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United States Securities and Exchange Commission
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: July 28, 2006
(Date of earliest event reported: July 26, 2006)
BESTNET COMMUNICATIONS CORP.
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(Exact name of registrant as specified in its charter)
Nevada 001-15482 86-1006416
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2850 Thornhills Ave., S.E., Suite 104
Grand Rapids, Michigan 49546
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(Address of principal executive offices) (Zip Code)
(616) 977-9933 (Registrant's telephone number)
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Check the appropriate box below if the Form 8-K is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Unless otherwise indicated or the context otherwise requires, all references
below in this report on Form 8-K to "we," "us" and the "Company" are to BestNet
Communications Corp., a Nevada corporation and its subsidiary, Oncologix
Corporation, a Nevada corporation. References to "Oncologix" are to Oncologix
Corporation.
Cautionary Note Regarding Forward-looking Statements and Risk Factors
The Registrant's Form 10-KSB, any Form 10-QSB or any Form 8-K of the Registrant
or any other written or oral statements made by or on behalf of the Registrant
may contain forward-looking statements which reflect the Registrant's current
views with respect to future events and financial performance. The words
"believe," "expect," "anticipate," "intends," "estimate," "forecast," "project,"
and similar expressions identify forward-looking statements. All statements
other than statements of historical fact are statements that could be deemed
forward-looking statements, including any statements of the plans, strategies
and objectives of management for future operations; any statements concerning
proposed new products, services, developments or industry rankings; any
statements regarding future economic conditions or performance; any statements
of belief; any statements regarding the validity of our intellectual property
and patent protection; and any statements of assumptions underlying any of the
foregoing. Such "forward-looking statements" are subject to risks and
uncertainties set forth from time to time in the Registrant's SEC reports and
include, among others, the Risk Factors described below.
Readers are cautioned not to place undue reliance on such forward-looking
statements as they speak only of the Registrant's views as of the date the
statement was made. The Registrant undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 1.01 Entry into Material Definitive Agreements
We are hereby reporting our entry into the following material agreements:
(A) JDA Merger Agreement. On July 26, 2006 we entered into a Merger Agreement
with our wholly owned subsidiary, Oncologix Corporation, a Nevada corporation
("Oncologix"), JDA Medical Technologies, Inc., a Maryland corporation ("JDA"),
Andrew S. Kennedy, MD, Jeff Franco, Andrew Green and Adam Lowe (filed herewith
as Exhibit 10.20) pursuant to which JDA has been merged into Oncologix. The
individuals named are the principal shareholders of JDA. Dr. Kennedy and Mr.
Franco are JDA's officers and directors and Mess'rs Green and Lowe are
consultants to JDA and are, as a result of the Merger, becoming officers of
Oncologix. Dr. Kennedy and Mr. Green are becoming members of the Company's Board
of Directors and both of them as well as Mr. Lowe are becoming officers and
directors of Oncologix. The Merger took place on the same date and its terms are
further described under Item 2.01, below.
(B) Master License Agreement. As a result of the Merger described below,
Oncologix became the successor to JDA, as Licensee, under an existing Master
License Agreement, as amended, with the University of Maryland, Baltimore (the
"University"), as Licensor (filed herewith as Exhibit 10.21). That license
covers certain microsphere technology owned by the University of Maryland
pertaining to: (1) micro particles to which isotopes have been chemically
attached for the purposes of treating cancer, (2) a proprietary, kit-based
approach to the assembling of microspheres dosed with appropriate radiations,
and (3) with post treatment visibility based on the attachment of gamma emitting
isotopes to micro particles that allow visualization of the micro particles with
diagnostic imaging. This technology and the License are further described under
Item 2.01, below
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(C) License Agreement with Fountain Pharmaceuticals, Inc. We also became the
successor to JDA, as sublicensor, under a License Agreement with Fountain
Pharmaceuticals, Inc., a Delaware corporation, filed herewith as Exhibit 10.22).
This agreement grants an exclusive right to manufacture and market products
embodying the University of Maryland technology in Mainland China, Taiwan and
Hong Kong, and is more fully described below.
(D) Employment Agreements. Upon the Merger, we entered into Employment
Agreements, as Employer, with Dr. Kennedy (filed herewith as Exhibit 10.23),
Mess'rs Green and Lowe (filed herewith as Exhibits 10.24 and 10.25 respectively)
and a Consulting Agreement with Mr. Franco (filed herewith as Exhibit 10.26).
Each of these agreements is for an initial term of two years, with renewals as
provided by their terms.
o Dr. Kennedy has been employed as the Chief Scientific and Medical
Officer of Oncologix. He will also serve as a member of the Board of
Directors of both the Company and Oncologix. He and has agreed to
devote the approximate equivalent, in number of hours, of two working
days per week to the business of Oncologix and is to be paid an annual
salary of $240,000. However, his responsibilities to his medical
practice will have priority over his service to the Company.
o Mr. Green has been employed as Chairman and Chief Executive Officer of
Oncologix. He will also serve as a member of the Board of Directors of
both the Company and Oncologix. He is to be paid an annual salary of
$180,000.
o Mr. Lowe has been employed as the President and Chief Operating
Officer of Oncologix. He will also serve as a member of the Board of
Directors of Oncologix. He is to be paid an annual salary of $180,000.
o Mr. Franco has been engaged as a consultant to Oncologix on a
part-time basis (approximately one day per week) pursuant to a
two-year Consulting Agreement, a copy of which has been filed herewith
as Exhibit 10.26. He is to be paid an annual fee of $75,000.
All of the Employment Agreements and the Consulting Agreement contain two-year
covenants not to compete and typical provisions for the protection of
confidential information and ownership by the Company of inventions made by such
persons while engaged by the Company.
ITEM 2.01 Completion of Acquisition or Disposition of Assets
On July 26, 2006, the merger (the "Merger") contemplated by the Merger Agreement
was completed with the filing of a Certificate of Merger with the Secretary of
State of Nevada and Articles of Merger, merging JDA into Oncologix Corporation,
which is our wholly owned subsidiary.
As a result of the Merger and pursuant to the Merger Agreement, we are issuing
43,000,000 shares of our common stock to the holders of the common stock of JDA
at a rate of 4.78 shares of our stock for each share of JDA stock. All options
and warrants to acquire any stock of JDA have been terminated. Before the
Merger, approximately 47,097,953 shares of our common stock and 443,162 shares
of our preferred stock were outstanding. After the Merger 90,097,953 shares of
our common stock and the same number of shares of preferred stock are
outstanding. Upon the merger, 98,847,960 of our shares are outstanding, on a
fully diluted basis, which includes not only shares of common stock, but also
shares underlying outstanding shares of convertible preferred stock, warrants,
options and convertible debentures that could be exercised or converted into
shares of common stock.
Pursuant to the Merger Agreement, the following shares of our common stock
issued to the individuals named above have been placed in an escrow: Eighty per
cent (80%) of the shares issued to Dr. Kennedy and Mr. Franco respectively and
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all of the shares issued to Messrs Green and Lowe respectively. Those shares are
to be released upon the occurrence of certain specified events, described under
Item 3.02, below. In addition, for as long as they are held in the escrow
pending those events, the escrowed shares of Dr. Kennedy and Mr. Franco are to
be available as collateral for fulfillment of their possible individual
indemnification obligations under the Merger Agreement.
We granted certain piggyback and demand registration rights to the shareholders
of JDA with respect to the shares of our stock issued to them.
We agreed to provide $4,000,000 to fund the Oncologix operations. Of that
amount, $350,000 had been previously advanced to JDA (as reported in our Current
Report on Form 8K filed March 23, 2006). An additional $400,000 was deposited to
the account of Oncologix at the Closing of the Merger and the remaining
$3,250,000 is to be deposited in installments over a period of six months after
the Closing. It should be noted by those reading this Report that if we fail to
provide those funds as agreed, we will be in default under the Master License
Agreement with the University of Maryland and such default could be grounds for
the termination of the Master License Agreement by the University.
We borrowed the funds for the initial $350,000 payment on a six-month
convertible promissory note from a non-affiliate (as reported in our Current
Report on Form 8K filed on March 23, 2006) who is believed to have been one of
our existing shareholders. The $400,000 deposited at the Closing was borrowed on
ninety-day notes, bearing interest at the rate of 10% per annum and convertible
into shares of our common stock at the price per share equal to the price set in
our forthcoming private offering of securities for the purpose of financing the
Merger; $200,000 from a husband and wife who are not affiliated with us and
$200,000 from Mr. Anthony Silverman, a member of our Board of Directors. We
expect to obtain funds to repay these borrowings and to make the additional
payments that are to be deposited for the Oncologix account from a private
offering to investors. Mr. Silverman has advised us that he does not intend to
convert his $200,000 note.
BUSINESS OF THE REGISTRANT AND ITS SUBSIDIARY
Significant Change in Direction.
The Merger represents a significant change in our direction and focus and
reflects a decision to enter the medical device industry. We are, however,
continuing to conduct our Internet related telephone business as described in
previous Annual and Quarterly Reports filed pursuant to the Securities Exchange
Act of 1934, as amended,
The Oncologix Business.
Background and History
Oncologix was formed on June 26, 2006 as a Nevada corporation to continue the
business previously conducted by JDA and is the surviving corporation in a
combination with JDA in the Merger.
JDA was organized as a Maryland corporation in 2003. JDA was founded by Andrew
S. Kennedy, MD, David Van Echo, MD, and Mr. Jeff Franco for the purpose of
commercially exploiting an innovative technology for treating soft tissue
cancers that improves upon current intravascular microsphere brachytherapy. Dr.
Kennedy and Dr. van Echo, together with others, invented that technology while
associated with the University of Maryland, Baltimore ("the University"), which
paid for the research and development effort and which owns the technology. In
September 2003, the University granted JDA the Master License Agreement that is
mentioned in Item 1.01, above, and further described below. Since that time,
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until the Merger, the activities of JDA were to participate in the development
of software ancillary to the licensed technology and to seek sources of
financing.
The Master License Agreement is the principal asset acquired from JDA in the
Merger. The University has applied for patents on the licensed technology which
are still pending. No patents have yet been issued and there is no assurance
that any patents will be issued. If the applications are denied, we will have no
legal protection for the intellectual property embodied in the technology and it
will become available to others.
Government Regulation
Our activities in the development, manufacture and sale of cancer therapy
products are and will be subject to extensive laws, regulations, regulatory
approvals and guidelines. Within the United States, therapeutic radiological
devices must comply with the U.S. Federal Food, Drug and Cosmetic Act, which is
enforced by the Food and Drug Administration ("FDA"). We are also required to
adhere to applicable FDA regulations for Good Manufacturing Practices, including
extensive record keeping and periodic inspections of manufacturing facilities.
Medical devices such as the Oncosphere cannot be used or sold unless they are
approved for specified purposes by the FDA. There are two levels of FDA
approval. The first is the granting of approval to test the device by
experimentation with human patients (called an Investigational Device Exemption
or "IDE"); the second is obtaining approval to market the device to the public
for the treatment of specified diseases (called Premarket Approval or "PMA").
Our business involves the importing, exporting, design, manufacture,
distribution, us and storage of beta and gamma emitting radioisotopes. Those
activities in the United States are subject to federal, state and local rules
relating to radioactive material promulgated by the Nuclear Regulatory
Commission ("NRC"), or states that have subscribed to certain standards and
local authorities. In addition, we must comply with NRC, state and U.S.
Department of Transportation requirements for labeling and packing shipments of
radiation sources to hospitals or others users of our devices. In order to
market our devices commercially, we will be required to obtain a sealed source
device registration from those subscribing states or the NRC.
Additionally, hospitals in the United States are required to have radiation
licenses to hold, handle and use radiation. Many hospitals and/or physicians in
the United States will be required to amend their radiation licenses to include
our isotopes before receiving and using them. Depending on the state in which
the hospital is located, the license amendment will be processed by the
responsible subscribing state department or agency or by the NRC.
Obtaining such registration, approvals and licenses can be complicated and time
consuming and there is no assurance that any of them can be obtained.
Plan of Operation
Our plans are to complete the development of, and to manufacture, and distribute
a medical device, a "microsphere", embodying the licensed technology. We expect
to market our version of a microsphere under the name, "Oncosphere". We plan
first to focus on liver cancers and then on other forms of soft tissue cancers.
We believe that the Oncosphere, embodying the innovative licensed technology,
improves upon chemotherapy, the currently standard treatment for treating soft
tissue cancers, as well as being an improvement over other microspheres in
current use in intravascular microsphere brachytherapy. A "microsphere" is a
radiation-emitting spherical object, approximately one-quarter the width of a
human hair, which, in an outpatient procedure, is implanted in the body of the
patient in sufficient quantities at the site of the cancer tumor.
"Brachytherapy" refers to the process of placing therapeutic radiation sources
in or near diseased tissue. "Intravascular" refers to the method of implanting
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the microsphere through the blood stream. We believe that if and when the
Oncosphere reaches the public, we will be able to attain a leadership position
in a new and expanding brachytherapy market.
Our initial activity will be to complete the development of the Oncosphere and
to conduct the studies and tests necessary to obtain data in support of an
application to the FDA for authorization to conduct a clinical study of the
Oncosphere (an IDE) to provide data on its safety and effectiveness in support
of a PMA.
To obtain an IDE for the Oncosphere, we must first conduct a number of studies
and evaluations to collect information to support our application to the FDA.
This effort is expected to take between eighteen and twenty-four months. We
expect the $4,000,000 we have agreed to commit to this effort will be
sufficient, but we cannot be certain that costs will not exceed this amount and
we may have to seek additional financing.
Based on the previous experience of Oncologix management in the development of
radiation medical devices and obtaining FDA and radiation regulatory approvals,
we believe that we have or can readily obtain all of the resources necessary to
complete the required studies and evaluations. We intend to employ outside
contractors to perform various tasks and studies. While the required expertise
is highly specialized, it is available from a number of sources and no
difficulty is expected in identifying and engaging qualified contractors.
The estimated application and timing of expenditures for this effort are shown
in the following table:
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1st Quarter Fiscal 2nd Quarter Fiscal 3rd Quarter Fiscal 4th Quarter Fiscal
2007 2007 2007 2007
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Development $230,000 $610,000 $335,000 $135,000
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Other General Expenses
354,000 309,000 319,000 319,000
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Totals $584,000 $919,000 $654,000 $54,000
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The necessary funds are expected to be raised by the Company in a private
placement of securities.
The work necessary to support an application to the FDA for an IDE is generally
divided into three phases, as follows.
Development Phase. This is the phase in which there is a definition of the
design, the overall process, and the manufacturing feasibility of the product.
At the end of this phase there is reasonable scientific and engineering
assurance that a design is feasible, that the processes to produce that design
are reproducible, and that the product as designed can be manufactured in
scalable quantities at reasonable costs. We are engaged in discussions with a
view to engaging the assistance of a contract manufacturer in this phase. We
will be able to begin Pre-Clinical Testing when this phase is completed, which
will be when:
o (A) A microsphere specification and design are defined that meet the
user requirements as defined in the Product Requirements Document;
o (B) It is demonstrated that lots can be manufactured at pilot plant
scale (i.e. in quantities large enough to support an animal study and
a pivotal clinical study); and
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o (C) A preliminary manufacturing plan, based on reasonable assumptions,
is completed based on data that support a commercially acceptable cost
basis for commercial quantities.
Pre-Clinical Testing Phase. In this phase of the project the design is verified
against its "product (user) requirements" and the hazards of its use are
identified in a risk analysis, both based on the results of animal
experimentation. This testing is required by the FDA standards and European
Standards governing medical devices for initiation of a clinical trial and is a
necessary part of good engineering development and safety. These results will be
required to be included in the IDE submission to the FDA. The trial design and
final specifications should be based on discussions with and preliminary advice
from the FDA.
o The animal study will be the last pre-clinical test performed before
the submission of the IDE to the FDA. The purpose of the animal study
will be to:
o (A). Confirm that radiation effects from the microspheres result in
the expected local effect in the liver, without adversely affecting
other tissues or organs;
o (B), Document and describe any acute and chronic adverse events;
o (C). Document and describe the feasibility of the delivery of
microspheres to the liver without "spilling over" or "drifting" to
other places in the body where their effect would be harmful. This
study is done by examining each organ of an animal that has been used
to test the product; and
o (D). Document and describe the any potential liver toxicity.
o The end of this phase will be the completion of a report of an animal
study that meets industry and scientific standards to support the
submission of an IDE to the FDA requesting approval for a "pivotal
clinical" trial.
Clinical Approval Phase. This is the phase in which the IDE submission is
compiled, submitted to the FDA, and an approval to start the "pivotal clinical
trial" is granted. The IDE can be compiled and submitted when the design
verification is completed in the Pre-Clinical Testing Phase. The FDA responds to
IDE submissions within 30 days with an approval, conditional approval, or
disapproval. An approval or conditional approval will allow us to begin the
treatment of patients in the "pivotal clinical trial".
This Clinical Approval Phase will be considered completed when the FDA letter
granting approval or conditional approval is received. Management estimates that
this will occur from eighteen months to two years after the Merger. If we are
successful, we will then have FDA consent to treat a group of patients on an
experimental basis and if successful in that effort, we will then be able to
request FDA approval to market the Oncosphere to all patients with specified
diseases under a PMA.
We anticipate the need for substantial additional financing at that time, as we
do not expect to generate any cash from operations during the intervening
period. We have not developed any plans for raising that financing. The form and
availability of the financing will depend on general and industry conditions at
the time.
Our other activities during that time are expected to include Dr. Kennedy's
participation in scientific presentations and papers informing the medical
profession and the hospital industry of the benefits of microarterial
brachytherapy in general and in training physicians in its application. As
progress is made, we will begin to develop manufacturing and marketing plans for
the Oncosphere. We will further plan to obtain financing for the necessary
personnel, facilities and other requirements for the conduct of a commercial
business.
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The Product
Soft tissue tumors are among the most difficult forms of cancer to treat. If not
cured by initial therapy, these tumors eventually become unresponsive to
chemotherapy and spread (metastasize) throughout the body. While there has been
some progress in recent years in treating these cancers with surgery and
chemotherapy, the five-year survival rates remain less than five percent. There
is a strong demand from patients and physicians confronting these types of
cancer for effective, easy-to-use therapies with acceptable side effects.
Currently the standard treatment for patients with advanced cancerous tumors is
chemotherapy, which is not specific to (does not discriminate as to) various
types of cancer and has side effects that damage or destroy many normal cells in
addition to the cancer cells. This may result in additional illness and even
death. High doses of chemotherapy have typically resulted in extended,
unpleasant and sometimes life-threatening hospital stays. Patients often require
expensive, intrusive medical attention before they recover and are discharged
home.
An alternative therapy, radiation, is most often administered by delivering a
beam from an external source through the patient's body and tumor. Because it
must travel in a straight line, normal tissues surrounding the tumor also
receive radiation and incur damage that can cause significant adverse side
effects.
Microsphere-based radiotherapy, a relatively recent form of therapy, solves both
the efficacy and toxicity issues for the patient. The microparticles that
comprise the microsphere have high doses of radiation attached and can deliver
radiation directly into the tumor, thus sparing nearby normal cells and blood
vessels. The element carrying the radiation is called Yttrium-90 (Y(90)), used
in the treatment of various types of cancer. Chemotherapy drugs can become
ineffective from a variety of defenses that cells treated with drugs will
sometime develop while radiation, on the other hand, if administered in high
enough doses, will usually kill cancerous cells. Therefore, if sufficient
quantities of microspheres can be delivered to the tumor, they will be effective
in killing the tumor, as there is not an adequate cellular "defense" against
radiation.
A sufficient supply of oxygen is a critical factor in destruction of the tumor
cell's DNA to be relatively quick and permanent. Radiation becomes much less
effective if there is a drop of oxygen in the region of the tumor (hypoxia), not
because the tumor cell has itself become unresponsive to radiation but because
the oxygen supply is insufficient to make the radiation damage to the tumor
permanent; or, in other words fatal for the tumor cell. Microspheres do not
cause hypoxia because only a relatively small number of spheres are infused and
therefore no reduction in the amount oxygen carried in the blood to the area it
is most needed to work in conjunction with radiation. Since normal cells in the
distribution of the blood vessel do not have their oxygen supply interrupted,
toxicity to the patient is reduced.
Another significant advantage of microsphere-based radiotherapy is that it is
administered in an outpatient procedure and most patients are able to return
home from four to six hours after treatment.
Treating physicians have additional, technical and professional considerations
in selecting from among available therapies. Physicians involved with
microsphere-based therapy are usually specialized as medical oncologists,
radiation oncologists and interventional radiologists.
The medical oncologist, often the first specialist to meet the patient, is
crucial in the management and overall cancer treatment for each patient and is
typically responsible for the general oncologic treatment of the patient and for
referring the patient to other specialists. Oncologists usually prescribe a
variety of chemotherapies in an effort to combat the growth and spread of the
cancer. They often request other treatments provided by and coordinate teamwork
by surgeons, radiation oncologists, and interventional radiologists. The medical
oncologist will generally request one of the following therapies for soft tissue
tumors:
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Type of Therapy Administered by
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Chemo-embolization (Trans Arterial Interventional Radiologist
Chemo Embolization)
External Beam Radiation Radiation Oncologist
Brachytherapy Radiation Oncologist
Intra-Arterial Radioembolization Interventional Radiologist
Medical oncologists generally select a form of therapy on the basis of available
data relating to patient outcomes from actual experience. There are presently no
definitive data supporting the efficacy of micro-arterial brachytherapy in
cancer treatment. Medical oncologists are therefore not likely to select this
therapy for their patients. However, they often defer to radiation oncologists
or surgeons in making decisions involving the use of such new treatments as
microsphere-based therapy. Radiation oncologists and surgeons generally become
among the first to be aware of newer therapies, as they are usually first
marketed to them, as is expected to be the case with microsphere-based therapy.
Furthermore, it is anticipated that several studies will become available
documenting the effectiveness this therapy as the use of microsphere-based
therapy increases, as expected, over the next several years.
Radiation oncologists are usually the first sub specialists that patients meet
after meeting with the medical oncologist. Radiation oncologists and nuclear
medicine physicians are the only physicians that are legally authorized to
administer therapeutic radiation and isotopes by the Nuclear Regulatory
Commission (NRC). Microspheres containing radiation are classified as a sealed
source of radiation, and are thereby considered a brachytherapy device.
Radiation therapy is typically a very exact physical science that can determine
precisely where radiation beams and isotopes will go, or have gone, in treating
tumors deep in any part of the body. Radiation oncologists are reluctant to
administer microspheres without knowing exactly where the radiation will go in
the body and in what quantities. Until recently, there has been no radiation
dose planning software or other tool to assist radiation oncologists in
microsphere therapy. However, there is presently under development a specialized
software "tool" that facilitates generating radiation treatment plans, typically
based on raw data from CT scanners. We are contributing efforts to this
development.
Interventional radiologists use catheters to deliver medication or devices
directly to tumors through the body's circulatory system. These catheters are
used by interventional radiologists to access the main arteries leading to
tumors. As a group they are believed to be the most receptive to
microsphere-based radiotherapy as it gives them a new treatment option for
patients, and a new service to provide their departments and hospitals. Since
interventional radiologists are crucial to the acceptance of this technology,
the Company intends to give special attention to interventional radiologists in
its future marketing efforts.
Microsphere-based cancer therapies deliver 150 times the radiation dose of
existing therapies directly into tumors. Based on industry information, we
believe that these microsphere-based therapies have extended the lives of
patients by an average of 10.5 months and some patients are still thriving 14
months after treatment. These patients were selected from among a group for
which standard and salvage chemotherapy regimens and surgery have already failed
and who have, typically, a matter of weeks or months to live at the most.
Substantial problems with existing microsphere-based therapies, however, have
kept them from being widely adopted. These include:
(1) Limited and Costly Production - The radioactive isotope must be physically
"baked in" to the spheres at a nuclear reactor, which is an expensive
manufacturing process;
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(2) Fixed Dosage - Because the isotope is "baked in" to the microspheres, there
is only one pre-set dosage level, which prevents physicians from tailoring the
dosage to the specific needs of the patient; and
(3) Inability to Track the Microspheres - Physicians cannot track the path of
the microspheres from injection to the tumor and are therefore unable to
ascertain the location of the microspheres in the body of the patient.
We believe that if and when it is approved by the FDA the Oncosphere will
provide a solution to the problems with existing microsphere therapies. Rather
than being manufactured with complex, central nuclear reactors, the Oncosphere
will be assembled with the use of chemical processes made possible by recent
advances in polymers and small molecule chemistry that permit the effective
binding of highly radioactive isotopes to the microparticles that make up the
Oncosphere. The use of chemical processes instead of "pre-baking" is expected to
result in numerous highly desirable features that will provide competitive
advantages, including:
(1) An ability to produce the Oncosphere devices in greater quantities and at
much lower costs than existing microsphere-based therapies.
(2) An ability to tailor the dosage of the Oncospheres to each patient's
individual needs.
(3) An ability to use computer software to track the location of the
microspheres in the patient's body and to confirm the delivered dose.
(4) The availability of adequate documentation to facilitate proper insurance or
Medicare reimbursement for use of the therapy.
We believe that these advantages will be realized for the following reasons:
(1) The Oncosphere's manufacturing process, chemically bonding the isotope to
the sphere, is less expensive than currently used processes because it requires
only standard chemical laboratory equipment rather than the reactor equipment
necessary to activate the material through ion bombardment. Because of the
limited size of the reactor chamber required for currently used processes, this
factor will also permit processing in larger batch sizes.
(2) The polymer microsphere that is the basis for the Oncosphere has a more
consistent size range than currently used products and therefore the radiation
dose can be more accurately controlled. As a result, the dose for Oncospheres
can be tailored to each patient's individual disease in order to optimize the
distribution of microspheres and dose.
(3) While there is currently no commercial software that can provide an
oncologist with the ability to prepare a pre-treatment plan or post-treatment
verification of microsphere delivery, software currently under development by
the Company and two other firms will, we believe, provide the ability to do
pre-treatment planning for any microsphere product using yttrium-90 (the element
used in brachytherapy) or for which they know the dose kernel (dosimetry).
However, The Oncosphere has a gamma (photon) emitting component, which affords
the capability of locating the spheres in the patient's body. This is
significant because the beta isotope that actually kills the cancer cells cannot
be seen outside the body. While we believe that while the addition of a gamma
component is possible with other microspheres, the process for doing so are
covered by patent applications filed by the University of Maryland and will be
protected by any patents that may be issued. There is, of course, no assurance
that any patent will be issued or that if it is, it will afford the degree of
protection that we expect.
(4) We believe that because the Oncosphere technology allows for post treatment
verification, its use will provide physicians and hospitals with the data
necessary to support requests for payment by insurance companies and Medicare
for additional services.
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Competition
We are aware of several companies that have developed microsphere-based products
to address soft tissue cancers:
MDS Nordion is a Canadian company with approximately $1.5 billion a year in
revenue. Its microsphere product is named "Therasphere". The FDA approved
Therasphere for limited use under a Humanitarian Device Exemption (HDE) on
December 10, 1999. We believe that Nordian is attempting to collect the patient
data from patients treated under the HDE approval to support the submission of a
request to the FDA for a PMA. We understand that approximately 200 doses of
Therasphere were administered in 2002.
Sirtex is an Australian company with approximately $11,000,000 in assets. Its
microsphere product is named "SIR-Spheres". The FDA approved a PMA for
SIR-Spheres on March 5, 2002 for treatment of colorectal cancer metastases in
the liver concurrently with chemotherapy administered into the liver directly by
means of a hepatic arterial pump. Approximately 400 doses of the SIR-Spheres
were administered in the year 2003, 900 doses in the year 2004 and 2,500 doses
in the year 2005 worldwide.
pSivida, a British development stage company, has developed a competing
brachytherapy product that is injected directly into solid tumors. This
technique does not compete directly with JDA-Spheres, but is intended to treat
some of the same diseases as microspheres. pSivida is publicly traded under
symbol PSDV on the NASDAQ exchange.
Marketing Strategy
We believe that we will not be able to enter the market until approximately the
year 2010. Until then, our efforts will consist of informing the medical
profession and the hospital industry about microarterial brachytherapy and
training physicians in its application. We expect these activities to be carried
on primarily through the efforts of Andrew S. Kennedy, MD, one of the founders
of JDA and now a director of both Oncologix and BestNet Communications Corp.,
the parent corporation of Oncologix, and the Chief Scientific and Medical
Officer of Oncologix.
An important factor influencing physicians' decisions in selecting forms of
therapy is the availability of reimbursement by insurance companies and
Medicare. Presently, physicians and hospitals using similar products are
reimbursed at the rate of $14,000 per dose. Based on our preliminary analyses,
we expect to be able to make each dose at a cost of not more than $4,000. It is
expected that each physician will be able to administer from two to four doses
per week. In view of the complex nature of the disease and the expertise
involved in treating the patient, it is anticipated that most of the procedures
will initially be conducted by a few highly experienced medical teams, commonly
referred to as "centers of excellence". Our initial product marketing effort
will focus on soliciting premier institutions and clinics to emphasize
microsphere therapy in their practice. We anticipate that within two years of
the initial product launch, approximately fifty medical centers will be
performing the procedure regularly, each administering 100 doses annually (5,000
doses in total). This would result in gross revenue of approximately
$70,000,000. It is believed that there are more than 130,000 patients with the
characteristics of this disease in the US alone. We believe that each patient
will be eligible for two to six treatments with the Oncosphere over their
lifetimes. This is due to two primary factors:
o (1) The ability with the Oncosphere to track the placement of the
isotopes when they are embedded in the patient's tumor; and
o (2) The delivery of a smaller number of spheres in each dose compared
to other products, thus allowing more physician flexibility in
prescribing the amount of spheres (and subsequently, radiation dose)
delivered during a single treatment.
Thus, repeat treatments are feasible if larger tumors do not completely respond
to the first treatment, or if new tumors should grow in the liver. Physicians
(especially radiation oncologists) regularly administer follow-on doses, or
"fractionated" doses, rather than all at once in an effort to control the tumor
growth incrementally.
11
The American Cancer Society's annual report shows that overall death rates from
pancreas and liver cancer (two of the types we intend to target) are increasing
and that the market we intend to pursue appears to be stable, with some sectors
growing at a rate of approximately 3-5% annually.
Readers of this Report should bear in mind, however, that our entry into the
market is a number of years in the future and that present insurance
reimbursement rates, manufacturing costs and other factors influencing our
business may change during that period. They should further consider that during
that time, new products could emerge that could afford better results at lower
cost than the Oncosphere.
Software
Currently, there is no available software that provides an oncologist with a
pre-treatment plan or post-treatment verification of microsphere delivery.
Certain software now under development by Oncologix and associated companies is
expected to provide the capability for pre-treatment planning for any
microsphere using yttrium-90 or other radioactive isotope whose dose kernel
(radiation dosimetry) has been determined. However, post-treatment dose
verification will be available only for microspheres having a gamma (photon)
emitting component. The Oncosphere has a gamma-emitting component that can be
measured analyzed with the use of this software. We believe that when and if
issued, the patents pending on the Oncosphere technology will cover that
gamma-emitting feature.
The Master License Agreement
The business of Oncologix is made possible by the Master License Agreement
("License"), effective September 16, 2003, between Oncologix's predecessor, JDA,
and the University. The following description of the License is incomplete and
is qualified in every respect by the full text thereof, as amended, which is
filed as an Exhibit to this Report.
We have the exclusive worldwide right to make, have made, use, lease, offer to
sell, sell and import products based on the technology embodied in the
Oncosphere, generally known as "Instant Microspheres for Microarterial Imaging
and Radiotherapy", subject to the terms of the License, including certain
reservations of rights (which we do not believe are material) in the University
and the U.S. Government. We may grant sublicenses and assign our rights under
certain conditions.
The continuation of the License is subject to termination if we fail to perform
under certain requirements of the License, including:
o Making certain reports of our activities to the University;
o Having applied for an IDE from the FDA not later than September 16,
2008;
o Having obtained a PMA from the FDA not later than September 16, 2011;
o Having completed the $4,000,000 funding for the Oncologix operations
as described above in this Report;
o Make the following lump sum payments (in addition to payments already
made): $25,000 upon the commencement of a Clinical Trial of a licensed
product in any country other than the U.S. or filing an application
with the FDA for an IDE, $50,000 three months after FDA approval of a
PMA, $50,000 upon receipt of a PMA from the FDA, $100,000 upon any
future change in control of Oncologix, and $200,000 at the end of the
first calendar year in which Net Sales of Oncospheres exceeds
$5,000,000. Royalties are to be paid on a country-by-country basis.
12
o Reimburse the University for legal fees paid to patent counsel in
connection with the licensed technology;
o Pay royalties as follows: 2.5% of Net Sales on a semi-annual basis but
a minimum of $10,000 for each year after commercial sales begin, and
25% of royalties received by us from sublicensees, subject to various
adjustments and qualifications contained in the License.
We are also obligated to indemnify the University against certain expenses as
provided in the License, as amended.
We have granted an exclusive sublicense under the License to Fountain
Pharmaceuticals, Inc., a Delaware corporation, for China, Taiwan and Hong Kong.
The provisions of the sublicense generally mirror those of the License; the
royalty rate thereunder is three percent (3%). A copy of the sublicense is filed
herewith.
Intellectual Property Protection
We intend to rely on patent laws, software security measures, license agreements
and nondisclosure agreements to protect our exclusive rights under our Master
License Agreement with the University. Although patents have been applied for
the technology underlying the Oncosphere, no patent has yet been granted and
there is no guarantee or assurance that any will be granted or that that
technology will be patentable.
While there will be no legal protection for the software described above, the
technology that includes the capability of using it to advantage is covered by
the pending University patent applications.
Research and Development
Although Dr. Andrew S. Kennedy was one of the inventors of the Oncosphere
technology, he and his co-inventors were, at the time, associated with the
University, which bore the expense of research and development and is the owner
of the technology. We believe that the actual cash expense was approximately
$200,000 without including the value of the time spent by the inventors. JDA has
paid $10,000 as a contribution to the expense of the development by another
company of the Software described above. Our plans for funding continued
research and development are reflected in the budget described under "Plan of
Operation".
Employees
We intend to engage outside contractors and consultants during the development
phases described under "Plan of Operation". During that time, our only employees
will be the three officers of Oncologix; Dr. Andrew S. Kennedy (on the
equivalent of two days per week basis) and Mess'rs Andrew Green and Adam Lowe.
Financial, accounting and administrative functions will be performed by Mr.
Michael Kramarz, the Chief Financial Officer of BestNet Communications Corp.,
the Parent company. See "Management". We plan, however, to hire people for the
conduct of clinical trials.
Property
There are presently no facilities for Oncologix; its officers now work from
their homes. We intend, however, to seek leased office facilities in the Atlanta
area for our executive officers and shared space in Gary, North Carolina, for
technical work. While there are now no lease commitments, we anticipate that our
total lease charges will be approximately $3,000 per month. These facilities
would be in addition to the Company's principal offices in Grand Rapids,
Michigan and its operations facility in Toronto, Ontario, as described in the
Company's Annual Report on Form 10KSB.
13
Risk Factors
Those interested in investing in the Company because of the Merger should
carefully consider the following Risk Factors pertaining to Oncologix as well as
the risks and uncertainties that are described in the Company's most recent
Annual and Quarterly Reports under the Securities Exchange Act of 1934.
Going Concern Qualification. Our Independent Accountants have expressed doubt
about our ability to continue as a going concern. The ability to continue as a
going concern is an issue raised as a result of the material operating losses
incurred since inception, and its stockholders' deficit. We expect to continue
to experience net operating losses. Our ability to continue as a going concern
is subject to our ability to obtain necessary funding from outside sources,
including obtaining additional funding from the sale of our securities or
obtaining loans from various financial institutions where possible. The going
concern increases the difficulty in meeting such goals.
Need for Additional Capital. We will need substantial funds to complete the
development, manufacturing, and marketing of our potential future products.
Consequently, we will seek to raise further capital through not only possible
public and private offerings of equity and debt securities, but also
collaborative arrangements, strategic alliances, and equity and debt financings
or from other sources. We now estimate the need to raise at least $10,000,000 of
additional funding by the end of 2008 to fund working capital. We may be unable
to raise additional capital on commercially acceptable terms, if at all, and if
we raise capital through additional equity financing, existing shareholders may
have their ownership interests diluted. Our failure to be able to generate
adequate funds from operations or from additional sources would harm our
business.
Uncertainties Regarding Healthcare Reimbursement and Reform. Our ability to
commercialize products depends in part on the extent to which healthcare
services and products are paid by governmental agencies, private health insurers
and other organizations, such as health maintenance organizations, for the cost
of such products and related treatments. Our business could be harmed if
healthcare payers and providers implement cost-containment measures and
governmental agencies implement measures that reduce payment to our customers
for their use of our products.
Industry Intensely Competitive. The medical device industry is intensely
competitive. We will compete with both public and private medical device,
biotechnology and pharmaceutical companies that have been established longer
than we have, have a greater number of products on the market, have greater
financial and other resources and have other technological or competitive
advantages. We also compete in the development of technologies and processes and
in acquiring personnel and technology from academic institutions, government
agencies, and other private and public research organizations. We cannot be
certain that one or more of our competitors will not receive patent protection
that dominates, blocks or adversely affects our product development or business;
will benefit from significantly greater sales and marketing capabilities or will
not develop products that are accepted more widely than ours.
Intellectual Property Risk. Our ability to obtain and maintain patent and other
protection for our products will affect our success. We have exclusive licenses
to technologies subject to patent applications in the U.S. and four foreign
countries. The patent positions of medical device companies can be highly
uncertain and involve complex legal and factual questions. Our patent rights, if
granted, may not be upheld in a court of law if challenged. Our patent rights
may not provide competitive advantages for our products and may be challenged,
infringed upon or circumvented by our competitors. We cannot patent our products
in all countries or afford to litigate every potential violation worldwide.
Because of the large number of patent filings in the medical device and
biotechnology field, our competitors may have filed applications or been issued
patents and may obtain additional patents and proprietary rights relating to
products or processes competitive with or similar to ours. We cannot be certain
14
that U.S. or foreign patents do not exist or will not issue that would harm our
ability to commercialize our products and product candidates.
Possible Failure to Comply with Government Regulations. We, and any prospective
contract manufacturers and suppliers are subject to extensive, complex, costly,
and evolving governmental rules, regulations and restrictions administered by
the FDA, by other federal and state agencies, and by governmental authorities in
other countries. In the United States, our products cannot be marketed until
they are approved for market by the FDA. No application for FDA approval for the
marketing of the Oncosphere has yet been made and we do not expect to be in a
position to do so for approximately eighteen months to two years. Obtaining FDA
market approval involves the submission, among other information, of the results
of preclinical and clinical studies on the product, and requires substantial
time, effort and financial resources. The FDA, and other federal and state
agencies, as well as equivalent agencies of other countries with whom we will
export our products, will also perform pre-licensing inspections of our
facility, if any, and our contract manufacturers' and suppliers' facilities. Our
failure or the failure of our contract manufacturers or suppliers to meet FDA or
other agencies' requirements would delay or preclude our ability to sell our
products potentially having an adverse material effect on our business. Even
with FDA market approval, we, as well as our partners, contract manufacturers
and suppliers, are subject to numerous FDA requirements covering, among other
things, testing, manufacturing, quality control, labeling and continuing review
of medical products, and to permit government inspection at all times. Failure
to meet or comply with any rules, regulations, or restrictions of the FDA or
other agencies could result in fines, unanticipated expenditures, product
delays, non-approval or recall, interruption of production, and criminal
prosecution.
Exposure to Product Liability Claims. Our design, testing, development,
manufacture, and marketing of products involve an inherent risk of exposure to
product liability claims and related adverse publicity. Insurance coverage is
expensive and difficult to obtain, and, in the future we may be unable to obtain
coverage on acceptable terms, if at all. If we are unable to obtain sufficient
insurance at an acceptable cost or if a successful product liability claim is
made against us, whether fully covered by insurance or not, our business could
be harmed.
Exposure to Environmental Risks. Our business involves the controlled use of
hazardous materials, chemicals, biologics, and radioactive compounds.
Manufacturing is extremely susceptible to product loss due to radioactive,
microbial, or viral contamination; material equipment failure; or vendor or
operator error; or due to the very nature of the product's short half-life.
Although we believe that when we become operational, our safety procedures for
handling and disposing of such materials will comply with state and federal
standards there will always be the risk of accidental contamination or injury.
In addition, radioactive, microbial, or viral contamination may cause the
closure of the respective manufacturing facility for an extended period of time.
By law, radioactive materials may only be disposed of at state-approved
facilities. If we were to become liable for an accident, or if we were to suffer
an extended facility shutdown, we could incur significant costs, damages, and
penalties that could harm our business.
Reliance on Key Personnel. Our success will depend, to a great extent, upon the
experience, abilities and continued services of our executive officers and key
scientific personnel. If we lose the services of any of these officers or key
scientific personnel, our business could be harmed. Our success also will depend
upon our ability to attract and retain other highly qualified scientific,
managerial, sales, and manufacturing personnel and our ability to develop and
maintain relationships with key individuals in the industry. Competition for
these personnel and relationships is intense and we compete with numerous
pharmaceutical and biotechnology companies as well as with universities and
non-profit research organizations. We may not be able to continue to attract and
retain qualified personnel.
Uncertain Value of Our License from the University. Although we believe that the
patent pending on our licensed technology has significant value, we cannot be
confident that other similar technology does not exist or will not be
discovered, or that any patents, if granted, will be enforceable.
15
Uncertainty as to our Ability to Initiate Operations and Manage Growth. Our
efforts to commercialize our medical products will result in new and increased
responsibilities for management personnel and will place a strain upon our
management, financial systems, and resources. We may be required to continue to
implement and to improve our management, operating and financial systems,
procedures and controls on a timely basis and to expand, train, motivate and
manage our employees. There can be no assurance that our personnel, systems,
procedures, and controls will be adequate to support our future operations.
Item 3.02 Unregistered Sale of Equity Securities.
In consideration of the Merger described above, we issued 43,000,000 shares of
our common stock to the shareholders of JDA. This transaction was not registered
under the Securities Act of 1933 (the "Act") in reliance on the exemption from
registration afforded by section 4.2 of the Act, and Regulation D promulgated
thereunder. The shares were issued to a total of __ persons, including four
executive officers of Oncologix, one major educational institution of the state
of Maryland and __ others, all of whom were determined to be Accredited
Investors as defined under the Act in reliance on written information provided
by them to us. All of the shares so issued are restricted as to transfer unless
registered under the Act or an exemption from such registration is available
under any of its provisions and we are furnished with a written opinion of
counsel to that effect. The certificates evidencing all of the shares contain a
legend to that effect and the records of our stock transfer agent have been
marked accordingly.
Under the terms of the Merger Agreement, we agreed to use our best efforts to
register up to 500,000 of the shares for resale under the Act six months after
the Closing of the Merger. None of the holders of those 500,000 shares are owned
by the officers, directors or major shareholders of JDA.
Eighty percent of the shares that were issued to Andrew s. Kennedy, MD, and to
Mr. Jeff Franco, and all of the shares issued to Mess'rs Andrew Green and Adam
Lowe have been placed in an escrow for the purposes described below. Dr Kennedy
and Mr. Franco were officers and directors of JDA prior to the Merger. Dr
Kennedy has been elected as a member of our Board of Directors and is employed
as the Chief Scientific and Medical Officer of Oncologix (a position to which he
will devote approximately 40% of his working time that does not conflict with
his practice medicine, which he is continuing). Mr. Franco was an officer and
director of JDA and has been engaged as a part-time consultant to Oncologix for
a period of two years.
The shares placed in the escrow will be released to their respective owners as
each of the three development phases described above haven been attained, as
follows: Twenty-five percent (25%) of the escrowed shares will be released upon
achievement of the Development Phase; Thirty-one and one-quarter percent
(31.25%) of the escrowed shares will be released upon achievement of the
Pre-Clinical Testing phase; and All of the remaining shares (forty.-three and
three-quarters percent (43.75%)) will be released upon achievement of the
Clinical Approval Phase.
If, however, any of the objectives have not have been achieved on or before the
sixth anniversary date of the Closing under this Agreement, any of the shares
that have not been released shall be returned to the Company and restored to the
status of authorized but unissued shares of our common stock. While they remain
in the escrow, the shares belonging to Dr. Kennedy and Mr. Franco will be
available to compensate the Company for damages arising out of a breach of the
representations and warranties made by JDA and Dr. Kennedy and Mr. Franco in the
Merger Agreement.
16
ITEM 5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers
Note: in the following, the "Parent" refers to BestNet Communications Corp., the
Registrant and "Oncologix" refers to Oncologix Corporation, its wholly owned
subsidiary.
None of the officers and directors of the Parent have departed. The following
persons have been elected to the positions indicated.
Andrew Green - a Director of the Parent and as a Director and Chief Executive
Officer of Oncologix.
Andrew S. Kennedy, MD - a Director of the Parent and as a Director and Chief
Scientific and Medical Officer of Oncologix.
Steven Kurtzman, MD - a Director of Oncologix. Dr. Kurtzman is also an advisor
to the Parent.
Adam Lowe - a Director, President and Chief Operating Officer of Oncologix.
Stanley L. Schloz, a Director and Chief Executive Officer of the Parent, and
Barry Griffith, a Director of the Parent, have been also elected as Directors of
Oncologix.
Michael Karmarz, Chief Financial Officer and Secretary of the Parent, has also
been elected as Chief Financial Officer and Secretary of Oncologix.
The respective ages and backgrounds of those of the above who are officers or
Directors of the Parent are disclosed in the Parent's most recent Annual Report
filed under the Securities Exchange Act of 1934. That information with respect
to the newly elected offices and Directors of the Parent and of Oncologix are as
follows:
Andrew Kennedy, MD, (age 42), was a Founder of JDA and became a Director of both
the Parent and Oncologix and Chief Scientific and Medical Officer of Oncologix
upon the Merger, and is expected to serve on the equivalent of a two-day per
week basis. The major part of his time and efforts will continue to be applied
to his position as co-medical director for Wake Radiology Oncology Services in
Cary, North Carolina, where he has been since 2002 and where his primary
activity is providing patients with treatments for cancer, specializing in
gastrointestinal cancers, as well as cancers of the breast, lung and cervix.
From 1997 until 2002, he was an associate professor in the Radiation Oncology
and head of GI radiation oncology at The University of Maryland School of
Medicine, and Residency program director. He is an internationally known
radiation oncologist He has given numerous presentations on radiation therapy
for the treatment of colorectal and liver cancer, and was instrumental in
reintroducing an important new treatment for liver cancer, called infusion of
microspheres, which offers hope to patients who have not had success with
chemotherapy. He developed the most commonly used protocol in the US for
infusion of microspheres and is the recipient of more than $900,000 in research
grants to further investigate this and other cancer treatments. He has written
many peer-reviewed scientific papers, articles, book chapters and abstracts on
radiation oncology and has been invited to give presentations on radiation
therapy for GI cancers and infusion of microspheres at the premier medical
conferences in the United States, Asia and Europe. He is a graduate of Loma
Linda School of Medicine, in Loma Linda, California, and completed his residency
at The University of North Carolina at Chapel Hill, where, as chief resident,
and later a research fellow, he completed significant work in three-dimensional
treatment planning (3D external beam radiation therapy) and radiobiology
research.
Andrew M. Green (age 37) became a Director of both the Parent and Oncologix and
Chairman and Chief Executive Officer of Oncologix upon the Merger. He had been a
consultant to JDA from May 2006 until the Merger. Previously, since June 2005,
17
he and Mr. Adam Lowe (see below) were employed by NeoMedica, LLC, a consulting
group owned by them, that specialized in executive level medical device
consulting for clients that included early stage ventures dealing with Class III
devices involving cardiology, ophthalmology, orthopedics, and electrophysiology.
Prior to that, from 1996 until 2005, he was employed by the Novoste Corporation
(a publicly traded medical device company) in obtaining approval of its
intravascular brachytherapy device through the various medical device and
radiation regulatory agencies throughout the world. His final position with
Novoste was as a corporate officer with responsibility for Regulatory Affairs,
Clinical Affairs, Quality Assurance and New Technology/Business Development.
From 1993 until his employment with Novoste, he was employed as a Scientific
Reviewer/Biomedical Engineer for the FDA, where he was responsible for the
review of scientific, technical, pre-clinical and clinical data submitted in
support of the safety and effectiveness of both interventional and general
cardiovascular devices. He holds a BS degree in Biological Sciences and an MS
degree in Bioengineering, both from Clemson University, where his research
focused on characterization and use of materials in a biological environment. He
also served in the US Army as a Field Combat Medical Specialist.
Adam G. Lowe (age 43) became a Director of Oncologix and President and Chief
Operating Officer of Oncologix upon the Merger. He had been a consultant to JDA
from May 2006 until the Merger. Previously, since June 2005, he and Mr. Andrew
Green (see above) were employed by NeoMedica, LLC, a consulting group owned by
them, that specialized in executive level medical device consulting for clients
that included early stage ventures dealing with Class III devices involving
cardiology, ophthalmology, orthopedics, and electrophysiology. Prior to that,
from 1999, he was employed by the Novoste Corporation (a publicly traded medical
device company) as a corporate officer in the areas of Quality Assurance,
Regulatory Affairs and Operations dealing with Class II and III devices focused
on cardiology, oncology, radiology, and urology. Before his employment by
Novoste, he was employed by C.R. Bard, Inc. from 1988 until 1981 and again from
1993 until 1999in various quality assurance positions in the areas of oncology,
radiology and urology with his last being as Vice President of Quality. He was
employed by Johnson & Johnson from 1991 until 1993. He holds a BS-Materials
Science and Engineering degree with a concentration in polymer science from
North Carolina State University.
Steven Kurtzman (age 44) became a director of Oncologix upon the Merger. He has,
since December 2005 been an advisor to the Parent and has been since January
2006 on the Advisory Board of IsoRay Medical, Inc. a publicly traded company
that manufactures and markets radiation devices for brachytherapy primarily for
the treatment of prostrate cancer. He has, since 1998, been practicing medicine
in San Francisco, California, specializing in radiation oncology. He is
currently the Director of Brachytherapy for Western Radiation Oncology, P.C. He
is considered an expert in the management of prostate cancer and has lectured on
and taught prostate brachytherapy nationally. He holds a BA from Cornell
University and is a graduate of Case Western Reserve University School of
Medicine. He completed his residency training in radiation oncology at the
Hospital of the University of Pennsylvania.
Executive Compensation
Summary Compensation Table for New Oncologix Officers
The following table shows the compensation for the officers of Oncologix as
approved for the next two years pursuant to Employment Agreement between the
Company and the respective officers.
18
Annual Long Term Compensation
- ---------------------------------------------------------------------------------------------------------------------------------
Compensation Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------------------
Restricted Securities
Stock Underlying LTIP All Other
Name and Principal Position Year Salary Bonus Awards Options/SARs Payouts Compensation
($) ($) ($) (#) ($) ($)
Andrew Green, Chief 2006 180,000 0 0 125,000 0 0
Executive Officer
Adam Lowe, Chief 2006 180,000 0 0 125,000 0 0
Operating Officer
Andrew Kennedy, Chief 2006 240,000 0 0 0 0 0
Medical Officer
Securities Ownership of Certain Beneficial Owners and Management
The following table shows the ownership of the Company's voting stock by
officers, directors and holders of 5% or more of the outstanding stock after
giving effect to the issuance of the Company's common stock upon the Closing of
the Merger described above in this Report.
Name and Address Amount and Nature Percent
Of Beneficial Owner (1) of Beneficial Owner (2)(3) of Class (3)
- ----------------------- -------------------------- ------------
Michael A. Kramarz 155,000(4) *
Kelvin C. Wilbore 155,860(5) *
Stanley L. Schloz 986,695(6) 1.09
Barry Griffith 74,133(7) *
Anthony Silverman 4,171,653(8) 4.58%
Andrew Kennedy 13,949,738(9) 15.48%
Jeff Franco 13,949,738(10) 15.48%
Andrew Green 3,761,790(11) 4.18%
Adam Lowe 3,761,790(12) 4.18%
All directors and executive officers
as a group (5 persons) 26,860,799(13) 29.41%
* Less than 1% Amounts and percentages in the table are based upon 90,097,953
shares of Common Stock outstanding.
19
(1) Unless otherwise noted, the address of each holder is 2850 Thornhills Ave.
SE, Suite 104, Grand Rapids, Michigan 49546.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from July 21, 2006 through the exercise of any option,
warrant or other right. Shares of Common Stock subject to options, warrants or
rights which are currently exercisable or exercisable within 60 days are deemed
outstanding solely for computing the percentage of the person holding such
options, warrants or rights, but are not deemed outstanding for computing the
percentage of any other person.
(3) Outstanding as of July 26, 2006.
(4) This amount represents 155,000 vested stock options.
(5) This amount represents 155,860 vested stock options.
(6) This amount represents 95,000 vested stock options and direct ownership of
734,992 shares of Company's common stock and indirect ownership of 156,703
shares of common stock owned by Katsinam Partners LP, of which Mr. Schloz is a
7.843% owner.
(7) This amount represents 74,133 vested stock options
(8) This amount represents direct ownership of 73,333 vested stock options
direct ownership of 2,918,400 shares of the Company's common stock, direct
ownership of 150,000 warrants to purchase the Company's common stock and direct
ownership of 670,417 shares of common stock underlying a convertible promissory
note; indirect ownership of 352,447 shares of the company's common stock and
7,056 warrants to purchase the Company's common stock owned by Katsinam
Partners, LP, of which Mr. Silverman is a 17.64% shareholder.
(9) This amount represents 13,949,738 restricted shares of the Company's common
stock.
(10) This amount represents 13,949,738 restricted shares of the Company's common
stock.
(11) This amount represents 3,761,790 restricted shares of the Company's common
stock.
(12) This amount represents 3,761,790 restricted shares of the Company's common
stock.
All of the persons listed above, with the exception of Jeff Franco, are either
officers or directors of BestNet Communications Corp. or of Oncologix or both.
ITEM 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
To be filed by amendment.
(b) Pro Forma Financial Information
To be filed by amendment.
20
(c) Exhibits
--------
Exhibit Title
- ------- -----
Exhibit 10.20 Agreement of Merger and Plan of Reorganization by and among
BestNet Communications Corp., Oncologix Corporation,
JDA Medical Technologies Inc. and the Principal Shareholders
and the Executive Shareholders of JA Medical Technologies, Inc.
Exhibit 10.21 Master License Agreement with the University of Maryland, as
amended
Exhibit 10.22 To be filed by Amendment.
Exhibit 10.23 Employment Agreement with Dr. Kennedy
Exhibit 10.24 Employment Agreement with Mr. Green
Exhibit 10.25 Employment Agreement with Mr. Lowe
Exhibit 10.26 Consulting Agreement with Mr. Franco
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BestNet Communications Corporation
By: /s/ Stanley L. Schloz
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Stanley L. Schloz
President
By: /s/ Michael A. Kramarz
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Michael A. Kramarz
Chief Financial Officer
Date: July 28, 2006
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