As filed with the Securities and Exchange Commission on October 26, 2001
REGISTRATION NO. 333-52410
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM SB-2/A
AMENDMENT NO. 2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BIOPULSE INTERNATIONAL, INC.
(Name of small business issuer in its charter)
Nevada 8731 87-0634278
------ ---- ----------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
10421 South Jordan Gateway, Suite 500, South Jordan, Utah 84095
(801) 523-0101
(Address and telephone number of registrant's principal place of business)
Reid Jilek, 10421 South Jordan Gateway, Suite 500, South Jordan, Utah 84095
(801) 523-0101
(Name, address and telephone number of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable from time to time after this registration statement becomes
effective.
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 any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
Calculation of Registration Fee
------------------------------------------------------------------------------------------------------------------------------------
Title of each Proposed maximum Proposed maximum Amount of
class of securities Amount to offering price aggregate offering registration
to be registered be registered per share price fee(1)
------------------------------------------------------------------------------------------------------------------------------------
Common stock held 655,136 $0.20 (1) $ 131,027 $ 33
by selling shareholders
Common stock underlying 44,177,648 $0.20 (1) $ 8,835,530 $ 2,209
Series B Convertible
Preferred Stock(2)
Common stock underlying 723,618 $0.20 (1) $ 144,723 $ 36
outstanding options
and warrants(3)
Total 45,556,402 $ 9,111,820 $ 2,278 (4)
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(1) Estimated solely for the purposes of calculating the registration fee
based on Rule 457(c). The price represents the average of the bid and
asked price as reported on the OTCBB on October 19, 2001.
(2) Represents 200% of the shares of common stock issuable by us from time
to time upon the conversion of Series B convertible preferred stock
previously issued to the selling shareholders.
(3) Shares of common stock issuable by us from time to time upon exercise
of warrants and stock options previously issued to the selling
shareholders.
(4) Fee of $15,527 paid with initial filing. No additional fee due.
We hereby amend this registration statement on such date or dates as may be
necessary to delay its effective date until we 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 this registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
Table of Contents
Page
Summary 2
Risk Factors 5
Forward-Looking Statements 13
Securities Covered by this Prospectus 13
Use of Proceeds 14
Dividend Policy 14
Determination of Offering Price 15
Market for Common Equity and Related Stockholder Matters 15
Changes in and Disagreements with Accountants Disclosure 16
Management's Discussion and Analysis 17
Business 18
Management 37
Compensation of Directors and Executive Officers 38
Employment Contracts, Termination of Employment, and Change in
Control Arrangement 40
Security Ownership of Certain Beneficial Owners and Management 40
Certain Relationships and Related Transactions 42
Description of Securities 43
Selling Shareholders 43
Plan of Distribution 45
Legal Proceedings 47
Interest of Named Experts and Counsel 47
Experts 47
Disclosure of Commission Position of Indemnification
for Securities Act Liabilities 47
Index to Financial Statements 48
BioPulse International, Inc.
Common Stock
This prospectus covers the sale of up to 45,556,402 shares of our common
stock. Eleven of our shareholders are offering all of the shares covered by this
prospectus. The selling shareholders will receive all of the proceeds of the
sale of the shares offered by this prospectus, and we will receive none of the
proceeds.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"BIOP." On October 19, 2001, the last reported price for our common stock on the
OTC Bulletin Board was $0.17 per share.
Investment in the shares covered by this prospectus involves a high degree
of risk. You should consider carefully the risk factors beginning on page 5 of
this prospectus before purchasing any of the shares covered by this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The date of this prospectus is ____________, 2001
Summary
This summary may not contain all of the information that is important to
you. You should read the entire prospectus carefully, including the "Risk
Factors" beginning on page 4 and the financial statements and notes to financial
statements, before investing in our common stock.
The Company
We have acquired and are developing various alternative medicine
biotechnology proprietary technologies in various aspects of alternative
medicine and biotechnology that we believe will advance the early detection and
treatment of cancer and several other diseases. Our goal is two-fold: early
detection using our cancer screening test; and effective treatment through
immunotherapy and other holistic approaches.
To date, none of our technologies have been proven effective, or have been
submitted for or received FDA approval for marketing in the United States.
The key components of our business strategy are to:
o commercialize our Thymidine Kinase - 1 (TK1) cancer screening
test, which is designed to enable early detection and monitoring
of several types of common cancers (explained and discussed more
fully beginning on page 21);
o extend our TK1 technology to other uses in treatment;
o commercialize our cancer vaccine and other immunotherapies;
o integrate our treatments with promising alternative treatments;
and
o continue making scientific and technological advances in applied
biotechnology.
We believe the technologies we have acquired and are developing will allow
us to offer a more accurate, less invasive method of cancer screening. Moreover,
we think the cancer treatments we are developing are novel treatment
alternatives for types of cancer that are not adequately treated at the current
time.
Our principal executive offices are located at 10421 South Jordan Gateway,
Suite 500, South Jordan, Utah, 84095. Our telephone number is 801-523-0101.
The Offering
Securities being registered for resale by the selling shareholders:
The selling shareholders are offering a total of up to 45,556,402 shares of
common stock as follows:
o Selling shareholders are offering 655,136 shares of common stock,
consisting of 358,636 shares of common stock issued to two of the
selling shareholders in unrelated private placements, and 296,500
shares of common stock issued to two selling shareholders as
payment for consulting services rendered. We will receive no
proceeds from the sale of these shares.
o One selling shareholder is offering up to 22,058,824 shares of
common stock underlying 3,000 shares of issued and outstanding
Series B Convertible Preferred Stock held by the selling
shareholder. The Series B preferred stock was sold to the selling
shareholder in a private placement. The number of shares of
common stock into which the Series B preferred stock is
convertible is determined using a formula based on the market
price of the stock. As of October 19, 2001, the Series B
preferred stock would be convertible into 22,058,824 shares of
common stock, based on a hypothetical conversion price of
approximately $0.14. We will receive no proceeds from the
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conversion of the preferred stock or the sale of the underlying
common shares.
o This prospectus also covers 723,618 shares of common stock
underlying currently issued and outstanding options and warrants,
consisting of 189,318 warrants issued in a private placement in
November 2000; 200,000 warrants issued to Aidan Incorporated
pursuant to a sublicensing agreement between BioPulse and Aidan
in August 2000; 210,300 warrants issued to the Series B investor
in January 2001; and 124,000 warrants issued to three selling
shareholders as payment for services in connection with the sale
of the Series B preferred stock. Although we will receive the
exercise price of any outstanding options and warrants which are
exercised, up to a maximum of $4,584,522, there can be no
assurance that any of the options or warrants will be exercised.
For additional details on the securities being offered by this
prospectus, see "Securities Covered by this Prospectus" on page 11.
The selling shareholders named in this prospectus may offer and sell
these shares at any time using a variety of different methods. See "Plan of
Distribution."
Use of Proceeds
We will not receive any proceeds from the sale of the shares offered
by the selling shareholders.
Offering Price
We anticipate that all of the securities offered by this prospectus will be
sold at the prevailing market price at the time of such sales, at prices related
to such prevailing market price, at negotiated prices, or at fixed prices. The
actual number of shares sold and the prices at which they are sold will depend
upon the market price at the time of those sales. Therefore, we have not
included in this prospectus information about the price to the public of the
shares or the proceeds to the selling shareholders.
Summary Selected Financial Data
The following is a summary of our consolidated financial statements, which are
included elsewhere in this prospectus, and should be read in conjunction with
those financial statements.
3
For the Nine Months
Ended April 30, For the Years ended July 31,
--------------------------------- ----------------------------------
2001 2000 2000 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited)
Statement of Operations Data:
Net sales $ 2,128,281 $ 2,256,573 $ 3,107,636 $ 289,623
Gross profit 1,314,103 1,262,345 1,944,038 109,753
Profit (loss) from operations (6,301,479) 96,302 155,031 (243,435)
------------ ------------ ------------ ------------
Net profit (loss) ($6,301,479) 96,302 155,031 (243,435)
============ ============ ============ ============
Share data:
Profit (loss) per common shares - basic (.72) .02 .02 (.05)
diluted (.51) .02 .02 (.05)
============ ============ ============ ============
Weighted average number of common
shares outstanding - basic 8,759,812 6,073,862 6,825,610 4,709,752
diluted 12,452,500 6,073,862 6,825,610 4,709,752
============ ============ ============ ============
As of As of
April 30, 2000 July 31, 2000
------------------------ -------------------
(unaudited)
Balance Sheet Data:
Cash $ 315,469 $ 42,055
Total current assets 396,271 298,936
Total assets 2,897,473 1,150,145
Total current liabilities 73,135 298,717
Stockholders' equity 2,824,338 851,428
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Risk Factors
An investment in our common stock covered by this prospectus involves
a high degree of risk. You should carefully consider the following risk factors,
in addition to the other information set forth elsewhere in this prospectus,
including the consolidated financial statements and notes, before you invest.
Our technologies and treatments have not been proven effective and may never be
commercially viable. If our technologies and treatments are not proven to be
effective and do not become commercially viable, you might lose your investment.
Our technologies and treatments are in the early stages of
development and testing. To date, none of our technologies or treatments have
been proven effective. The development of novel technologies and treatments is
highly uncertain and subject to a number of significant risks. Technologies and
treatments that appear to be promising at early stages of development may not
reach the market for a number of reasons, such as being found to be ineffective,
failing to comply with regulatory requirements, being uneconomical, failing to
achieve market acceptance, or being precluded from commercialization by
proprietary rights of third parties.
We are a development stage company, and we may not be able to commercialize any
of our new products or services or continue to earn a profit.
We are a development stage company and earned a profit for the first
time during our fiscal year ended July 31, 2000. Since our TK1 principal cancer
screening test product is still in development, we do not expect to have any
material revenue from the sale of our cancer test products and services until
the fourth quarter of our fiscal year ending July 31, 2002. Revenue from our
other products and services is earned primarily outside the United States, and
we do not expect any material U.S. revenue from these product lines until we
obtain appropriate regulatory approval in 2002 or later. We cannot assure that
approval or clearance will ever be received. We cannot assure that we will ever
commercialize our cancer test products or services, or that we will be able to
earn substantial revenues from our other products or services.
We have reduced our staff to officers and directors of the Company, whom we are
not able to pay on a regular basis. Additionally, we are experiencing difficulty
in generating revenues. The combination of the impact of the Mexican regulatory
environment on Clinica BioPulso and the uncertainty of completion of testing of
our medical products raises a substantial possibility of our being unable to
continue as a going concern.
The changes in the regulatory environment in Mexico adversely
impacted on the operations and profitability of Clinica BioPulso. Additionally,
the testing and proving of the TK-1 cancer screening test may take longer than
anticipated to complete, and the TK-1 test and our other cancer vaccines and
immunotherapies may never develop commercial viability.
Consequently, we are experiencing difficulty in generating sufficient
revenues to continue our business as a going concern. We have reduced our staff
to our officers and directors, who have not been paid regularly for several
months. We are attempting to locate additional sources of funding to allow us to
continue our business. There is no guarantee that we will be able to locate
additional financing or that the financing will be on terms aggreable to us. If
we are unable to locate additional financing or if Clinica BioPulso is unable to
achieve profitability, our ability to continue our business will be adversely
impacted.
If our cancer test clinical studies do not prove the superiority of our
technologies, we may be unable to sell our cancer test products and services.
Beginning in 2002, we intend to initiate a blind multi-center
clinical trial in the United States and overseas for our principal cancer test
that will include blood samples from several thousand patients, including known
cancer patients and patients with average risk profiles. The results of this
clinical trial may show that tests using our technologies are not superior to
existing screening methods. In that event, we may have to devote significant
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financial and other resources to further research and development of this or new
technology. In addition, we may experience delays in the commercialization of
tests using our technologies. It is possible that commercialization of our
technologies may never occur.
If our clinical studies for our other products do not prove the superiority of
our technologies, our revenues may decline and we may be unable to sell our
products and services in the United States and other markets.
Our clinical studies with our other products and services have been
small and included high-risk patients. The results from these earlier studies
may not represent the results we may obtain from future studies, including
planned clinical trials in the United States, which will include substantially
more samples and average-risk patients. Consequently, we may not be able to sell
these products and services in the United States or in other markets.
We may be unable to establish the effectiveness of our cancer screening products
if we are unable to recruit a sufficient number of patients for our planned
U.S.-based clinical trials.
We intend to conduct several U.S.-based clinical trials of our cancer
screening products. This testing will require testing of thousands of patients
classified as "average-risk" by the Institutional Review Board. If we are unable
to enroll the required number of average-risk patients, we will be unable to
validate the effectiveness of our technologies, which would make it difficult to
sell our products and services. We cannot guarantee that we will be able to
recruit patients on a timely basis, if at all.
If Medicare and other third-party payors, including managed care organizations,
do not provide adequate reimbursement for our products and services, it is
unlikely that clinical reference laboratories will use our products or license
our technologies to perform cancer screening tests.
Most clinical reference laboratories will not perform cancer
screening tests using our products and licensing our technologies unless they
are adequately reimbursed by third-party payors such as Medicare and managed
care organizations. There is significant uncertainty concerning third-party
reimbursement for the use of any test incorporating new technology such as ours.
Reimbursement by a third-party payor may depend on a number of factors,
including a payor's determination that tests using our products and technologies
are sensitive for cancer; not experimental or investigational; medically
necessary; appropriate for the specific patient; and cost-effective. To date, we
have not secured any reimbursement approval for tests using our products and
technologies from any third-party payor, nor do we expect any such approvals in
the near future.
Reimbursement by Medicare will require approval by the Secretary of
Health and Human Services (HHS). We cannot guarantee that the HHS Secretary will
act to approve tests based on our technologies on a timely basis or at all. In
addition, the assignment of a current procedural terminology code facilitates
Medicare reimbursement. The process to obtain this code is lengthy and we cannot
guarantee that we will receive a current procedural terminology code on a timely
basis, or at all.
Since reimbursement approval is required from each payor
individually, seeking approvals is a time-consuming and costly process. If we
are unable to obtain adequate reimbursement from Medicare and managed care
organizations, our ability to generate revenue and earnings from the sale of our
products or licenses to our technologies in the United States will be limited.
We will not be able to commercialize our technologies if we are not able to
lower costs through automating and simplifying key operational processes.
Currently, cancer screening tests using TK1 are expensive because
they are labor-intensive and use highly complex and expensive reagents. To price
our products and services competitively, we will need to substantially reduce
the costs of tests using our monoclonal antibody technology through significant
automation of key operational processes and other cost saving procedures. If we
fail to reduce costs sufficiently, tests using our technologies either may not
be commercially viable or may generate little, if any, profitability.
6
If we are unable to meet milestones outlined in our license agreements, we may
lose the licenses to use diagnostic tests and related products which are
important to our business. The loss of these licenses could have a material
adverse effect on our ability to generate revenues.
We have entered into license agreements related to cancer screening
tests, anti-angiogenesis, cancer vaccines, cytokines, and immune stimulants. We
entered into one such agreement with Brigham Young University ("BYU") in
December 2000 (the "BYU Agreement"), which granted us exclusive, worldwide right
and license (subject to an option agreement between BYU and a private laboratory
which grants rights in the countries of Japan, China, Taiwan, Korea, Malaysia,
Indonesia, Philippines, and Singapore, and to BYU's right to use the licensed
technology for continuing research and non-commercial academic uses) to develop,
manufacture, sell, and otherwise transfer the in vitro serum diagnostic TK and
TK1 tests and related products. We are required under the agreement to make
royalty payments and meet performance milestones. If we are unable to make the
required payments or meet these milestones, BYU has the right to terminate the
agreement and rescind our license. The loss of this agreement, and our ability
to use and develop the related cancer screening tests, likely would have a
material adverse impact on our business and our ability to generate revenues.
Our inability to establish strong business relationships with leading clinical
reference laboratories to perform cancer screening tests using out technologies
will limit our revenue growth.
A key step in our strategy is to sell reagents and license our
proprietary technologies to leading clinical reference laboratories that perform
cancer screening tests. We currently have no business relationships with these
laboratories and have limited experience in establishing these business
relationships. If we are unable to establish appropriate business relationships,
we will have limited ability to obtain revenues beyond revenue we are able to
generate from our limited in-house capacity to process tests.
Our failure to convince medical practitioners to order tests using our
technologies will limit our revenue and profitability.
If we fail to convince medical practitioners to order tests using our
technologies, we will not be able to sell our products or license our
technologies in sufficient volume for us to generate profits. We will need to
make leading medical practitioners aware of the benefits of tests using our
technologies through published papers, presentations at scientific conferences
and favorable results from our clinical studies. Our failure to be successful in
these efforts would make it difficult for us to convince medical practitioners
to order cancer screening tests using our technologies for their patients.
If we fail to obtain the support of key scientists and research institutes, it
may be difficult to establish tests using our technologies as a standard of care
for cancer screening, which may limit our revenue growth and profitability.
To make tests using our technologies the standard of care for cancer
screening, we need to establish relationships with leading scientists and
research institutions. If these scientists and research institutions determine
that cancer screening tests using our technologies are not superior to available
cancer screening tests or that alternative technologies would be more effective
in the early detection of cancer, we will encounter difficulty establishing
tests using our technologies as a standard of care for cancer screening, which
will limit our revenue growth and profitability.
If only an insignificant number of people decide to be screened for cancer, our
revenue and profitability will be limited.
Even if our technologies are proven to be superior to alternative
cancer screening technologies, adequate third-party reimbursement is obtained,
and medical practitioners order tests using our technologies, an insignificant
number of people may decide to be screened for cancer using our technologies.
For example, despite the availability of current cancer screening methods and
the recommendation of the American Cancer Society that Americans age 40 and
7
above be routinely screened for colorectal, breast, prostate and other cancers,
many of these individuals decide not to complete cancer screening tests. If an
insignificant portion of the population decides to complete cancer screening
tests, our revenue and profitability would be limited.
Our potential products may be subject to regulations and regulatory approval by
both the FDA and foreign regulatory bodies. Failure to comply with applicable
regulations domestically or abroad could adversely and materially affect our
business.
The manufacture and marketing of our proposed products and our research
and development activities are subject to regulation for safety, efficacy, and
quality by the FDA in the United States and comparable authorities in other
countries. The process of obtaining FDA and other required regulatory approvals,
including foreign approvals, is expensive and often takes many years and can
vary substantially based upon the type, complexity, and novelty of the products
involved.
If we violate regulatory requirements at any stage, whether before or
after marketing approval is obtained, we may be fined, forced to remove a
product from the market, and experience other adverse consequences, including
delay, which could materially harm our financial results. Additionally, we may
not be able to obtain the labeling claims necessary or desirable for the
promotion of our proposed products. We may also be required to undertake
post-marketing trials. In addition, if we or others identify side effects after
any of our products are on the market, or if manufacturing problems occur,
regulatory approval may be withdrawn and reformulation of our products,
additional clinical trials, changes in labeling of our products, and additional
marketing applications may be required.
The requirements governing the conduct of clinical trials,
manufacturing, and marketing of our proposed products outside the United States
vary widely from country to country. Foreign approvals may take longer to obtain
than FDA approvals and can involve additional testing. Foreign regulatory
approval processes include all of the risks associated with the FDA approval
processes. Also, approval of a product by the FDA does not ensure approval of
the same product by the health authorities of other countries.
If we are required to engage in extended, expensive clinical testing, we may be
financially unable to continue operations.
We may take longer to complete our clinical trials than we project,
or we may not be able to complete them at all. Clinical testing is very
expensive, can take many years, and the outcome is uncertain. Given our current
financial condition, we would likely have to seek additional funding to continue
operations if extended and expensive clinical testing is required. There is no
guarantee that we can obtain additional funding on terms acceptable to us or at
all. If we are unable to complete clinical testing, we will be unable to obtain
FDA approval to market our products in the United States.
Even if we complete clinical trials, there is no guarantee we will obtain FDA
approval to market our products in the United States.
The data collected from our clinical trials may not be sufficient to
support approval by the FDA of our cancer vaccine or other products. Even if we
complete our clinical trials, the FDA may not ultimately approve any of our
product candidates for commercial sale. If we cannot obtain FDA approval, our
ability to operate profitably would be severely impaired.
Other companies may develop and market methods for detecting and treating cancer
that may make our technologies less competitive, or even obsolete.
The market for cancer screening and treatment is large, estimated at
more than 100 million at risk Americans, with approximately one million new
cases of cancer being diagnosed per year. These markets have attracted
competitors, some of which have significantly greater resources than we have.
Currently, we face competition from alternative procedure-based
detection technologies such as mammograms, PSA-based tests, and colonoscopy;
screening tests such as the fecal occult blood test marketed by Beckman Coulter,
Inc.; and the stool-based DNA test being developed by Exact Sciences, Inc. In
addition, competitors, including Bayer Corporation, diaDexus, Inc., Matritech,
8
Inc., and Millennium Predictive Medicine, Inc., are developing serum-based
tests, a screening test based on the detection of proteins or nucleic acids
produced by cancer. Several competitors, including BioMira, Dendreon, Entremed,
Antigenics, Medimmune, and Medarex, are involved with researching and developing
cancer vaccines, anti-angiogenesis products, cytokine products, and
immune-stimulants.
These and other companies may also be working on additional methods
of detecting and treating cancer that have not yet been announced. We may be
unable to compete effectively against these competitors either because their
tests are superior or because they may have more expertise, experience,
financial resources, and business relationships.
The loss of Reid Jilek, Jonathan Neville, Loran Swensen, or Kim O'Neill could
adversely affect our business.
Our success depends largely on the skills, experience and performance
of key members of our senior management and advisory team, including Reid Jilek,
our CEO; Loran Swensen, our President; Jonathan Neville, one of our directors;
and Kim O'Neill, a member of our Advisory Board. The experience and efforts of
each of these persons will be critical to us as we continue to develop our
technologies and our testing process and as we attempt to transition from a
development stage company to a company with commercialized products and
services. If we lose one or more of these key individuals, with their particular
expertise, we may be unable to retain individuals with comparable skills and
sufficient expertise to complete development, testing, and commercialization of
our products, which would adversely impair our ability to continue as a going
concern.
If we are unable to protect our intellectual property effectively, we may be
unable to prevent third parties from using our technologies, which would impair
our competitive advantage.
We rely on patent protection as well as a combination of trademark,
copyright and trade secret protection, and other contractual restrictions to
protect the proprietary technologies we use, all of which provide limited
protection and may not adequately protect our rights or permit us to gain or
keep any competitive advantage. If the holders of the intellectual property on
which we rely are unable to protect those intellectual property rights, we may
be unable to prevent third parties from using these technologies. This could
enable competitors to compete more effectively against us.
As of August 24, 2001, we had licensed intellectual property rights
to two issued patents in the United States, three pending patent applications in
the United States, and several issued and pending foreign applications. We
cannot assure you that any of the currently pending or future patent
applications will result in issued patents. We also cannot predict how long it
will take for such patents to be issued. Further, we cannot assure that other
parties will not challenge any patents issued to us, or that courts or
regulatory agencies will not hold these patents to be invalid or unenforceable.
We cannot guarantee that the patents will be broad enough to provide any
meaningful protection.
If we are unable to protect our intellectual property through contractual
restrictions, we may be unable to prevent third parties from using our
technologies, which could have a material adverse effect on our business.
In addition to patents, we rely on contractual restrictions to
protect our technology. We require third parties to sign confidentiality
agreements. However, we cannot guarantee that these measures will be effective
in protecting our intellectual property rights. We cannot assure that these
contractual restrictions will be sufficient to prevent our competitors from
developing more effective technologies, designs, or methods to test for cancer
or to treat cancer using cancer vaccines or using other similar technology or
designing around our proprietary technologies.
9
We may be subject to substantial costs and liability or be prevented from
selling our screening tests for cancer or selling or providing our cancer
treatments as a result of litigation or other proceedings relating to patent
rights.
Third parties may assert infringement or other intellectual property
claims against our licensors or us. There may be third-party patents, patent
applications, and other intellectual property relevant to our potential products
that may block or compete with our products or processes. Even if third-party
claims are without merit, defending a lawsuit may result in substantial expense
to us and may divert the attention of management and key personnel. In addition,
we cannot assure that we would prevail in any of these suits or that the damages
or other remedies, if any, awarded against us would not be substantial. Claims
of intellectual property infringement may require us to enter into royalty or
license agreements with third parties that may not be available on acceptable
terms, if at all. These claims may also result in injunctions against the
further development and use of our technology, which would have a material
adverse effect on our business, financial condition, and results of operations.
Also, patents and applications licensed by us may become the subject
of interference proceedings in the United States Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to us,
as well as a possible adverse decision as to the priority of invention of the
patent or patent application involved. An adverse decision in an interference
proceeding may result in the loss of rights under a patent or patent application
subject to such a proceeding.
Changes in healthcare policy could subject us to additional regulatory
requirements that may delay the commercialization of our tests and increase our
costs.
Healthcare policy has been a subject of discussion in the executive
and legislative branches of the federal and many state governments. We are
developing a staged commercialization strategy for our cancer screening tests
and cancer treatments based on existing healthcare policies. Changes in
healthcare policy, if implemented, could substantially delay the use of our
tests and treatments, increase costs, and divert management's attention. We
cannot predict what changes, if any, will be proposed or adopted or the effect
that such proposals or adoption may have on our business, financial condition,
and results of operations.
Trading in our shares has been limited in volume, and a market for our
securities may not sufficiently materialize after the offering to allow
investors to sell their securities.
At present, trading in our shares has been limited in volume on the
OTC Bulletin Board, in part because the Company is not well known and we do not
have sufficient funds for more extensive publicity and public communications.
There is no assurance that a reliable trading market will develop, or, if
developed, that it will be sustained to the time you decide to resell your
shares. You should be prepared to bear the economic risk of your full investment
for an indefinite period. In addition, you should be able to withstand the total
loss of your investment.
Holders of our common stock are subject to the risk of additional and
substantial dilution to their interests as a result of the issuances of common
stock upon conversion of the Series B Convertible Preferred Stock.
Introduction
We currently have outstanding 3,000 shares of Series B Convertible
Preferred Stock. Each share of Series B preferred stock is convertible into
$1,000 of common stock. The number of shares of common stock to be issued for
each share of Series B preferred stock is determined by dividing $1,000 by the
lesser of $9.75 or 80% of the average of the three lowest closing bid prices of
the common stock during the 20-day trading period prior to the conversion date.
10
The following table describes the number of shares of common stock
that would be issuable assuming that the holder of the Series B preferred stock
elected to convert all 3,000 shares of Series B preferred stock, and further
assuming that the applicable conversion price at the time of the conversion was
the following amounts.
-------------------------------------- ---------------------------------
Series B Convertible Preferred
Stock 3,000 shares issued and
Hypothetical Conversion Price outstanding
-------------------------------------- ---------------------------------
$0.10 30,000,000
$0.20 15,000,000
$0.25 12,000,000
$0.75 4,000,000
$1.50 2,000,000
$2.25 1,333,333
$3.00 1,000,000
Given the formula for calculating the shares to be issued upon
conversion of the Series B preferred stock, there effectively is no limitation
on the number of shares of common stock which may be issued upon conversion of
the Series B preferred stock. If the market price of the common stock decreases,
the number of shares of common stock issuable upon conversion of the Series B
preferred stock will increase.
Overall dilution to market price and voting power of previously issued
common stock
The issuance of common stock upon conversion of the Series B
preferred stock will result in substantial dilution to the equity interests of
holders of our common stock. Specifically, the issuance of a significant amount
of additional common stock would result in a decrease of the relative voting
control of our common stock issued and outstanding prior to the issuance of
common stock upon conversion of the Series B preferred stock. Furthermore,
public resales of common stock following the issuance of common stock in
conversions of the Series B preferred stock likely would depress the prevailing
market price of the common stock. Even prior to the time of actual conversions
and public resales, the market "overhang" resulting from the mere existence of
our obligation to honor potential conversions or exercises could depress the
market price of the common stock.
Increased dilution with decreases in market price of common stock
The formula for determining the number of shares of common stock
issuable upon conversion of the Series B preferred stock is based, in part, on
the market price of the common stock and includes a discount from the market
price. As a result, the lower the market price of the common stock at and around
the time of conversions of the Series B preferred stock, the more common stock
the Series B preferred stockholder will receive upon conversion. Any increase in
the number of shares of our common stock issued upon conversion as a result of
decreases in the prevailing market price would compound the risks of dilution to
existing shareholders.
Increased potential for short sales
Downward pressure on the market price of the common stock that likely
would result from sales of our common stock issued upon conversion of shares of
Series B preferred stock could encourage short sales of common stock by the
11
Series B preferred stockholder and others. Material amounts of such short
selling could place further downward pressure on the market price of the common
stock.
Limited effect of restrictions on extent of conversions
The holder of the Series B preferred stock is prohibited from
converting the preferred stock into more than 4.999% of the then-outstanding
common stock. This restriction, however, does not prevent the holder from either
waiving such limitation or converting and selling some of the holder's
convertible security position and thereafter converting the rest or another
significant portion of its holdings. In this way, the holder of Series B
preferred stock could sell substantially more than 4.999% of our outstanding
common stock in a relatively short time frame, while never holding more than
4.999% at one time.
Our common stock is currently traded in the over-the-counter (OTC) Bulletin
Board, and is considered a penny stock. Penny stocks are subject to special
regulations, which may make them more difficult to trade on the open market.
Currently, our common stock is traded in the OTC Bulletin Board.
Securities in the OTC market are generally more difficult to trade than those on
the Nasdaq National Market, the Nasdaq SmallCap Market or the major stock
exchanges. In addition, accurate price quotations are also more difficult to
obtain. Our common stock is currently subject to special regulations governing
the sale of penny stock.
A "penny stock," is defined by regulations of the Securities and
Exchange Commission as an equity security with a market price of less than $5.00
per share. However, an equity security with a market price under $5.00 will not
be considered a penny stock if it fits within any of the following exceptions:
- the equity security is listed on Nasdaq or a national securities
exchange;
- the issuer of the equity security has been in continuous
operation for less than three years, and either has (a) net
tangible assets of at least $5,000,000, or (b) average annual
revenue of at least $6,000,000; or
- the issuer of the equity security has been in continuous
operation for more than three years, and has net tangible assets
of at least $2,000,000.
If you buy or sell a penny stock, these regulations require that you
receive, prior to the transaction, a disclosure explaining the penny stock
market and associated risks. Furthermore, trading in our common stock would be
subject to Rule 15g-9 of the Exchange Act, which relates to non-Nasdaq and
non-exchange listed securities. Under this rule, broker-dealers who recommend
our securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities are exempt from this rule if their market price is at least
$5.00 per share.
Penny stock regulations will tend to reduce market liquidity of our
common stock, because they limit the broker-dealers' ability to trade, and a
purchaser's ability to sell the stock in the secondary market. The low price of
our common stock will have a negative effect on the amount and percentage of
transaction costs paid by individual shareholders. The low price of our common
stock may also limit our ability to raise additional capital by issuing
additional shares. There are several reasons for these effects. First, the
internal policies of many institutional investors prohibit the purchase of
low-priced stocks. Second, many brokerage houses do not permit low-priced stocks
to be used as collateral for margin accounts or to be purchased on margin.
Third, some brokerage house policies and practices tend to discourage individual
brokers from dealing in low-priced stocks. Finally, broker's commissions on
low-priced stocks usually represent a higher percentage of the stock price than
commissions on higher priced stocks. As a result, our shareholders will pay
transaction costs that are a higher percentage of their total share value than
if our share price were substantially higher.
12
We intend to apply to have our common stock included on the American
Stock Exchange (AMEX). However, there can be no assurance that our stock will be
listed for trading on the AMEX.
Forward-Looking Statements
This prospectus contains forward-looking statements that are based on
our current expectations, assumptions, estimates and projections about us and
our industry. When used in this prospectus, the words "expects," "anticipates,"
"estimates," "intends" and similar expressions are intended to identify
forward-looking statements. These statements include, but are not limited to,
statements under the captions "Risk Factors," "Management's Discussion and
Analysis," "Business" and elsewhere in this prospectus. These forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Many of these risks are
described above under the heading "Risk Factors." The cautionary statements made
in this prospectus should be read as being applicable to all related
forward-looking statements wherever they appear in this prospectus.
Securities Covered by this Prospectus
The 45,556,402 common shares covered by this prospectus are
registered for resale by the selling shareholders.
Currently issued and outstanding common shares
The 655,136 currently issued and outstanding common shares covered by
this prospectus are held by various selling shareholders.
Common shares underlying the Series B preferred stock
Under a securities purchase agreement, in January 2001, we sold 3,000
shares of our Series B preferred stock to Hunts Drive, LLC., for $3,000,000. The
Series B preferred shares may be converted at any time.
Under the terms of the securities purchase agreement, Hunts Drive may
convert each share of Series B preferred stock to shares of common stock having
a market value of $1,000. The conversion price of the common stock upon receipt
of a notice of conversion is equal to the lesser of $9.75 or 80% of the average
of the three lowest closing bid prices of the common stock during the 20-day
trading period immediately prior to the conversion date as quoted on the OTC
Bulletin Board.
In accordance with the securities purchase agreement and as a hedge
against fluctuations in the price of the common shares, we agreed to register
200% of the greater of (a) the number of shares of common stock Hunts Drive
would receive if it had delivered a conversion notice the day before the
registration statement of which this prospectus is a part was originally filed
to convert all 3,000 shares of our Series B preferred shares, or (b) the number
of shares of common stock Hunts Drive would receive if it had delivered a
conversion notice the day before an amendment to the registration statement of
which this prospectus is a part was filed to convert all 3,000 shares of our
Series B preferred stock. Based on the price of our common stock on October 19,
2001, Hunts Drive would have been entitled to receive 22,058,824 shares of
common stock upon conversion of all 3,000 shares of Series B preferred stock.
Therefore, we have registered 44,117,648 shares of common stock to cover future
conversions of the preferred shares held by Hunts Drive, which are being offered
by Hunts Drive under this prospectus.
Common shares underlying currently issued and outstanding options and
warrants
Selling shareholders are also offering under this prospectus 723,618
shares of common stock issuable upon the exercise of currently outstanding
13
options and warrants. These options and warrants were issued in several
transactions.
o We granted an option to purchase up to 200,000 shares of common
stock at an exercise price of $2.75 on August 3, 2000, which
expires on August 3, 2010. If the entire option were exercised,
we would receive $550,000.
o We granted warrants to purchase up to 189,318 shares of common
stock that have an initial exercise price equal to 50% of the
lesser of $6.375 and the average closing price for the five
trading days immediately preceding the effective date of the
registration statement of which this prospectus is a part. If all
of these warrants were exercised as of October 19, 2001, assuming
a hypothetical exercise price of $0.085 per share, we would
receive up to $16,092.03.
Although we will receive the exercise price of any or all outstanding
options and warrants that are exercised, up to a maximum total of $564,198.50,
there can be no assurance that any of the options or warrants will be exercised.
Any funds we receive will be used to supplement working capital.
Use of Proceeds
We will receive no proceeds from the shares being offered by the
selling shareholders under this prospectus.
Dividend Policy
We have not paid or declared any dividends on our common stock or any
series of our preferred stock since our inception, and we do not intend to
declare any such dividends in the foreseeable future. Our ability to pay
dividends is subject to limitations imposed by Nevada law. Under Nevada law,
dividends may be paid to the extent that a corporation's assets exceed its
liabilities and it is able to pay its debts as they become due in the usual
course of business.
The present intention of management is to utilize all available funds
to develop our products and technologies.
Capitalization
We are authorized to issue 100,000,000 shares of common stock having
$0.001 par value per share, and 10,000,000 shares of preferred stock, having
$0.001 par value per share. At July 31, 2001, we had issued 11,326,746 shares of
common stock, and 3,000 shares of Series B preferred stock. A total of 3,710,500
shares of common stock are reserved to be issued upon the exercise of options
and warrants.
The information below is qualified in its entirety by, and should be
read in conjunction with, our Management's Discussion and Analysis and the
financial statements appearing at the end of this prospectus.
The following table sets forth our capitalization as of April 30,
2001:
April 30, 2001
---------------
(unaudited)
Stockholders' equity
Preferred stock, $ 0.001 par value; 10,000,000 shares authorized;
- 3,000 shares issued and outstanding 3,000,000
Common stock, $ 0.001 par value; 100,000,000 shares authorized;
9,458,610 shares issued and outstanding 9,458
Treasury stock (3,417)
Paid-in capital 6,307,446
Less Subscriptions Receivable (99,266)
Accumulated deficit (6,389,883)
Total stockholders' equity 2,824,338
Total capitalization 2,364,561
14
Determination of Offering Price
The selling shareholders have advised us that they may sell their
shares offered hereby from time to time at prices and on terms as they may
direct or as may from time to time be available in the market. They may also
sell their shares in privately negotiated transactions. See "Plan of
Distribution."
Market for Common Equity and Related Stockholder Matters
Our common stock is listed on the OTC Bulletin Board ("OTCBB"), under
the symbol "BIOP." Our common stock is also listed on the Third Market Segment
of the Frankfurt Stock Exchange under the symbol "BPZ." We have also applied,
but have not yet been approved, for listing on the American Stock Exchange
("AMEX"). There is no assurance that our common stock will ever be listed on
AMEX.
As of April 30, 2001, we had 256 shareholders holding 9,458,246
shares of common stock. Of the issued and outstanding common stock 2,481,611 are
free trading. The balance are restricted sock as that term is used in Rule 144.
The following table shows the range of high and low sales price
information for our Class A common stock as quoted on the OTC Bulletin Board for
the periods indicated. The following quotations, as provided by the National
Quotation Bureau, LLC, represent prices between dealers and do not include
retail markup, markdown, or commission. In addition, these quotations do not
represent actual transactions.
High Low
Fiscal Year Ended
July 31, 2000
First Quarter
(Aug 1-Oct 31) $ 7.88 $4.00
Second Quarter
(Nov 1-Jan 31) $ 9.00 $4.50
Third Quarter
(Feb 1-Apr 30) $ 6.00 $3.00
Fourth Quarter
(May 1-July 31) $ 3.75 $2.00
Fiscal Year Ended
July 31, 2001
First Quarter
(Aug 1-Oct 31) $ 4.00 $2.75
Second Quarter
(Nov. 1-Jan 31) $ 11.50 $3.75
Third Quarter
(Feb 1-Apr 30) $ 8.63 $0.26
Fourth Quarter
(May 1-July 31) $ 0.58 $0.34
Fiscal Year Ended
July 31, 2002
First Quarter
(Aug 1-Oct 19) $ 0.40 $0.06
15
Changes in and Disagreements With Accountants
From inception through November 1999, Jones, Jensen & Company were
our principal accountants. On November 10, 1999, we terminated the engagement of
Jones, Jensen & Company and appointed Crouch Bierwolf & Chisholm as our
independent auditor and certifying accountant. Our Board of Directors approved
the decision to change accountants.
Jones, Jensen & Company's reports with respect to our balance sheets
for the fiscal years ended July 31, 1999 and 1998, and the related statements of
operations, stockholder's equity (deficit), and cash flows for the years ended
July 31, 1999, 1998, 1997, and 1996 and from inception of the Company's
predecessor entities of July 13, 1984, through July 31, 1999, did not contain an
adverse opinion or a disclaimer of opinion and was not qualified as to
uncertainty, audit scope or accounting principles, but were qualified as to
going concern.
In connection with the audit of our financial statements for the
fiscal years ended July 31, 1998, and July 31, 1999, and the interim period
through November 10, 1999, preceding the date of the Jones, Jensen & Company
termination, there were no disagreements, as that term is defined in Item 304 of
Regulation S-B, with Jones, Jensen & Company on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures which, if not resolved to the satisfaction of Jones, Jensen & Company
would have caused Jones, Jensen & Company to make reference to the matter in
their report. Jones, Jensen & Company did not advise us regarding any
"reportable events" as defined in Item 304 (a)(1)(iv)(B) of Regulation S-B.
16
Management's Discussion and Analysis
Overview
Since inception in January 1999, we have been refining our operations
and developing our market. We have advertised in periodicals targeting potential
patients, rented booths at trade shows, and sought to develop a good reputation
through positive results and satisfied patients. We have introduced new
treatments for our patients and expanded our market.
Since January 1999, we managed Clinica BioPulso in Tijuana, Mexico,
through a management contract with Dr. Sanchez, a physician licensed in Mexico
to operate the clinic. We were entitled to all revenues and are responsible for
all expenses of the clinic. More than 90% of our operating revenues were
generated by the Mexican operations in all periods discussed in the financial
statements included with this prospectus.
During 2001, the Mexican government revamped its oversight of medical
clinics subject to its jurisdiction. It sent new health department inspectors to
review the operations and permits of many clinics in Tijuana, Mexico. This led
to the closure of several clinics there. Dr. Sanchez' clinic also was inspected.
The inspectors determined that while the clinic personnel were properly
qualified, they had not submitted all of their protocols for government review.
On February 15, 2001, one treatment room was closed pending review of the
protocols. The clinic submitted applications for licenses for four protocols
(insulin hypoglycemic therapy, chelation, colonic treatments, and dendritic cell
therapies) in May 2001. On May 9, 2001, the Instituto de Servicios de Salud
Publica Del Estado De Baja California (the Mexican health authorities) reopened
the treatment room. On October 17, 2001, the company was notified that the
licenses for the three of the four protocols were approved without conditions
and the license for the dendritic cell therapies was approved provisionally,
pending a six month review. The clinic will need to pay approximately $31,000 to
obtain permits to operate under the licenses and resume providing treatments. As
of October 19, 2001, the permit fees have not been paid. As a result of the new
policy, the clinic decided not to seek new patients until all the necessary
protocols and permits have been approved. In addition, the clinic will not
charge patients specifically for the dendritic cell therapies during the six
month provisional phase of the license.
We have conducted research and development using data from records of the
patients treated at the clinic in Mexico to determine the effectiveness of the
treatments. Additionally, we are working with the doctors at Clinica BioPulso
who are modifying the treatments to be offered based on the data received from
the treatment of patients. This limited research and development has been
integrated into the patient care given to paying patients, Prior to our
acquiring the TK-1 diagnostic technology from BYU, in November 2000, we did not
had any material research and development costs to date that were
distinguishable from patient care. All costs of patient care have been expensed
in the period in which they were incurred.
During 2000, we had an outpatient clinic at our office in Utah. The
revenues and expenses generated by this clinic were not material, and the clinic
no longer has any ongoing patient care operations.
Prior to June 2000, we had an association with a German clinic that began
in November 1999. During the year ended July 31, 2000, we sold equipment,
provided training for the clinic staff, provided general business oversight, and
sent patients to the clinic. During the year ended July 31, 2000, we earned
$395,000 in revenues in connection with the sale of equipment to the German
clinic, training of its personnel and from patient fees. However, several of the
German clinic's key staff members left the clinic in spring 2000, and we have
not sent any patients to the clinic since that time. We have not determined
when, if ever, we will resume referring patients to the German clinic.
Revenues
Revenues were primarily from clinic operations in Mexico. Revenues
of $3,107,636 from clinic operations for the year ended July 31, 2000, increased
$2,818,013 over the same period ended in 1999. The primary reason for the
increase was the shorter period of operations (seven months) in the year ended
17
July 31, 1999. There were approximately 3.5 times the number of patient days in
fiscal year 2000 compared to fiscal year 1999. In addition, the standard fee for
treatment increased 2.75 times in fiscal year 2000 compared to fiscal year 1999.
Furthermore, we entered into the contract with the German clinic, in fiscal year
2000, which generated $395,000 in revenues.
Revenues for the nine months ended April 30, 2001, were $2,128,281 compared
to $2,256,573 for the nine months ended April 30, 2000, a decrease of $128,292,
or 5.7%. Prior to February 2001, revenues were up substantially over the same
period of the prior year. Due to a change in the regulatory climate in Mexico,
licenses that were previously considered adequate for the operations of the
clinic in Mexico were no longer considered adequate by the Mexican health
officials. A treatment room was closed in February 2001 and reopened in May
2001. The clinic was not able to offer some of its therapies until new licenses
were acquired, and we were therefore required to curtail some treatments at the
clinic pending the issuance of the necessary licenses. As a result of the new
policy, the clinic decided not to seek new patients until all the necessary
protocols and permits have been approved. On October 17, 2001, the company was
notified that the licenses for the three of the four protocols were approved
without conditions and the license for the dendritic cell therapies was approved
provisionally, pending a six month review. The clinic will need to pay
approximately $31,000 to obtain permits to operate under the licenses and resume
providing treatments. As of October 19, 2001, the permit fees have not been
paid. Revenues at the clinic are down sharply for the quarter ended April 30,
2001. Revenues for the quarter ended April 30, 2001 were $265,360, compared to
$1,119,915 for the quarter ended April, 30, 2000.
Costs and Expenses
During fiscal year 2000, Clinica BioPulso moved its operations from
the Grand Hotel to a larger and more functional facility. Dr. Sanchez entered
into a lease and Biopulse advanced the funds to make building improvements to
the area to be occupied by the clinic offices and treatment rooms. We received
credit against its future rent obligations for the funds advanced for the
building improvements, and the amounts that will be credited against future rent
obligations are capitalized by us as prepaid rent. Rent expense increased during
fiscal year 2000 as a result of moving into the new facilities.
During fiscal year 2000 and the nine months ended April 30, 2001, we
acquired additional medical equipment to enhance our ability to treat patients.
In addition we acquired licenses to new technology. These new acquisitions have
increased depreciation and amortization expense for the nine months ended April
30, 2001, and will have a more significant effect in 2001 and beyond.
We have added new personnel at Clinica BioPulso and significantly
increased the pay level of clinic employees to attract and retain the best
personnel at the clinic. Salaries for fiscal year 2001 are expected to be twice
that of those paid in fiscal year 2000.
Year ended July 31, 2000, compared to year ended July 31, 1999
Direct patient treatment costs increased 647% in fiscal year 2000
compared to fiscal year 1999, primarily due to an increased number of patient
days. Gross profit increased to 63% of revenues in 2000 from 38% in 1999,
primarily due to increases in basic fees. The increase in the number of patient
days was due to an increase in the number of patients being treated by the
clinic, together with an increase of approximately 25% in the average length of
stay of the clinic's patients.
General and administrative costs increased $1,435,819 or 50% in
fiscal year 2000 compared to fiscal year 1999 because of increased medical and
clinic operations, salaries, clinic and administrative office rent, travel,
professional fees, advertising and promotion costs, and a general increase in
all other elements of expense because of the longer period of operations in
2000.
Nine months ended April 30, 2001, compared to the nine months ended April 30,
2000
18
Direct patient treatment costs decreased 18% in the nine months ended
April 30, 2001, primarily due to a decreased number of patient days. Gross
profit increased to 62% of revenues for the nine months ended April 30, 2001,
from 56% for the nine months ended April 30, 2000, primarily due to the
increases in basic fees.
General and administrative costs increased $6,449,539 for the nine
months ended April 30, 2001, compared to the nine months ended April 30, 2000.
The primary factor for this was an expense of $4,596,600 for stock issued for
services during the nine months ended April 30, 2001. No cash was used to pay
for these services. In addition, the Company acquired rights to TK-1
technologies and has expended approximately $350,000 in developing those
technologies during the nine months ended April 30, 2001. We had increased costs
associated with exploring additional business opportunities and due to increased
medical and clinic operations, salaries, clinic and administrative office rent
and travel during the nine months ended April 30, 2001.
Liquidity and Capital Resources
As of April 30, 2001, the Company had current assets of $396, 271 and
current liabilities of $73,135. Clinic operations had been generating near
breakeven cash flow through January 2001 but due to the change in the regulatory
climate in Mexico and resulting decrease in the number of patients that have
been treated at the clinic, the clinic has generated net negative cash flow
since January 2001. We have sufficient cash to continue operations through
October 2001 without generating any revenue. We are taking steps to reduce our
fixed expenses, primarily by reducing staff size, and generate revenue through
licensing our TK-1 technology. The research for the TK-1 technology will be paid
for out of funds that have been set aside from the fees paid to BYU. If the
research is successful, we will repay the research costs to BYU. Otherwise the
balance of the funds paid to BYU will be returned. As of October 19, 2001,
approximately $267,312 remained in the fund.
In January 2001, we completed a private placement of 3,000 shares of
Series B preferred stock to a single investor at $1,000 per share. Net proceeds
were $2.4 million after costs of the issue.
Seasonal Aspects
Historically, Clinica BioPulso has experienced lower patient occupancy
during late fall and early winter months than during other times of the year.
Although there may be other reasons for this, the treatments provided by Clinica
BioPulso are elective treatments, and typically, patients may choose to not seek
these treatments during holiday seasons, preferring instead to seek treatment at
other times of the year.
Business
We are seeking to develop and market treatments complementary to the
body's natural processes that build and restore the body's immune system. In our
view, the accelerating trend toward alternative treatments is merging with rapid
advances in biotechnology. Our goal is that BioPulse will become one of the
leading companies at the convergence of these two trends.
19
We manage clinical studies of our products and conduct research and
development of alternative and biotechnology medicine. We have acquired the
right to use and develop proprietary technologies and procedures in various
aspects of alternative medicine and biotechnology. We believe that these
technologies will assist in the early detection and monitoring of cancer through
our TK1 cancer test and the treatment of cancer through immunotherapy treatments
that are designed to stimulate or supplement the body's immune system and other
host non-toxic approaches.
Industry Background
Growing trend toward alternative medicine.
Healthcare is one of the largest industries in the world, estimated
to account for over 10% of the gross national product of the United States. A
growing trend in the healthcare field is the use of alternative or complementary
medical treatments and therapies.
Complementary and alternative treatments and therapies involve a
broad range of healing philosophies, practices and approaches that commonly
include acupuncture, herbs and vitamin supplements, aromatherapy, homeopathy,
therapeutic massage, acupressure, traditional oriental medicine, mind and body
control interventions such as visualization or relaxation, and manual healing.
When these treatments and approaches are used instead of conventional medical
treatment, they are referred to as alternative medicine; when they are used in
addition to conventional treatments they are commonly referred to as
complementary or integrative medicine.
Americans' use of complementary and alternative medical treatments
has been increasing in recent years. A survey published in the Journal of the
American Medical Association in November 1998 reflects that the number of
Americans using alternative therapies increased from 33% in 1990 to more than
42% in 1997. Information available from the National Center for Complementary
and Alternative Medicine indicates that Americans spent more than $27 billion on
alternative therapies in 1997, a spending level that exceeded out-of-pocket
spending for all U.S. hospitalizations. Another article published in the Journal
of the American Medical Association in September 1998 reported that 75 out of
117 U.S. medical schools then offered elective courses in complementary and
alternative therapies.
There are several possible reasons for increasing use of and interest
in alternative medicine. One survey reflected that, in addition to frustration
and dissatisfaction with conventional medicine, people elect complementary and
alternative therapies because these health care alternatives mirrored their own
values, beliefs and philosophical orientations toward life and health. We
believe, based on our anecdotal experience with patients at our facilities, that
in addition to these other dissatisfactions with conventional medicine, people
are frustrated by their inability to receive alternative or new treatments
domestically that are readily available elsewhere in the world, and this
frustration enhances their interest in alternative or integrative medicine.
Readily observable trends in marketing further illustrate the growing
acceptance of alternative medicine. For example, herbal supplements that years
ago were produced only in limited quantities by specialized manufacturers and
sold primarily through niche health food stores are now produced by major
pharmaceutical companies and sold in grocery stores and mainstream pharmacies.
The United Stated government is also increasing its involvement in
alternative medicine. In 1992, the National Institutes of Health, a branch of
the U.S. Department of Health and Human Services, established the Office of
Alternative Medicine. In 1999, pursuant to a congressional mandate, the Office
of Alternative Medicine was expanded to the National Center for Complementary
and Alternative Medicine, and continues to operate as a separate center of the
National Institutes of Health. For the year 2000, NCCAM's budget was $75
million, an increase of 300% since 1997. Additionally, the National Cancer
Institute, also a part of the National Institutes of Health, has established an
Office of Cancer Complementary and Alternative Medicine, which oversees a Best
Case Series Program designed to collect and evaluate complementary and
alternative cancer treatments.
20
The American Cancer Society also spends approximately $3 million to
$4 million on research and education about alternative medicine, a significant
increase over past years.
For many Americans, the alternative medicine marketplace is crowded
and confusing. There are innumerable products and services that claim to have
medical benefits. We believe there is a tremendous opportunity to become one of
the principal brand names for reliable alternative medicine, particularly with
regard to cancer and other serious diseases.
Cancer Industry Background.
Cancer encompasses diverse diseases that share the characteristic of
abnormal cells that proliferate uncontrollably and spread throughout the body,
forming collections of tumor cells called metastases. The American Cancer
Society estimates that approximately 1.2 million new cases of cancer were
diagnosed in the United States in 2000. Cancer causes over 550,000 deaths
annually, making it the second leading cause of death in the United States.
The National Institutes of Health estimates overall annual costs for
cancer at $107 billion; $37 billion for direct medical costs (total of all
health expenditures), $11 billion for indirect morbidity costs (cost of lost
productivity due to illness), and $59 billion for indirect mortality costs (cost
of lost productivity due to premature death). Treatment of breast, lung, and
prostate cancers account for over half of the direct medical costs.
Traditional treatments for cancer include surgery, radiation, and
chemotherapy. These traditional treatments have well-known adverse side effects
such as hair loss, decreased function of various organs, and substantially
impaired immune systems leading to susceptibility to other diseases. The side
effects of these treatments, combined with relatively low success rates for most
cancers, has led some to question these methods of treatment.
We believe that dissatisfaction with traditional cancer treatments
has led to experimentation with an assortment of alternative treatments,
including many offered at cancer clinics in Mexico, Europe, and Asia. The
American Cancer Society estimates that as many as 75% of cancer patients use
some sort of alternative medicine, in addition to traditional treatments such as
chemotherapy. Anecdotal reports of success from these alternative treatments
have circulated, but, to our knowledge, no comprehensive studies have been made.
Many medical authorities accept the proposition that successful
management of cancer involves three distinct activities: prevention, early
detection, and effective treatment. Prevention involves, among other things,
lifestyle changes that include eliminating smoking and other cancer-causing
activities, adoption of an improved diet, and a regular exercise regimen.
We plan to focus primarily on the development of products and
procedures designed to permit early detection and effective treatment of cancer.
Early detection is important because, for most cancers, the earlier treatment is
rendered the greater the likelihood of success. For example, some studies show
that when breast cancer is detected while still localized and before metastatic
spread, the five-year survival rate is 97% or better. If the cancer spreads
regionally before treatment, the five-year survival rate drops to around 75%. If
there is distant metastasis, the five-year survival rate drops to 20%.
The American Cancer Society and the National Cancer Institute
recommend that the approximately 74 million Americans age 50 and above undergo
regular cancer screening tests for breast, colorectal, prostate, and other
cancers. We believe that many people do not undergo regular screening tests
because of the cost, inconvenience, and invasiveness of the currently available
procedures and the relatively unreliable results for certain of these tests.
Effective treatment of cancer historically has meant a reduction in
tumor size or, ideally, complete remission of the cancer. The adverse side
effects of traditional treatments have led many companies to research new
treatments that can accomplish remission without otherwise harming the patient.
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Many of the promising treatments are in the field of immunotherapy. The basic
premise of these treatments is that the body's own immune system can fight
cancer. This premise is shared by many of the alternative treatments, although
the methodologies differ substantially.
History
BioPulse International, Inc., was incorporated in Nevada on July 13,
1984, under the name Universal Financial Capital Corp., and changed its name in
September 1985, to International Sensor Technologies, Inc ("IST"). As IST, the
Company incurred heavy losses, had no revenue from operations and, subsequently,
experienced five years of inactivity.
On January 9, 1999, the Company acquired BioPulse, Inc., a Utah
corporation ("BPI"). Jonathan Neville, Loran Swensen, and Dr. Robert Morrow
founded BPI in June 1998. From the time it was formed, until the time of its
acquisition, the primary operations of BPI were related to developing its
business plan, researching alternative medical treatments and technologies, and
investigating clinics in Mexico. At the time of the acquisition, BPI had
approximately $75,000 of liabilities and no material assets. Similarly, the
Company had no liabilities and no significant assets. The acquisition of BPI was
negotiated at arms length between Jonathan Neville, Loran Swensen and Dr. Robert
Morrow on behalf of BPI and Briton McConkie and Stephen Fey on behalf of the
Company. Prior to the acquisition of BPI, the Company had approximately 70,000
shares of common stock issued and outstanding. At the time of the acquisition,
the Company changed its name to BioPulse International and issued 3,200,000
restricted BioPulse International common shares to the shareholders of BPI, in
exchange for all of the issued and outstanding shares of BPI. In that
transaction, Jonathan Neville received 1,089,200 shares, Loran Swensen received
1,004,200, and Dr. Morrow received 317,000. The Company's shareholders received
800,000 shares of restricted common stock in exchange for their shares of IST.
Of these 800,000 shares, Mr. Fey and Mr. McConkie each received 336,500 shares
of common stock.
During 1998 and 1999, our operations consisted of evaluating a
variety of available alternative treatments with a focus on treatments that
might be effective in rebuilding the body's natural immune system to fight
cancer and other degenerative diseases. We also entered into a management
agreement with the Dr. Omar Sanchez clinic in Mexico for which a locally
licensed staff was recruited and in which we have implemented certain selected
alternative treatments discussed below.
During 2000, we began expanding the scope of the treatments we were
evaluating to include developments in biotechnology. We believe that recent
advances in biochemistry and microbiology have the potential to explain the
observable benefits of alternative medicine so these treatments can be
optimized. At the same time, we believe that developments in biotechnology and
immunotherapy hold the promise of new treatments that are consistent with the
alternative medicine philosophy of improving overall health by working with the
body's natural systems to fight disease.
During 2001, the Mexican government revamped its oversight of medical
clinics subject to its jurisdiction. It sent new health department inspectors to
review the operations and permits of many clinics in Tijuana, Mexico. This led
to the closure of several clinics there. Dr. Sanchez' clinic also was inspected.
The inspectors determined that while the clinic personnel were properly
qualified, they had not submitted all of their protocols for government review.
On February 15, 2001, one treatment room was closed pending review of the
protocols. The clinic submitted applications for licenses for four protocols
(insulin hypoglycemic therapy, chelation, colonic treatments, and dendrytic cell
therapies) in May 2001. On May 9, 2001, the Instituto de Servicios de Salud
Publica Del Estado De Baja California (the Mexican health authorities) reopened
the treatment room. On October 17, 2001, the company was notified that the
licenses for the three of the four protocols were approved without conditions
and the license for the dendritic cell therapies was approved provisionally,
pending a six month review. As a result of the new policy, the clinic decided
not to seek new patients until all the necessary protocols had been approved. In
addition, the clinic will not charge patients specifically for the dendritic
cell therapies during the six month provisional phase of the license.
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During 2001, we have formed two Delaware corporations as wholly owned
subsidiaries. One subsidiary, Complesys, Inc., has assumed responsibility for
developing the TK1 test described below. We have assigned the license agreement
with BYU for the TK1 test to Complesys. The other subsidiary, Contiquity Labs,
Inc., has assumed responsibility to develop and market consumer products in the
nutritional supplement sector.
Our Business Strategy
Our approach of combining alternative medicine techniques with the
latest biotechnology advances is designed to capitalize on the convergence of
traditional and alternative medicines.
Our objective is to continue to enhance the management of an
operating clinic that provides up-to-date alternative and biotechnology cancer
treatments and rely on our management and operational experience to develop and
test leads for new cancer diagnostic and therapeutic products. We believe that
our TK1 test may enable the early detection and monitoring of cancer. In
addition to the TK1 test, we are developing therapeutic treatments designed to
help the body's natural immune system to fight cancer, including our continued
development of therapies using the following types of products:
o Dendritic cell "cancer vaccines" using broad-spectrum tumor
antigens;
o Angiogenesis, the formation of new blood vessel inhibitors,
including PGM, a substance usually capable of stimulating an
immune response;
o Immune system stimulants such as MPGC; and
o Broad-spectrum cytokines - a class of immunotregulatory
substances secreted by cells of the immune system.
The key elements of our approach are to:
1. Develop improved diagnostics for early detection of cancer.
2. Discover and develop improved therapies and diagnostics directed at
enhancing natural immune resistance.
3. Offer promising therapies as quickly as possible, anywhere in the
world where such therapies are permitted, through qualified and
licensed health care providers and modern medical facilities.
4. Form collaborations with other research companies and operating
clinics to accelerate product development and adoption of our
products.
We plan to implement these elements through our clinic operations,
our biotechnology product line, and our alternative medicine protocols.
Clinic Operations
To date, most of our revenues have been derived from our relationship
with our clinic in Tijuana, Mexico called Clinica BioPulso. In December 1999, we
entered into a clinic management agreement with Dr. Omar Sanchez, a surgical
oncologist, under which we provided clinic management services for Clinica
BioPulso.
The clinic's entire medical staff is locally licensed. The clinic has
40 rooms for resident patients, three group treatment rooms, a pharmacy, a
laboratory, a surgery room, and several offices for doctors and administration.
During 2000, the clinic began administering a comprehensive alternative
treatment program including insulin hypoglycemic therapy, chelation, colonic
treatments treatments, and dendrytic cell therapies.
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The scientific support that we provide includes information and
training regarding the procedures related to our cancer vaccines; the PGM
angiogenesis inhibitor; the MPGC immune stimulant; and various cytokine mixtures
and preparations.
We also provide equipment including laboratory or medical equipment
necessary to administer the clinic's treatment program, including liquid
nitrogen containers, sterile hoods, centrifuges, incubators, environmental
monitoring equipment, and other related lab equipment. We do not manufacture or
assemble any equipment. Supplies that we provide from time to time include
common laboratory supplies and various reagents and solutions required for
laboratory processes.
Clinica BioPulso has drawn patients from around the world, but
primarily from the United States. We may help develop additional clinics in
Mexico and other countries.
Prior to June 2000, we had an association with a German clinic that
began in November 1999. Since January 2000, the German clinic has not utilized
our protocols, and we have not referred patients to the clinic. We have had
preliminary discussions with clinics in other countries, including Australia,
China, and Costa Rica, that are interested in participating in our clinical
studies. As of October 19, 2001, we had no firm commitments or agreements with
any of these other clinics.
Our Biotechnology Product Line
We have not yet sought approval from the FDA or any other regulatory
agency for any of our products, including our cancer vaccine, anti-angiogenesis,
cytokine, or immune-stimulant products. We will not be able to commercialize any
of our potential products in the United States until we obtain FDA approval, so
any delay in obtaining, or inability to obtain, FDA approval could substantially
harm our business.
We are conducting studies of our cancer vaccines and other
biotechnology products discussed below on a fee-for-services basis at Clinica
BioPulso. Participants apply to participate in the studies. The doctors who are
supervising the study review the applications. Once an application is accepted,
participants receive an explanation of the procedures, including the potential
risks, and sign informed consent forms. Participants are free to withdraw from
these studies at any time.
Typically, the fee-for-services program reduces the cost of conducting
clinical studies of the products. However, from time to time, we accept
participants who are unable to pay, and occasionally, the cost of the treatment
for a particular participant may exceed the fee. However, the fees generated
usually cover the cost of the studies, and we do not expect to run a deficit in
conducting these patient studies. The primary budgetary impact on us is in
purchasing the equipment necessary for diagnostics and treatment. This equipment
includes blood analysis machines, patient monitoring equipment, incubators,
sterile hoods, centrifuges, other equipment required to prepare and store the
vaccines, and other laboratory supplies. We expect to purchase additional
diagnostic equipment as funds become available either through operations or
through future debt or equity financing.
TK1 Cancer Screening Test.
We consider existing tests for the early detection of cancer to be
invasive, expensive, and not sufficiently reliable. We also believe that
commercially available methods of monitoring the progress of patients during
cancer treatment are inadequate.
We believe that our Thymidine Kinase-1, or TK1, test may enable early
detection and monitoring of several types of common cancers in an efficient and
cost effective manner. In addition, we believe that once we have finalized
development of a kit using the Enzyme-Linked Immunosorbent Assay (ELISA) format,
administration of the TK1 test would require only a small blood sample and could
also be incorporated into a standard blood test panel. The ELISA format is a
fundamental tool of clinical immunology, based on the principle of
antibody-antibody interaction. Incorporation of the TK1 test into a kit using
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this format would provide easy visualization of results and would enable
detection of the presence and amount of TK1. Moreover, the test could be
completed without the expense and other problems of using radioactive materials.
For these reasons, we believe that medical practitioners would order our cancer
screening tests, if and when available, as part of a regular screening program
for the early detection of various cancers, for use in assessing the progress of
patients undergoing cancer treatment, and for use in determining prognosis
post-treatment.
The TK1 test was originally developed at Brigham Young University and
is being further developed by Covance Research Products, Inc., in Denver,
Pennsylvania. We licensed the intellectual property rights to the TK1 test from
BYU under a license agreement, dated as of December 1, 2000 (the "BYU
Agreement").
Under the BYU Agreement, BYU granted us exclusive, worldwide right
and license (subject to an option agreement between BYU and a private laboratory
which grants rights in the countries of Japan, China, Taiwan, Korea, Malaysia,
Indonesia, Philippines, and Singapore, and to BYU's right to use the licensed
technology for continuing research and non-commercial academic uses) to develop,
manufacture, sell, and otherwise transfer the in vitro serum diagnostic TK and
TK1 tests and related products. We are required under the agreement to make
royalty payments and meet performance milestones.
We are collaborating closely with BYU to monitor Covance's efforts.
To that end, we entered into a statement of work agreement with Covance in
February 2001. Our responsibilities under the statement of work agreement
include:
- supplying enough antigen to prepare the proposed calibrator lots;
- supplying at least two cell lines that make the monoclonal
antibodies suitable for use in the proposed ELISA sandwich assay
for TK1; and
- supplying purified monoclonal antibody to be used in the proposed
ELISA sandwich assay for TK1.
We have provided these materials to Covance through BYU.
The remaining research and development necessary to bring the product
to the stage where we can begin the process of receiving FDA approval, which is
being done primarily by Covance with our assistance and the assistance of BYU,
includes cell culture, cloning and freezing; antibody production, purification
and labeling; calibrator definition, design, evaluation, test lot production,
and stability testing; assay design and optimization; sensitivity; precision;
and testing on patient samples. We estimate that this process will continue
through December 2001 at a cost to us of approximately $200,000. The work
Covance is doing is directly related to development of the serum ELISA
diagnostic kit required in the BYU agreement. Covance is not responsible for the
clinical trials or the applications for FDA approval, which are both our
responsibility. We have identified sources of blood serum for use in the
clinical trials, which we will commence once the ELISA kit is prepared.
In April 2001, we modified our agreement with BYU to provide that BYU
would refund to us $400,000 of the initial license fee, and that an additional
$300,000 of the initial license fee would be put into escrow and dedicated
toward the development of the TK1 technology. Under the modified agreement, we
agreed that within 60 days of the commencement of marketing of the TK1 test, we
would repay to BYU the refunded $400,000, along with the portion of the escrowed
funds spent on development of the TK1 test, as well as an additional $100,000,
all as a revised initial license fee.
Biotechnology Cancer Treatments.
We believe immunotherapy may overcome many of the limitations of
current cancer therapies by enabling a patient's immune system to recognize and
destroy cancerous cells both at the site of origin and at sites of metastases.
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We believe this may be feasible through either alternative methods or
biotechnology methods, but we believe the best approach is an integrative
approach relying on both methods.
One immunotherapy treatment we are researching is a "cancer vaccine."
In connection with this research, in August 2000, we entered into an agreement
with Aidan, Incorporated (the "Aidan Agreement"), in which Aidan licensed to us
the intellectual property rights, including the right to manufacture and market
a proprietary cancer vaccine. Aidan also licensed to us the intellectual
property rights to additional cancer treatments to additional cancer treatments
that we believe may complement the cancer vaccines. Among these are a patented
anti-angiogenesis product that can be administered clinically; an
immune-stimulant product made from bacterial cell wall extracts that we believe
may act as a vaccine adjuvant, which enhances the immune system response to
antigens; and a proprietary mixture of cytokines that we believe may act as an
adjuvant. Under the Aidan Agreement, we paid BYU an initial license issue fee
and are required to make additional royalty payments based upon adjusted gross
sales of the licensed products, improvements, or processes. In addition, we are
obligated to pay certain minimum royalty payments in calendar year 2003 and each
year thereafter.
We plan to retain commercial rights for our products in the United
States and many parts of the world, although we may collaborate with other
companies in some areas.
1. Cancer Vaccine.
A new approach to cancer therapy takes advantage of the possibility
that dendritic cells may activate the immune system to attack tumor cells.
Dendritic immune cells are specialized antigen-presenting cells found in trace
numbers in the blood stream and in lymph and non-lymph tissues in the human
body. They play a crucial role in the initiation of the immune response,
including activation of cytotoxic T lymphocytes. They derive their name from the
branch-like structures (dendrites) on their cell membranes, on which they
present antigen. The process of using dendritic cells to attack tumor cells is
referred to in both scientific and popular media as a "cancer vaccine." These
are therapeutic, as opposed to preventative, vaccines. The feasibility of the
cancer vaccine approach has been tested in in vitro studies (studies done in an
artificial environment) and in animal and human studies. Approval for Phase I
and Phase II human clinical trials of dendritic cell therapy has been granted to
several companies and institutions by the FDA. We have not yet applied for or
received regulatory approval to begin clinical trials of our dendritic cell
therapy, or cancer vaccine.
The method of treatment in the protocol we have licensed from Aidan
is as follows: Monocytes are isolated from patient blood and converted into
dendritic cells using cytokines. The dendritic cells are then exposed in vitro
to tumor antigens. These "programmed" dendritic cells are then re-infused into
the patient intravenously, through the blood, and intradermally, through the
skin. The re-infused cells may come in contact with lymphocytes and may induce
an immune response toward the tumor antigen.
We believe that an important element in the success of a cancer
vaccine is the tumor-associated antigen that is exposed to the dendritic cells
in vitro. Tumor associated antigens are being discovered yearly. However,
identification, purification, and characterization of these antigens are costly
and time consuming. To date, no tumor-associated antigen with 100% specificity
and sensitivity has been identified.
Aidan found that dendritic cells pulsed with a high molecular weight
isolate of antigen-containing, autologous tumor, without identification,
purification, or characterization of tumor associated antigens, can effectively
induce T lymphocyte mediated cytotoxicity of human tumor cells in vitro. Based
on studies conducted by Aidan, we believe that an in vivo immune response
against tumor cells can be elicited by infusion of autologous dendritic cells
that have been primed (pulsed) with high molecular weight autologous tumor
isolates.
Aidan also found that dendritic cells pulsed with a high molecular
weight isolate of autologous urine, without identification, purification, or
characterization of tumor associated antigens, can induce T lymphocyte mediated
cytotoxicity of human tumor cells in vitro as effectively as dendritic cells
pulsed with a target cell membrane derived antigen. Based on Aidan's research,
26
we believe that an in vivo immune response against tumor cells can be elicited
by infusion of autologous dendritic cells that have been primed (pulsed) with
high molecular weight extracts of autologous human urine.
2. PGM, Angiogenesis inhibitor.
A healthy human body controls blood vessel development through a
process of stimulating or inhibiting angiogenesis, the formation of new blood
vessels. Normally, the inhibitors dominate the stimulators so angiogenesis does
not occur. Excessive angiogenesis is noted in cancer and other diseases
including diabetic blindness, rheumatoid arthritis, and psoriasis. The new blood
vessels feed the diseased tissues, which destroys normal tissue because the
diseased cells produce abnormal amounts of angiogenic stimulants or growth
factors, overwhelming the natural inhibitors. These new blood vessels also allow
tumor cells to escape into the blood system and find their way to other organs.
This migration is known as tumor metastases.
In 1971, Judah Folkman, a well-known physician and researcher,
hypothesized that controlling angiogenesis, the growth of new blood vessels,
could be a feasible anti-tumor strategy. Anti-angiogenesis therapies help the
body fight tumors by halting new blood vessel growth. This may help starve the
tumor and prevent metastases.
Because of an anecdotal report of complete remission in a case of
human ovarian carcinoma after consumption of an extract of the ubiquitous plant
Convolvulus arvensis, Aidan tested extracts of this plant for anti-angiogenesis
and immune stimulating effects. Convolvulus arvensis is known to contain toxic
alkaloids. Aidan developed a method to process the plant to minimize the
alkaloids while preserving the anti-angiogenic and immune stimulating effects.
The extract is primarily comprised of proteoglycan molecules and has been named
PGM. Aidan has shown that the extracted plant product does have anti-angiogenic
and immune system stimulating effects on human tumor cell lines. Aidan currently
offers PGM in both clinical preparations and oral preparations for consumer use
as a food supplement. Aidan's studies showed that the clinical preparations were
more effective. We have licensed the right to use clinical preparations from
Aidan on an exclusive basis. We also distribute the oral preparations to
participants in clinical studies as determined by doctors. The trademark name
for the commercial product containing PGM is "C-statin(TM)." The product is
covered by U.S. patent No. 6,083,510 issued in July 2000. Aidan is the current
licenseholder of this patent.
3. MPGC, Immune stimulant.
MPGC (Muramul polysaccharide glycan complex) is a preparation created
from a bacterial cell wall extract that we believe is capable of stimulating
conversion of inactive immune cells into active immune cells. We believe that
MPGC may also act as a powerful vaccine adjuvant. Like PGM, Aidan currently
offers MPGC in both clinical preparations and oral preparations for consumer use
as a food supplement. Aidan's studies showed that the clinical preparations were
more effective. We have licensed the clinical preparations from Aidan on an
exclusive basis. We distribute the oral preparations to patients at the clinic
in Mexico as determined by attending physicians. Aidan has applied for a patent
on MPGC. The application is still pending.
Aidan's studies also show that PGM and MPGC are more effective when
used in combination than when used separately. This synergy is the subject of
continued research by us in connection with Aidan.
4. Cytokine mixture.
Cytokines are a family of small, intercellular regulatory proteins
that mediate a variety of immunologic and non-immunologic biological functions.
Cytokines are grouped by function and include: interleukins; tumor necrosis
factors; lymphotoxins; interferons; colony-stimulating factors; chemokines; and
miscellaneous cytokines.
27
Cytokines produced by other companies have been used successfully in
cancer treatment. For example, recombinant interleukin 2 (formulated and sold as
Proleukin, by Chiron Corporation) has received approval for human use in the
treatment of metastatic renal cell carcinoma and malignant melanoma. Recombinant
interferon alfa-2B (formulated and sold as Intron A, by Shering Corporation) has
received approval for human use for the treatment of hairy cell leukemia,
malignant melanoma, follicular lymphoma, and Kaposi's sarcoma.
Cytokines are produced by a variety of cell types. Both lymphocytes
and monocytes produce several cytokines in response to immune challenge. Cells
naturally produce several cytokines simultaneously. Several studies have
suggested that synergistic anti-tumor effects occur when cytokines are used in
combination as opposed to being used singularly.
One of the reasons that the normal immune system does not respond to
cancer is that dendritic cells naturally found in proximity to tumors are unable
to effectively present antigen to T cells, which have a role in cell-mediated
immunity and immunoregulation. These dendritic cells lack costimulatory
molecules on their cellular surface, including CD 80 and CD 86, which are
necessary for T cell activation. They also lack CMRF-44 and CD 83, which are
markers indicating the maturity of the dendritic cells. We believe that inducing
the expression of CD 80 and CD 86 may be of therapeutic advantage in the
treatment of malignancies.
Aidan has developed and licensed to us a method for using a
monocyte-conditioned medium (MCM) to convert inactive, ineffective dendritic
cells into active, migrating, effective dendritic cells. In addition, the MCM
contains cytokines that may have direct anti-tumor activities. Aidan's pilot
clinical trial showed that the MCM induced rapid tumor cell death.
Our Alternative Medicine Protocols.
We consider all of our treatment methodologies currently to be in
clinical experimental status and so inform all participants in our studies. In
all cases, our approach is to assist and enhance the body's natural immune
system in the context of whole body-mind healthiness. A major thrust of our plan
of operations is to develop thorough, long-term clinical studies of the results
of our treatment methodologies and any products we may develop. We then plan to
obtain regulatory approval for these treatments as necessary to allow further
commercialization.
One of the treatments being studied in Clinica BioPulso is the use of
insulin-induced hypoglycemic therapy (IHT) as an aggressive cancer treatment.
IHT uses a regulated level of insulin and other medications to induce a
hypoglycemic state in the patient that allows the attending physician to
regulate blood oxygen levels, body temperature, and pH levels. This enables the
attending physician to create an environment that we believe is intolerable to
fast-growing cancer cells. Patients are continually monitored by a physician and
medical personnel throughout the procedure using standard hospital monitoring
equipment and medicine to maintain safety.
In addition to studying IHT, Clinica BioPulso also studies other
alternative treatments that we believe may prove beneficial to cancer patients
such as targeted nutritional programs and cleansing procedures.
Regulatory Environment
Regulation by governmental authorities in the United States and
foreign countries is a significant factor in the manufacture and marketing of
our proposed products and our research and development activities. All of our
products will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products must undergo
rigorous pre-clinical and clinical testing and other pre-market approval
procedures by the FDA and similar authorities in foreign countries. Since
certain of our potential products involve the application of new technologies,
regulatory approvals may take longer than for products produced using more
conventional methods. Various federal and, in some cases, state statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of such products. The lengthy process of
28
seeking these approvals, and the subsequent compliance with applicable federal
statutes and regulations, requires the expenditure of substantial resources.
Additionally, the healthcare industry is heavily regulated. In the
United States, a variety of governmental agencies have jurisdiction over health
care products and services. For example, each state has licensing boards that
regulate the ability of individuals to work as physicians, nurses, or other
health care providers. The FDA regulates the use of drugs within the United
States. Other countries have comparable regulatory frameworks. We have a policy
of obtaining all required permits, licenses, and bonds to operate our facilities
and sell our products and services. We have retained counsel to assist us in
understanding and complying with these various regulations both in the United
States and abroad.
FTC Regulation
Additionally, the Federal Trade Commission (FTC) regulates certain
aspects of the practice of medicine, including advertising and marketing. As a
general rule, anyone who makes a statement or claim in advertising a product or
service must possess and rely on a reasonable basis for such statement or claim.
The FTC oversees the enforcement of the legal requirement that advertisers
substantiate express or implied claims, however conveyed, that make objective
assertions about the item or service advertised. Objective claims for products
or services represent explicitly or by implication that the advertiser has a
reasonable basis supporting claims made.
To the extent that the labeling or the advertising of our products
include express or implied claims regarding the products, we will be subject to
federal laws and regulations regarding truth in advertising and may be required
to substantiate any or all claims made. We will continue to work with counsel to
assist us in understanding and complying with these various regulations both in
the United States and abroad.
On February 2, 2001, we received a letter from the FTC's Western
Region notifying us that the FTC is conducting an inquiry into our advertising
of health care products and treatments. The purpose of the inquiry is to
determine whether we have engaged in unfair or deceptive acts or practices,
including whether we can substantiate claims we have made relating to treatments
for cancer and other diseases. The FTC's Western Region has advised us that
neither this notification, nor the existence of this inquiry should be viewed as
an accusation by the FTC or its staff of any wrongdoing. We have responded to
the FTC and are awaiting further comments.
FDA Approval Process
Our cancer screening tests and cancer treatments may be subject to
regulation by the FDA and by state and foreign authorities or their designated
representatives. Under the U.S. Federal Food, Drug and Cosmetic Act and the
regulations promulgated thereunder, as a manufacturer of medical devices, we may
be required to comply with policies and procedures that regulate the
manufacturing, composition, labeling, testing, packaging and distribution of
medical devices. In addition, medical devices are subject to different levels of
government approval requirements, the most comprehensive of which requires the
completion of an FDA approved clinical evaluation program and submission, and
approval of a premarket approval application before a device may be commercially
marketed. The FDA also conducts inspections before approving a premarket
approval application to determine compliance with the quality system regulations
which cover manufacturing and design.
After premarket approval is received, the FDA may require testing and
surveillance programs to monitor the effectiveness of approved products which
have been commercialized. It has the power to prevent or limit further marketing
of a product based on the results of such post-marketing programs. In addition,
the FDA may, at any time after the approval of a premarket approval application,
conduct periodic inspections to determine compliance with good manufacturing
practice regulations and current medical device reporting regulations. If the
FDA concludes that we are not in compliance with applicable laws or regulations,
it can institute proceedings to:
- seize our product;
29
- issue a product recall;
- impose operating restrictions; and/or
- assess civil penalties or recommend criminal prosecution.
The FDA also regulates recordkeeping for medical devices and reviews
hospital and manufacturers' required reports of adverse experiences to identify
potential problems with FDA-authorized devices.
Some of the products that we intend to develop and market can be
cleared under Section 510(k) of the Federal Food, Drug and Cosmetic Act. The
process of obtaining Section 510(k) clearance typically requires less time and
expense than the premarket approval process. Section 510(k) clearance normally
takes from six months to one year, but can take years, and generally requires
the submission of supporting data, which in some cases can be extensive. In
addition, the FDA may require review by an advisory panel as a condition for
Section 510(k) clearance. We intend to continue to rely on the Section 510(k)
process with regard to certain products, such as any additional cancer vaccines
or cancer screening tests we may develop. However, we may develop and produce
enhancements to our existing products that will require clearance under the
FDA's more lengthy and expensive premarket approval process, which can take a
number of years and can require extensive supporting documentation. If we
encounter difficulties in the premarket approval process, the commercial
marketing of any future canceer screening tests and vaccines could be
substantially delayed or prevented.
We expect that the TK1 test will be our first product that will go
through the FDA process, and we are taking steps to begin generating the
necessary data and other requirements to successfully obtain FDA approval. We
may need to obtain additional funding through grants, debt or equity financing,
or corporate partnerships to complete the steps necessary for FDA approval. We
intend to develop our TK1 technology in three ways:
- perform cancer screening services in our own laboratories;
- license our intellectual property and sell our reagents that
target TK1 to leading clinical reference laboratories to allow
them to perform their own screening tests, using their own
methods and equipment; and
- package our technologies in the form of diagnostic test kits that
clinical laboratories can use to conduct screening services.
The FDA treats each of these alternatives differently.
Providing testing services directly
The FDA does not actively regulate most laboratory tests that have
been developed and used by the laboratory conducting the test. However, the FDA
does regulate reagents such as ours that react with a biological substance to
identify a specific chemical substance. These regulations provide that most such
reagents, which the FDA refers to as analyte-specific reagents, are exempt from
the FDA's premarket review requirements.
If the FDA were to decide to regulate in-house developed laboratory
tests, to require premarket approval or clearance of our analyte specific
reagents, or to conclude that licensing our intellectual property constitutes
non-compliant labeling, the commercialization of our products and services could
be delayed, halted, or prevented. In addition, the FDA could impose penalties on
us or seek other enforcement actions. Similarly, if the FDA were to determine
that our blood collector requires premarket approval or clearance, the sale of
our products and services could be delayed, halted, or prevented, and the FDA
could impose penalties on us or seek other enforcement action.
30
Finally, our reagents will be subject to a number of FDA
requirements, including compliance with the FDA's quality system regulation that
establishes extensive regulations for quality control and manufacturing
procedures. Failure to comply with these regulations could subject us to
enforcement action. Adverse FDA action in any of these areas could significantly
increase our expenses and limit our revenue and profitability.
Licensing our technology
Reagents generally do not require FDA approval or clearance if they
are sold to clinical laboratories licensed by the government to perform high
complexity testing and are labeled in accordance with FDA requirements,
including a statement that their analytical and performance characteristics have
not been established. A similar statement would also be required on all
advertising and promotional materials relating to analyte specific reagents such
as ours. Laboratories are also subject to restrictions on the labeling and
marketing of tests that have been developed using analyte specific reagents. The
analyte specific reagent regulatory category is relatively new and its
boundaries are not well defined. It is unclear whether any changes to current
reagent regulation would affect the licensing of our tests.
We believe that our in-house testing and the analyte specific
reagents we intend to sell to clinical reference laboratories do not require FDA
approval or clearance. We cannot be sure, however, that the FDA will not assert
that our tests or one or more of our reagents require premarket approval or
clearance. In addition, we cannot be sure that the FDA would not treat the
licensing of the intellectual property we rely on as labeling that would subject
the reagent to premarket approval or clearance and other FDA regulation.
Moreover, we cannot be sure that the FDA will not change its position in ways
that could negatively affect our operations.
Any diagnostic test kits that we may sell would require FDA approval
or clearance before they could be marketed. There are two review procedures by
which a product may receive this approval or clearance. Some products may
qualify for clearance under a premarket notification procedure, referred to as
510(k) procedure, in which the manufacturer provides to the FDA a premarket
notification that it intends to begin marketing the product and demonstrates to
the FDA's satisfaction that the product is substantially equivalent to a legally
marketed product, which means that the product has the same intended use as, is
as safe and effective as, and does not raise questions of safety and
effectiveness different from those of a legally marketed device. A 510(k)
submission for an in vitro diagnostic device generally must include
manufacturing and performance data, and in some cases, it must include data from
human clinical studies. Marketing may commence when the FDA issues a clearance
letter.
If a medical device does not qualify for the 510(k) procedure, the
FDA must approve a premarket approval application ("PMA") before marketing can
begin. PMA applications must demonstrate, among other matters, that the medical
device is safe and effective. A PMA application is a complex submission, usually
including the results of preclinical and extensive clinical studies. Before the
FDA will approve a PMA, the manufacturer must pass an inspection of its
compliance with the requirements of the FDA's quality system regulations.
We believe that our TK1 diagnostic test kit may require PMA approval.
Once Covance has completed development of the serum diagnostic ELISA kit, we
intend to apply for pre-market approval. The PMA process is lengthy and costly,
and we cannot be sure that the FDA will approve PMAs for our products in a
timely fashion, or at all. FDA requests for additional studies during the review
period are not uncommon and can significantly delay approvals. Even if we were
able to gain approval of a product for one indication, changes to the product,
its indication, or its labeling would be likely to require additional approvals.
Physicians who order our TK1 cancer screening test will need to
obtain blood serum from patients. This blood serum will have to be transported
to a laboratory. Tissue transport and storage containers are also medical
devices regulated by the FDA, although they generally have been exempt by
regulation from the FDA's premarket clearance or approval requirement. We
believe that our blood serum container falls within the exemption, but we cannot
be sure that the FDA will not assert that our container is not exempt and seek
to impose a premarket clearance or approval requirement.
31
Regardless of whether a medical device requires FDA approval or
clearance, a number of other FDA requirements apply to its manufacturer and
distributors. Device manufacturers must be registered and their products listed
with the FDA. Certain adverse events and product malfunctions must be reported
to the FDA. The FDA also regulates the product labeling, promotion, and in some
cases, advertising, of medical devices. Manufacturers must comply with the FDA's
quality control system regulations that establish extensive requirements for
quality control and manufacturing procedures. Thus, manufacturers and
distributors must continue to spend time, money, and effort to maintain
compliance. Failure to comply can lead to enforcement action. The FDA
periodically inspects facilities to ascertain compliance with these and other
requirements.
To the extent that we perform cancer screening tests in our own
laboratories in the United States, we will be subject to federal and state laws
and regulations regarding the operation of clinical laboratories. The federal
Clinical Laboratory Improvement Act and laws of certain states impose
certification requirements for clinical laboratories and establish standards for
quality assurance and quality control. Clinical laboratories are subject to
inspection by regulators and possible sanctions for failing to comply with
applicable requirements. Sanctions available under the Clinical Laboratory
Improvement Act include prohibiting a laboratory from running tests, requiring a
laboratory to implement a corrective plan, and imposing civil money penalties.
If we fail to meet the requirements of the Clinical Laboratory Improvement Act
or other federal or state law, we could be stopped from providing services and
incur significant expense, thereby limiting our revenue and profitability.
All of our potential cancer vaccine, anti-angiogenesis, cytokine, and
immune-stimulant products, as well as our cell processing and manufacturing
activities, are subject to comprehensive regulation by the FDA in the United
States and by comparable authorities in other countries. The process of
obtaining FDA and other required regulatory approvals, including foreign
approvals, is expensive and often takes many years and can vary substantially
based upon the type, complexity, and novelty of the products involved. Because
our cancer vaccines and our other products are novel, regulatory agencies do not
have experience with them. This may lengthen the regulatory review process,
increase our development costs, and delay or prevent commercialization of our
cancer vaccines and our other products. To our knowledge, no cancer vaccine
using dendritic cell technologies has been approved for marketing in the United
States. Consequently, there is no precedent for the successful commercialization
of our cancer vaccine products. Our other products differ in many respects from
other anti-angiogenesis cytokine and immune-stimulant products that have gone
through the FDA process, so we do not know whether the FDA will treat our
products as it has treated related products. In addition, we have had only
limited experience in filing and pursuing applications necessary to gain
regulatory approvals, which may impede our ability to obtain timely approvals
from the FDA. We have not yet sought FDA or other regulatory approval for our
cancer vaccine, anti-angiogenesis, cytokine, or immune-stimulant products. We
will not be able to commercialize any of our potential products in the United
States until we obtain FDA approval, and so any delay in obtaining, or inability
to obtain, FDA approval would harm our business.
If we violate regulatory requirements at any stage, whether before or
after marketing approval is obtained, we may be fined, forced to remove a
product from the market, or experience other adverse consequences including
delay, which could materially harm our financial results. Additionally, we may
not be able to obtain the labeling necessary or desirable for the promotion of
our products. We may also be required to undertake post-marketing trials. In
addition, if we or others identify side effects after any of our vaccines or
other products are on the market, or if manufacturing problems occur, regulatory
approval may be withdrawn and the FDA and other regulatory agencies may require
reformulation of our vaccines, additional clinical trials, changes in labeling
of our vaccines, and additional marketing applications.
An investigational new drug application must become effective before
human clinical trials may commence in the United States. The investigational new
drug application is automatically effective 30 days after receipt by the FDA,
unless before that time the FDA requests an extension to review the application
or raises concerns or questions about the conduct of the trials as outlined in
the application. In the latter case, the sponsor of the application and the FDA
must resolve any outstanding concerns before clinical trials can proceed.
32
However, the submission of an investigational new drug application may not
result in the FDA authorizing us to commence clinical trials in any given case.
Preclinical studies involve laboratory evaluation of product
characteristics and animal studies to assess the efficacy and safety of the
product. The FDA regulates preclinical studies under a series of regulations
called the Good Laboratory Practices regulations. If the sponsor violates these
regulations, the FDA, in some cases, may invalidate the studies and require that
the sponsor replicate those studies.
If testing of a particular product does not yield successful results,
we will be unable to commercialize that product. We must demonstrate that our
products are safe and effective in humans through extensive preclinical and
clinical testing. We may experience numerous unforeseen events during, or as a
result of, the testing process that could delay or prevent commercialization of
our products, including different or unexpected results in later clinical
trials, risk to participating subjects or patients, undesirable side effects, or
other problems that would preclude regulatory approval or limit the commercial
use of the products if approved.
Moreover, it may take longer to complete our clinical trials than we
project, or we may not be able to complete them at all. Clinical testing is very
expensive and may take many years, and the outcome is uncertain. The data
collected from our clinical trials may not be sufficient to support approval by
the FDA of any of our cancer vaccines or other products. The FDA may not
ultimately approve any of our product candidates for commercial sale. Our
failure to demonstrate adequately the safety and efficacy of a cancer vaccine or
any other product would delay or prevent regulatory approval of that product,
which could prevent us from achieving profitability in that product line.
Mexican Regulatory Issues
During 2001, the Mexican government revamped its oversight of medical
clinics subject to its jurisdiction. It sent new health department inspectors to
review the operations and permits of many clinics in Tijuana, Mexico. This led
to the closure of several clinics there. Dr. Sanchez' clinic also was inspected.
The inspectors determined that while the clinic personnel were properly
qualified, they had not submitted all of their protocols for government review.
On February 15, 2001, one treatment room was closed pending review of the
protocols. The clinic submitted applications for licenses for four protocols
(insulin hypoglycemic therapy, chelation, colonic treatments, and dendrytic cell
therapies) in May 2001. On May 9, 2001, the Instituto de Servicios de Salud
Publica Del Estado De Baja California (the Mexican health authorities) reopened
the treatment room. On October 17, 2001, the company was notified that the
licenses for the three of the four protocols were approved without conditions
and the license for the dendritic cell therapies was approved provisionally,
pending a six month review. As a result of the new policy, the clinic decided
not to seek new patients until all the necessary protocols had been approved. In
addition, the clinic will not charge patients specifically for the dendritic
cell therapies during the six month provisional phase of the license.
The Company feels that it was in compliance with all applicable
regulations regarding operation of the clinic prior to the alteration of
oversight of medical clinics. Nevertheless, the Company will continue to work
closely with appropriate Mexican government officials to ensure ongoing
compliance with applicable regulations.
International sales of our products may also be subject to additional
extensive regulation. Foreign regulatory bodies have established varying
regulations governing product standards, packaging requirements, labeling
requirements, import restrictions, tariff regulations, duties and tax
requirements. Generally, the extent and complexity of the regulation of medical
devices is increasing worldwide, with regulations in some countries already
nearly as extensive as those in the U.S. This trend may continue, and the cost
and time required to obtain marketing approval in any given country thus may
increase. We cannot assure you that any foreign approvals will be allowed on a
timely basis, or at all.
Competitive Environment
33
The market for alternative clinics consists primarily of foreign
owner-operated medical clinics that specialize in one form of treatment or
another. Many of these clinics attract Americans who cannot get the type of
medical treatment they desire in the United States. The largest number of
alternative clinics are in Europe and Mexico, although they are found in many
other countries. The majority of the alternative treatments offered at the
Clinica BioPulso in Mexico are similar to those offered at many other clinics
and are well-known in literature discussing alternative medicine.
We operate in a highly competitive environment and focus on highly
competitive areas of product development. Our competitors include, among others,
major pharmaceutical companies and biotechnology companies, including those that
focus on cancer detection and treatments. Academic institutions, governmental
agencies, and other public and private research organizations are also
conducting research activities and seeking patent protection and may
commercialize products on their own or through joint ventures.
Many existing and potential competitors have substantially greater
scientific research and product development capabilities, as well as greater
financial, marketing, and human resources, than we do. In addition, many
biotechnology firms have formed collaborations with large, established
pharmaceutical companies to support research, development, and commercialization
of products that may be competitive with ours.
Our competitive position also depends on our ability to develop
effective proprietary products; obtain the necessary regulatory approvals as
discussed above; implement production and marketing plans, including
collaborations with other companies with greater marketing resources than ours;
obtain patent protection; and secure sufficient capital resources.
There are many companies developing cancer tests based on tissue
samples. To our knowledge, none of these are using an approach which is similar
to our TK1 test. We believe most are using a form of DNA testing to detect
proteins or nucleic acids that are produced by various cancers. There are also
many companies that are developing cancer vaccines and related immunotherapies,
including Dendreon, Inc., Cell Genesys, Inc., Biomira Inc., ImClone Systems,
Inc., and Corixa Corporation. Many of these companies are seeking a specific
antigen that they can patent or otherwise protect. Others are developing
specialized equipment to improve the procedures. Most of these companies,
including us, have proprietary methods for preparing the dendritic cells and the
antigens for presentation to the patient's immune system. Many biotechnology
companies are also researching angiogenesis inhibitors.
Marketing
We engage in a variety of marketing efforts, including advertising in
magazines, participation in trade shows, and maintenance of a web page that
describes our research and development efforts and refers to clinical trials
that use our treatments. We have continuing dialog with industry leaders and
specialists, and we have participated in radio call-in shows and discussions.
When required regulatory approvals are obtained, we intend to market our
approved products directly or through co-marketing or licensing agreements and
strategic alliances with pharmaceutical or biotechnology companies.
Principal suppliers
Principal suppliers of equipment and supplies for our clinics include
Merit Pharmaceuticals, Bayer Diagnostics, and Beckman Coulter, Inc. Equipment
and supplies are provided to us by these companies on an as-ordered basis.
34
Intellectual property
Our patent and trademark policy
It is our policy to seek patent protection in the United States and
in foreign countries. Primarily because of differences among patent laws in
various jurisdictions, the scope of, and hence the protection afforded by, any
patents we may receive may vary from jurisdiction to jurisdiction even though
they relate essentially to the same subject matter.
The patent position of firms in our industry generally involves
highly complex legal and other issues, resulting in both an apparent
inconsistency regarding the breadth of claims allowed in United States patents
and general uncertainty as to their legal interpretation and enforceability.
Accordingly, there can be no assurance that patent applications owned from time
to time by us or our licensees will result in patents being issued or that, if
issued, the patents will afford competitive protection. Further, there can be no
assurance that products or processes developed by us or our licensees will not
be covered by third party patents, in which case continued development and
marketing of those products or processes could require a license under those
patents.
There can be no assurance that if a legal action were to be brought
against us on the basis of any third party patents, such action would be
resolved in our favor. Such an unfavorable result against us could result in
monetary damages and injunctive relief. Further, even a favorable result could
cause expenditure of substantial monetary and other resources in connection with
our defense against any of these actions.
Granted patents and pending applications
We have licenses for five patents (issued and pending) related to the
cancer screening test, anti-angiogenesis, cancer vaccines, cytokines, and immune
stimulants. Because U.S. patent applications are maintained in secrecy by the
U.S. Patent and Trademark Office until patents issue and because publication of
discoveries in the scientific or patent literature often lags behind actual
discoveries, we cannot be certain that the parties from whom we have licensed
inventions were the first creators of the inventions that we have licensed or
that such creators were the first to file patent applications for those
inventions.
In December 2000, we entered into an Exclusive License and Bailment
Agreement with BYU which granted us exclusive,
worldwide right and license to develop, manufacture, sell, and otherwise
transfer the in vitro serum diagnostic TK and TK1 tests and related
products. Our rights are subject to an option agreement between BYU
and a private laboratory which grants rights in the countries of Japan, China,
Taiwan, Korea, Malaysia, Indonesia, Philippines, and Singapore, and to BYU's
right to use the licensed technology for continuing research and non-commercial
academic uses in exchange for $800,000. Under this license agreement, we paid
BYU an initial license issue fee and must pay additional royalty payments based
upon adjusted gross sales of the licensed products, improvements, or processes.
In addition, we are obligated to pay certain minimum royalty payments in
calendar year 2003 and each year thereafter. This agreement terminates in
December 2005, subject to our right to extend the agreement for additional five
year periods by giving written notice to BYU. BYU has the right to terminate the
agreement in the event of any uncured breach by us, including the failure to
meet certain performance milestones or our financial inability to perform our
obligations under the agreement.
Under this agreement, we must meet certain performance requirements
including: developing a serum ELISA diagnostic kit for the detection of TK-1
isoenzyme by December 31, 2001; completing clinical trials to validate the
clinical usefulness of the in vitro serum diagnostic ELISA test by June 30,
2002; and submitting applications for FDA approval for the in vitro serum
diagnostic ELISA test by December 31, 2002, and thereafter vigorously pursuing
approval of the application. If we believe we will be unable to develop a
functional test, we may notify BYU and terminate the agreement. Upon receipt of
our notice, BYU will refund $700,000 of the license fee.
35
In August 2000, we entered into a sublicensing agreement with Aidan
which granted us an exclusive, worldwide sublicense (excepting experimental use
in the United States) to use and exploit certain products and procedures,
including MPGC, PGM, dendritic cell therapy, cytokines, and different forms of
cancer antigens. This license does not include the rights related to the oral
preparations of MPGC and PGM. Under this sublicense agreement, we must pay
certain license fees to Aidan. In addition, we granted Aidan an option to
purchase 1,500,000 shares of our common stock, subject to vesting upon the
occurrence of certain conditions. This sublicensing agreement will expire upon
the last to expire of any patents obtained with respect to the licensed
products, subject to Aidan's right to terminate the sublicensing agreement in
the event of any uncured breach of the agreement or our insolvency.
Trade secrets
While we generally will pursue a policy of seeking patent protection
to preserve proprietary technology as appropriate, we also have relied and will
continue to rely on trade secrets, unpatented proprietary information, and
continuing technological innovation to develop and maintain our competitive
position. There can be no assurance, however, that others will not independently
develop substantially equivalent proprietary information and technology or
otherwise gain access to such or equivalent trade secrets, proprietary
information, or technology or that we can meaningfully protect its rights to
such secrets, proprietary information, and technology.
The majority of the alternative treatments offered at Clinica
BioPulso are comparable to those offered at many other clinics and are
well-known in alternative treatment literature. We have developed some
proprietary protocols that may be beneficial to patients, but these have limited
value in the marketplace.
Environmental law costs and effects
Compliance with currently existing federal, state, and local
regulations pertaining to the discharge of materials into the environment or
otherwise relating to the protection of the environment is not anticipated to
have an impact on our capital expenditures, earning, and competitive position.
Employees
As of October 19, 2001, we had five full-time administrative employees.
We consider our relations with these administrative employees to be good. None
of the our current administrative employees is covered by a collective
bargaining agreement. Clinica BioPulso has approximately 50 employees. We
consider our relations with the clinic's employees to be good. To our knowledge,
these employees are not covered by a collective bargaining agreement.
Consultants
Liviakis Financial Communications, Inc.
On October 13, 2000, we entered into a one year consulting agreement
with Liviakis Financial Communications, Inc. We canceled this agreement in March
2001. In exchange for 1,050,000 shares of restricted common stock, Liviakis
Financial agreed to consult and assist us in developing and implementing
appropriate plans and means for presenting us to the financial community and
creating a foundation for subsequent financial public relations efforts;
introduce us to the financial community; consult with and assist us in
communicating appropriate information to the financial community; advise us as
to relations with stockholders, brokers, dealers, analysts, other investment
professionals, and with financial public relations in general; perform functions
associated with stockholder and public relations, including responding to
telephone inquiries and preparing press releases with our involvement;
disseminate information to the public pursuant to our approval; assist us in
meetings with investment professionals; and otherwise advise us as to public
relations and financial relations.
36
In addition to the 1,550,000 restricted common shares, Liviakis
Financial also was to receive a finder's fee for any introduction to a lender or
equity investor that led to us obtaining additional funding. During the term of
the agreement, we paid $100,000.
Roth Capital Partners, Inc.
On December 20, 2000, we entered into a Private Placement Engagement
Agreement with Roth Capital Partners, Inc., to act as an exclusive financial
advisor and placement agent for private placements of our securities on a best
efforts basis for six months. Under the agreement, Roth received a total of
$270,000 in connection with a private placement completed during the term of the
agreement. The agreement was terminated in February 2001.
Property and facilities
We currently lease approximately 5,514 square feet of space for our
executive offices in South Jordan, Utah. We pay $8,730.50 per month for the
space. The lease runs through August 2003. In May 2001, we entered into a lease
with a five-year term for approximately 2,000 square feet of office space in
Chula Vista, California. The monthly rent for this space is approximately
$3,500.
Reports to security holders
We file annual, quarterly and current reports with the Securities and
Exchange Commission ("SEC"). The public may read and copy any materials filed by
us with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an
electronic filer, and the SEC maintains an Internet site that will contain
reports, proxy and information statements, and other information that we have
filed with the SEC which may be viewed at http://www.sec.gov.
Management
The following table sets forth the name, age, and position of each
executive officer and director as of August 31, 2001.
Name Age Position Director or Officer Since
Reid Jilek, Ph.D. 49 CEO & January 2001
Director
Loran Swensen 43 President & January 1999
Director
John M. Allen 55 Director February 2001
Michael L. Jones 48 Chief Financial
Officer,
Treasurer January 2000
Jonathan Neville 46 Director January 1999
Our directors hold office until the next annual meeting of
shareholders or until their successors are elected or appointed. Thereafter, at
each annual meeting of shareholders, the successors to the directors will be
elected to serve from the time of election and qualification until the next
annual meeting following election. Officers serve at the will of the board of
directors.
37
The following summary sets forth biographical information relating to
our officers and directors:
Reid Jilek, Ph.D., CEO, Director. Dr. Jilek has been a director since
January 2001, and the CEO since February 2001. From 1994 to 2001, Dr. Jilek has
served as a Senior Partner at Asia Pacific Alliance Company. At Asia Pacific,
Dr. Jilek has been responsible for setting up preclinical and clinical research
programs for North American pharmaceutical and biotechnology companies in Asia.
He has also been involved in forming alliances, joint ventures, and partnering
arrangements between U.S. and Asian companies. Dr. Jilek has over ten years
experience in the biomedical and pharmaceutical industry. In 1974, Dr. Jilek
received a B.S. in microbiology from Southern Illinois University. In 1975, he
received an M.S. in zoology from the same university. In 1977, he earned an M.S.
in physiology from the University of Illinois. In 1980, he received a Ph.D. in
pathology from Ohio State University. In 1981, he received an M.S. in biomedical
engineering from the University of Virginia. In 1986, he received a B.S. in
electrical engineering from McGill University in Montreal, Canada.
Loran Swensen, President, Director. Mr. Swensen has been an entrepreneur
since 1980 ,when he started Alternate Energy Corp., where he developed high
insulating security windows. Mr. Swensen sold Alternate Energy Corp. in 1981 and
developed Home Based Business News. In 1984, Mr. Swensen co-founded three
companies: Enhanced Simulation, where he co-developed and patented a rotating
motion simulator for the amusement industry; Multi-Dimensional Studios where he
co-developed the MDS 3D EFX Thunder Theater and 3D movies; and Advanced
Technology Group, where he co-developed the Realeyes 3D box. In 1985, Mr.
Swensen founded Swensen Research Company, where he developed Brain
Neuro-Simulators which were sold throughout the medical industry. In 1998, Mr.
Swensen co-founded BPI with Mr. Neville.
John M. Allen, Director. From 1999 to 2001, Mr. Allen was the Chief
Financial Officer for Oversea Systems, LLC, a provider of hardware and software
and Internet solutions for capturing and linking data and images. Mr. Allen was
responsible for finance functions in the United States, Europe, and the Far East
and for analyzing and assessing Oversea Systems' growth potential in those
markets. He also oversaw the management of the its U.S. facilities, human
resources, purchasing, and materials. From 1987 to 1999, Mr. Allen served as the
controller for XOMA Corporation, a biopharmaceutical developer and manufacturer
of therapeutic drugs. At XOMA, Mr. Allen oversaw financial planning, analysis
and reporting, cost accounting, budgeting, forecasting, project costing, and
accounting operations. Mr. Allen has also worked as an Audit Senior, a certified
public accountant at Deloitte & Touche, and holds an MBA in finance and
accounting from University of California, Berkeley. He became a director in
February 2001.
Michael L. Jones, Chief Financial Officer, Treasurer. Mr. Jones is a
graduate of Brigham Young University in Business Management and attended
Graduate School at California State University, Northridge in accounting. He
worked in public accounting for over 15 years and was vice president of the
accounting firm of Tanner + Co. in Salt Lake City, Utah. He served three terms
as chairman of the Utah Association of CPAs Taxation Committee. He was listed in
the May 1989 issue of Money Magazine as one of America's Best Tax Practitioners.
From 1986 to 1991, Mr. Jones served as Treasurer of the Utah Republican Party.
Mr. Jones has also worked as a management consultant and computer consultant. He
joined the Company in January 2000.
Jonathan Neville, Director. Mr. Neville is a graduate of Brigham Young
University where he earned a B.S. in Agricultural Economics in 1978, an M.S. in
Agribusiness and a J.D. in 1981. After graduating from law school, Mr. Neville
clerked for H. Vern Payne, Chief Justice of the New Mexico Supreme Court. He
then spent five years in the U.S. Air Force as a Judge Advocate General. In
1986, Mr. Neville became General Counsel for Genesis Seed Corporation, a
national turf seed producer and distributor. In 1991, Mr. Neville co-founded
Tempus Entertainment, Inc. After selling his interest in Tempus in 1993, he
co-founded Multi-Dimensional Studios, a producer of 3D computer animation and
videos. He has advised a variety of other startups and small companies,
including Advanced Technologies Group, Inc. Mr. Neville co-founded BPI in 1998
with Mr. Swensen and Mr. Morrow. Since 1980, he has written in 30 volumes of the
Legalines series for Harcourt Brace Jovanovich.
By way of information, Anthony Jessop resigned as a director of the
Company effective October 17, 2001.
38
Compensation of Directors and Executive Officers
Summary Compensation Table
This table provides summary information concerning compensation
earned by or paid to our chief executive officer for services rendered in all
capacities to us during the past three fiscal years. No executive officer was
paid more than $100,000 in any of the three fiscal years ended December 31,
2000.
39
Long Term Compensation
Annual Compensation Awards Payouts
Name and Principal Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Position ($) ($) Compensation Stock Awards Underlying Payouts Compensation
($) Options/ ($)
SARs (#)
Jonathan Neville 2000 60,000 -0- -0- -0- -0- -0- -0-
CEO, Director 1999 60,000 -0- -0- -0- -0- -0- -0-
1998 - - - - - - -
Option Grants In Current Fiscal Year
The following table sets forth each grant of stock options to our CEO
and Directors in the year ended July 31, 2001. These stock grants are subject to
approval by the shareholders at the next shareholder meeting. No stock
appreciation rights have been granted during the current fiscal year.
Individual Grants
-------------------------
Number of Percent of
Securities Options Granted
Underlying To Employees Exercise
Options During Current Price Expiration
Granted Fiscal Year ($/Share) Date
---------- ----------------- ----------- ------------
Jonathan Neville 68,026 1.9% $3.23 10/11/2005
831,974 22.8% $2.94 12/31/2009
Loran Swensen 68,026 1.9% $3.23 10/11/2005
831,974 22.8% $2.94 12/31/2009
Martha D. Rodriguez 15,000 0.4% $2.94 12/31/2009
Jan Morse 50,000 1.4% $2.94 12/31/2009
Michael L. Jones 150,000 4.1% $2.94 12/31/2009
Stephen R. Fey(1) 550,000 15.1% $2.94 12/31/2009
F. Briton McConkie(1) 550,000 15.1% $2.94 12/31/2009
Robert Morrow 250,000 6.9% $2.94 12/31/2009
(1) Although Messrs. Fey and McConkie were directors of the Company
when the options were granted, they are no longer directors of
the Company.
All options listed above were granted under the Company's 2000 Stock
Option Plan (described below), which was approved by the Company's board of
directors but never approved by the Company's shareholders, as required by the
Plan. However, because the option plan was not approved by the shareholders
within one year of its adoption by the board of directors as required, the
option plan has expired under its terms, and the options listed above have
terminated.
We did not issue any options to our officers, directors or employees
during the fiscal years ended July 31, 1998, 1999, or 2000.
40
2000 Stock Option Plan
In October 2000, our board of directors adopted our Stock Option Plan.
The Plan authorizes the granting of awards of up to 4,000,000 shares of voting
common stock to our key employees, officers, directors, consultants, advisors
and sales representatives. However, because the plan was not approved by the
shareholders within one year of its adoption by the board as required by the
plan, the plan expired, and all options granted under the plan have terminated.
Employment contracts, termination of employment and change in control
arrangement
We have no retirement, pension, or benefit plan at the present time.
However, the board of directors may adopt plans as it deems to be reasonable
under the circumstances.
In the last three years, no executive officer has received any
compensation in connection with resignation, retirement, or other termination.
No executive officer received any compensation in the last three years in
connection with a change in our control or a change in the executive officer's
responsibilities after a change in control. There are no agreements to pay
compensation in the future to any executive officer upon retirement,
resignation, termination, or a change in control.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the name and the number of shares of our
common stock owned of record or beneficially by each person who owned of record,
or was known by us to own beneficially, more than 5% of our common stock
("Principal Shareholders"), and the name and share holding of each officer and
director, and all officers and directors as a group as of October 19, 2001.
Unless otherwise indicated, the address for each of the officers and directors
is c/o BioPulse International, Inc., 10421 South Jordan Gateway, Suite 500,
South Jordan, Utah, 84095.
Name and Address of Amount and Nature of
Beneficial Owner (1) Beneficial Ownership Percentage of Class
-------------------- ---------------------- ----------------------------
Loran Swensen, 1,004,200 (2) 8.87%
President, Director
Jonathan Neville 1,089,200 9.62%
CEO, Director
John M. Allen 0 *
CFO
Michael L. Jones 0 *
Treasurer
Reid Jilek 0 *
Director
Greater than 5% shareholders:
John Liviakis 1,253,500 (3) 13.13%
495 Miller Avenue, Third Floor
Mill Valley, California 94941
41
Neil Riordan (4) 0 *
Aidan, Incorporated
621 S. 48th Street, Suite 111
Tempe, Arizona 85281
Leonard Panzer (5) 2,542,954 (6) 22.08%
Kauser Partners, L.P.
570 Taxter Road, Suite 570
Elmsford, New York 10523
David Simms (7) 26,451,454 (8) 78.73%
Hunts Drive, LLC.
P.O. Box 972
Road Town
Tortola, British Virgin Islands
Stephen R. Fey 336,500 (9) 2.97%
Ivy Lane Row
Provo, UT 84604
F. Briton McConkie 336,500 (10) 2.97%
4014 Splendor Way
Salt Lake City, UT 84124
Executive Officers and 2,943,400 24.48%
Directors as a Group:
(6 people)
* Less than one percent of the class.
(1) The term "beneficial owner" refers to both the power of
investment (the right to buy and sell) and rights of ownership
(the right to received distributions from the company and
proceeds from sales of the shares). Inasmuch as these rights or
shares may be held by more than one person, each person who has a
beneficial ownership interest in share is deemed to be the
beneficial owner of all the shares. Therefore, the chart
indicates that several persons may be deemed the beneficial
owners of the same shares because there is shared power of
investment or share rights of ownership.
(2) Includes 1,004,200 shares held by the Lynda Swensen Family Trust.
Lynda Swensen is the mother of Loran Swensen. Mr. Swensen is the
beneficiary of the trust. Mr. Swensen may be deemed to be the
beneficial owner of the shares held by the Trust.
(3) Includes 1,193,500 common shares held of record by Mr. Liviakis
and 60,000 shares held of record by Liviakis Financial
Communications, Inc. Mr. Liviakis may be deemed to be the
beneficial owner of the shares held by Liviakis Financial
Communications, Inc.
(4) Mr. Riordan is the president of Aidan, Incorporated, and may be
deemed to be the beneficial owner of these shares.
42
(5) Mr. Panzer is the Managing Partner of Kauser Partners, L.P., and
may be deemed to be the beneficial owner of these shares.
(6) Includes an option, exercisable within the next 60 days, to
purchase up to 189,318 additional shares of common stock.
(7) Mr. David Simms has voting control and investment power over the
shares held by Hunts Drive, LLC, and may be deemed to be the
beneficial owner of these shares.
(8) Hunts Drive currently owns 3,000 shares of series B convertible
preferred stock, which are convertible to common stock within the
next 60 days. The above listed figure includes the up to
22,058,824 common shares Hunts Drive could receive upon a
hypothetical conversion of all 3,000 shares of preferred stock as
of October 19, 2001. This figure also includes the warrants to
purchase up to 210,300 common shares. The warrants are
exercisable within 60 days.
Change in control
To the knowledge of the management, there are no present arrangements
or pledges of our securities that may result in a change in control.
Certain Relationships and Related Transactions
Jonathan Neville and Loran Swensen, current officers and directors, and
Dr. Robert Morrow, a former director, were promoters of BPI. When BPI was
acquired by IST, Mr. Neville received 1,089,200 shares, Mr. Swensen received
1,004,200 shares, and Dr. Morrow received 317,600 shares of BioPulse
International, Inc., common stock in a share for share exchange for their
interests in BPI. Mr. Fey and Mr. McConkie, former directors of BioPulse
International, each received 336,500 shares of BioPulse International common
stock in connection with that transaction.
During the fiscal year ended July 31, 1999, we borrowed $90,000 from an
officer, $90,000 from a corporation under common ownership, and $10,628 from a
shareholder. Each of these loans were paid in full by October 31, 1999.
On or about October 13, 2000, we entered into a one-year consulting
agreement with Liviakis Financial Communications, Inc. In exchange for 1,550,000
shares of restricted common stock, Liviakis Financial agreed to assist and
advise us in matter relating to stockholder and investor relations, relations
with brokers, dealers, analysts and other investment professionals, and to help
us in developing and implementing presentational materials. This agreement was
terminated in March 2001.
On November 20, 2000, we issued 353,636 restricted common shares and
warrants to purchase up to an additional 189,318 restricted common shares to
Kauser Partners, L.P., pursuant to an exemption from registration under Section
4(2) of the Securities Act. We received $1,000,000 in connection with the sale
of the shares. The exercise price of the warrants is currently $6.375. The
exercise price can be adjusted downward depending upon the date when this
registration statement becomes effective. These shares were not offered for sale
to the public or as part of a public distribution.
In connection with the November 2000 agreement, we were required to pay
damages to Kauser in the event that the registration statement of which this
prospectus is a part was not declared effective by a certain date. The
registration statement was not declared effective by the required date.
Accordingly, in August 2001, we entered into an accommodation agreement with
Kauser where we agreed to issue Kauser 2,000,000 shares of our common stock, and
Kauser waived certain rights and claims against us.
43
The Company recently implemented a policy regarding loans to
affiliates. Under the policy, any loans or payments to affiliates or affiliated
companies, other than shared expenses in the ordinary course of business, that
are in excess of $5,000 must be approved in advance by the Company's board of
directors.
Description of Securities
We are authorized to issue 110,000,000 shares of capital stock, which
are divided into 100,000,000 shares of common stock, par value $.001 each;
2,000,000 shares of Series A Preferred Stock, par value $.001; 2,000,000 shares
of Series B Preferred Stock, par value $.001; 2,000,000 shares of Series C
Preferred Stock, par value $.001: 2,000,000 shares of Series D Preferred Stock,
par value $.001; and 2,000,000 shares of Series E Preferred Stock, par value of
$.001.
Common Stock
The holders of common stock are entitled to equal dividends and
distributions, per share, with respect to the common stock when, as and if
declared by the board of directors from funds legally available therefor. Upon
liquidation, dissolution, or winding up, and after payment of creditors and
preferred stockholders if any, the assets will be divided pro-rata on a
share-for-share basis among the holders of the shares of common stock. All
shares of common stock now outstanding are fully paid, validly issued, and
non-assessable. Each share of common stock is entitled to one vote with respect
to the election of any director or any other matter upon which shareholders are
required or permitted to vote. Holders of our common stock do not have
cumulative voting rights, so that the holders of more than 50% of the combined
shared voting for the election of directors may elect all of the directors, if
they choose to do so and, in that event, the holder of the remaining shares will
not be able to elect members to the board of directors.
Preferred Stock
The rights of our Series A, C, D, and E preferred stock will be
determined in the future by the Board of Directors. At the present time, there
are no issued and outstanding shares of Series A, Series C, Series D, or Series
E preferred stock.
There are 3,000 shares of Series B preferred stock issued and
outstanding. The Series B preferred stock has a liquidation value per share of
$1,000. The holders of Series B preferred stock are entitled to receive
dividends out of any assets legally available therefor prior to, and in
preference to, any declaration or payment of any dividend on our common stock,
at a rate of seven percent per annum of the amount of the liquidation value,
which is payable upon conversion based upon a 360 calendar day year. At our
discretion, dividends will be paid in cash or in shares of common stock which
have been registered with the SEC. The holders of our Series B preferred stock,
at any time after issuance, have the right to convert any whole preferred shares
into that number of fully paid nonassessable shares of common stock which is
determined per share of preferred stock by dividing $1,000 by the conversion
price. The conversion price is the lesser of $9.75 or eighty percent (80%) of
the average of the three lowest closing bid prices of the common stock during
the 20 day tradings immediately prior to the conversion date. For so long as we
have not received a notice of conversion for the shares, we may redeem shares of
our Series B preferred stock by serving a notice of redemption. The redemption
price equals 130% of the liquidation value, plus all accrued but unpaid
dividends on such shares. If we deliver notice of redemption pursuant to the
foregoing sentence, the holders will retain their conversion rights with respect
to up to a maximum of 100% of the number of shares subject to the redemption.
Transfer Agent and Registrar
Interwest Transfer Company, 1981 East 4800 South, Salt Lake City, Utah
84117, is the transfer agent and registrar for our securities.
44
Selling Shareholders
The following table contains information regarding the number of common
shares, warrants, and options to purchase our common stock, beneficially owned
by each selling shareholder and the number of shares each selling shareholder is
offering for sale under this prospectus.
Beneficial Ownership Beneficial Ownership
Selling of Common Stock Number Offered By of Common Stock
Shareholder Before Offering(1) Selling Shareholder After Offering (2)
----------- ---------------------------------- ----------------------- -----------------------------
Number Percent Number Percent
----------- ----------- ------------ ------------
Kauser Partners, L.P. 2,353,636 20.78% 353,636 2,000,000 17.66%
570 Taxter Road 189,318 (3) 1.64% 189,318 0 *
Suite 570
Elmsford, NY 10523
Aidan, Incorporated 200,000 (4) 1.74% 200,000 0 *
621 S. 48th St. Suite 111
Tempe, AZ 85281
Paul Kessler 5,000 * 5,000 0 *
11777 San Vicente Blvd
Suite 702
Brentwood, CA 90049
Anthony Altavilla 148,250 1.28% 148,250 0 *
81 Throckmorton Ave.
Suite 201
Mill Valley, CA 94941
Jens Dalsgaard 148,250 1.28% 148,250 0 *
81 Throckmorton Ave.
Suite 201
Mill Valley, CA 94941
Hunts Drive, LLC 210,300 (3) 1.82% 210,300 0 *
P.O. Box 972 25,000,000 (5) 68.82% 25,000,000 0 *
Road Town
Tortola, B.V.I.
Roth Capital 100,500 (3) * 100,500 0 *
Partners, Inc.
24 Corporate Plaza
Newport Beach, CA 92660
Anthony Soich 11,100 (3) * 11,100 0 *
24 Corporate Plaza
Newport Beach, CA 92660
Carbon Mesa Partners 12,400 (3) * 12,400 0 *
c/o Southridge
Capital Partners
Executive Pavilion
90 Grove Street
Ridgefield, CT 06877
45
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the SEC. In computing the number of shares beneficially
owned by a person, shares of common stock subject to options held by
that person that are currently exercisable or exercisable within 60
days of the date of this prospectus are deemed outstanding.
(2) Assumes that all shares offered for sale in this prospectus are sold.
(3) Represents shares of common stock issuable upon exercise of
outstanding warrants.
(4) Represents shares of common stock issuable upon exercise of
outstanding options. Includes options to purchase up to 189,318 shares
of common stock issued in November 2000.
(5) Represents the shares of common stock issuable upon conversion of the
Series B preferred stock as of October 19, 2001.
An aggregate of up to 45,556,402 shares of our common stock may be
offered and sold pursuant to this prospectus by the selling shareholders. We are
registering these shares on behalf of the selling shareholders. We will pay all
costs, expenses, and fees in connection with this registration, except that the
selling stockholders will pay underwriting discounts and selling commissions, if
any. We will not receive any of the proceeds from the sale of the shares by the
selling stockholders.
The selling shareholders listed above, who are not individuals, have
provided us with additional information regarding the individuals who exercise
control over the identified selling shareholder. The proceeds of any sale of
shares pursuant to this prospectus will be for the benefit of each of the
individuals that control the selling entity. The following is a list of the
selling shareholders and the individual who exercises control of the entity:
Selling Shareholder Natural Person Who Controls
------------------- ---------------------------
Kauser Partners, L.P. Leonard Panzer
Hunts Drive, LLC David Simms
Aidan, Incorporated Neil Riordan
Roth Capital Partners, Inc. Gordon Roth
Carbon Mesa Partners Michael Rosenblum
Plan of Distribution
The shares covered by this prospectus may be offered and sold from time
to time by the selling shareholders or their pledgees, donees, transferees, or
successors in interest. Such sales may be made on the OTC Bulletin Board, in the
over-the-counter market or otherwise, at prices and under terms then prevailing
or at prices related to the then current market price, or in negotiated
transactions. The shares may be sold by any means permitted under law, including
one or more of the following:
- a block trade in which a broker-dealer engaged by the selling
shareholder will attempt to sell the shares as agent, but may position
and resell a portion of the block as principal to facilitate the
transaction;
- purchases by a broker-dealer as principal and resale by such
broker-dealer for its account under this prospectus;
- an over-the-counter distribution in accordance with the rules of the
OTC Bulletin Board;
46
- ordinary brokerage transactions in which the broker solicits
purchasers; or
- privately negotiated transactions.
In effecting sales, broker-dealers engaged by the selling shareholders may
arrange for other broker-dealers to participate in the resales.
In connection with distributions of the shares or otherwise, the
selling shareholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares covered by this prospectus in the course of hedging the positions
they assume with the selling shareholders. The selling shareholders may also
sell the shares short and redeliver the shares to close out such short
positions. The selling shareholders may also enter into option or other
transactions with broker-dealers which require the delivery to the broker-dealer
of the shares, which the broker-dealer may resell or otherwise transfer under
this prospectus. The selling shareholders may also loan or pledge the shares
registered hereunder to a broker-dealer, and the broker-dealer may sell the
shares so loaned, or upon a default the broker-dealer may effect sales of the
pledged shares pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling shareholders in amounts
to be negotiated in connection with the sale. Such broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act, in connection with such sales and any such
commission, discount, or concession may be deemed to be underwriting discounts
or commissions under the Securities Act.
We have advised the selling shareholders that the anti-manipulation
rules under the Securities Exchange Act of 1934 may apply to sales of shares in
the market and to the activities of the selling shareholders and their
affiliates. In addition, we will make copies of this prospectus available to the
selling shareholders and have informed them of the need for delivery of copies
of this prospectus to purchasers at or prior to the time of any sale of the
shares offered hereby.
All costs, expenses, and fees in connection with the registration of
the shares will be borne by us. Commissions and discounts, if any, attributable
to the sales of the shares will be borne by the selling shareholders. The
selling shareholders may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act of 1933. We
will not receive any proceeds from the sale of the shares.
We have agreed with the selling shareholders to keep the registration
statement of which this prospectus constitutes a part effective for a period of
two years. Trading of any unsold shares after the expiration of such period will
be subject to compliance with all applicable securities laws, including Rule
144.
The selling shareholders are not obligated to sell any or all of the
shares covered by this prospectus.
If we are notified by the selling shareholders that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, we will file a supplement to
this prospectus, if required, under Rule 424(b) under the Securities Act,
disclosing the following:
(1) the names of the selling shareholders and of the participating
broker-dealers;
(2) the number of shares involved;
(3) the price at which such shares were sold;
(4) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;
(5) that the broker-dealers did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus; and
(6) other facts material to the transaction.
The selling shareholders may be entitled under agreements entered into
with us to indemnification against liabilities under the Securities Act.
47
In order to comply with state securities laws, if applicable, the
shares will not be sold in a particular state unless they have been registered
or qualified for sale in that state or any exemption from registration or
qualification is available and complied with.
Regulation M
The Company has informed the selling shareholders that Regulation M
promulgated under the Securities Exchange Act of 1934 may be applicable to them
with respect to any purchase or sale of the Company's common stock. In general,
Rule 102 under Regulation M prohibits any person connected with a distribution
of the Company's common stock from directly or indirectly bidding for, or
purchasing for any account in which it has a beneficial interest, any of the
common stock or any right to purchase this stock, for a period of one business
day before and after completion of its participation in the distribution.
During any distribution period, Regulation M prohibits the selling
shareholders and any other persons engaged in the distribution from engaging in
any stabilizing bid or purchasing the Company's common stock except for the
purpose of preventing or retarding a decline in the open market price of the
common stock. None of these persons may effect any stabilizing transaction to
facilitate any offering at the market. As the selling shareholders will be
offering and selling the Company's common stock at the market, Regulation M will
prohibit them from effecting any stabilizing transaction in contravention of
Regulation M with respect to this stock.
Legal Proceedings
To the knowledge of our officers and directors, neither BioPulse
International nor any of its officers or directors is a party to any material
legal proceeding or litigation, and such persons know of no material legal
proceeding or litigation contemplated or threatened. There are no judgments
against us or our officers or directors. None of the officers or directors has
been convicted of a felony or misdemeanor relating to securities or performance
in corporate office.
Interest of Named Experts and Counsel
None of the experts named herein was or is a promoter, underwriter,
voting trustee, director, officer, or employee of BioPulse International.
Further, none of the experts was hired on a contingent basis and none of the
experts named herein will receive a direct or indirect interest in BioPulse
International.
Experts
The financial statements included herein have been audited by Crouch,
Bierwolf & Associates, Certified Public Accountants, located in Salt Lake City,
Utah, as indicated in their report with respect thereto, and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.
Additional Information
We file annual, quarterly, and current reports, as well as proxy
statements and other information with the Securities and Exchange Commission
("SEC"). You may read and copy any materials filed by us with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. We file our reports electronically with
the SEC and the SEC maintains an internet site that will contain reports and
other information regarding us which may be viewed at http://www.sec.gov.
We have filed a registration statement on Form SB-2 with the SEC
covering the shares of common stock being offered by means of this
prospectus.
Disclosure of Commission's Position on Indemnification for Securities Act
Liabilities
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons for BioPulse pursuant to the foregoing provisions, or otherwise,
48
we have been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable.
In the event that any claim for indemnification against these
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person in the defense of any
action, suit or proceeding) is asserted by the director, officer or
controlling person in connection with the securities being offered, we
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Index to Financial Statements
The following documents are filed as part of this report:
Report of Independent Accountants. F-2
Financial Statements and Schedules:
Consolidated Balance Sheet as of April 30, 2001,
and July 31, 2000 F-3
Consolidated Statement of Operations for April 30, 2000,
and July 31, 2000 F-5
Consolidated Statement of Stockholder's Equity F-6
Statements of Cash Flows for the period ended April 30, 2001, and
the year ended July 31, 2000 F-8
Notes to the Financial Statements F-9
49
You should only rely on the information contained or incorporated by reference
in this prospectus. We have not authorized any person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus is accurate as
of the date on the front cover of this prospectus only. This prospectus does not
constitute an offer to sell, or the solicitation of an offer to buy, any
securities other than the securities to which it relates.
-----------------------
-----------------------
Dealer Prospectus Delivery Obligation. Until [a date which is 90 days following
the effective date of the registration statement of which this prospectus is a
part], all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
BIOPULSE INTERNATIONAL, INC.
45,556,402 Shares
Common Stock
PROSPECTUS
October ______, 2001
50
Part II - Information Not Required in Prospectus
Item 24. Indemnification of Directors and Officers
There are no provisions in Nevada corporate law or the Articles of
Incorporation of the registrant requiring the corporation to indemnify any of
the registrant's officers and directors. Nevertheless, the Bylaws of the
registrant provide for indemnification as follows:
1) No officer or director shall be personally liable for any
obligations arising out of any acts or conduct of said officer or
director performed for or on behalf of the Corporation.
2) The Corporation shall and does hereby indemnify and hold harmless
each person and his heirs and administrators who shall serve at any
time hereafter as a director or officer of the Corporation from and
against any and all claims, judgments and liabilities to which such
persons shall become subject by reason of any action alleged to have
been heretofore or hereafter taken or omitted to have been taken by him
as such director or officer, and shall reimburse each such person for
all legal and other expenses reasonably incurred by him in connection
with any such claim or liability; including power to defend such person
from all suits as provided, however, that no such person shall be
indemnified against, or be reimbursed for, any expense incurred in
connection with any claim or liability arising out of his own
negligence or willful misconduct.
3) The rights accruing to any person under the foregoing provisions of
this section shall not exclude any other rights to which he may
lawfully be entitled, nor shall anything herein contained restrict the
right of the Corporation to indemnify or reimburse such person in any
proper case, even though not specifically herein provided for.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our officers and directors pursuant to the
provisions of our Articles of Incorporation, we have been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
Other Expenses of Issuance and Distribution
The following table sets forth our estimates (other than the SEC
registration fee) of our expenses in connection with the issuance and
distribution of the shares of common stock being registered:
SEC registration fee ................... $ 15,527
Legal fees and expenses ................ $ 75,000
Accounting fees and expenses ........... $ 20,000
Miscellaneous expenses ................. $ 10,000
------------
Total: ................................. $ 120,527
Recent Sales of Unregistered Securities
Fiscal Year 1999
BioPulse International, Inc., was incorporated in Nevada on July 13,
1984, under the name Universal Financial Capital Corp., and changed its name in
September 1985, to International Sensor Technologies, Inc ("IST"). As IST, the
Company incurred heavy losses, had no revenue from operations and, subsequently,
experienced five years of inactivity.
On January 9, 1999, the Company acquired BioPulse, Inc., a Utah
corporation ("BPI"), founded in 1998 by Jonathan Neville, Loran Swensen, and Dr.
Robert Morrow. At the time of the acquisition, the Company changed its name to
BioPulse International and issued 3,200,000 restricted BioPulse International
common shares to the shareholders of BPI, in exchange for all of the issued and
outstanding shares of BPI. In that transaction, Jonathan Neville received
1,089,200 shares, Loran Swensen received 1,004,200, and Dr. Morrow received
317,000. There was no public offering of the shares of the Company for those of
BPI, which was conducted as a share exchange, pursuant to an exemption from
registration under Section 4(2) of the Securities Act.
II-2
The Company's shareholders received 800,000 shares of restricted common
stock in exchange for their shares of IST. Of these 800,000 shares, Mr. Fey and
Mr. McConkie each received 336,500 shares of common stock. These shares were
issued for services rendered, and no value was recorded by the Company when they
were issued. There was no public offering of the shares, and they were offered
pursuant to an exemption from registration under Section 4(2) of the Securities
Act for services rendered.
On April 6, 1999, we issued 2,000,000 common shares to sophisticated
investors in a private placement pursuant to an exemption from registration
provided by Section 3(b) of the Securities Act and provisions of Regulation D,
Rule 504 promulgated under the Securities Act ("Regulation D"). We received
approximately $970,000 in cash.
Fiscal Year 2000
In October 1999, we issued 600,000 restricted common shares to Celtic
Ltd., pursuant to an exemption from registration under Section 4(2) of the
Securities Act. We received $60,000. These shares were not offered for sale in
any public offering or as part of a public distribution.
In February of 2000, we issued 600,000 restricted common shares to
Paramo Investment pursuant to an exemption from registration under Section 4(2)
of the Securities Act for services rendered. We received no cash in connection
with the issuance of the shares. These shares were not given in connection with
a public offering or as part of a public distribution.
In June 2000, we issued 5,000 restricted common shares to David J.
Weaver, a sophisticated investor, pursuant to an exemption from registration
under Section 4(2) of the Securities Act. We received $15,000 in connection with
the sale of the shares. These shares were not offered for sale in any public
offering or as part of a public distribution.
Fiscal Year 2001
On August 3, 2000, we granted an option to purchase up to 1,500,000
restricted common shares to Aidan, Incorporated. This option was issued pursuant
to an exemption for registration under Section 4(2) of the Securities Act. The
exercise price of the options is $2.75. The options expire on August 3, 2010.
Pursuant to the terms of a sublicensing agreement between the parties, the
option vests pursuant to the accomplishment by Aidan of certain activities. As
of the date of this prospectus, Aidan's option had vested up to 900,000 shares.
This option was not offered for sale in any public offering or as part of a
public distribution.
On August 18, 2000, we issued 60,000 restricted common shares to Rob
Reeder in exchange for medical equipment for Clinica BioPulso valued at
approximately $60,000. The restricted shares were not publicly offered, or
offered as part of a public distribution. The shares were issued pursuant to an
exemption from registration under Section 4(2) of the Securities Act.
On August 18, 2000, we issued 6,000 restricted common shares to Robert
Perez, a sophisticated investor, pursuant to an exemption from registration
under Section 4(2) of the Securities Act. These shares were not offered for sale
to the public or as part of a public distribution. We received $18,000 in
connection with the sale of the shares.
On August 18, 2000, we issued 7,500 restricted common shares to Perez
Makasian Williams, a sophisticated investor, pursuant to an exemption from
registration under Section 4(2) of the Securities Act. We received $22,500 in
connection with the sale of the shares. These shares were not offered for sale
to the public or as part of a public distribution.
On August 18, 2000, we issued 2,500 restricted common shares to Robert
Williams, a sophisticated investor, pursuant to an exemption from registration
under Section 4(2) of the Securities Act. We received $7,500 in connection with
II-3
the sale of the shares. These shares were not offered for sale to the public or
as part of a public distribution.
On September 7, 2000, we issued 9,000 restricted common shares to Jack
Schear, an accredited investor pursuant to an exemption from registration under
Section 4(6) of the Securities Act. We received $27,000 in connection with the
sale of the shares. These shares were not offered for sale to the public or as
part of a public distribution.
On September 22, 2000, 25,000 shares of Series A preferred stock held
by Brad Fey were converted to 50,000 shares of restricted common stock pursuant
to an exemption from registration under Section 4(2) of the Securities Act. We
received no money in connection with the issuance of the shares. This conversion
offer was not made to the public or as part of a public distribution.
On November 20, 2000, we issued 1,193,500 restricted common shares to
John Liviakis, 60,000 restricted common shares to Liviakis Financial
Communications, Inc., Mr. Liviakis' company; and 148,250 restricted common
shares to Anthony Altavilla and 148,250 restricted common shares to Jens
Dalsgaard, each employees of Livakis Financial, for consulting services on
financial and public relations and business and personnel related matters
pursuant to an exemption from registration under Section 4(2) of the Securities
Act. We received no cash in connection with the issuance of the shares. These
shares were not offered for sale to the public or as part of a public
distribution.
On November 20, 2000, we issued 353,636 restricted common shares and
warrants to purchase up to an additional 189,318 restricted common shares to
Kauser Partners, L.P., pursuant to an exemption from registration under Section
4(2) of the Securities Act. We received $1,000,000 in connection with the sale
of the shares. The exercise price of the warrants is currently $6.375. The
exercise price can be adjusted downward depending upon the date when this
registration statement becomes effective. These shares were not offered for sale
to the public or as part of a public distribution.
On November 29, 2000, we issued 10,000 restricted common shares to
Peter Kristensen, a sophisticated investor, for consulting services pursuant to
an exemption from registration under Section 4(2) of the Securities Act. We
received no cash in connection with the issuance of the shares. These shares
were not offered for sale to the public or as part of a public distribution.
On December 18, 2000, we issued 40,000 restricted common shares to
Edesio Biffoni, a sophisticated investor, for consulting services pursuant to an
exemption from registration under Section 4(2) of the Securities Act. We
received no cash in connection with the sale of the shares. These shares were
not offered for sale to the public or as part of a public distribution.
On December 18, 2000, we issued 30,000 restricted common shares to
Tiger-Lewis, Inc., a sophisticated investor, for consulting services pursuant to
an exemption from registration under Section 4(2) of the Securities Act. We
received no cash in connection with the shares. These shares were not offered
for sale to the public or as part of a public distribution.
On January 24, 2001, we issued 3,000 restricted Series B convertible
preferred shares and a warrant to purchase up to 100,000 shares of our common
stock to Hunts Drive, LLC, a Qualified Institutional Buyer, as that term is
defined under Rule 144A under the Securities Act, in a private placement
pursuant to an exemption from registration provided by Section 4(2) of the
Securities Act. The warrants have an exercise price of $8.53 per share. After
deducting offering costs, we received approximately $2,660,000 in cash in
connection with the sale of the securities.
On January 24, 2001, we issued a warrant to purchase up to 110,300
common shares to Hunts Drive, LLC pursuant to a private equity credit agreement
entered into between the parties, whereby the Company may sell up to $10,000,000
of its common stock to Hunts Drive, in a private placement pursuant to an
II-4
exemption from registration provided by section 4(2) of the Securities Act. The
warrants have an exercise price of $8.40 per share.
On January 24, 2001, we granted warrants to Roth Capital Partners,
Inc., Anthony Soich, and Carbon Mesa Partners, to purchase up to 40,500, 4,500,
and 5,000 common shares, respectively. Each of these investors is either
accredited or sophisticated. These warrants were granted for services in
connection with the sale of Series B preferred stock to Hunts Drive, LLC. The
warrants have an exercise price of $8.53 per share. These warrants were issued
pursuant to an exemption from registration under Section 4(2) and/or 4(6) of the
Securities Act. We received no cash in connection with the issuance of the
warrants. These warrants were not offered for sale to the public or as part of a
public distribution.
On January 24, 2001, we granted warrants to Roth Capital Partners,
Inc., Anthony Soich, and Carbon Mesa Partners, to purchase up to 60,000, 6,600,
and 7,400 common shares, respectively. Each of these investors is either
accredited or sophisticated. These warrants were granted for services in
connection with the private equity credit agreement entered into by us with
Hunts Drive, LLC. These warrants were issued pursuant to an exemption from
registration under Section 4(2) and 4(6) of the Securities Act. We received no
cash in connection with the issuance of the warrants. These warrants were not
offered for sale to the public or as part of a public distribution.
Exhibits
Exhibit Number Description of Document Location
3.01 Amended and Restated Articles of Incorporation (1)
3.02 Bylaws (1)
4.01 Certificate of Designation of Series B Convertible (3)
Preferred Stock of BioPulse International, Inc.
5.01 Opinion Regarding Legality (3)
10.01 Contract with Dr. Jesus Omar Sanchez Tiznado (1)
10.02 BioPulse International, Inc. 2000 Stock Option Plan (2)
10.03 Sublicensing Agreement with Aidan, Incorporated (3)
10.04 Exclusive License and Bailment Agreement with (3)
Brigham Young University
10.05 Consulting Agreement with Liviakis Financial (3)
Communications, Inc.
10.06 Private Equity Credit Agreement by and between (3)
BioPulse International, Inc., and Hunts Drive, LLC.
10.07 Statement of Work between CRP and BioPulse (3)
International, Inc.
10.08 Private Placement Engagement Agreement (3)
10.09 Accommodation Agreement between BioPulse Attached
International, Inc., Kauser Partners, L.P.
II-5
15.01 Letter on Unaudited Interim Financial Information (3)
16.01 Letter on Change in Certifying Accountant (1)
23.01 Consent of Independent Auditor Attached
23.02 Consent of Legal Counsel (3)
(Included in Exhibit 5.01)
(1) Incorporated by reference to the Registrant's Form 10-SB dated January 18,
2000.
(2) Incorporated by reference the Registrant's Form 10-QSB dated December 18,
2000.
(3) Filed previously.
Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in this Registration
Statement or otherwise, we have been advised that in the opinion of the
Commission this indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against those liabilities (other than the payment by us of
expenses incurred or paid by a director, officer or controlling persons of
BioPulse 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, we will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
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.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement; and
(iii)Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
II-6
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
II-7
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has duly caused this
amendment to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Salt Lake City, State of Utah on the
19th day of October, 2001.
BIOPULSE INTERNATIONAL, INC.
By: /s/ Reid Jilek
----------------------------------------
Reid Jilek, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registration statement has been signed by the following persons in the
capacities and on the dates indicated:
/s/ Reid Jilek Chief Executive Officer and Director October 19, 2001
------------------------
Reid Jilek (Principal Executive Officer)
/s/ Michael Jones Chief Financial Officer and Treasurer October 19, 2001
------------------------
Michael Jones (Principal Accounting Officer)
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Reid Jilek and Michael Jones, and each of them, with full
power of substitution, to execute in the name and on behalf of such person any
amendment (including any post-effective amendment) to this Registration
Statement (or any other registration statement for the same offering that is to
be effective upon filing pursuant to Rule 462(b) under the Securities Act) and
to file the same, with exhibits thereto, and other documents in connection
therewith, making such changes in this Registration Statement as the person(s)
so acting deems appropriate, and appoints each of such persons, each with full
power of substitution, attorney-in-fact to sign any amendment (including any
post-effective amendment) to this Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act) and to file the same, with
exhibits thereto, and other documents in connection therein.
Name Date
/s/ Reid Jilek
October 19, 2001
-----------------------------------------------------
Reid Jilek
Chief Executive Officer (Principal Executive Officer),
and Director
II-8
/s/ Michael Jones
Michael Jones
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
Loran Swensen
President and Director
John M. Allen
Chief Financial Officer
/s/ Jonathan Neville
Jonathan Neville
Director
II-9
Exhibit Index
Exhibit Number Description of Document Location
3.01 Amended and Restated Articles of Incorporation (1)
3.02 Bylaws (1)
4.01 Certificate of Designation of Series B Convertible (3)
Preferred Stock of BioPulse International, Inc.
5.01 Opinion Regarding Legality (3)
10.01 Contract with Dr. Jesus Omar Sanchez Tiznado (1)
10.02 BioPulse International, Inc. 2000 Stock Option Plan (2)
10.03 Sublicensing Agreement with Aidan, Incorporated (3)
10.04 Exclusive License and Bailment Agreement with (3)
Brigham Young University
10.05 Consulting Agreement with Liviakis Financial (3)
Communications, Inc.
10.06 Private Equity Credit Agreement by and between (3)
BioPulse International, Inc., and Hunts Drive, LLC
10.07 Statement of Work between CRP and BioPulse (3)
International, Inc.
10.08 Private Placement Engagement Agreement (3)
10.09 Accommodation Agreement between BioPulse
International, Inc., Kauser Partners, L.P. Attached
15.01 Letter on Unaudited Interim Financial Information (3)
16.01 Letter on Change in Certifying Accountant (1)
23.01 Consent of Independent Auditor Attached
23.02 Consent of Legal Counsel (3)
(Included in Exhibit 5.01)
(1) Incorporated by reference to the Registrant's Form 10-SB dated January
18, 2000.
(2) Incorporated by reference the Registrant's Form 10-QSB dated December
18, 2000.
(3) Filed previously.
II-10
BioPulse International, Inc.
Financial Statements
April 30, 2001 (Unaudited)
&
July 31, 2000
Independent Auditors Report
Board of Directors
BioPulse International, Inc.
We have audited the accompanying balance sheets of BioPulse International, Inc.,
as of April 30, 2001, and the related statements of operations, stockholders'
equity, and cash flows for the year ended July 31, 2001. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. 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 the significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audit provides a reasonable basis for my opinion.
In my opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of BioPulse International, Inc., as of
July 31, 2000, and the results of its operations and its cash flows for the year
ended July 31, 2001, in conformity with generally accepted accounting
principles.
The accompanying balance sheets, of BioPulse International, Inc., as of April
30, 2001 and the statement of operations, statement of cash flows and statement
of stockholders' equity for the period April 30, 2001 were not audited by us,
and accordingly, we do not express an opinion or any other form of assurance on
them.
/s/ Crouch Bierwolf & Associates
CROUCH BIERWOLF & ASSOCIATES
Salt Lake City, Utah
August 30, 2001
BioPulse International, Inc.
Consolidated Balance Sheet
April 30, July 31,
2001 2000
--------------------- --------------------
(Unaudited)
Assets
Current Assets
Cash $ 315,469 $ 42,055
Accounts receivable (net of allowance for
doubtful accounts) 5,850 17,030
Inventory 65,152 77,094
Note Receivable - Employee 9,800 9,800
Note Receivable - Related party (note 8) 0 19,032
Prepaid Rent, Current 0 133,925
--------------------- --------------------
Total Current Assets 396,271 298,936
--------------------- --------------------
Property & Equipment, Net (Note 2) 1,432,471 659,729
Intangible Assets 1,060,000 0
Other Assets
Deposits 8,731 8,731
Prepaid Rent - Net of Current Portion 0 182,749
--------------------- --------------------
Total Other Assets 8,731 191,480
--------------------- --------------------
Total Assets $ 2,897,473 $ 1,150,145
===================== ====================
Continued
3
BioPulse International, Inc.
Consolidated Balance Sheet
April 30, July 31,
2001 2000
--------------------- --------------------
(Unaudited)
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $ 42,736 $ 104,787
Accrued Expenses 19,953 30,146
Notes Payable (Note 7) 0 86,000
Unearned Revenue 10,446 77,784
--------------------- --------------------
Total Current Liabilities 73,135 298,717
--------------------- --------------------
Total Liabilities 73,135 298,717
--------------------- --------------------
Stockholders' Equity
Preferred Stock 3,000,000 25
Common Stock 9,458 7,329
Additional Paid In Capital 6,307,446 1,092,044
Less Subscriptions Receivable (99,266) (159,566)
Treasury Stock (3,417) 0
Accumulated Deficit (6,389,883) (88,404)
--------------------- --------------------
Total Stockholders' Equity 2,824,338 851,428
--------------------- --------------------
Total Liabilities and Stockholders' Equity $ 2,897,473 $ 1,150,145
===================== ====================
The accompanying notes are an integral part of
these financial statements.
4
BioPulse International, Inc.
Consolidated Statement of Operations
For the Nine For the Nine For the For the
Months Ended Months Ended Year Ended Year Ended
April 30, April 30, July 31, July 31,
2001 2000 2000 1999
--------------------- -------------------- -------------------- --------------------
(Unaudited) (Unaudited)
Revenues $ 2,128,281 $ 2,256,573 $ 3,107,636 $ 289,623
Cost of Goods Sold 814,178 994,228 1,163,598 179,870
--------------------- -------------------- -------------------- --------------------
Gross Profit 1,314,103 1,262,345 1,944,038 109,753
--------------------- -------------------- -------------------- --------------------
Operating Expenses
General and Administrative 7,615,582 1,166,043 1,789,007 353,188
--------------------- -------------------- -------------------- --------------------
Total Expenses 7,615,582 1,166,043 1,789,007 353,188
--------------------- -------------------- -------------------- --------------------
Net Income (Loss) from Operations (6,301,479) 96,302 155,031 (243,435)
Net Income (Loss) before Taxes (6,301,479) 96,302 155,031 (243,435)
Provision for Income Taxes
--------------------- -------------------- -------------------- --------------------
Net Income (Loss) (6,301,479) 96,302 155,031 (243,435)
===================== ==================== ==================== ====================
Net Income (Loss) Per Share $ (0.72) $ 0.02 $ 0.02 $ (0.05)
Weighted average Shares Outstanding 8,759,812 6,073,862 7,329,610 4,709,752
Fully diluted earnings per share $ (0.51) $ 0.02 $ 0.02 $ (0.05)
Fully diluted weighted-average
shares outstanding 12,452,500 6,073,862 7,329,610 4,709,752
The accompanying notes are an integral part of
these financial statements.
5
BioPulse International, Inc.
Consolidated Statement of Stockholders' Equity
[START HERE - FIX HEADERS] Additional
Preferred Stock Common Stock Spaid-intions Retained
Shares Amount Shares Amount Receivable capital Earnings
------------ ---------- ------------- ---------- ------------- -------------- -------------
Balance at Inception - - - - - - -
Net loss for the year
ended July 31, 1998 - - - - - - -
------------ ---------- ------------- ---------- ------------- -------------- -------------
Balance, July 31, 1998 - - - - - - -
Stock for cash to organizers - - 4,000,000 4,000 - - -
Recapitalization for accounting
purposes of BioPulse, Inc. - - 73,862 74 - (74) -
Stock issued for subscription
receivable at $.49 per share - - 2,000,000 2,000 (970,000) 968,000 -
Stock issued for cash at
$1.00 per share 25,000 25 - - - 24,975 -
Stock issued for services
at $1.00 per share 24,374 25 - - - 25,348 -
Net loss for the year
ended July 31, 1999 - - - - - - (243,435)
------------ ---------- ------------- ---------- ------------- -------------- -------------
Balance, July 31, 1999 50,374 50 6,073,862 6,074 (970,000) 1,018,249 (243,435)
Conversion of preferred stock
to common stock (25,374) (25) 50,748 50 - - -
Stock issued for services - - 600,000 600 - (600) -
Stock issued for subscription
receivable at $.10 per share - - 600,000 600 (60,000) 59,400 -
Stock issued for $3 per share - - 5,000 5 - 14,995 -
Collection of subscription
receivable - - - - 870,434 - -
Net Income for the year
ended July 31, 2000 155,031
------------ ---------- ------------- ---------- ------------- -------------- -------------
Balance July 31, 2000 25,000 25 7,329,610 7,329 (159,566) 1,092,044 (88,404)
Conversion of preferred stock
to common stock (25,000) (25) 50,000 50 - (25) -
Continued
6
BioPulse International, Inc.
Consolidated Statement of Stockholders' Equity
Additional
Preferred Stock Common Stock Spaid-intions Retained
Shares Amount Shares Amount Receivable capital Earnings
------------ ---------- -------------- --------- ------------- ------------- -------------
<c>
Preferred stock issued for
$1,000 per share 3,000 3,000,000 - - - (503,760) -
Stock issued for $3 per share - - 35,000 35 - 104,965 -
Stock issued for $2.83
per share - - 353,636 354 - 959,292 -
Stock issued for equipment - - 60,000 60 - 59,940 -
Collection of subscription
receivable - - - - 60,300 - -
Stock issued for services - - 1,630,000 1,630 - 4,595,010 -
Net Income for the nine
months ended
April 30, 2001 - - - - - - (6,301,479)
------------ ---------- -------------- --------- ------------- ------------- -------------
Balance, April 30, 2000 3,000 3,000,000 9,458,246 9,458 (99,266) 6,307,466 (6,389,883)
============ ========== ============== ========= ============= ============= =============
The accompanying notes are an integral part
of these financial statements.
7
BioPulse International, Inc.
Consolidated Statement of Cash Flows
For the Nine Months Ended
April 30, April 30,
2001 2000
-------------------- --------------------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net Income (Loss) $ (6,301,479) $ 96,302
Adjustment to reconcile net income to net cash
provided by operations;
Depreciation and Amortization 143,236 35,552
(Increase) decrease in receivables 11,180 (4,826)
(Increase) decrease in Inventory 11,942 (79,445)
(Increase) decrease in Prepaid rent 63,001 -
Increase (decrease) in payables (62,051) 54,996
Increase (decrease) in accrued expenses (10,193) (11,320)
Increase (decrease) in unearned fees (67,338) 84,635
Stock issued for services 4,596,600 -
-------------------- --------------------
Net cash provided by operating activities (1,615,102) 175,894
-------------------- --------------------
Cash flows from investing activities
Purchase of Equipment (565,722) (429,574)
Cash loan to related party 19,032 (48,725)
Cash for prepaid rent - (330,254)
Acquisition of Intangible assets (1,100,000) -
-------------------- --------------------
Net Cash (used) by investing activities (1,646,690) (808,553)
-------------------- --------------------
Cash flows from financing activities
Issued common stock for cash 1,065,000 870,434
Issued preferred stock for cash 2,495,906 -
Principal payment on short term debt (86,000) (190,628)
(Increase) decrease in subscription receivable 60,300 -
Purchase of treasury stock - -
-------------------- --------------------
Net Cash provided by financing activities 3,535,206 679,806
-------------------- --------------------
Net increase in cash 273,514 47,147
Cash, beginning of period 42,055 3,988
-------------------- --------------------
Cash, end of period $ 315,469 $ 51,135
==================== ====================
The accompanying notes are an integral part
of these financial statements.
8
Biopulse International, Inc.
Notes to the Financial Statements
April 30, 2001 and July 31, 2000
NOTE 1 - Summary of Significant Accounting Policies
a. Organization
Biopulse International, Inc. (BioPulse) was incorporated in the State of
Nevada on July 13,1984 originally under the name of Universal Financial Capital
Corp (UFC). UFC changed its name in September 1985 to International Sensor
Technologies, Inc.(IST). IST incurred heavy losses and no revenue from
operations and thereafter experienced five years of inactivity. On January 12,
1999, IST changed its name to BioPulse International, Inc. when it acquired
BioPulse, Inc. BioPulse is in the business of managing integrated medical
clinics, and medical research programs.
BioPulse issued 4,000,000 common shares in exchange for 100 percent of the
outstanding stock of Biopulse Inc., a Utah corporation organized June 4, 1998.
The share exchange with Biopulse, Inc. was accounted for as a reverse
acquisition (recapitalization), therefore all historical financial information
is that of the accounting survivor Biopulse, Inc.
The Company also paid $100,000 to an officer/director of the Company for
accounting, legal and organization expenses to recapitalize the Company. This
was recorded as general and administrative expense during the year ended July
31, 1999.
b. Recognition of Revenue
The Company recognizes income and expense on the accrual basis of
accounting. Patients are generally charged a flat fee for treatment for a
specified period of time and recorded as unearned revenue. Revenue from services
to patients is recognized as services are performed. Patients who do not
complete the entire treatment schedule are refunded fees prorated on a daily
basis.
Patient recruitment fees, consulting fees and provision of equipment for
other non-affiliated clinics are recognized as revenue when services have been
rendered, equipment installed and no right of return of fees exists.
c. Earnings (Loss) Per Share
The computation of earnings per share of common stock is based on the
weighted average number of shares outstanding at the date of the financial
statements.
d. Cash and Cash Equivalents
BioPulse considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
Continued
9
Biopulse International, Inc.
Notes to the Financial Statements
April 30, 2001 and July 31, 2000
NOTE 1 - Summary of Significant Accounting Policies (continued)
e. Provision for Income Taxes
No provision for income taxes has been recorded due to net operating loss
carryforwards totaling approximately 2,370,000 that will be offset against
future taxable income pursuant to limitations of the Internal Revenue Code.
These NOL carryforwards begin to expire in the year 2000. No tax benefit has
been reported in the financial statements because BioPulse believes there is a
50% or greater chance the carryforward will expire unused, and are limited
pursuant to the Internal Revenue Code. The loss from the year ended July 31,
1999 can be used to offset income for the period ended July 31, 2000.
Accordingly, no tax provision has been recorded.
Deferred tax assets and the valuation account is as follows at April 31,
2001 and July 31, 2000:
April July
30, 2001 31, 2000
--------------------- --------------------
Deferred tax asset:
NOL carrryforward $ 700,000 $ 700,000
Valuation allowance (700,000) (700,000)
--------------------- --------------------
Total $ - $ -
===================== ====================
f. Principles of Consolidation
These financial statements include the books of Biopulse
International, Inc and its wholly owned subsidiary Biopulse, Inc. All
intercompany transactions and balances have been eliminated in the
consolidation.
h. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial statements and
expenses during the reporting period. In these financial statements, assets,
liabilities and expenses involve extensive reliance on management's estimates.
Actual results could differ from those estimates.
i. Accounts Receivable Allowance
BioPulse periodically reviews accounts receivable and the allowance
for doubtful accounts. At July 31, 2000 the allowance was $8,435 and at April
30, 2001 the allowance was $0.
Continued
10
Biopulse International, Inc.
Notes to the Financial Statements
April 30, 2001 and July 31, 2000
NOTE 1 - Summary of Significant Accounting Policies (continued)
j. Inventory
Inventory is recorded at the lower of cost or market on the first-in,
first-out basis, and consists primarily of medicine, medical supplies and
nutritional supplements.
Direct operating costs consist of direct costs incurred in the
providing of care to patients. These costs include the cost of medicine, medical
supplies, nutritional supplements, laboratory fees, patient hotel rooms, patient
meals and other direct costs. The salaries of in-house doctors and nurses are
included in general and administrative costs.
k. International Exchange
All fees are charged in U. S. dollars and most expenses are paid in
U. S. dollars. Expenses that are paid in a foreign currency are converted into
U. S. dollars at the exchange rate in effect on the date of the transaction.
l. Research and Development Costs
As an integral part of its patient treatment operations, BioPulse
conducts research designed to evaluate the effectiveness of patient treatment.
All costs associated with the patient's care are expensed in the period that
they are incurred. There have been no material research and development costs
incurred by the company that are not associated with patient care. No research
and development costs have been capitalized.
NOTE 2 - Property and Equipment
BioPulse capitalizes purchases of equipment with a useful life of
more than one year. BioPulse also capitalizes improvements and costs that
increases the value of or extend the life of an asset.
Capitalized assets are depreciated over the estimated useful lives of the
assets (five to seven years for furniture and fixtures and leasehold
improvements, three to five years for autos, medical and computer equipment) on
the straight line basis.
April July July
30, 2001 31, 2000 31, 1999
--------------------- --------------------- --------------------
Property and Equipment consists of the following:
Furniture & Equipment $ 186,397 $ 144,228 $ 20,935
Medical Equipment 776,533 543,087 110,606
Lab Equipment 148,115 - -
Leasehold improvements 471,468 44,306 4,971
Auto 4,000 - -
Accumulated Depreciation (154,042) (71,892) (11,385)
--------------------- --------------------- --------------------
Total Property & Equipment $ 1,432,471 $ 659,729 $ 125,127
===================== ===================== ====================
Continued
11
Biopulse International, Inc.
Notes to the Financial Statements
April 30, 2001 and July 31, 2000
NOTE 2 - Property and Equipment (continued)
Depreciation expense was $60,508 and $11,385 for the years ended July
31, 2000 and 1999, respectively and $82,150for the nine months ended July 31,
2001.
NOTE 3 - Intangible Assets
BioPulse capitalized as intangible assets the purchase cost of the
rights to certain technologies acquired from Aidan Inc. in August 2000. These
assets amortized over their estimated useful life or the life of related patents
whichever is shorter. The patents have a remaining life of 17 years and BioPulse
does not expect the technology to become obsolete during the 17 year useful life
of the patents. The technology and licenses acquired cover the world except for
experimental use in the United States.
The Company entered into a contract with Brigham Young University
effective December 1, 2000 to license patented technology. The license term is
five years with an option to review for an additional 5 years. The license
covers the world wide rights to this technology except for the following Aisian
countries : China, Japan, Taiwan, Malaysia, Indonesia, Philippines, Singapore
and Korea. The company paid $400,000 for the license in December 2000.
Intangible assets consist of the following at April 30, 2001:
Intangible Assets $ 1,100,000
Accumulated Amortization (40,000)
--------------------------
Total Intangible Assets $ 1,060,000
==========================
Amortization expense was $40,000 for the Nine months ended April 30,
2001.
NOTE 4 - Equity/Reverse stock split
In November 1998, the board of directors authorized a 1 for 400
reverse stock split. These statements have been retroactively restated to
reflect this reverse split.
During the year ended July 31, 1999, BioPulse issued the following:
- 4,000,000 shares of common stock for 100 percent of the
outstanding stock of Biopulse, Inc. valued at $4,000.
Continued
12
Biopulse International, Inc.
Notes to the Financial Statements
April 30, 2001 and July 31, 2000
NOTE 4 - Equity/Reverse stock split (continued)
- 2,000,000 shares of common stock for subscriptions
receivable of $970,000.
- 25,000 shares of preferred stock, class "A" for cash of
$25,000.
- 25,374 shares of preferred stock, class "A" for
services valued at $25,374. Cost of these services was
recorded as general and administrative costs.
During the year ended July 31, 2000 BioPulse had issued the
following:
- 600,000 shares to the underwriter for services rendered
in the offering.
- 600,000 shares at $.10 per share pursuant to a
subscription agreement.
- 5,000 shares for $3 per share.
During the Nine months ended April 30, 2001 BioPulse issued the
following:
- 25,000 shares for $3 per share.
- 60,000 shares for equipment at $1 per share.
- 353,636 shares of common stock at $2.82 per share with
warrants to purchase 189,000 shares of common stock at
the lesser of $6.375 per share and the average closing
price for the five trading days immediately prior to
the effective date of this registration statement, if
this registration statement is declared effective on or
before February 19, 2001. If we do not have an
effective registration statement in place prior to
February 20, 2001, the exercise price shall be adjusted
to fifty percent of the lesser of $6.375 and the
average closing price for the five trading days
immediately preceding the effective date of this
registration statement. If all of these warrants were
exercised, we would receive $1,206,902.
- 1,550,000 shares of common stock pursuant to consulting
with Liviakis Financial Communications (LFC) for
investor relations services for one year. The shares
were non cancellate and non- assessable upon signing on
November 2, 2000. In addition, the contract provides
for cash commissions to LFC of 2.5% of the value of
debt or equity financing and 2% of the value of the
merger or acquisition for which LFC has acted as a
finder.
Continued
13
Biopulse International, Inc.
Notes to the Financial Statements
April 30, 2001 and July 31, 2000
- 80,000 shares were issued to three individuals for
services valued at $679,370. The cost of these services
will be recorded as general and administrative costs
during the quarter ended January 31, 2001.
Options:
- At August 3, 2000 issued 1,500,000 options to purchase
common stock at $2.75 (market price) to Aiden, Inc. in
partial consideration for technology rights. The shares
are exercisable as follows:
- 700,000 immediately,
Continued
14
Biopulse International, Inc.
Notes to the Financial Statements
April 30, 2001 and July 31, 2000
NOTE 4 - Equity/Reverse stock split (continued)
- 200,000 upon submission of patent application for
production of tissue vaccine,
- 200,000 upon submission of patent application for MPGC,
- 200,000 upon submission of patent application for
Cytokines,
- 200,000 upon submission of patent application for
Tissue Vaccine.
We have outstanding warrants to purchase up to 184,300 common shares
with an exercise price of $8.40 per share. These warrants were granted on
January 24, 2001 and expire on January 24, 2006. If all of these warrants were
exercised, we would receive $1,548,120.
We also have outstanding warrants to purchase up to 150,00 common
shares with an exercise price of $8.53 per share. These warrants were granted on
January 24, 2001 and expire on January 24,2006. If all of these warrants were
exercised, we would receive $1,279,500.
In January 2001, in connection with a private placement offering, we
issued to Hunts Drive, LLC, 3,000 shares of Series B Convertible Preferred at
$1,000 per share. The Series B preferred shares may be converted at any time.
Under the terms of the securities purchase agreement, Hunts Drive may
convert each share of Series B preferred stock to shares of common stock having
a market value of $1,000. The conversion price of the common stock upon receipt
by us of a notice of conversion is equal to the lesser of $9.75 or 80% of the
average of the three lowest closing bid prices of the common stock during the
20-day trading period immediately prior to the conversion date as quoted on the
OTC Bulletin Board.
For so long as we have not received a notice of conversion for the
shares, we may redeem shares of our Series B preferred stock by serving a notice
of redemption. The redemption price equals 130% of the liquidation value, plus
all accrued but unpaid dividends on such shares. If we deliver notice of
redemption pursuant to the foregoing sentence, the holders will retain their
conversion rights with respect to up to a maximum of 100% of the number of
shares subject to the redemption.
In connection with the sale of the Series B preferred stock, we also
issued to Hunts Drive a warrant to purchase up to 100,000 shares of our common
stock. The warrants have an exercise price of $8.53 per share. Based on the
Black Shoals calculation, the value of the beneficial conversion feature of the
warrants is $7,000.
NOTE 5 - Commitments and Contingencies
The Company is committed to an operating lease for office space in Sandy,
Utah. The lease requires
Continued
15
Biopulse International, Inc.
Notes to the Financial Statements
April 30, 2001 and July 31, 2000
the Company to pay monthly rent of $8,731 and expires December 2003.
NOTE 5 - Commitments and Contingencies - Continued.
The Company is committed to an operating lease for clinic and office
space in Tijuana, Mexico. The lease requires the payment of $39,000 per month
and expires February 28, 2005. The lease states the rent obligation on the
clinic and office space in U.S. dollars.
Future minimum operating lease payments are as follows at April 30,
2001:
2001 $ 381,848
2002 572,772
2003 572,772
2004 468,000
2005 78,000
-----------------------
Total $ 1,973,392
=======================
BioPulse entered into a contract with Aidan Incorporated on August 3,
2000, to license patented and patentable technology. The license term is the
life of the patents. The license covers world wide rights except rights for
experimental use in the United States. The Company paid $750,000 for the license
between August 2000 and January 2000 and as further consideration, granted
1,500,000 options described in Note 4.
Continued
16
Biopulse International, Inc.
Notes to the Financial Statements
April 30, 2001 and July 31, 2000
Aidan is required to apply for patents and pay the expenses of
issuance of the patents.
BioPulse has paid the $750,000 to Aidan but is still obligated under
the options. BioPulse is required to file a registration statement to register
the stock that will be issued upon exercise of the options.
The Company entered into a contract with Brigham Young University
effective December 1, 2000 to license patented technology. The license term is
five years with an option to review for an additional 5 years. The license
covers the world wide rights to this technology except for the following Aisian
countries : China, Japan, Taiwan, Malaysia, Indonesia, Philippines, Singapore
and Korea. The company paid $ 400,000 for the license in December 2000 and is
required to pay for further development of the technology. It is estimated that
this further development will require an expenditure of $ 200,000. The License
requires payment of a 7% royalty due quarterly with the following minimum annual
payments through 2005.
2000 $ 0
2001 0
2002 0
2003 100,000
2004 200,000
2005 400,000
-----------
Total $ 700,000
===========
The company has arranged with Covance Development to conduct the research
required by its contract with BYU. The agreement with Covance is that Biopolse
will pay Covance on a time and materials basis The agreement may be terminated
at any time by either party without notice.
NOTE 5 - Commitments and Contingencies - Continued.
The clinic that the company manages in Tijuana, Mexico was visited on February
15, 2001 by Mexican health authorities (Instituto de Servicios de salud Publica
Del Estado De Baja California). The clinic held a license to operate as an
alternative health clinic but did not have a specific license to offer each of
its therapies. The IHT (insulin hypoglycemic therapy) treatment room was closed
by the health authorities and reopened on May 19, 2001. . These other licenses
have never been an issue in the past. Licenses for IHT (insulin hypoglycemic
therapy), Chelation, Colonics, and Dendrytic Cell therapies have been approved.
A potential fine of $25,000 is expected to be assessed for the violation.
The company entered into an agreement with the Wicker Clinic in Germany in
November, 1999 to train Wicker Clinic personnel in Biopulse's protocols and sell
equipment. The agreement also allowed Biopulse to send patients to the Wicker
Clinic and for Biopulse to retain a portion of the fee
17
Biopulse International, Inc.
Notes to the Financial Statements
April 30, 2001 and July 31, 2000
that the patient paid for treatment. The equipment was delivered and training
completed by February 2000 that completed the obligations Biopulse had under the
agreement. Biopulse sent some patients to the Wicker Clinic but after key
personnel left the Wicker Clinic, Biopulse stopped sending patients there.
Revenue from the sale of equipment and training of clinic staff was recognized
in fiscal year ended July 31, 2000. There was no reserve for impairments because
Biopulse had met its obligations under the agreement and there was no evidence
that the Wicker Clinic was seeking a return of any of the consideration.
In November 2000 the company entered into an agreement with The Geneva Group,
Inc. to list the company's stock on the Frankfurt stock exchange. The company
paid $20,000 in cash and issued 25,000 shares of stock to The Geneva Group for
their services. There is no future obligation under this contract.
Note 6 - Not Used
Note 7 - Segment Reporting
During the year ended July 31, 2000, the company had a major customer (The
Wicker Clinic) that was responsible for more than 10% of revenues. Biopulse
trained some of its staff in it protocols sold equipment, and sent patients to
the clinic. Most of the training was done at the clinic Biopulse managed in
Tijuana, Mexico. The basis of segment reporting is due to the single customer
requirements rather than geographic areas because revenue generated with the
customers was generated in two geographic areas the second geographic area does
not meet to the segment reporting requirement.
This segment only existed during the year ended July 31, 2000. Biopulse has not
generated any revenue from this customer in prior or subsequent years. The
following table summarizes the operating results from the segment for the year
ended July 31, 2000:
Note 8 - Options and Stock Option Plan
2000 Stock Option Plan
On October 5, 2000, our board of directors adopted a Stock Option
Plan. The Plan authorizes the granting of awards of up to 4,000,000 shares of
voting common stock to our key employees, officers, directors, consultants,
advisors and sales representatives. The plan required that the shareholders
approve the plan within one year of the board of directors adopting the plan.
The plan was not approved by the shareholders during the one year time period,
therefore the plan is void.
18