SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3 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
- ------------------------------ ---------------------------- -------------------
(State of Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
350 Bedford Street, Stamford, Connecticut 06901
(203) 352-8817
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(Address and Telephone Number of Principal Executive Offices)
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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
========================================================================================================================
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)
- ------------------------------------------------------------------------------------------------------------------------
Units $5,000,000 $.25 per unit $5,000,000 $633.50
- ------------------------------------------------------------------------------------------------------------------------
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 --
- ------------------------------------------------------------------------------------------------------------------------
Common Stock,
$.0001 par value, Issuable on
Exercise of class A redeemable $10,000,000 $.50 per share $10,000,000 $1,267
warrants
- ------------------------------------------------------------------------------------------------------------------------
Common Stock class B redeemable
warrants (2) $0 $.01 per warrant $0 --
- ------------------------------------------------------------------------------------------------------------------------
Common Stock,
$.0001 par value, Issuable on
Exercise of class B redeemable $20,000,000 $1.00 per share $20,000,000 $2,534
warrants
- ------------------------------------------------------------------------------------------------------------------------
Common Stock class B redeemable
warrants (2) $0 $.01 per warrant $0 --
- ------------------------------------------------------------------------------------------------------------------------
Common Stock,
$.0001 par value, Issuable on
Exercise of class B redeemable $20,000,000 $1.00 per share $20,000,000 $2,534
warrants
- ------------------------------------------------------------------------------------------------------------------------
(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 10,000 units. The warrants are immediately
detachable from the common stock and will be separately tradeable. Our
securities do not presently trade and there is no market for them.
THIS OFFERING IS HIGHLY SPECULATIVE AND INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
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 for a period of 5 years
from the date of this prospectus up to 2,000,000 units at $.31 per unit.
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.
A person should not invest unless he can afford to lose his entire
investment.
Price to Placement Proceeds
Public Commissions To Issuer
---------------- ---------------- ----------------
Per Unit $.25 $.02 $.23
Total $5,000,000 $400,000 $4,600,000
The date of this prospectus is _______________________.
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY.............................................................1
RISK FACTORS...................................................................3
NOTE REGARDING FORWARD LOOKING STATEMENTS.....................................17
USE OF PROCEEDS...............................................................17
DIVIDEND POLICY...............................................................19
CAPITALIZATION................................................................19
DILUTION......................................................................19
OUR COMPANY AND BUSINESS......................................................22
Background....................................................................22
Current Product Candidates....................................................23
Cancer Therapeutics...........................................................23
HIV Therapeutics..............................................................26
Material Agreements...........................................................27
Scientific Advisory Board.....................................................30
Patents and Proprietary Technology............................................30
Government Regulation.........................................................32
STAGES OF DRUG DEVELOPMENT FOR CANCER THERAPEUTIC.............................36
STAGES OF DRUG DEVELOPMENT FOR HIV THERAPEUTIC................................37
Manufacturing.................................................................38
Sales and Marketing...........................................................38
Competition...................................................................38
Product Liability.............................................................39
PLAN OF OPERATION.............................................................39
MANAGEMENT....................................................................41
Directors and Executive Officers..............................................41
Robert M. Cohen...............................................................42
Joel San Antonio..............................................................42
Executive Compensation........................................................43
Indemnification of Directors and Officers.....................................44
PRINCIPAL STOCKHOLDERS........................................................46
DESCRIPTION OF SECURITIES.....................................................47
Common Stock..................................................................47
INVESTOR SUITABILITY STANDARDS APPLICABLE IN CERTAIN STATES...................48
PLAN OF DISTRIBUTION..........................................................48
SHARES ELIGIBLE FOR FUTURE SALE...............................................49
LEGAL MATTERS.................................................................51
OFFICE........................................................................51
LITIGATION....................................................................51
EXPERTS.......................................................................51
ADDITIONAL INFORMATION........................................................52
FINANCIAL INFORMATION........................................................F-1
PROSPECTUS SUMMARY
ABO0UT 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. The information contained on our web site is not a
part of this prospectus.
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 intended for use in treating cancer and
in treating HIV and AIDS. 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 chemotherapeutic
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) or as an AIDS therapy, or locally to inhibit the growth and
transmission of HIV through sexual activity. We have had no revenues and sales.
Although there are preliminary indications that our compounds may be
effective in treating cancer and HIV and AIDS, our compounds and their
derivatives have not been proven effective in treating cancer or HIV or AIDS in
humans or in preventing HIV or AIDS in humans and our compounds and their
derivatives have not yet been proven safe for administration to human beings.
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. We have not yet applied for, or
received, approval from the FDA or any other of these authorities and, unless we
receive such approvals, even if our compounds are both safe and effective, we
will not be able to market our drugs.
OUR FINANCIAL SITUATION
Currently, we have no revenues generated from operations and we do not
expect any revenues for several years. We have an accumulated deficit of
($1,771,106) and through June 25, 2004 we have incurred $925,000 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
approximately $3,000,000 is raised, we expect, assuming 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 $3,000,000 will
be expended as follows: placement agent commissions and expense allowances of
$330,000, offering expenses of $200,000, accrued expenses of $200,000, debt of
$1,050,000, including interest, and first year expenses of $1,220,000. If we
fail to raise at least $3,000,000 in this offering and do not 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.
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.
Our securities are not listed on any securities exchange or on the
Nasdaq Stock Market. They do not presently trade and there is no market for
them. After the effectiveness of our registration statement we will seek
quotation for our shares and warrants on the OTC Bulletin Board which will
enable our shares and warrants to be traded. However, there may still be no
market for them.
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, we 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
2
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.
INVESTOR SUITABILITY STANDARDS
As of the date of this prospectus there are no special suitability
requirements imposed by any state securities commission.
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 For the Three Months
Statement of Operations Data: December 31, 2003 Ended March 31, 2004
- ----------------------------- ----------------- --------------------
Revenues $0 $0
Loss from operations $(476,223) $(266,432)
Net loss $(767,166) $(280,250)
Net loss attributable to stockholders $(767,166) $(280,250)
Basic and diluted net loss per share $0 $0
Weighted average shares outstanding used in 275,755,890 283,522,222
basic and diluted net loss per share calculation
Balance Sheet Data: December 31, 2003 March 31, 2004
- ------------------ ----------------- --------------
Cash $3,015 $66,818
Working capital (deficiency) $(395,966) $(681,128)
Total assets $86,814 $277,160
Total liabilities $406,286 $751,882
Total stockholders' capital deficiency $(319,472) $(474,722)
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 most of the funds that we have raised so far and have not
earned any revenues. As a result, as of March 31, 2004 and December 31, 2003, we
had a working capital
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deficiency of ($681,128) and ($395,966) respectively, and a stockholders'
capital deficiency of ($474,722) at March 31, 2004 and ($319,472) at December
31, 2003. 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, as amended, 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 the following:
a. we may not be able to acquire or maintain 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;
d. we may not secure proprietary patient rights to protect our products
from competitors;
e. the proprietary rights of third parties may preclude us or our
collaborators from making, using or marketing the products utilizing our
technologies; or
f. 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.
4
The commercial success of our products, if any, when and if approved
for marketing by the 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 $3,000,000 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 $925,000, 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 our Board, 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. On
May 31, 2004 the maturity date of the note was extended until September 1, 2004.
We have repaid only $225,000 of this loan.
Commencing in November 2003 through June 2003, we borrowed $800,000 by
issuing 11 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.
THE NOTE OFFERING IN WHICH WE BORROWED $800,000 COULD BE RESCINDED
$800,000 of notes were sold in what we believe was an exempt private
offering. Nevertheless, the Securities and Exchange Commission, state securities
regulators or one or more of the holders of the notes may at some time assert
the position that the note offering was an unregistered public offering. If such
position were to prevail, several possible consequences might ensue. If a
recission is required, we may have to return the funds from the notes earlier
than the time they are due, together with interest at a market rate. We and our
principals may also be subject to an enforcement action by federal or state
agencies with the possible result that sanctions could be imposed and that
significant time and resources may have to be created to defense of such
actions.
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.
5
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 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. 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
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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 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
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 AND THEY MAY REQUIRE US TO GIVE
UP A LARGE PORTION OF OUR INTEREST IN OUR PRODUCT; 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 do
not know at this time what the extent of such interest may be. 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.
7
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 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. We may not 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.
8
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 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 (under which we are licensed) that
has been allowed by the U.S. Patent and Trademark Office for one of our licensed
compounds, 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
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 patents protecting our products 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 patent applications relating to our products. These groups may have
made their discoveries prior to the discoveries covered by patent applications
relating to our products and may have filed their patent applications prior to
patent applications relating to our products. Such prior inventions and patent
applications could impede or prevent the grant of patents on the patent
applications relating to our products. We do not expect to know for several
years the relative strength of the patent position relating to our products as
compared to these other groups.
COMPANIES, UNIVERSITIES AND RESEARCH INSTITUTIONS 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.
9
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 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 utilizing 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. 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
10
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.
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 new 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 of pharmaceutical products 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 current agreements with
Cornell Research Foundation, Inc. and Weill Medical College of Cornell
University, we obtained worldwide, exclusive license under certain patent
applications relating to the preparation of betulinol derivatives used in the
treatment of cancer and for the treatment of HIV and AIDS. 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.
11
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 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.
12
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 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
13
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 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
14
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 WARRANTS THAT ARE OFFERED IN THIS PROSPECTUS ARE EXERCISABLE DURING A PERIOD
THAT CONTINUES FOR SEVERAL YEARS AND IF THE CURRENT REGISTRATION STATEMENT DOES
NOT CONTINUE IN EFFECT THE WARRANTS MAY NOT BE EXERCISABLE.
The class A redeemable warrants contained in the units may be exercised
at any time from the date this prospectus goes 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 least 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 at $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 WILL SUFFER IMMEDIATE DILUTION AND MAY BE SUBJECT TO FURTHER
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 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.
15
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 June 25, 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 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 303,650,000
limitations and assuming no warrants have been exercised)......................
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 363,650,000
limitations and assuming all the class A redeemable warrants and the class B
redeemable warrants have been exercised).......................................
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
-----------
16
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 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 $1,220,000 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 $3,000,000 in
this offering. If we do earn revenues, which is unlikely, we will need fewer
funds from this offering to cover our expenses and, thus, we will have more
funds available for business development. The $3,000,000 will be expended as
follows: placement agent commissions and expense allowances of $330,000,
offering expenses of $200,000, accrued expenses of $200,000, debt of $1,050,000,
including interest, and first year expenses of $1,220,000. We have issued a
promissory note to Joe San Antonio on July 18, 2002, our chairman of the board,
in the principal amount of $350,000 bearing interest at the rate of 15% per
annum. We repaid $225,000 of this loan. The balance of the note is due on
September 1, 2004. We intend to repay the balance of this note when it is due,
with interest, from the proceeds of this offering if we raise at least
$1,000,000. The funds from this note were used to pay a portion of the payments
due under the License Agreement and Sponsored Research Agreements that we
entered into with Cornell. In addition, commencing in November 2003 through June
2004 we borrowed $800,000 by issuing 11 promissory notes each bearing interest
at the rate of 20% per annum. Each are due with interest one year from the date
issued. We intend to repay these notes as they become due, with interest, from
the proceeds of this offering if we raise at least $2,500,000. These funds were
also used for the same purpose as the funds received from Mr. San Antonio for
the expenses in connection with such agreements. We expect to need additional
funds for the second 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 $4,250,000 if all
17
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 the next 12
months of $300,000 in connection with the development of our products and of
$150,000 under our license agreement for the two products.
We believe that the net proceeds of this offering, if all units 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.
Pending such uses, we will invest the net proceeds from this offering
in short-term, interest bearing investment grade securities.
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 If If If If If If
$250,000 $500,000 $1,000,000 $2,500,000 $3,000,000 $4,000,000 $5,000,000
is raised is raised is raised is raised is raised is raised is raised
- ------------------------------------------------------------------------------------------------------------------------------
Placement Agent's commission equal to $20,000 $40,000 $80,000 $200,000 $240,000 $320,000 $400,000
8% of the total amount sold in this
offering
- ------------------------------------------------------------------------------------------------------------------------------
Placement Agent's Non-Accountable $7,500 $15,000 $30,000 $75,000 $90,000 $120,000 $150,000
Expense Allowance of 3% of the total
amount sold in this offering
- ------------------------------------------------------------------------------------------------------------------------------
Legal, accounting, printing fees and $150,000 $150,000 $150,000 $200,000 $200,000 $200,000 $200,000
other offering expenses
- ------------------------------------------------------------------------------------------------------------------------------
Accrued expenses to the date of this $0 $60,000 $200,000 $200,000 $200,000 $200,000 $200,000
prospectus
- ------------------------------------------------------------------------------------------------------------------------------
Repayment of our debt, plus interest $0 $0 $125,000 $1,050,000 $1,050,000 $1,050,000 $1,050,000
($125,000)
- ------------------------------------------------------------------------------------------------------------------------------
Our payments due under License $47,500 $85,000 $230,000 $560,000 $560,000 $560,000 $560,000
Agreement with Cornell University,
our Research Agreement with the
Foundation and our Consulting
Agreement with Dr. Saxena
- ------------------------------------------------------------------------------------------------------------------------------
Our FDA expenses, patent application $25,000 $50,000 $85,000 $52,000 $152,000 $200,000 $200,000
fees and
Patent legal fees
- ------------------------------------------------------------------------------------------------------------------------------
Compensation to a Chief Financial $0 $0 $0 $0 $100,000 $300,000 $300,000
Officer and a Chief Engineer
Scientist to be engaged
- ------------------------------------------------------------------------------------------------------------------------------
18
- ------------------------------------------------------------------------------------------------------------------------------
Offering Proceeds If If If If If If If
$250,000 $500,000 $1,000,000 $2,500,000 $3,000,000 $4,000,000 $5,000,000
is raised is raised is raised is raised is raised is raised is raised
- ------------------------------------------------------------------------------------------------------------------------------
Compensation of current officers, $0 $100,000 $100,000 $163,000 $368,800 $600,000 $600,000
directors and employees and
administrative costs
- ------------------------------------------------------------------------------------------------------------------------------
Compensation to additional office $0 $0 $0 $0 $35,000 $35,000 $35,000
staff to be engaged
- ------------------------------------------------------------------------------------------------------------------------------
Public Relations $0 $0 $0 $0 $0 $72,000 $72,000
- ------------------------------------------------------------------------------------------------------------------------------
Expanded Facility and Rent $0 $0 $0 $0 $4,200 $100,000 $100,000
- ------------------------------------------------------------------------------------------------------------------------------
Research and Development of $0 $0 $0 $0 $0 $200,000 $725,000
New Compounds
- ------------------------------------------------------------------------------------------------------------------------------
Reserve for product testing and trials $0 $0 $0 $0 $0 $28,000 $350,000
- ------------------------------------------------------------------------------------------------------------------------------
Working Capital $0 $0 $0 $0 $0 $15,000 $58,000
- ------------------------------------------------------------------------------------------------------------------------------
$250,000 $500,000 $1,000,000 $2,500,000 $3,000,000 $4,000,000 $5,000,000
==============================================================================================================================
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 $3,000,000 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 March 31,
2004.
- ----------------------------------------------------------- -------------------
Long-term Obligations $0
- ----------------------------------------------------------- -------------------
Stockholders' capital deficiency: common stock, $.0001 $28,365
par value, 750,000,000 shares authorized,
283,650,000 shares issued and outstanding
- ----------------------------------------------------------- -------------------
Additional paid-in capital $1,268,019
- ----------------------------------------------------------- -------------------
Deficit accumulated in development stage $(1,771,106)
- ----------------------------------------------------------- -------------------
Total stockholders' capital deficiency $(474,722)
- ----------------------------------------------------------- -------------------
Total capitalization ($474,722)
- ----------------------------------------------------------- -------------------
DILUTION
Our net tangible book value deficiency as of March 31, 2004 was
$(643,216), or ($.002) 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 March 31, 2004. Assuming the sale of all of the
units offered pursuant to this prospectus at a price of $.25 per unit, then,
after deducting placement
19
commissions and estimated offering expenses aggregating $750,000 (but without
taking into account the shares issuable upon exercise of the warrants), the net
tangible book value of our company as of March 31, 2004 would have been
$3,775,278, or $.012 per share of common stock. This represents an immediate
increase in net tangible book value of $.014 per share to existing stockholders
and an immediate dilution in net tangible book value of $.238 per share to new
investors. The following table illustrates this per share dilution:
Assumed initial public offering price per share $.25
Net tangible book value per share before this offering ($.002)
Increase in net tangible book value attributable to new investors $.014
Net tangible book value per share after this offering $.012
Dilution per share to new investors $.238
Percentage dilution 95.2%
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 $475,000 (but without
taking into account the shares issuable upon exercise of the warrants), the net
tangible book value of our company as of March 31, 2004 would have been
$1,550,278, or $.005 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 $.245 per share to new
investors. The following table illustrates this per share dilution:
Assumed initial public offering price per share $.25
Net tangible book value per share before this offering ($.002)
Increase in net tangible book value attributable to new investors $.007
Net tangible book value per share after this offering $.005
Dilution per share to new investors $.245
Percentage dilution 98.0%
Assuming the sale of 1,500,000 of the units offered pursuant t this
prospectus at a price of $.25 per unit, then, after deducting placement
commissions and estimated offering expenses aggregating $241,250 (but without
taking into account the shares issuable upon exercise of the warrants), the net
tangible book value of our company as of March 31, 2004 would have been a
deficiency of ($340,972) or ($.001) per share of common stock. This represents
an immediate increase in net tangible book value of $.001 to existing
stockholders and an immediate dilution in net tangible book value of $.251 per
share to new investors. The following table illustrates this per share dilution:
Assumed initial public offering price per share $.250
Net tangible book value per share before this offering ($.002)
20
Increase in net tangible book value attributable to new investors $.001
Net tangible book value per share after this offering ($.001)
Dilution per share to new investors $.251
Percentage dilution 100.4%
The following table summarizes, on a pro forma basis as of March 31,
2004, 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 per
Shares Purchased Total Consideration Share
- ------------------------------- ------------------------------ ----------------------------- ---------------------
Number Percent Number Percent
- ------------------------------- ----------------- ------------ ----------------- ----------- ---------------------
Existing stockholders 283,650,000 93.4% $1,296,384 19% $.0046
- ------------------------------- ----------------- ------------ ----------------- ----------- ---------------------
New investors 20,000,000 6.6% $5,000,000 81% $.2500
- ------------------------------- ----------------- ------------ ----------------- ----------- ---------------------
Total 303,650,000 100.0% $6,296,384 100.0% $.0207
- ------------------------------------------------------------------------------------------------------------------
HALF OF THE UNITS ARE SOLD:
- ------------------------------------------------------------------------------------------------------------------
Average Price per
Shares Purchased Total Consideration Share
- ------------------------------- ------------------------------ ----------------------------- ---------------------
Number Percent Number Percent
- ------------------------------- ----------------- ------------ ----------------- ----------- ---------------------
Existing stockholders 283,650,000 96.6% $1,296,384 76% $.0046
- ------------------------------- ----------------- ------------ ----------------- ----------- ---------------------
New investors 10,000,000 3.4% $2,500,000 24% $.2500
- ------------------------------- ----------------- ------------ ----------------- ----------- ---------------------
Total 293,650,000 100.0% $3,796,384 100.0% $.0129
- ------------------------------------------------------------------------------------------------------------------
1,500,000 UNITS ARE SOLD:
- ------------------------------------------------------------------------------------------------------------------
Average Price per
Shares Purchased Total Consideration Share
- ------------------------------- ------------------------------ ----------------------------- ---------------------
Number Percent Number Percent
- ------------------------------- ----------------- ------------ ----------------- ----------- ---------------------
Existing stockholders 283,650,000 99.9% $1,296,384 65% $.0046
- ------------------------------- ----------------- ------------ ----------------- ----------- ---------------------
New investors 1,500,000 1.5% $375,000 35% $.2500
- ------------------------------- ----------------- ------------ ----------------- ----------- ---------------------
Total 285,150,000 100.0% $1,671,384 100.0% $.0058
- ------------------------------------------------------------------------------------------------------------------
21
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 . The information in our web site is not a part of
this prospectus.
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 of which 283,650,000 shares are issued and outstanding.
202,700,000 shares of common stock have been issued at a purchase price of
$.0001 per share to our founders.
Between June 30, 2001 and June 30, 2002, we issued 450,000 shares of
our common stock, at a purchase price of $.0001 per share to six persons for
payment for administrative services rendered in conjunction with our organizing
in February 2001.
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. On May 31, 2004 the maturity date of the note was extended to September 1,
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. No
additional consideration was granted for the additional extensions. We repaid
$225,000 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.
Commencing in November 2003 through June 2004, we borrowed $800,000 for
operations by issuing 11 promissory notes each bearing interest at a rate of 20%
per annum, and each due with interest one year from the date issued. These notes
were offered to all accredited individuals, all but one whom were our
stockholders at the time they were offered these notes. We did not seek
investors outside of our own stockholders and a few other individuals who are
longstanding business associates of our officers. We did not use this prospectus
as part of a solicitation for the sale of the notes. Nevertheless, either the
Securities and Exchange Commission, a state securities regulator or one or more
of the note holders from the note offering may at some time assert the position
that the note offering was an unregistered public offering. If such position
were to prevail, several possible consequences might ensue, including rescission
or enforcement proceedings involving our company and our principals.
22
To date we have had no sales and no revenues. We are uncertain as to
when, if ever, we will generate revenues.
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 betulinol derivative. These derivatives are developed on
our behalf at certain laboratory facilities at Cornell University that 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.
Although there are preliminary indications that our compounds may be
effective in treating cancer and HIV and AIDS, our compounds and their
derivatives have not been proven effective in treating cancer or HIV and AIDS or
in preventing HIV and AIDS and our compounds and their derivatives have not yet
been proven safe for administration to human beings.
With respect to each of these products, we entered into an exclusive
license agreement with Cornell University. Under this agreement we received
exclusive licenses 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
23
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.
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.
24
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.
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.
Our principal investigator at Cornell reports that the cancer
therapeutic has, through the date of this prospectus, been tested exclusively in
a simulated laboratory environment and in mice that are genetically bred to not
be able to produce antibodies. Antibodies are normally produced by living
organisms such as humans and mice to combat the presence of dangerous
conditions, such as cancer, which the organism discovers in itself. By utilizing
these specially bred mice, the results of the cancer therapeutic may be measured
without interference from the mouse's own antibodies.
The investigators have transplanted prostate cancer cell cultures in
the form of tumors into these mice by injection. They then injected the cancer
therapeutic into the same mice. Results have been substantially consistent in
showing that our licensed compound has killed the cancer cells while not
affecting normal cells. To date, the cell cultures that have been introduced
into the mice have been developed in the laboratory.
Over the next twelve months, two more investigatory processes will be
conducted and, if they are successful, we will file an IND with the FDA. Then,
we will be required to wait for FDA approval of the IND before additional
testing is commenced. Because it is anticipated that the next two processes will
be conducted over a period of four to six months, it is likely that FDA approval
of the IND will not occur prior to the end of the twelve month period and,
therefore, it is likely that no additional testing of the cancer thereapeutic
will occur during that period.
The beginning of the next phase is already in process. Our laboratory
is growing three dimentional prostate tumors in agar gelatin, in both the
presence and the absence of the cancer therapeutic. The expected result will be
that the tumors will grow in the gelatin which does not have the compound
present but will not grow in the gelatin where the compound is present. This
test must be repeated. If this result is, in fact achieved, the testing will
move to the next step.
After the gelatin testing, the investigators will transplant human
prostate tumor tissue into mice. This human tissue will be secured from approved
sources which are both living cancer patients and deceased sufferers of prostate
cancer. All three types of prostate cancer cells will be introduced into the
mice that are genetically devoid of an immune system and the same results will
be sought. Then the investigator will study of tumor tissue prior to the drug
treatment and after the drug treatment to determine the success of the
experiment.
25
If these steps are also successful, we will then file the IND for the
cancer therapeutic, in connection with the treatment of prostate cancer, with
the FDA. Later, as additional cancers are tested and if these tests are
successful, additional FDA filings will be made.
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. There can be no assurance that any claims
will be granted on this application.
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.
The steps taken before filing the cancer therapeutic IND will similarly
be taken before filing the HIV therapeutic IND. However, since funding has only
recently been provided by us to Cornell for research, it is likely that these
steps will be taken at a slower pace. Nevertheless, various testing procedures
have been conducted at Cornell with respect to the HIV compound without any
outside funding so the process will continue at an intermediate stage. It is
likely that the IND will not be filed, if at all, before the second quarter of
2005.
- --------
(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. Barring unanticipated
developments the patent will be granted shortly by the U.S. Patent and Trademark
Office. 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. The U.S. Patent
and Trademark Office has begun to examine the application and a first formal
office action was issued on July 20, 2004. There can be no assurance that any
claims will be granted on this application. The European Patent Office has also
indicated that the counterpart European Patent Application (licensed to us by
the Foundation) is allowable and the grant of a patent on this application is
anticipated shortly. We have exercised our option to enter into an amendment to
the license agreement for use of certain betulinol derivatives treatment of HIV
and AIDS. Accordingly, in July, 2004 we executed an amendment to the License
Agreement. The license agreement, as amended, gives us an exclusive license
under certain patent applications owned by the Foundation, 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 the Foundation up to an aggregate of
$2,187,500 over the term of the agreement from the submission of an
investigational new drug application (IND) to the U.S. Food and Drug
Administration 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 the Foundation a license initiation fee of $50,000
for the cancer therapeutic and $25,000 for the HIV compound and we shall pay an
additional $25,000 for the HIV compound on November 1, 2004.
27
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, in no event will the royalty payable to the
Foundation be less than 4%. We are also required to pay the Foundation a minimum
annual royalty of $100,000 beginning in the contract year following the contract
year in which the first sale of a licensed product occurs.
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 the Foundation 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 license agreement with
the Foundation with prior written approval by the Foundation.
The term of the license agreement with the Foundation 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 patents 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 patents.
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 all of which we have already paid to the University.
28
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 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,
then $187,500 within 180 days after the due date for the first payment, then
$312,500 within 14 months after the due date of the first payment and then
$312,500 within 26 months after the due date of the first payment. Cornell has
subsequently agreed that the first $187,500 may be paid in installments. $75,000
has already been paid and the balance of $112,500 will be paid by November 12,
2004.
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
29
agreed to pay Dr. Saxena $1,000 for each day that he performs consulting
services for us. 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 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 maintain and protect our proprietary technology. Our
proprietary technology may include inventions developed and owned by others
under which we are licensed. Because we do not own these inventions (and any
patents or patent applications for such inventions) and will only have rights to
protect and sell them under the license agreement, we may be required to make
substantial cash payments and to achieve certain milestones in order to maintain
our license to the inventions. If we fail to make the required payments or
achieve the milestones, we risk the loss of rights to the inventions and the
right to develop and market products based on the invention. Furthermore, if the
owner of the rights to the inventions fails to obtain and maintain any patents
for one or more of the inventions, we may not be able to prevent competitors
from developing and marketing products based on that invention.
Our proprietary technology may also include inventions which we develop
and own. We may in the future sponsor the development of an invention from
inception with an independent laboratory as opposed to a government agency or
educational institution, and, in such event, we will most likely own all rights
to that invention. We intend to seek United States patent protection for
inventions owned by the company, and we intend to file counterpart foreign
applications for such inventions in order to protect the inventions in our
important markets outside the U.S. Therefore, any patent protection for these
inventions will be owned by the company and it will be the responsibility of the
company to obtain and maintain any patents for the technology.
Under our current license agreement with Cornell University, we have
been granted 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
30
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 inhibit 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 demonstrate that these derivatives
have some anticarcinogenic activity. Cornell University has paid the government
issue fee which means that the patent application for the method of preparing
the betulinol derivatives should shortly be granted as a United States patent. A
patent application filed by Cornell Research Foundation, Inc. directed to
methods of preparing these compounds was allowed by the U.S. Patent and
Trademark Office on December 31, 2003. A divisional of this patent application
directed to methods of treating cancer with these compounds was filed by Cornell
Research Foundation, Inc. in the U.S. Patent and Trademark Office on August 2,
2002.
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 issued patents owned by
or licensed to us 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
31
payment. There can be no assurance that patents owned by or licensed to us 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 action 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. Now a United States patent
comes into force on the date of issuance and expires twenty years from the
earliest effective filing date of the patent 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.
In addition to the patents, patent applications and licenses 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.
32
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 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.
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
33
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 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.
34
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 because our products in development may meet these
requirements. 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, 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 without any assumption of
accelerated treatment.
35
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, metabolism, Second quarter of 2005 to the first
distribution and excretion quarter of 2006
Phase II - studies in limited patient population for efficacy, dosage Balance of 2006 through the end of 2008
tolerance and adverse effects and safety risks
Phase III - studies in expanded patient population to further evaluate 2009 and 2010
efficacy and safety
Filing of New Drug Application (NDA) End of 2010
FDA Review of NDA During 2011
FDA Approval End of 2011
36
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, metabolism, Second quarter of 2005 to the first
distribution and excretion quarter of 2006
Phase II - studies in limited patient population for efficacy, dosage Balance of 2006 through the end of 2008
tolerance and adverse effects and safety risks
Phase III - studies in expanded patient population to further evaluate 2009 and 2010
efficacy and safety
Filing of New Drug Application (NDA) End of 2010
FDA Review of NDA During 2011
FDA Approval End of 2011
37
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 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.
38
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 June 25, 2004 aggregated a total of $1,150,000 in
proceeds from notes payable (of which $225,000 was repaid) and net proceeds from
the sale of the Company's common stock of $921,339.
Cash on hand at July 30, 2004 totaled $23,634.74.
We have a working capital deficiency of ($681,128) and ($395,966) at
March 31, 2004 and December 31, 2003, respectively, and a capital deficiency of
($474,722) at March 31, 2004 and ($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.
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, perhaps 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 $560,000
b. Patent expenses $150,000
c. Compensation for a chief financial officer,
chief product scientist and other staff $300,000
d. Expanded facility $100,000
e. Other expenses for testing $200,000
f. FDA expenses $50,000
g. Miscellaneous expenses $100,000
----------
TOTAL $1,460,000
If we sell less than all of the units in this offering, but at least
$3,000,000 worth of units, we may not be able to undertake all of the described
activities and we will reduce our
39
expenditures to the levels as shown in the following chart. We will still be
able to carry on our necessary activities for the 12 months of operations,
including the filing of the INDs for both of our products.
a. Payments to Cornell $560,000
b. Patent expenses $102,000
c. Compensation for a chief financial officer,
chief product scientist and other staff $100,000
d. FDA expenses $ 50,000
---------
TOTAL $812,000
If we sell less than $3,000,000 of units, we will be required to seek
alternative financing sources in order to conduct the required activities and
expend the amounts shown in the preceding table. If we cannot raise these funds,
we will suspend operations until we have the necessary capital. If we do not
raise the necessary capital by the time that additional expenditures must be
made, we may lose our licenses or be unable to take our drugs to the FDA.
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 2005 and then clinical trials and approval from the FDA
can take anywhere from 5 to 10 years. It may cost hundreds of millions of
dollars to bring a new drug to the marketplace. We do not at 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, we 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 our 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.
Our principal investigator at Cornell reports that the cancer
therapeutic has, through the date of this prospectus, been tested exclusively in
a simulated laboratory environment and in mice that are genetically bred to not
be able to produce antibodies. Antibodies are normally produced by living
organisms such as humans and mice to combat the presence of dangerous
conditions, such as cancer, which the organism discovers in itself. By utilizing
these specially
40
bred mice, the results of the cancer therapeutic may be measured without
interference from the mouse's own antibodies.
The investigators have transplanted prostate cancer cell cultures in
the form of tumors into these mice by injection. They then injected the cancer
therapeutic into the same mice. Results have been substantially consistent in
showing that our licensed compound has killed the cancer cells while not
affecting normal cells. To date, the cell cultures that have been introduced
into the mice have been developed in the laboratory.
Over the next twelve months, two more investigatory processes will be
conducted and, if they are successful, we will file an IND with the FDA. Then,
we will be required to wait for FDA approval of the IND before additional
testing is commenced. Because it is anticipated that the next two processes will
be conducted over a period of four to six months, it is likely that FDA approval
of the IND will not occur prior to the end of the twelve month period and,
therefore, it is likely that no additional testing of the cancer thereapeutic
will occur during that period.
The beginning of the next phase is already in process. Our laboratory
is growing three dimentional prostate tumors in agar gelatin, in both the
presence and the absence of the cancer therapeutic. The expected result will be
that the tumors will grow in the gelatin which does not have the compound
present but will not grow in the gelatin where the compound is present. This
test must be repeated. If this result is, in fact achieved, the testing will
move to the next step.
After the gelatin testing, the investigators will transplant human
prostate tumor tissue into mice. This human tissue will be secured from approved
sources which are both living cancer patients and deceased sufferers of prostate
cancer. All three types of prostate cancer cells will be introduced into the
mice that are genetically devoid of an immune system and the same results will
be sought. Then the investigator will study of tumor tissue prior to the drug
treatment and after the drug treatment to determine the success of the
experiment.
If these steps are also successful, we will then file the IND for the
cancer therapeutic, in connection with the treatment of prostate cancer, with
the FDA. Later, as additional cancers are tested, and if the tests are
successful, additional FDA filings will be made.
With respect to the HIV therapeutic, similar steps will be followed.
However, since funding has recently been provided to Cornell for research by us,
it is likely that these steps will be taken at a slower pace. Nevertheless,
various testing procedures have been conducted at Cornell with respect to the
HIV compound without any outside funding so the process will continue at an
intermediate stage. It is likely that the IND will not be filed, if at all,
before the second quarter of 2005.
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:
41
- --------------------------------- ------------- -------------------------------------------------------
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. 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.
42
EXECUTIVE COMPENSATION
Long-term Compensation Awards
Annual Compensation Securities Underlying Options ($)
------------------- ---------------------------------
Name Salary($) Bonus($)
---- --------- --------
Robert M. Cohen $20,000(1) (2) 0
Joel San Antonio 0 (3) 0 0
(1) Mr. Cohen is entitled to receive $250,000, plus an automobile expense
allowance of $12,000 per year, beginning January 1, 2004. These amounts have
been accruing during 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 is
entitled to receive $120,000, plus an automobile expense allowance of $12,000
per year, beginning January 1, 2004 These amounts have been accruing during
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.
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. Mr. San Antonio is also responsible for
maintaining relations with Cornell, monitoring the progress of the licensed
compound at the labs, inspecting the labs, meeting with scientists to discuss
results and strategies in connection with the licensed compound, meeting with
patent counsel to determine patient strategies globally and to negotiate license
agreements and meeting with corporate counsel to negotiate sponsored research
agreements. The consulting
43
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. On May 31, 2004 the note was extended to September 1, 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. No
additional consideration was granted for the additional extensions. We repaid
$225,000 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 as to which he 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 $70,950 in 2003 in commissions and
fees for its services.
Indemnification of Directors and Officers
Our Certificate of Incorporation provides that, except to the extent
prohibited by the Delaware General Corporation Law, as amended (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
44
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.
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 against
public policy as expressed in the Securities Act of 1933and will be governed by
the final adjudication of such issue.
45
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of July 30, 2004, by:
o Each person (or group of affiliated persons) who is known by us to
beneficially own 5% or more of our common stock
o Each of our directors
o Each of our named executive officers
o All of our directors and executive officers 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 July 30, 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 AFTER THE
SHARES BENEFICIALLY OWNED SALE OF THE MAXIMUM AMOUNT OF THIS
PRIOR TO THIS OFFERING 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 35.26% 100,000,000 32.93%
- -------------------------------------------------------------------------------------------------------------------------
William Tweed(3) 1,080,000 0.38% 1,080,000 0.36%
- -------------------------------------------------------------------------------------------------------------------------
All current directors and executive officers 206,080,000 72.65% 206,080,000 67.87%
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.
46
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. A redemption
event shall occur on the fifth consecutive trading day upon which our common
stock has been trading at $.75 per share. The trading price per share will be
determined by taking the average between the "bid" and the "ask" price of our
common stock on each such day. The redemption price will be equal to $.001 times
the number of shares which may be purchased by a class A redeemable warrant,
plus any dividends which have been declared but have not been paid. The
redemption price will be 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,
47
after the occurrence of a redemption event shall occur on the fifth consecutive
trading day upon which our common stock has been trading at $1.25 per share, the
trading price per share will be determined by taking the average between the
"bid" and the "ask" price of our common stock on each such day. The redemption
price will be equal to $.001 times the number of shares which may be purchased
by a class B redeemable warrant, plus any dividends which have been declared but
have not been paid. The redemption price will be 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.
NO PRESENT MARKET
Our securities are not listed on any securities exchange or on the
Nasdaq Stock Market. They do not presently trade and there is no market for
them. After the effectiveness of our registration statement we will seek
quotation for our shares and warrants on the OTC Bulletin Board which will
enable the shares and warrants to be traded. However, there may still be no
market for them.
INVESTOR SUITABILITY STANDARDS
APPLICABLE IN CERTAIN STATES
As of the date of this prospectus those states in which we filed for
qualification of this offering have not required any special investor
suitability standards for those investors residing in those states. After the
date of this prospectus we may qualify this prospectus in additional states. If
any additional state requires special suitability standards, that information
will be indicated on a sticker to this prospectus.
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 HSBC Bank USA, National Association, and will be paid over to the company at
periodic closings, expected to occur once every week. 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 8% 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
48
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 $.31 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 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
redeemable warrants to purchase one share of common stock exercisable at $1.00
per share for 5 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 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.
49
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:
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
50
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."
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 cancer therapeutic research is
conducted at a laboratory at Weill Medical College of Cornell University, which
is 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 1,000 square feet. The cost of the facility is included in the
budget under our Sponsored Research Agreement with Weill Medical College of
Cornell University. Our HIV therapeutic research is conducted at another
laboratory at Weill Medical College of Cornell University which is located at
411 East 69th Street, New York, NY 10021. The laboratory is approximately 1,000
square feet. The cost of the facility is included in the budget under our
Sponsored Research Agreement with Weill Medical College of Cornell University.
Both the office and the laboratory are sufficient and adequate for our
purposes given our present staff.
We entered into an agreement with our principal investigator whereby we
are entitled to use the principal investigator's apartment for $1,500 per month.
Our representatives utilize this space when visiting Cornell.
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
51
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.
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.
52
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
Balance Sheet as at March 31, 2004 (Unaudited) F-4
Statements of Operations
For the Years Ended December 31, 2003 and 2002
and Cumulative from February 21, 2001
(Inception) to December 31, 2003 F-5
For the Three Months Ended March 31, 2004 and 2003
and Cumulative from February 21, 2001
(Inception) to March 31, 2004 (Unaudited) F-5
Statements of Stockholders' Capital Deficiency
For the Period from February 21, 2001
(Inception) to December 31, 2003 F-6
For the Three Months Ended March 31, 2004 (Unaudited) F-7
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-8
For the Three Months Ended March 31, 2004 and 2003
and Cumulative from February 21, 2001
(Inception) to March 31, 2004 (Unaudited) F-9
Notes to Financial Statements F-10 - F-19
F-1
[WSL LOGO
OMITTED] WEINICK
-------
SANDERS 1375 BROADWAY
LEVENTHAL & CO., LLP 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
----------- -----------
ASSETS
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 and 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)
BALANCE SHEETS
MARCH 31, 2004
(Unaudited)
ASSETS
Current assets:
Cash $ 66,818
Prepaid insurance 3,936
-----------
Total current assets $ 70,754
Other assets:
Deferred rent 37,912
Deferred registration costs 168,494
-----------
206,406
-----------
Total assets $ 277,160
===========
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
Current liabilities:
Notes payable - stockholders $ 400,000
Accrued expenses - related parties 259,854
Accrued expenses and other current liabilities 92,028
-----------
Total current liabilities $ 751,882
Commitments and contingencies -- --
Stockholders' capital deficiency:
Common stock - $.0001 par value
Authorized - 750,000,000 shares
Issued and outstanding - 283,650,000 28,365
Additional paid-in capital 1,268,019
Deficit accumulated in the development stage (1,771,106)
-----------
Total stockholders' capital deficiency (474,722)
-----------
Total liabilities and stockholders'
capital deficiency $ 277,160
===========
See notes to financial statements.
F-4
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
Professional fees 16,478 84,397 100,875
Payroll and fringe benefits 23,630 -- 23,630
Insurance 11,960 5,781 17,741
Rent 9,000 -- 9,000
Other 4,473 8,273 13,485
------------- ------------- -------------
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-5
MARC PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative From
For the Three For the Three February 21, 2001
Months Ended Months Ended (Inception) to
March 31, 2004 March 31, 2003 March 31, 2004
-------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
Revenues $ -- $ -- $ --
------------- ------------- -------------
Operating expenses:
Research and development -- -- 934,828
License costs -- -- 50,000
Web site costs -- 10,000 28,000
Professional fees 26,992 -- 127,867
Director's fees 125,000 -- 125,000
Payroll and fringe benefits 98,068 -- 121,698
Insurance 6,326 2,990 24,067
Rent 4,850 -- 13,850
Other 5,196 6,097 18,681
------------- ------------- -------------
Total operating expenses 266,432 19,087 1,443,991
------------- ------------- -------------
Loss from operations (266,432) (19,087) (1,443,991)
------------- ------------- -------------
Other (Income) expenses:
Interest expense 13,822 12,945 328,829
Interest income (4) (9) (1,714)
------------- ------------- -------------
Total other expenses 13,818 12,936 327,115
------------- ------------- -------------
Net loss ($ 280,250) ($ 32,023) ($ 1,771,106)
============= ============= =============
Per share data:
Loss per share - basic and diluted ($ - ) ($ - )
============= =============
Weighted average number of
shares outstanding 283,522,222 268,036,665
============= =============
See notes to financial statements.
F-6
MARC PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' CAPITAL EQUITY (DEFICIENCY)
FOR THE PERIOD FROM FEBRUARY 21, 2001 (Inception) TO MARCH 31, 2004
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)
Compensatory element of common stock
issued for services rendered (Unaudited) 500,000 50 124,950 125,000
Net loss for the three months ended
March 31, 2004 (Unaudited) -- -- -- (280,250) -- (280,250)
----------- ----------- ----------- -------------- ------------ ------------
Balance at March 31, 2004 (Unaudited) 283,650,000 $ 28,365 $ 1,268,019 ($1,771,106) $ -- ($ 474,722)
=========== =========== =========== ============== ============ =============
See notes to financial statements.
F-7
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)
Deferred 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-8
MARC PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative From
For the Three For the Three February 21, 2001
Months Ended Months Ended (Inception) to
March 31, 2004 March 31, 2003 March 31, 2004
-------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
Cash flows from operating activities:
Net loss ($ 280,250) ($ 32,023) ($1,771,106)
------------ ------------ ------------
Adjustments to reconcile net loss
to net cash used in
operating activities:
Compensatory element of common
stock issued for services 125,000 -- 125,045
Compensatory element of common
stock issued in payment of interest -- -- 250,000
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Prepaid expenses 3,280 2,949 (3,935)
Deferred rent (1,419) -- (37,913)
Accrued expense - related parties 178,253 -- 259,854
Accrued expenses and other current -- --
liabilities 67,343 2,855 92,028
------------ ------------ ------------
Total adjustments 372,457 5,804 685,079
------------ ------------ ------------
Net cash used in operating activities 92,207 (26,219) (1,086,027)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable - stockholders 200,000 -- 575,000
Repayments of notes payable - stockholders (100,000) (175,000)
Deferred registration costs (128,494) (25,000) (168,494)
Proceeds from sale of common stock -- 38,260 921,339
------------ ------------ ------------
Net cash provided by financing activities (28,494) 13,260 1,152,845
------------ ------------ ------------
Increase (decrease) in cash 63,713 (12,959) 66,818
Cash at beginning of period 3,105 25,411 --
------------ ------------ ------------
Cash at end of period $ 66,818 $ 12,452 $ 66,818
------------ ------------ ------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Interest $ -- $ -- $ --
------------ ------------ ------------
Taxes $ 363 $ -- $ 363
------------ ------------ ------------
Supplemental Schedules of Noncash
Investing and Financing Activities:
Common stock issued for services $ 125,000 $ -- $ 125,045
Common stock issued as payment for
interest on note payable $ -- $ -- $ 250,000
See notes to financial statements.
F-9
MARC PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004
(All Information and Disclosures As At March 31, 2004 and
For the Three Months Ended March 31, 2004 and 2003 Are Unaudited)
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 had a working capital deficiency of $681,128, $395,966
and $440,856 at March 31, 2004, December 31, 2003 and 2002,
respectively, and has incurred net losses of $280,250 and
$32,023 for the three months ended March 31, 2004 and 2003,
respectively, and losses of $767,166 and $723,240 for the years
ended December 31, 2003 and 2002, respectively, and had an
accumulated deficit of $1,771,106 and $1,490,856 at March 31,
2004 and 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
June 21, 2004, ten additional notes aggregating $200,000 were
sold. Since the Company has not generated any revenues from 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-10
NOTE 1 - PLAN OF ORGANIZATION: (Continued)
(a) Organization and Presentation of Financial Statements:
(Continued)
Accordingly, 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 initially
extended to February 29, 2004 and further extended to September
1, 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 8%
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 $.31 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-11
NOTE 2 - SUMMARY OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES:
(a) Basis of Presentation:
The accompanying audited financial statements as at December
31, 2003 and 2002 and for the years then ended and for the period
from February 21, 2001 (Inception) to December 31, 2003 have been
prepared in accordance with accounting principles generally accepted
in the United States of America.
The accompanying unaudited financial statements as at and
for the three months ended March 31, 2004 and 2003 have been
prepared in accordance with accounting principles generally accepted
in the United States of America. In the opinion of management, the
statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial
position as of March 31, 2004 and 2003 and the results of operations
and cash flows for the three months ended March 31, 2004 and 2003.
The results of operations for the three months ended March 31, 2004
and 2003 are not necessarily indicative of the results to be
expected for the full year.
(b) Revenue Recognition:
Since its inception, 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) 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-12
NOTE 2 - EARNINGS - SUMMARY OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES:
(Continued)
(e) 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 $7,682 and $52,146 in fiscal 2003 and
2002, respectively, 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) 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-13
NOTE 2 - EARNINGS - SUMMARY OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES:
(Continued)
(g) 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.
NOTE 3 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES.
Accrued expenses and other current liabilities consist of the
following at:
December 31,
March 31, ---------------------
2004 2003 2002
----------- ------- --------
(Unaudited)
-----------
Professional fees $66,299 $15,000 $12,250
Deferred registration costs -- -- 4,425
Payroll taxes 7,144 3,160 --
Franchise taxes payable 1,950 2,000 --
Sundry operating expenses 16,635 4,525 100
--------- ------- -------
$92,028 $24,685 $16,775
========= ======= =======
NOTE 4 - RELATED PARTY TRANSACTIONS.
(a) Notes Payable:
In July 2002, a founding shareholder and the Chairman 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, then to March 31, 2004, then to May 31, 2004 and
currently to September 1, 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. During the three months ended March
31, 2004, $100,000 of this loan's principal was repaid. Interest
expense charged to operations on this debt was $9,740 and $12,945 in
the three months ended March 31 2004 and 2003, respectively and
$40,383 and $24,021 in the years ended December 31, 2003 and 2002,
respectively. At March 31, 2004 December 31, 2003 and 2002 the
director was owed accrued interest of $74,144, $64,404 and $24,021 on
this indebtedness which is included in the accompanying financial
statements under the caption accrued expenses - related parties. In
June 2004 an additional $50,000 in principal of this note was repaid.
F-14
NOTE 4 - RELATED PARTY TRANSACTIONS. (Continued)
In November 2003, the Company commenced a $500,000
private placement of its 20% interest bearing notes to
accredited investors. On May 31, 2004 the total note private
placement was increased to $1,000,000. 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. Through March
31, 2004, five additional stockholders acquired notes
aggregating $200,000. Interest charged to operations during the
months ended March 31, 2004 was $4,082 and is included in
accrued expenses - related parties. Through June 25, 2004 four
other stockholders acquired notes aggregating $575,000.
Management of the Company offered the notes to all accredited
individuals, all of whom were our stockholders at the time they
were offered these notes. The Management did not seek investors
outside of its own stockholders and a few other individuals who
are longstanding business associates of the Company's officers.
The Management did not go out into the open market to solicit
individuals to buy these notes nor does management intend for
its pending initial registration of its securities for sale to
the public (see Note 6 below) to be a part of the solicitation
for the sale of these notes. Nevertheless, the Securities and
Exchange Commission ("SEC"), a state securities regulator or one
or more of the note holders from this private placement note
offering may assert the position that the note offering was an
unregistered public offering. If such position were to prevail,
among other things, the note holders could demand immediate
repayment of their notes plus interest at the prevailing market
rate. The Company and its management could be accused by the SEC
or other regulatory bodies of violations of securities or other
laws and regulations which could subject them to criminal or
civil sanctions and penalties. If such accusations were
instituted, the Company's planned initial offering of its
securities for sale to the public could be jeopardized. The
defense of such accusations would not only require the
expenditure of legal fees but would divert management's
attention from the Company's operations.
(b) Legal Fees:
The Company's general and securities counsel is an
original shareholder of the Company. During the period from
inception to March 31, 2004, these attorneys rendered services
aggregating $170,597. $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. $75,226 is for legal services in connection with the
Company's initial offering of its securities to the public of
which $25,000 was paid at March 31, 2004. 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 fiscal 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 March 31, 2004, December 31, 2003 and 2002,
these unpaid fees aggregated $53,812 $16,594, and $81,485,
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.
F-15
NOTE 4 - RELATED PARTY TRANSACTIONS. (Continued)
(d) Consulting Agreement:
The Company in January 2004 retained the services of
its Chairman to assist senior management in identifying
opportunities and developing strategies to enhance the Company's
value through a five year consulting agreement. The Chairman
will receive $120,000 annually for his services and a monthly
car allowance of $1,000. At March 31, 2004, the Chairman is owed
$30,000 for his consulting services and $3,000 for his
allowance. These liabilities are included in accrued expenses -
related parties at March 31, 2004.
(e) Lease:
The Company leases its Stamford, CT premises from a
corporation whose Chairman and CEO is the Company's Chairman.
The lease commenced in March 2004 and is for one year which is
automatically renewable for an additional one year term. Rental
is $350 per month. At March 31, 2004, unpaid rent of $350 is
included in accrued expense - related parties.
(f) Employment Contract:
The Company entered into a four year employment
contract with its CEO on January 1, 2004. The CEO is to be paid
$250,000 annually, an automobile allowance of $12,000 annually
plus all other benefits which are or will be provided to other
executive officers and employees of the Company. Additionally,
the CEO is to receive annually a cash incentive bonus equal to
1% of the after-tax net income of the Company as defined. At
March 31, 2004, the CEO is owed $83,333 of his salary and $3,000
of his car allowance which are both included in accrued expense
- related parties. The CEO has paid $15,530 in telephone costs
and medical and life insurance expenses of behalf of the Company
and is also included in accrued expenses - related parties.
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 March 31, 2004 and December 31, 2003, the
Company had a net operating loss carry forward amounting to
approximately $1,771,000 and $1,491,000, respectively, available
to reduce future taxable income, of which $724,000 expires in
2022, $767,000 expires in 2023, and $280,000 expires in 2024.
Management is unable to determine if the utilization of the
future tax benefit is more likely than not to occur and,
accordingly, the deferred tax asset of approximately $602,200
and $507,000 at March 31, 2004 and December 31, 2003 has been
fully reserved. A reconciliation of the actual tax provision to
the expected statutory rate is as follows:
For the Period From
For the Years Ended December 31, February 21, 2001
--------------------------------------------- (Inception) To
2003 2002 December 31, 2003
--------------------- --------------------- ----------------------
Loss before income taxes ($ 767,166) ($ 723,240) ($ 1,490,856)
----------- ----------- ------------
Expected statutory tax benefits (260,800) -34.0% (245,900) -34.0% (507,000) -34.0%
Net operating loss valuation reserve 260,800 34.0% 245,900 34.0% 507,000 34.0%
----------- ----------- ------------
Total tax benefit $ -- $ -- $ --
=========== =========== ============
F-16
NOTE 5 - INCOME TAXES. (Continued)
A reconciliation of the actual tax provision to the expected
statutory rate is as follows:
For the Period From
For the Three Months Ended March 31, February 21, 2001
-------------------------------------------------- (Inception) To
2003 2002 March 31, 2004
--------------------- --------------------- -----------------------
(Unaudited) (Unaudited) (Unaudited)
------------ ----------- -----------
Loss before income taxes ($ 280,250) ($ 32,023) ($ 1,771,106)
Expected statutory tax benefits (95,200) -34.0% (11,200) -34.0% 602,200 -34.0%
Net operating loss valuation reserve 95,200 34.0% 11,200 34.0% (602,200) 34.0%
------------ ----------- -----------
Total tax benefit $ -- $ -- $ --
============ =========== ===========
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.
In 2003, the Chairman was issued 5,000,000 shares of
the Company's common stock as compensation for the Chairman's
extending the due date of his $350,000 note to June 30, 2003.
The fair value of the securities of $250,000 was charged to
operations as additional interest expense.
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. The fair value of
the common shares issued of $125,000 was charged to operations
upon issuance. The fair value was based upon the per share value
$0.25 ascribed to the Company's initial public offering of its
securities. See below.
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 shares of its common
stock in 2003.
F-17
NOTE 6 - COMMON STOCK.. (Continued)
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 offering amount was increased
to $1,000,000. The note offering was to expire on February 3,
2004 but was extended to September 1, 2004. If the Company's
initial sale of its securities is successful, the note offering
will be terminated upon the effectiveness of a registration
statement. Through June 25, 2004 eleven notes in the amount of
$800,000 were sold. These notes were offered to all accredited
individuals, all but one whom are stockholders of the Company.
The Company did not go out into the open market to solicit
individuals to buy these notes. The Company did not use the
registration statement as a general solicitation for the sale of
the notes. The registration statement does not state any
specific information to a note holder regarding the repayment of
the note. The individual who was not an existing stockholder of
the Company is a personal friend of the Company's President.
Nevertheless, the Securities and Exchange Commission, a Blue Sky
regulator or one of the note holders from the note offering may
at some time assert the position that the note offering was an
unregistered public offering. If such a position were to
prevail, several possible consequences might ensue including the
immediate repayment of the notes with interest at the market
rate. In addition, we may also be subject to legal enforcement
by federal and state agencies which will necessitate the
expenditure of a significant amount of time and resources in our
legal defense.
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 8% 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 $.31 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.
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 with
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 systematically 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.
F-18
NOTE 7 - COMMITMENTS AND CONTINGENCIES..(Continued)
The Company is required to make additional minimum
payments to Cornell of $375,000 which was paid in July 2004.
Additionally the Company is required to pay 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 milestones and the amounts due are as follows:
Submission of Investigative New Drug
Application to the FDA or equivalent $ 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 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 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.
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 of which
$75,000 was paid in July 2004 and the balance is payable in
installments of $112,500 by November 2004, $187,500 in December
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.
(b) 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 2004 and 2003
acquired $5,919 and $45,494 of furnishings and improvements to
the apartment and received a credit from the owner of $4,500 and
$9,000, respectively, for the three months ended March 31, 2004
and for the six months use through December 31, 2003. At March
31, 2004 and December 31, 2003, the balance of the furnishings
costs was included in deferred rent.
F-19
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.
60
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, between June 30, 2001 and June 30, 2003 six
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. These 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.
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. These 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.
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 offering amount was increase to $1,000,000. The note offering was
to expire on February 3, 2004
61
but was extended to September 1, 2004, and will be terminated in any event upon
the effectiveness of this Registration Statement. Through June 25, 2004 11 notes
in the amount of $800,000 was sold.
These notes were offered to all accredited individuals, all but one
whom were our stockholders at the time they were offered these notes. We did not
seek investors outside of our own stockholders and a few other individuals who
are longstanding business associates of our officers. The Registrant did not use
this registration statement as part of a solicitation for the sale of the notes.
Nevertheless, either the Securities and Exchange Commission, a state securities
regulator or one or more of the note holders from the note offering may at some
time assert the position that the note offering was an unregistered public
offering. If such position were to prevail, several possible consequences might
ensue, including rescission or enforcement proceedings involving our Company and
our principals.
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.
62
ITEM 27: INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- --------------------------------------
1(a) Form of Placement Agreement (1)
1(b) Form of Placement Agent's Warrant (1)
1(c) Form Placement Agent Registration Rights Agreement (1)
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 (3)
4(b) Form of Common Stock Purchase Class B redeemable Warrant,
exercise price $1.00 (3)
4(c) Form of Stock Certificate (1)
5 Opinion re: Legality (3)
10(a) Employment Agreement dated January 1, 2004, by and between Marc
Pharmaceuticals, Inc. and Robert M. Cohen (3)
10(b) Sponsored Research Agreement, dated June 19, 2002, by and
between Marc Pharmaceuticals, Inc. and Weill Medical College of
Cornell University (3)
10(c) Sponsored Research Agreement dated January 21, 2004, by and
between Marc Pharmaceuticals, Inc. 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 (3)
10(h) Form Warrant Agreement (3)
10(i) Consulting Agreement dated September 1, 2002, by and between
Marc Pharmaceuticals, Inc. and Dr. Brij B. Saxena (3)
10(j) Consulting Letter Agreement dated January 1, 2004, by and
between Marc Pharmaceuticals, Inc. and Joel San Antonio (3)
10(k) Form Subscription Agreement (3)
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 (3)
10(n) Promissory Note in favor of Joel San Antonio dated July 18,
2002, as amended (3)
10(o) Agreement of Use, dated March 8, 2004, by and between Marc
Pharmaceuticals, Inc. and Warrantech Corporation (3)
10(p) First Amendment to Exclusive License Agreement by and between
Marc Pharmaceuticals, Inc. and Cornell Research Foundation, Inc.
dated July 30, 2004(1)
10(q) Letter Agreement by and between Marc Pharmaceuticals, Inc. and
Weill Medical College of Cornell University dated July 9, 2004
(1)
23(a) Consent of Weinick Sanders Leventhal & Co., LLP (1)
63
23(b) Consent of Tannenbaum Helpern Syracuse & Hirschtritt LLP
(included in Exhibit 5) (3)
- ----------------
(1) Filed herein
(2) To be filed
(3) Previously filed
64
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 of 1933 and will be
governed by the final adjudication of such issue.
65
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 August 3, 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: August 3, 2004
-------------------
Name: Joel San Antonio
Title: Director, Principal Accounting Officer
By:/s/William Tweed Date: August 3, 2004
----------------
Name: William Tweed
Title: Director
66