen 1,000,000 shares of our
common stock.
In January 2004, we entered in to a consulting agreement with Joel San
Antonio in which Mr. San Antonio will assist senior management in identifying
opportunities and developing strategies. The consulting agreement provides for a
consulting fee of $120,000 per year and an automobile expense allowance of
$12,000 per year. We may terminate the agreement at any time. Mr. San Antonio
may terminate upon written notice not less than 30 days prior to the effective
date of such termination.
CERTAIN TRANSACTIONS
Robert M. Cohen and Joel San Antonio are the promoters of Marc.
On July 18, 2002, in consideration for a loan, we issued a promissory note
to Joel San Antonio, the Chairman of the Board of Marc, in the principal amount
of $350,000, bearing interest at the rate of 15% per annum. The note matured on
August 17, 2002 and the maturity date was extended until March 31, 2004. On
March 17, 2004 the maturity date of the note was extended until May 31, 2004. As
consideration for the extension of the note from March 31, 2003 to June 30,
2003, we issued Mr. San Antonio 5,000,000 shares of our common stock. We repaid
$100,000 of this loan.
On July 30, 2001 William Tweed one of our board members, acquired, as one
of our founding stockholders, 100,000 shares of our stock for $.0001 per share.
On June 27, 2003 Mr. Tweed and his wife purchased in the second private offering
300,000 shares of our common stock for $15,000 and on July 16, 2003 Mr. Tweed
purchased an additional 200,000 shares of our common stock for $10,000, of which
he gifted 20,000 shares to his grandson and disclaims beneficial ownership.
On March 8, 2004 we entered into an Agreement of Use with Warrantech
Corporation to lease a portion of office space at 350 Bedford Street, Stamford,
Connecticut 06901. Our Chairman of our board of directors, Joel San Antonio, is
the Chief Executive Officer and Chairman of the board of directors of Warrantech
Corporation and our board member William Tweed is a board member of Warrantech
Corporation.
In 2002 and 2001, Robert M. Cohen, our President, Chief Executive Officer,
Chief Financial Officer and Secretary, controlled Robert M. Cohen & Co., Inc., a
corporate placement agent, which placed our two private offerings of our common
stock to accredited investors. Robert M. Cohen & Co., Inc. received $9,500 in
2001, $25,000 in 2002 and $10,950 in 2003 in commissions and fees for its
services.
41
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of May 1, 2004, by:
o Each person (or group of affiliated persons) who is known by Marc to
beneficially own 5% or more of our common stock
o Each director of Marc
o Each of the named executive officers of Marc
o All directors and executive officers of Marc as a group
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to shares. Unless otherwise indicated, the persons named in the table
have sole voting and sole investment control with respect to all shares
beneficially owned.
The number and percentage of shares beneficially owned prior to this
offering are based on 283,650,000 shares of common stock issued and outstanding
as of May 1, 2004.
The number and percentage of shares beneficially owned after this offering
are based on the 283,650,000 shares of common stock issued and outstanding, plus
the 20,000,000 shares sold in this offering (without taking into account the
shares to be issued upon exercise of the warrants).
- --------------------------------------------------------------------------------------------------------------------------------
SHARES BENEFICIALLY OWNED
SHARES BENEFICIALLY OWNED AFTER THE SALE OF THE MAXIMUM
PRIOR TO THIS OFFERING AMOUNT OF THIS OFFERING
- --------------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------ ------ ------- ------ -------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Joel San Antonio (1) 105,000,000 37.01% 105,000,000 34.58%
- --------------------------------------------------------------------------------------------------------------------------------
Robert M. Cohen(2) 100,000,000 35.25% 100,000,000 32.93%
- --------------------------------------------------------------------------------------------------------------------------------
William Tweed(3) 980,000 0.35% 980,000 0.32%
- --------------------------------------------------------------------------------------------------------------------------------
All current directors and executive 205,980,000 72.61% 205,980,000 67.83%
officers of Marc as a group
(3 persons)
- --------------------------------------------------------------------------------------------------------------------------------
(1) Mr. San Antonio's address is c/o Marc Pharmaceuticals, Inc., 350 Bedford
Street, Stamford, CT 06901.
(2) Mr. Cohen's address is c/o Marc Pharmaceuticals, Inc., 350 Bedford Street,
Stamford, CT 06901.
(3) Mr. Tweed's address is c/o Marc Pharmaceuticals, Inc., 350 Bedford Street,
Stamford, CT 06901.
42
DESCRIPTION OF SECURITIES
COMMON STOCK
Our authorized capital stock consists of 750,000,000 shares of common
stock, par value $.0001 per share. There are currently 283,650,000 shares of our
common stock issued and outstanding. Each holder is entitled to one vote for
each share held on all matters to be voted upon by the stockholders. The shares
of common stock do not have cumulative voting rights, which means that holders
of more than 50% of the shares of common stock voting for the election of
directors can elect all the directors and, therefore, our present stockholders
can elect all of the directors even after this offering.
The holders of common stock are entitled to receive a pro-rata share of
dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available for the payment of dividends. However,
we presently intend to reinvest any earnings instead of paying cash dividends.
In the event of our liquidation, dissolution, or winding up, the holders of
common stock are entitled to share pro-rata in all assets remaining after
payment of our liabilities. Shares of common stock have no preemptive,
conversion, or other subscription rights. There are no redemption or sinking
fund provisions applicable to the common stock.
UNIT WARRANTS
There are currently no warrants outstanding. Two types of warrants are
being offered pursuant to this prospectus. Each class A redeemable warrant gives
its holder the right to purchase one share of common stock for $.50. The class A
redeemable warrants will be exercisable at any time from the date this
prospectus goes effective for a period of 5 years. A maximum of 20,000,000
shares of common stock are issuable upon the exercise of the class A redeemable
warrants. We may, subject to the conditions set forth in the warrant agreement,
redeem the warrant at any time, by providing the holder with the time, manner
and place of redemption by first class or registered mail, postage prepaid, at
the address for such holder last shown on the records of the transfer agent,
given within 30 days, after the occurrence of a redemption event which shall be
the fifth consecutive trading day upon which our common stock has been trading
at $.75 per share, determined by taking the average between the "bid" and the
"ask" price of our common stock on each such day, at a price of $.001 per number
of shares which may be purchased by a class A redeemable warrant, plus any
dividends declared but unpaid thereon, subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares. The holder of the class A redeemable
warrant may elect to exercise all or any part of the class A redeemable warrant
on or before such redemption date.
Each class B redeemable warrant purchased in this offering gives its holder
the right to purchase one share of common stock for $1.00. The class B
redeemable warrants will be exercisable at any time from the date this
prospectus goes effective for a period of 7 years. We may, subject to the
conditions set forth in the warrant agreement, redeem the class B redeemable
warrant at any time, by providing the holder with the redemption date which
shall include the time, manner and place of redemption by first class or
registered mail, postage prepaid, at the address for such holder last shown on
the records of the transfer agent, given within 30 days, after the occurrence of
a redemption event which shall be the fifth consecutive trading day upon
43
which our common stock has been trading at $1.25 per share, determined by taking
the average between the "bid" and the "ask" price of our common stock on each
such day, at a price of $.001 per number of shares which may be purchased by a
class B redeemable warrant, plus any dividends declared but unpaid thereon,
subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares. The
holder of the class B redeemable warrant may elect to exercise all or any part
of the class B redeemable warrant on or before such redemption date.
PLAN OF DISTRIBUTION
We have entered into a placement agreement with Wien Securities Corp., a
securities broker-dealer who is a member of the National Association of
Securities Dealers, Inc. The subscription amount of $.25 per unit must be paid
by check made payable to ["Marc Pharmaceuticals, Inc. Escrow Account"] or by
wire to [BANK NAME] and will be paid over to the company at periodic closings,
expected to occur once every 2 weeks. The purpose of the escrow is simply to
facilitate the closing process. The release of funds from escrow is not
dependent upon our raising any specific amounts in this offering. Certificates
for shares and warrants subscribed for will be issued as soon as practicable
after each closing.
The placement agent will sell the units to the public on our behalf on a
"best efforts" basis, with no required minimum. Therefore, if we do not raise
enough money to continue our business we will not return your investment to you.
We will pay the placement agent a commission of 10% of the proceeds of all the
units placed by the placement agent and non-accountable expense allowance of 3%
of the proceeds of all the units placed by the placement agent. The placement
agent will also receive warrants to purchase units.
The price was determined based upon the result in the market capitalization
if all units offered in this prospectus would be sold, which would be $50
million. Management believes that this is a fair valuation since the potential
beneficial uses of the Company's product in the market place, if successfully
developed, will relate to a cure of cancer and a treatment for HIV, but also
taking into account the products early state of development and the risks
involved. No one has agreed to buy any of our units and there is no assurance
that any sales will be made. We have the right to accept or reject any
subscriptions for units in whole or in part.
Upon the effective date of this prospectus, we have agreed to give the
placement agent warrants to purchase up to 2,000,000 units at $.30 per unit for
5 years from the date this offering goes effective, which means the placement
agent will receive one placement agent warrant to purchase one unit for every 10
units sold in the offering. Upon the exercise of a warrant and the payment of
the exercise price, the placement agent will acquire one share of common stock,
a class A redeemable warrant to purchase one share of common stock exercisable
at $.50 per share for 5 years from the date this offering goes effective and two
class B redeemable warrants to purchase one share of common stock exercisable at
$1.00 per share for 7 years from the date this offering goes effective. The
redeemable warrant and underlying securities are restricted from sale, transfer,
assignment or hypothecation for a period of one year from the date of this
prospectus, except for transfers to officers and partners of the placement
agent. The placement
44
agent will be subject to the same call provisions contained in the class A
redeemable warrant and the class B redeemable warrant.
The placement agent's warrants and the underlying shares of common stock
will not be registered at this time. The placement agent will have certain
piggyback rights to cause the registration of these securities. The placement
agent does not have demand registration rights.
The placement agreement provides that we will indemnify the placement agent
against certain liabilities under the Securities Act of 1933, as amended, or
will contribute to payments that the placement agent may be required to make in
respect thereof.
The placement agreement provides that we will cause each of our officers
and directors and certain others to enter into a "lock-up" agreement not to
sell, pledge, hypothecate, transfer, or otherwise dispose of any shares of
common stock owned by them, for a period of 12 months from the effective date of
this prospectus without the prior written consent of the placement agent. The
shares subject to the lock-up consist of a minimum of 283,650,000 shares owned
or to be owned by current stockholders and the holders of the notes.
The placement agent does not intend to sell any of the units to accounts
for which it exercises discretionary authority. The placement agent has no right
to designate or nominate a member of our board of directors.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock, and no prediction can be made as to the effect, if any, that market sales
of shares of common stock or the availability of shares of common stock for sale
will have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market, or the perception that such sales could occur, could adversely affect
the market price of the common stock and could impair our future ability to
raise capital through the sale of equity securities. See "Risk Factors." There
will be a significant number of shares eligible for future sale and this may
hurt the market price of our shares.
Upon the closing of this offering, and assuming all the units are sold, we
will have an aggregate of approximately 303,650,000 shares of common stock
outstanding. Of the outstanding shares, the 20,000,000 shares sold in this
offering will be freely tradeable, except that any shares held by officers,
directors or persons who currently hold 72.61% of our shares of common stock may
only be sold in compliance with the limitations described below. The remaining
283,650,000 shares of common stock will be deemed "restricted securities" as
defined under Rule 144. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules are
summarized below. Subject to the lock-up agreements described below and the
provisions of Rules 144, 144(k) and 701, additional shares will be available for
sale in the public market as follows:
45
Number
of Shares
---------
Shares outstanding prior to the date of this prospectus (subject, in some cases,
to volume limitations and in all cases, to a one year lock-up)..................... 283,650,000
Shares sold pursuant to this prospectus............................................... 20,000,000
----------
After 12 months from the date of this prospectus (subject, in some cases, to
volume limitations and assuming no warrants have been exercised)................... 303,650,000
Exercise of all class A redeemable warrants and class B redeemable warrants........... 60,000,000
----------
After 12 months from the date of this prospectus (subject, in some cases, to
volume limitations and assuming the class A redeemable warrants and the
class B redeemable warrants have been exercised)................................ 363,650,000
Exercise of all underwriter warrants.................................................. 8,000,000
---------
After 12 months from the date of this prospectus (subject, in some cases, to
volume limitations and assuming all of the warrants have been exercised)........... 371,650,000
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of common stock or the average weekly trading volume in the common stock
during the four calendar weeks preceding the date on which notice of such sale
is filed, subject to certain restrictions. In addition, a person who is not
deemed to have been an officer, director or person who holds 10% of our shares
of common stock at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate, such person's holding period for the purpose of effecting a sale
under Rule 144 commences on the date of transfer from the affiliate.
Our directors and officers and certain stockholders who hold shares in the
aggregate of 283,650,000 have agreed that they will not offer, sell or agree to
sell, directly or indirectly, or otherwise dispose of any shares of common stock
without the prior written consent of the placement agent for a period of 12
months from the date of this prospectus. Please see "Plan of Distribution." In
addition, we may issue shares of common stock in connection with any acquisition
of another company if the terms of such issuance provide that such common stock
shall not be resold prior to the expiration of the 12 months referenced in the
preceding sentence. See "Risk Factors--There will be a significant number of
shares eligible for future sale and this may hurt the market price of our
shares."
46
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Marc by Tannenbaum Helpern Syracuse & Hirschtritt LLP, 900 Third
Avenue, New York, New York 10022. Tannenbaum Helpern Syracuse & Hirschtritt LLP
owns 100,000 shares of our common stock. In addition, 2 members of that firm
purchased an aggregate of 600,000 shares of common stock in one of our private
offerings. Certain legal matters will be passed upon for the placement agent by
Adorno & Yoss, P.A., 350 Las Olas Blvd., Suite 1700, Ft. Lauderdale, FL 33301
OFFICE
We are leasing an executive office at 350 Bedford Street, Stamford,
Connecticut 06901. We have one individual office which is approximately 100
square feet. We have a 1 year lease which began on March 8, 2004 and is
automatically renewed for successive one year terms unless terminated by either
party in writing at least 30 days prior to the end of the then current term. The
rent for the office is $350 per month. Our research is conducted at a laboratory
at Weill Medical College of Cornell University, exclusively dedicated to the
research and development of our cancer drug located at 515 East 71st Street,
Room 412, New York, NY 10021. The laboratory is approximately 500 square feet.
The cost of the facility is included in the budget under our Sponsored Research
Agreement with Weill Medical College of Cornell University. There will be
another lab for the research and development of the HIV drug.
Both the office and the laboratory are sufficient and adequate for our
purposes given our present staff.
LITIGATION
We are not a party to any litigation and we have no knowledge of any
pending or threatened litigation against us.
EXPERTS
The financial statements of Marc Pharmaceuticals, Inc. of December 31, 2003
included in this prospectus have been audited by Weinick Sanders Leventhal &
Co., LLP independent certified public accountants, as set forth in their report
of such financial statements, and are included in this prospectus in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
47
INVESTOR SUITABILITY STANDARDS
APPLICABLE IN CERTAIN STATES
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form SB-2 (including the exhibits, schedules and amendments
thereto) under the Securities Act with respect to the shares of common stock to
be sold in this offering. This prospectus does not contain all the information
set forth in the registration statement. For further information regarding our
company and the shares of common stock to be sold in this offering, please refer
to the registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
You may read and copy all or any portion of the registration statement or
any other information that we file at the Securities and Exchange Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our Securities and Exchange Commission filings,
including the Registration Statement, are also available to you on the
Securities and Exchange Commission's Web site (http://www.sec.gov).
As a consequence of this offering, we will contemporaneously file a
registration statement under the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the Securities and Exchange Commission.
48
FINANCIAL INFORMATION
MARC PHARMACEUTICALS, INC.
(A Development Stage Company)
I N D E X
Page No.
--------
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance Sheets as at December 31, 2003 and 2002 F-3
Statements of Operations
For the Years Ended December 31, 2003 and 2002
and Cumulative from February 21, 2001
(Inception) to December 31, 2003 F-4
Statements of Stockholders' Capital Deficiency
For the Period from February 21, 2001
(Inception) to December 31, 2003 F-5
Statements of Cash Flows
For the Years Ended December 31, 2003 and 2002
and Cumulative from February 21, 2001
(Inception) to December 31, 2003 F-6
Notes to Financial Statements F-7 - F-15
[WSL LOGO] WEINICK
SANDERS
LEVENTHAL & CO., LLP 1375 BROADWAY
-------------------- NEW YORK, N.Y. 10018-7010
- --------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS 212-869-3333
---------------------------- FAX 212-764-3060
WWW.WSLCO.COM
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
Marc Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Marc Pharmaceuticals, Inc. (A
Development Stage Company) as at December 31, 2003 and 2002, and the related
statements of operations, stockholders' capital deficiency and cash flows for
the years ended December 31, 2003 and 2002 and cumulative from February 21, 2001
(inception) to December 31, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marc Pharmaceuticals, Inc. (A
Development Stage Company) as at December 31, 2003 and 2002 and the results of
its operations and its cash flows for the years ended December 31, 2003 and 2002
and cumulative from February 21, 2001 (inception) to December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As disclosed in Note 1 to the
financial statements, the Company is a development stage Company and at December
31, 2003 has working capital and stockholders' capital deficiencies and has
incurred losses since inception. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plan
regarding those matters is also described in Note 1. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/S/ WEINICK SANDERS LEVENTHAL & CO., LLP
New York, New York
February 3, 2004 (Except as to a portion
of Notes 1(a) and 4(a) as to which
the date is February 9, 2004)
F-2
MARC PHARMACEUTICALS, INC.
(A Development Stage Company)
BALANCE SHEETS
December 31,
--------------------------
2003 2002
----------- -----------
Current assets:
Cash $ 3,105 $ 25,411
Prepaid insurance 7,215 6,014
----------- -----------
Total current assets 10,320 31,425
----------- -----------
Other assets:
Deferred rent 36,494 --
Deferred registration costs 40,000 --
----------- -----------
76,494 --
----------- -----------
Total assets $ 86,814 $ 31,425
=========== ===========
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
Current liabilities:
Notes payable - stockholders $ 300,000 $ 350,000
Accrued expenses - related parties 81,601 105,506
Accrued expenses and other current liabilities 24,685 16,775
----------- -----------
Total current liabilities 406,286 472,281
----------- -----------
Commitments and contingencies -- --
Stockholders' capital deficiency:
Common stock - $.0001 par value
Authorized - 750,000,000 shares
Issued outstanding - 283,150,000 and
263,960,000 shares, respectively 28,315 26,396
Additional paid-in capital 1,143,069 256,438
Deficit accumulated in the development stage (1,490,856) (723,690)
----------- -----------
Total stockholders' capital deficiency (319,472) (440,856)
----------- -----------
Total liabilities and stockholders'
capital deficiency $ 86,814 $ 31,425
=========== ===========
See notes to financial statements.
F-3
MARC PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative From
For the Year For the Year February 21, 2001
Ended Ended (Inception) to
December 31, 2003 December 31, 2002 December 31, 2003
----------------- ----------------- -----------------
Revenues $-- $-- $--
----------------- ----------------- -----------------
Operating expenses:
Research and development 382,682 552,146 934,828
License costs -- 50,000 50,000
Web site costs 28,000 -- 28,000
General and administrative 65,541 98,451 164,731
----------------- ----------------- -----------------
Total operating expenses 476,223 700,597 1,177,559
----------------- ----------------- -----------------
Loss from operations (476,223) (700,597) (1,177,559)
----------------- ----------------- -----------------
Other (Income) expenses:
Interest expense 290,986 24,021 315,007
Interest income (43) (1,378) (1,710)
----------------- ----------------- -----------------
Total other expenses 290,943 22,643 313,297
----------------- ----------------- -----------------
Net loss ($767,166) ($723,240) ($1,490,856)
================= ================= =================
Per share data:
Loss per share - basic and diluted ($ - ) ($ - )
================= =================
Weighted average number of
shares outstanding 275,755,890 248,572,877
================= =================
See notes to financial statements.
F-4
MARC PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' CAPITAL EQUITY (DEFICIENCY)
FOR THE PERIOD FROM FEBRUARY 21, 2001 (Inception)
TO DECEMBER 31, 2003
Deficit Total
Accumulated Stockholders'
Common Stock Additional in the Stock Equity
------------------------- Paid-In Development Subscriptions (Capital
Shares Amount Capital Stage Receivable Deficiency)
----------- ----------- ----------- ----------- ----------- -----------
Balance at February 21, 2001 - Inception 202,700,000 $ 20,270 $ -- $ -- $ (20,270) $ --
Payment of common stock subscriptions -- -- -- -- 140 140
Compensatory element of common stock
issued for services rendered 450,000 45 45
Proceeds from sale of common stock 19,000,000 1,900 77,409 79,309
Net loss for the period from Inception
to December 31, 2001 -- -- -- (450) -- (450)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2001 222,150,000 22,215 77,409 (450) (20,130) 79,044
Payment of common stock subscriptions -- -- -- 20,130 20,130
Proceeds from sale of common stock 41,810,000 4,181 179,029 -- -- 183,210
Net loss for the year ended
December 31, 2002 -- -- -- (723,240) -- (723,240)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2002 263,960,000 26,396 256,438 (723,690) -- (440,856)
Proceeds from sale of common stock 14,190,000 1,419 637,131 638,550
Compensatory element of common stock
issued as payment of interest 5,000,000 500 249,500 250,000
Net loss for the year ended
December 31, 2003 -- -- -- (767,166) -- (767,166)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003 283,150,000 $ 28,315 $ 1,143,069 $(1,490,856) $ -- $ (319,472)
=========== =========== =========== =========== =========== ===========
See notes to financial statements.
F-5
MARC PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative From
For the Year For the Year February 21, 2001
Ended Ended (Inception) to
December 31, 2003 December 31, 2002 December 31, 2003
----------------- ----------------- -----------------
Cash flows from operating activities:
Net loss ($767,166) ($723,240) ($1,490,856)
---------------- ---------------- ----------------
Adjustments to reconcile net loss
to net cash used in
operating activities:
Compensatory element of common
stock issued for services -- -- 45
Compensatory element of common
stock issued in payment of interest 250,000 -- 250,000
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Prepaid expenses (1,201) (6,014) (7,215)
Deferred rent (36,494) -- (36,494)
Accrued expense - related parties (23,905) 99,175 81,601
Accrued expenses and other current -- --
liabilities 7,910 16,775 24,685
---------------- ---------------- ----------------
Total adjustments 196,310 109,936 312,622
---------------- ---------------- ----------------
Net cash used in operating activities (570,856) (613,304) (1,178,234)
---------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from notes payable - stockholders 25,000 350,000 375,000
Repayments of notes payable - stockholders (75,000) (75,000)
Defered registration costs (40,000) (40,000)
Proceeds from sale of common stock 638,550 203,340 921,339
---------------- ---------------- ----------------
Net cash provided by financing activities 548,550 553,340 1,181,339
---------------- ---------------- ----------------
Increase (decrease) in cash (22,306) (59,964) 3,105
Cash at beginning of period 25,411 85,375 --
---------------- ---------------- ----------------
Cash at end of period $3,105 $25,411 $3,105
---------------- ---------------- ----------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Interest $-- $-- $--
================ ================ ================
Supplemental Schedules of Noncash
Investing and Financing Activities:
Common stock issued for administrative costs $-- $-- $45
================ ================ ================
Common stock issued as payment for
interest on note payable $250,000 $-- $250,000
================ ================ ================
See notes to financial statements.
F-6
MARC PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
NOTE 1 - PLAN OF ORGANIZATION:
(a) Organization and Presentation of Financial Statements:
Marc Pharmaceuticals, Inc. (the "Company") was incorporated in the
State of Delaware on February 21, 2001 at which time the founding and original
stockholders subscribed for 202,700,000 shares of the Company's common stock for
an aggregate of $20,270. $140 of the stock subscriptions were paid in 2001 and
the balance in 2002. Effective February 21, 2001 four persons were issued
450,000 shares of the Company's common stock for administrative services
rendered. Since its inception through December 31, 2003, the Company has not
generated any significant revenues and has not carried on any significant
operations. The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the accompanying
financial statements, the Company and a working capital deficiency of $395,966
and $440,856 at December 31, 2003 and 2002, respectively, and has incurred net
losses of $767,166 and $723,240 for the years ended December 31, 2003 and 2002,
respectively, and had an accumulated deficit of $1,490,856 at December 31, 2003.
These conditions raise substantial doubt about the Company'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. Management's
efforts have been directed towards the development and implementation of a plan
to develop various pharmaceutical products to the point at which they may be
sold. This plan necessarily means that it will be at least several years before
the Company will generate sufficient revenues to cover all of its present and
future costs and expenses. The Company's sources of cash to fund its operations
have been the sales of its securities to accredited investors. The Company
received, through December 31, 2003, $921,339 in proceeds (net of placement
costs) from the sale of 202,700,000 unregistered shares of its common stock to
its original founding stockholders and 75,000,000 unregistered shares of its
common stock to accredited investors in two private placements. In July 2002 the
Company issued its $350,000 note payable to one of its directors as
reimbursement for funds the director had paid on the Company's behalf for
certain research and development costs. In November 2003 the Company commenced a
private offering of up to $500,000 of its 20% interest bearing notes to
accredited investors. At December 31, 2003 only one note in the amount of
$25,000 was sold under the note placement. Subsequently through February 9,
2004, an additional three $25,000 notes were sold. Since the Company has not
generated any revenues since its inception and, since management does not
anticipate the Company will generate sufficiently substantial revenues from the
sale of its products in an amount necessary to meet its cash needs for the next
twelve months, management believes the Company will need additional financing to
continue operating.
F-7
NOTE 1 - PLAN OF ORGANIZATION: (Continued)
(a) Organization and Presentation of Financial Statements: (Continued)
Accordingly, in February 2004, the Company extended its $500,000
private placement debt offering to accredited individuals. The offering, which
was scheduled to expire on February 3, 2004, was extended to February 29, 2004.
Additionally, the Company has contracted with a placement agent, on a best
efforts basis, to sell up to 20,000,000 units of the Company's securities to the
public at a purchase price of $0.25 per unit. Each unit consists of one share of
the Company's common stock, one class A warrant to buy a share of the Company's
common stock at $.50 and a class B warrant to purchase one share of the
Company's common stock for $1.00. The Company would pay a placement agent
commission of 10% of the proceeds of all the units placed by the placement agent
and a non-accountable expense allowance of 3% of the proceeds of all the shares
placed by the placement agent. In addition to the placement agent's cash
compensation, the Company has agreed to give the placement agent warrants to
purchase up to 2,000,000 units at a purchase price of $.30 per unit which will
be exercisable for a period of 5 years, which means that the placement agent
will receive a warrant to purchase one unit for every 10 units sold by the
placement agent. The placement agent's warrants and the underlying shares of
common stock will not be registered at the time of grant.
(b) Principal Business Activity:
The Company is a development stage start-up pharmaceutical Company
focusing on the development and commercialization of innovative products for the
treatment of debilitating diseases. Management has no clinical experience in the
development of pharmaceutical products and intends to rely, in part, on academic
institutions and on clinical research institutions to conduct and monitor
certain clinical trials. The Company and its products are subject to
comprehensive regulation by the United States Food and Drug Administration (FDA)
in the United States of America and by comparable authorities in other
countries. In addition, certain clinical trials for our products are conducted
by government-sponsored agencies. Because the conduct of such trials will be
dependent on government funding and participation, the Company will have less
control over such trials than if it were the sponsor of these trials. As a
result, there can be no assurance that these trials will commence or be
completed as planned.
Currently, the Company is the exclusive licensee of a medical compound
which has certain derivatives that are (i) directed towards the treatment of
cancer as a site directed chemotherapeutic agent that selectively attacks only
cancer cells through a specific delivery device depending on the organ in which
the cancer is located in the body and (ii) directed towards anti-HIV activity
which could be used either systemically as an AIDS therapy, or locally as a
microbicide to prevent the sexual acquisition of HIV.
F-8
NOTE 2 - SUMMARY OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES:
(a) Basis of Presentation:
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
(b) Revenue Recognition:
Through December 31, 2003, the Company did not have any revenues and is
in the development stage. The Company will recognize revenues in accordance with
accounting principles generally accepted in the United States of America.
Revenues from the sale of its products will be recognized when shipped to its
customers. Royalties earned from the licensing of its products to other
pharmaceutical entities will be recorded on a pro-rata basis over the life of
the contract effectuating the royalty.
(c) Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
(d) Sponsored Research and Development Costs:
Sponsored research and development costs (R&D) are expensed at the
earlier of when they are paid or when the R&D is performed. R&D costs to date
have consisted of the minimum payments required under a sponsored research
agreement between the Company and Cornell University (Cornell). The three year
agreement which commenced on June 19, 2002 requires the Company to pay an
aggregate of $1,250,000 to Cornell for research costs and overhead associated
with the research. In July 2002 and 2003, respectively, payments of $500,000 and
$375,000 were made to Cornell and the remaining $375,000 is payable in July
2004. Although the pro rata amortization of the entire R&D cost is less than the
amounts paid in fiscal 2002 and 2003, management has charged the entire payments
to operations when paid because there is no evidence that the R&D will result in
a commercially viable product. Additionally the agreement requires the Company
to reimburse Cornell for certain costs incurred in obtaining patents for any
technology developed through the sponsored research. Fees for patent attorneys
of $52,146 in 2002 and $7,682 in 2003 were reimbursed to Cornell.
The agreement provides the Company with an exclusive license to the
technology developed under the research and development agreement. The Company
paid an initial license fee of $50,000 in fiscal 2002 which was charged to
operations as there is no evidence that any technology developed from the
research will be commercially viable. The license agreement requires additional
payments upon the attainment of certain milestones - initiation of clinical
trials and FDA or equivalent approval of products developed. The aggregate
payments required for the various milestones are $2,137,500.
F-9
NOTE 2 - SUMMARY OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES: (continued)
(e) Deferred Registration Costs:
Costs incurred in connection with the proposed initial sale of the
Company's securities to the public have been deferred and will be offset against
the proceeds from the sale of the securities. If the proposed initial sale of
the securities is not completed, the deferred registration will be charged to
operations.
(f) Earnings Per Share:
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share". Basic earnings per share is based on the weighted
effect of all common shares issued and outstanding, and is calculated by
dividing net income available to common stockholders by the weighted average
shares outstanding during the period. Diluted earnings per share, which is
calculated by dividing net income available to common stockholders by the
weighted average number of common shares used in the basic earnings per share
calculation plus the number of common shares that would be issued assuming
conversion of all potentially dilutive securities outstanding, is not presented
as it is anti-dilutive.
(g) Recently Issued Accounting Pronouncements:
In December 2003 the FASB issued Interpretation No. 46 (Revised)
"Consolidation of Variable Interest Entities". This interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements", describes the
circumstances under which a variable special purpose entity is to be
consolidated with entities that do not have the characteristics of a controlling
interest in the special purpose entity.
In April 2003, the FASB issued SFAS No. 149 which amends and clarifies
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Instruments with Characteristics of Both Liabilities and Equity. This statement
establishes standards for how an issuer classifies certain financial instruments
with characteristics of both liabilities and equity.
Management believes the adoption of these pronouncements will not have
a material impact on the Company.
F-10
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES.
Accounts payable and accrued expenses consist of the following at:
December 31,
-----------------------
2003 2002
---------- ----------
Professional fees $ 15,000 $ 12,250
Deferred registration costs -- 4,425
Payroll taxes 3,160 --
Franchise taxes payable 2,000 --
Sundry operating expenses 4,525 100
---------- ----------
$ 24,685 $ 16,775
========== ==========
NOTE 4 - RELATED PARTY TRANSACTIONS.
(a) Notes Payable:
In July 2002, a founding shareholder and director of the Company
personally paid $350,000 to Cornell University on behalf of the Company in
partial satisfaction of the Company's commitment to fund research under the
sponsored research and development agreement. The Company issued this director
its 15% interest bearing note payable on August 17, 2002. The director agreed to
extend the due date initially to March 31, 2003, then to June 30, 2003, then to
September 30, 2003 and currently to March 31, 2004. During the fourth quarter of
2003, $75,000 of loan principal was repaid. In return for the director's
extension of the note from March 31, 2003 to June 30, 2003, the Company issued
this director 5,000,000 shares of its common stock whose fair value at the date
of issuance was $250,000 which was charged to operations in 2003 as interest
expense. The fair value of the shares issued is based upon the per share price
which the Company was offering at that time to accredited investors through a
private placement of its common stock. Interest expense charged to operations on
this debt was $40,383 and $24,021 in 2003 and 2002, respectively. At December
31, 2003 and 2002 the director was owed accrued interest of $64,404 and $24,021
on this indebtedness which is included in the accompanying financial statements
under the caption accrued expenses - related parties.
In November 2003, the Company commenced a private placement of its 20%
interest bearing notes to accredited investors. A stockholder purchased a note
for $25,000 payable on November 7, 2004 plus accrued interest. Accrued interest
on this obligation of $603 was charged to operations in 2003 and is included in
accrued expenses - related parties at December 31, 2003. In February 2004 an
additional three notes of $25,000 each were purchased by three other
stockholders.
(b) Legal Fees:
The Company's general and securities counsel is an original shareholder
of the Company. During the period from inception to December 31, 2003, these
attorneys rendered services aggregating $128,306. $36,460 of the total was
charged to additional paid-in capital for legal services rendered in connection
with the Company's private placements of its common stock. $ 25,000 is an
advance for legal services to be
F-11
NOTE 4 - RELATED PARTY TRANSACTIONS.
(b) Legal Fees: (continued)
rendered in connection with the Company's initial offering of its securities to
the public. This amount is included in the accompanying financial statements
under the heading deferred registration costs. The remainder was for general
corporate matters of which $7,603 and $51,243 was charged to operations in 2003
and 2002, respectively.
A portion, $11,841, of these legal fees was paid by a director of the
Company who was subsequently reimbursed by the Company in September 2002. At
December 31, 2003, 2002 and 2001, these unpaid fees advanced on behalf of the
Company by this director aggregated $16,594, $81,485 and $6,691, respectively,
and are included in accrued expenses - related parties.
(c) Placement Agent Fees:
The Company's president controlled a corporate placement agent which
placed the Company's two private sales of its common stock to accredited
investors. The placement agent firm received $9,500 in 2001, $25,000 in
2002 and $70,950 in 2003 in commissions and fees for its services.
NOTE 5 - INCOME TAXES.
The Company does not have any currently payable or deferred federal or
local tax benefit since its inception to December 31, 2003. At December 31,
2003, the Company had a net operating loss carryforward amounting to
approximately $1,493,000 available to reduce future taxable income, of
which $723,000 expires in 2022 and $767,000 expires in 2023. Management is
unable to determine if the utilization of the future tax benefit is more
likely than not and, accordingly, the deferred tax asset of approximately
$507,500 has been fully reserved. A reconciliation of the actual tax
provision to the expected statutory rate is as follows:
For the Period From
For the Years Ended December 31, February 21, 2001
--------------------------------------------- (Inception) To
2003 2002 December 31, 2003
--------------------- -------------------- -----------------------
Loss before income taxes ($ 767,166) ($ 723,240) ($ 1,490,856)
----------- ----------- ------------
Expected statutory tax benefits (260,800) -34.0% (245,900) -34.0% (507,500) -34.0%
Net operating loss valuation reserve 260,800 34.0% 245,900 34.0% 507,500 34.0%
----------- ----------- ------------
Total tax benefit $ -- $ -- $ --
=========== =========== ============
F-12
NOTE 6 - COMMON STOCK.
On February 21,, 2001, the founding, original shareholders, all of whom
are accredited investors, subscribed for 202,700,000 shares of common stock for
an aggregate of $20,270 of which $140 was paid in 2001 and the balance in 2002.
In payment for administrative services rendered in conjunction with the
organizing of the Company, four persons received 450,000 shares of the Company's
common stock whose fair value was $45 as determined by the then per share price
($.0001) paid by the founding and original shareholders.
Private Placements of the Company's Securities:
In September 2001, the Company commenced the sale of 60,000,000 of its
unregistered common shares to accredited investors for $.005 per share. The
Company received $79,309 in proceeds (net of $16,191 in offering costs) in 2001
and $178,095 (net of $23,809 in offering costs) in 2002 from this private
offering.
In July 2002 the Company commenced another private placement of
15,000,000 unregistered shares of its common stock to accredited investors for
an aggregate of $750,000 ($.05 per share). The Company received $5,115 net
proceeds from the sale of 810,000 shares of its common stock in 2002 and
$638,550 in net proceeds from the sale of 14,190,000 share of its common stock
in 2003.
In November 2003 the Company commenced an offering for up to $500,000
of its 20% interest bearing one year unregistered notes to accredited investors.
The note offering was to expire on February 3, 2004 but was extended to March
31, 2004. Through December 31, 2003 one note in the amount of $25,000 was sold.
Initial Sale of the Company's Securities to the Public:
The Company entered into an agreement with a placement agent to offer
for sale to the public, on a best efforts basis, up to 20,000,000 units of the
Company's securities to the public at a purchase price of $0.25 per unit. Each
unit consists of one share of the Company's common stock, one Class A warrant to
buy a share of the Company's common stock at $.50 and a Class B warrant to
purchase one share of the Company's common stock for $1.00. The Company would
pay a placement agent commission of 10% of the proceeds of all the units placed
by the placement agent and a non-accountable expense allowance of 3% of the
proceeds of all the shares placed by the placement agent. In addition to the
placement agent's cash compensation, the Company has agreed to give the
placement agent warrants to purchase up to 2,000,000 units at a purchase price
of $.30 per unit which will be exercisable for a period of 5 years, which means
that the placement agent will receive a warrant to purchase one unit for every
10 units sold by the placement agent. The placement agent's warrants and the
underlying shares of common stock will not be registered at the time of grant.
F-13
NOTE 6 - COMMON STOCK. (Continued)
Subsequent Event:
The Company in January 2004 issued 500,000 shares of its common stock
to an individual as an inducement to become a member of the Company's Board of
Directors.
NOTE 7 - COMMITMENTS AND CONTINGENCIES.
(a) Sponsored Research and License Agreements.
In June 2002, the Company simultaneously entered into a three year
research and development agreement with the Weill Medical College of Cornell
University and a license agreement Cornell Research Foundation, Inc., a
subsidiary of Cornell University (collectively "Cornell"). The agreements
require the Company to fund the research for a medical compound which has
certain derivatives that are (i) directed towards the treatment of cancer as a
site directed chemotherapeutic agent that selectively attacks only cancer cells
through a specific delivery device depending on the organ in which the cancer is
located in the body and (ii) directed towards anti-HIV activity which could be
used either systemically as an AIDS therapy, or locally as a microbicide to
prevent the sexual acquisition of HIV. In return for the research funding, the
Company became the exclusive licensee for the commercial use of any product
derived from the research.
The Company is required to make additional minimum payments to Cornell
of $375,000 plus a portion of any costs associated with obtaining patents on the
technology derived from the research. In order for the Company to maintain its
exclusive license arrangement, the Company must make additional payments when
and if certain milestones are achieved. The Company paid an initial license fee
of $50,000 in fiscal 2002 which was charged to operations as there is no
evidence that any technology developed from the research will be commercially
viable. The aggregate payments required for the various milestones are
$2,137,500 and the amounts due are as follows:
Initiation of Phase I Clinical Trial $ 62,500
Initiation of Phase II Clinical Trial 125,000
Initiation of Phase III Clinical Trial 200,000
FDA or Equivalent Body Approval 1,000,000
First Anniversary after FDA Approval 750,000
The term of the license extends up to the expiration date of any patent
granted from the R&D technology. The license requires the Company to make
royalty payments of up to 7% from the sale of any product developed through the
R&D technology. Commencing one year after the first sale of any R&D related
product, the Company is required to make annual minimum royalty payments of
$100,000 for as long
F-14
NOTE 7 - COMMITMENTS AND CONTINGENCIES.
(b) Sponsored Research and License Agreements. (continued)
as the Company remains licensee. Cornell is also entitled to a percentage of the
proceeds received by the Company from its sub-licensees and from the sale or
transfer of any part of its rights and interest in the license. The Company may
terminate the license agreement at any time provided that all amounts owed under
the agreement are paid and that the sale of all products developed from the R&D
technology by the Company or its sub-licensees must cease and the license is
returned to Cornell.
(c) Sponsored Research and License Agreements.
In January 2004 the Company entered into a second sponsored research
agreement with Cornell for three years. The Company has agreed to sponsor
research in other uses of certain oncological technologies for an aggregate of
$1,000,000 payable $375,000 in 2004 and $312,500 in each of fiscal 2005 and
2006. The Company, in return for its research funding, received a first right of
refusal to acquire a royalty-bearing license to market the technology developed
by the researchers.
(d) Lease:
The Company and a corporation controlled by the lead researcher
employed by Cornell to undertake the sponsored research have entered into an
arrangement whereby the Company is entitled to use the researcher's apartment in
New York City for $1,500 per month through July 2004. The arrangement provides
for automatic yearly renewals. The researcher has agreed to credit the company
for its use fee any and all furnishings the company purchases for use in the
apartment. The Company in 2003 acquired $45,494 of furnishings and improvements
to apartment and received a credit of $9,000 from the owner for the six months
use through December 31, 2003. At December 31, 2003, the balance of the
furnishings costs was included in deferred rent.
F-15
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation (the "Certificate") provides that, except
to the extent prohibited by the Delaware General Corporation Law, as amended
(the "DGCL"), the Registrant's directors shall not be personally liable to the
Registrant or its stockholders for monetary damages for any breach of fiduciary
duty as directors of the Registrant. Under the DGCL, the directors have a
fiduciary duty to the Registrant which is not eliminated by this provision of
the Certificate and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available. In
addition, each director will continue to be subject to liability under the DGCL
for breach of the director's duty of loyalty to the Registrant, for acts or
omissions which are found by a court of competent jurisdiction to be not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited by
the DGCL. This provision also does not affect the directors' responsibilities
under any other laws, such as the Federal securities laws or state or Federal
environmental laws. The Registrant has applied for liability insurance for its
officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the Registrant may fully indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of the Registrant, or is or was serving at the request of the Registrant
as a director or officer of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The Registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 25: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Exclusive of the placement compensation, our estimated expenses in
connection with the issuance and distribution of the securities being registered
are:
Securities and exchange commission filing fee $ 6,968.50
Accounting fees and expenses $ 50,000.00
Legal fees and expenses $ 100,000.00
Placement agent legal fees paid by issuer $ 20,000.00
Transfer agent and escrow agent fees $ 20,000.00
Printing, mailing and engraving expenses $ 25,000.00
Blue Sky and NASD filing expenses $ 20,000.00
Travel and miscellaneous offering expenses $ 8,031.50
--------------
Total $ 200,000.00
==============
ITEM 26: RECENT SALES OF UNREGISTERED SECURITIES.
On February 21, 2001, the founding, original shareholders, all of whom are
accredited investors, subscribed for 202,700,000 shares of Marc Pharmaceuticals,
Inc.'s (the "Registrant") common stock for an aggregate of $20,270 of which
$140 was paid in 2001 and the balance in 2002.
In payment for administrative services rendered in conjunction with the
organizing of the Registrant, four persons received 450,000 shares of the
Registrant's common stock whose fair value was $45 as determined by the then per
share price ($.0001) paid by the founding and original shareholders.
In September 2001, the Registrant commenced the sale of 60,000,000 of its
unregistered common shares to accredited investors for $.005 per share. The
Registrant received $79,309 in proceeds (net of $16,191 in offering costs) in
2001 and $178,095 (net of $23,809 in offering costs) in 2002 from this private
offering.
In July 2002 the Registrant commenced another private placement of
15,000,000 unregistered shares of its common stock to accredited investors for
an aggregate of $750,000 ($.05 per share). The Registrant received $5,115 net
proceeds from the sale of 810,000 shares of its common stock in 2002 and
$638,550 in net proceeds from the sale of 14,190,000 share of its common stock
in 2003.
In March 2003 the Registrant issued Mr. San Antonio 5,000,000 shares of its
common stock as consideration for the extension of the Registrant's repayment of
Mr. San Antonio's loan to the Registrant from March 31, 2003 to June 30, 2003.
In November 2003 the Registrant commenced an offering for up to $500,000 of
its 20% interest bearing one year unregistered notes to accredited investors.
The note offering was to expire on February 3, 2004 but was extended to March
31, 2004. Through May 1, 2004 7 notes in the amount of $225,000 was sold.
The Registrant in January 2004 issued 500,000 shares of its common stock to
an individual as an inducement to become a member of the Registrant's Board of
Directors.
61
All of the above mentioned shares of common stock were issued in reliance
on the exemption from registration provided by Rule 506 of the Securities Act of
1933, as amended.
ITEM 27: INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------------------------------------
1(a) Form of Placement Agreement(2)
1(b) Form of Placement Agent's Warrant(2)
1(c) Form Placement Agent Registration Rights Agreement (2)
3(a) Articles of Incorporation, as amended(3)
3(b) By Laws(3)
4(a) Form of Common Stock Purchase Class A redeemable Warrant,
exercise price $.50(2)
4(b) Form of Common Stock Purchase Class B redeemable Warrant,
exercise price $1.00(2)
4(c) Form of Stock Certificate(2)
5 Opinion re: Legality(1)
10(a) Employment Agreement dated January 1, 2004, by and between
Marc Pharmaceuticals and Robert M. Cohen (3)
10(b) Sponsored Research Agreement, dated June 19, 2002, by and
between Marc Pharmaceuticals and Weill Medical College of
Cornell University(3)
10(c) Sponsored Research Agreement dated January 21, 2004, by and
between Marc Pharmaceuticals and Weill Medical College of
Cornell University(3)
10(d) Exclusive License Agreement dated June 19, 2002, by and
between Marc Pharmaceuticals and Cornell Research Foundation,
Inc.(3)
10(e) Form Lock-Up Agreement(3)
10(f) Schedule 10(f) identifying lock-up agreements that are
substantially similar to Exhibit 10(e) in all material
respects except to the parties thereto and the amount of
shares of common stock of the company that are locked up(3)
10(g) Form Escrow Agreement(2)
10(h) Warrant Agreement(2)
10(i) Consulting Agreement dated September 1, 2002, by and between
Marc Pharmaceuticals and Dr. Brij B. Saxena(3)
10(j) Consulting Letter Agreement dated January 1, 2004, by and
between Marc Pharmaceuticals and Joel San Antonio (3)
10(k) Form Subscription Agreement(2)
10(l) Specimen Promissory Note for Loan (3)
10(m) Schedule 10(m) identifying promissory notes that are
substantially similar to Exhibit 10(l) in all material
respects except to the parties thereto, the date of the note
and the amount of the loan. (1)
10(n) Promissory Note in favor of Joel San Antonio dated July 18,
2002 (3)
10(o) Agreement of Use, dated March 8, 2004, by and between Marc
Pharmaceuticals, Inc. and Warrantech Corporation (3)
23(a) Consent of Weinick Sanders Leventhal & Co., LLP(1)
62
23(b) Consent of Tannenbaum Helpern Syracuse & Hirschtritt LLP
(included in Exhibit 5)(1)
- ----------------
(1) Filed herein
(2) To be filed
(3) Previously filed
63
ITEM 28: UNDERTAKINGS
A. Registrant hereby undertakes:
a. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(3) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
b. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
c. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. The small business issuer will provide to the placement agent at the
closing specified in the placement agent agreement certificates in such
denominations and registered in such names as required by the placement
agent to permit prompt delivery to each purchaser.
C. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
64
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for the filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of New York, state of New York, on May 17, 2004.
Marc Pharmaceuticals, Inc.
By: /s/Robert M. Cohen
------------------------------------
Name: Robert M. Cohen
Title: Chief Executive Officer, Chief
Financial Officer, President and Secretary
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
By: /s/Joel San Antonio Date: May 17, 2004
-------------------
Name: Joel San Antonio
Title: Director
By: /s/William Tweed Date: May 17, 2004
----------------
Name: William Tweed
Title: Director
65