As filed with the Securities and Exchange Commission on November 12, 2004
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
- ----------------------------------------------------------------- -----------------------------------------------------------------
TREASURE MOUNTAIN HOLDINGS, INC. VYTERIS HOLDINGS, INC.
(Name of small business issuer as specified in its charter) (Name of small business issuer as specified in its charter)
Nevada 84-1394211 Delaware Applied For
(State or 2834 (I.R.S. Employer (State or 2834 (I.R.S. Employer
jurisdiction of (Primary Standard Identification no.) jurisdiction of (Primary Standard Identification no.)
incorporation Industrial Classification incorporation Industrial Classification
or organization) Code Number) or organization) Code Number)
13-01 Pollitt Drive 13-01 Pollitt Drive
Fair Lawn, New Jersey 07410 Fair Lawn, New Jersey 07410
201-703-2299 201-703-2299
(Address and telephone number of (Address and telephone number of
principal executive offices) principal executive offices)
13-01 Pollitt Drive 13-01 Pollitt Drive
Fair Lawn, New Jersey 07410 Fair Lawn, New Jersey 07410
(Address of (Address of
principal place of business or principal place of business or
intended principal place of business) intended principal place of business)
- ----------------------------------------------------------------- -----------------------------------------------------------------
Mr. Michael McGuinness
Chief Financial Officer
Treasure Mountain Holdings, Inc.
13-01 Pollitt Drive
Fair Lawn, New Jersey 07410
201-703-2299
(Name, address and telephone number
of agent for service)
with a copy to
Peter H. Ehrenberg, Esq.
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
(973) 597-2500
--------------
Approximate date of proposed sale to the public: As soon as practicable 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, please 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 number of the earlier effective registration statement for the same
offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
Dollar
Amount Proposed Maximum Proposed Maximum Amount of
Title of each class of to be Offering Price Aggregate Offering Registration
securities to be registered Registered Per Unit Price Fee
Treasure Mountain Holdings
Common Stock, par value $.001
per share 20,090,827(1) $0.30(2) $6,027,248 $764
Vyteris Holdings Common
Stock, par value $.0001
per share (3) 12,960,174 sh. (4) $3.00(5) $38,880,522 $4,927
(1) Includes up to 1,500,000 shares of common stock issuable upon exercise of
warrants outstanding on the date hereof and such indeterminate number of
additional shares of common stock issuable for no additional consideration
pursuant to the anti-dilution provisions of such warrants and by reason of any
stock dividend, stock split, recapitalization or other similar transaction
effected without the receipt of consideration, which results in an increase in
the number of outstanding shares of Treasure Mountain Holdings common stock.
(2) There is no active market for the common stock of Treasure Mountain
Holdings. The maximum offering price is based upon the per share price paid in a
recent private transaction for securities which were converted into shares of
Treasure Mountain Holdings common stock upon consummation of the merger of a
subsidiary of Treasure Mountain Holdings with and into Vyteris, Inc.
(3) Vyteris Holdings, Inc. is a wholly-owned subsidiary of Treasure Mountain
Holdings, Inc. established for the purpose of enabling Treasure Mountain
Holdings to reincorporate in Delaware. Upon approval by the stockholders of
Treasure Mountain Holdings of a plan of merger approved by the Boards of
Directors of Treasure Mountain Holdings and Vyteris Holdings, Treasure Mountain
Holdings will merge with and into Vyteris Holdings and all securities of
Treasure Mountain Holdings will be converted into comparable securities of
Vyteris Holdings. This registration statement includes those securities of
Vyteris Holdings which will become issuable upon consummation of such
reincorporation merger to the extent that such securities replace securities of
Treasure Mountain Holdings covered by a registration rights agreement previously
executed by Treasure Mountain Holdings.
(4) Includes up to 5,140,554 shares of common stock issuable upon exercise of
warrants to be issued upon consummation of the reincorporation merger upon
conversion of warrant rights outstanding on the date hereof and such
indeterminate number of additional shares of common stock issuable for no
additional consideration pursuant to the anti-dilution provisions of such
warrants and by reason of any stock dividend, stock split, recapitalization or
other similar transaction effected without the receipt of consideration, which
results in an increase in the number of outstanding shares of Vyteris Holdings
common stock.
(5) The plan of merger referenced above effects a one for ten reverse stock
split of Treasure Mountain Holdings' outstanding securities. This offering price
represents ten times the offering price set forth above with respect to Treasure
Mountain Holdings' common stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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The information in this preliminary prospectus is not complete and may be
changed. The selling stockholders may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
PROSPECTUS
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 2004
20,090,827 shares of common stock
of
TREASURE MOUNTAIN HOLDINGS, INC.
*********
12,960,174 shares of common stock
of
VYTERIS HOLDINGS, INC.
This prospectus covers 20,090,827 shares of Treasure Mountain Holdings
common stock that may be offered for resale by the selling stockholders named in
this prospectus and the persons to whom such selling stockholders may transfer
their shares. If the reincorporation merger referred to in this prospectus is
effected, then in lieu of holding Treasure Mountain common stock, the selling
stockholders will hold common stock of Vyteris Holdings, which presently is a
wholly-owned subsidiary of Treasure Mountain Holdings. This prospectus also
covers 12,960,174 shares of Vyteris Holdings common stock that may be offered
for resale by such selling stockholders and transferees after our
reincorporation merger is effected, in lieu of the resale of Treasure Mountain
shares which would then no longer be outstanding.
No securities are being offered or sold by us pursuant to this
prospectus. We will not receive any of the proceeds from the sale of these
shares by the selling stockholders, but we will receive proceeds from the
exercise of warrants, if any.
INVESTING IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISKS. SEE "RISK
FACTORS," BEGINNING ON PAGE 12.
At present, there is no active market for our common stock.
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The selling stockholders may sell their shares from time to time, in one
or more transactions, at fixed prices, at prevailing market prices at the time
of sale or at prices negotiated with purchasers. The selling stockholders will
be responsible for any commissions or discounts due to brokers or dealers. We
will pay substantially all expenses of registration 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 , 2004.
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TABLE OF CONTENTS
Page
----
Prospectus Summary......................................................... 8
Risk Factors............................................................... 12
Use of Proceeds............................................................ 26
Dividend Policy............................................................ 26
Capitalization............................................................. 27
Selected Financial Data.................................................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Vyteris, Inc........................................... 30
Change in Registrant's Certifying Accountants.............................. 38
Pro Forma Financial Information............................................ 39
Our Business............................................................... 45
Management................................................................. 64
Executive Compensation..................................................... 68
Certain Relationships and Related Transactions............................. 72
Principal Stockholders..................................................... 76
Selling Stockholders....................................................... 78
Plan of Distribution....................................................... 90
Organizational History and Description of Our Capital Stock................ 92
Market for Common Stock and Related Stockholder Matters.................... 101
Legal Matters.............................................................. 104
Experts.................................................................... 104
Additional Information..................................................... 105
Index to Consolidated Financial Statements................................. 106
LidoSite(R) is a registered trademark which we use under license from B.
Braun Medical, Inc., or B. Braun, the trademark's owner.
EXPLANATORY NOTE: ON SEPTEMBER 29, 2004, VYTERIS, INC. MERGED WITH A
WHOLLY-OWNED SUBSIDIARY OF TREASURE MOUNTAIN HOLDINGS, A NEVADA CORPORATION. IN
THAT TRANSACTION, EACH OUTSTANDING SHARE OF VYTERIS, INC. COMMON STOCK WAS
AUTOMATICALLY CONVERTED INTO THE RIGHT TO RECEIVE 4.19 SHARES OF THE COMMON
STOCK OF TREASURE MOUNTAIN HOLDINGS, AND VYTERIS, INC. STOCK OPTIONS AND
WARRANTS WERE CONVERTED INTO THE RIGHT TO RECEIVE TREASURE MOUNTAIN HOLDINGS
STOCK OPTIONS AND WARRANTS, ADJUSTED TO GIVE EFFECT TO THE 4.19 CONVERSION
RATIO. IN ORDER TO REINCORPORATE TREASURE MOUNTAIN IN DELAWARE, THE BOARD OF
DIRECTORS OF TREASURE MOUNTAIN HOLDINGS HAS APPROVED, SUBJECT TO APPROVAL OF THE
STOCKHOLDERS OF TREASURE MOUNTAIN HOLDINGS, THE MERGER OF TREASURE MOUNTAIN
HOLDINGS WITH AND INTO VYTERIS HOLDINGS, INC., A DELAWARE CORPORATION. AS PART
OF THAT TRANSACTION, EACH OUTSTANDING SHARE OF TREASURE MOUNTAIN HOLDINGS COMMON
STOCK, AND EACH RIGHT TO RECEIVE A SHARE OF TREASURE MOUNTAIN COMMON STOCK, WILL
AUTOMATICALLY BE CONVERTED INTO ONE TENTH OF A SHARE OF VYTERIS HOLDINGS COMMON
STOCK. A COMPARABLE ADJUSTMENT WILL BE MADE TO STOCK OPTIONS AND WARRANTS. THE
CONTROLLING STOCKHOLDER OF
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TREASURE MOUNTAIN HOLDINGS, WITH SUFFICIENT SHAREHOLDINGS TO APPROVE THE
REINCORPORATION MERGER, HAS AGREED TO VOTE ITS SHARES IN FAVOR OF SUCH MERGER
WHEN THE STOCKHOLDERS OF TREASURE MOUNTAIN VOTE UPON SUCH REINCORPORATION
MERGER. THIS PROSPECTUS DOES NOT CONSTITUTE PROXY SOLICITING MATERIAL WITH
RESPECT TO THE REINCORPORATION MERGER, WHICH IS THE SUBJECT OF A SEPARATE FILING
MADE BY TREASURE MOUNTAIN HOLDINGS WITH THE SEC.
EXCEPT UNDER THE CAPTIONS "ORGANIZATIONAL HISTORY -- TREASURE MOUNTAIN HOLDINGS/
VYTERIS MERGER" AND "PRO FORMA INFORMATION" AND WHERE OTHERWISE EXPRESSLY
STATED, ALL SHARE FIGURES PRESENTED IN THIS PROSPECTUS GIVE EFFECT BOTH TO THE
CONVERSION OF VYTERIS, INC. SECURITIES INTO TREASURE MOUNTAIN HOLDINGS
SECURITIES PURSUANT TO THE VYTERIS/TREASURE MOUNTAIN MERGER AND TO THE ASSUMED
CONVERSION OF TREASURE MOUNTAIN HOLDINGS SECURITIES INTO VYTERIS HOLDINGS
SECURITIES UPON THE CONSUMMATION OF THE PENDING REINCORPORATION MERGER.
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PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "Risk
Factors" section, the financial statements and the notes to the financial
statements. As used throughout this prospectus, except where the context
expressly states otherwise, the terms "Company," "we," "us," and "our" refer to
Vyteris Holdings, Inc. and Vyteris, Inc., and assume the consummation of the
reincorporation merger providing for the merger of Treasure Mountain Holdings,
Inc. with and into Vyteris Holdings, Inc.
THE COMPANY
We are a Delaware corporation which was organized in 2004 in order to
effect the reincorporation of Treasure Mountain Holdings, Inc. from Nevada. The
reincorporation merger was effected on , 2004.
On September 29, 2004, Treasure Mountain Holdings completed a business
combination in which Vyteris, Inc., a Delaware corporation, merged with a
wholly-owned subsidiary of Treasure Mountain Holdings. As a result of that
transaction, Vyteris Inc. became a wholly-owned subsidiary of Treasure Mountain
Holdings and the former stockholders of Vyteris, Inc. became stockholders of
Treasure Mountain Holdings. At the time of that business combination, Treasure
Mountain Holdings had no active business. As a result, the principal business of
Treasure Mountain Holdings after that business combination, and the principal
business of Vyteris Holdings after the reincorporation, is the business in which
Vyteris has been engaged since its formation in November 2000.
Our corporate headquarters are located at 13-01 Pollitt Drive, Fair
Lawn, New Jersey 07410; our telephone number at that address is 201-703-2299. We
maintain a website at http://www.vyteris.com.
For additional information regarding the reincorporation merger and the
Treasure Mountain/Vyteris, Inc. business combination, see "Organizational
History and Description of Capital Stock".
OUR BUSINESS
Headquartered in Fair Lawn, New Jersey, we have developed and produced
the first intelligent, pre-filled, active transdermal drug delivery system that
delivers drugs through the skin comfortably, without needles. This platform
technology can be used to non-invasively administer certain small molecule,
peptide, and protein therapeutics in a wide range of programmed doses, both
systemically and locally. We believe the control and convenience enabled by our
technology has the potential to:
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o improve therapeutic outcomes;
o reduce side-effects;
o increase patient compliance; and
o improve overall cost-effectiveness of drug therapies.
On May 6, 2004, Vyteris, Inc. received approval from the United States
Food and Drug Administration, or FDA, to commercially launch its first product,
the LidoSite(R) Topical System, or LidoSite. LidoSite is a topical delivery
system indicated for use on normal intact skin to provide local anesthesia for
needle stick procedures such as injections and intravenous therapies as well as
superficial dermatological procedures. We have entered into a marketing
agreement with B. Braun to act as our exclusive, worldwide sales and marketing
distributor for LidoSite. We expect to commence shipments of our LidoSite
product to B. Braun during the fourth quarter of 2004 and we expect sales by B.
Braun to commence during the first quarter of 2005. Our clinical data indicates
that LidoSite reduces the pain associated with needle-stick procedures.
We have identified over 90 other FDA-approved drugs to which our drug
delivery technology might be applied. We are focusing our development efforts on
a number of drugs within this group that target large potential markets and for
which our technology may offer significant therapeutic, economic or lifestyle
advantages over existing drug delivery methods. In addition to LidoSite, we have
initiated development of two other products -- one to deliver a drug therapy for
female infertility and one to deliver a drug therapy for migraine headaches. We
believe that our drug delivery technology may significantly improve the
effectiveness of those already-marketed drugs. We also have a third product, at
an earlier stage of development, for the active transdermal delivery of a
currently-marketed therapeutic drug to treat Parkinson's disease.
Our LidoSite product consists of a single-use, disposable patch
containing a medication, lidocaine, and a small, re-usable and programmable
electronic dose controller. Our compact system can be pre-programmed to deliver
medication in numerous delivery profiles, from a single large dose to multiple
timed and variable doses. We expect that our additional products will be
similarly constituted.
We own intellectual property which is based on significant improvements
we have made to electrotransport, sometimes called iontophoresis, technology
during 14 years of research and development, 11 of which were as a division of
Becton, Dickinson and Company, or Becton Dickinson. We have a portfolio of U.S.
and international issued patents. A significant portion of our intellectual
property relates to the design and manufacture of our proprietary disposable,
active transdermal patches and electronic dose controllers.
OUR STRATEGY
Our strategy is to exploit our proprietary drug delivery technology
through the development and commercial introduction of products, in addition to
our LidoSite product, which address large potential markets, such as the markets
for the treatment of female infertility, migraine headaches and Parkinson's
disease.
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Our objective is to partner and create strategic relationships with
pharmaceutical and other healthcare companies that are market leaders in the
specific therapeutic areas we intend to address and who can provide financial
support during the later stages of clinical studies and access to commercial
markets.
We expect to develop and test products up to the commencement of, and in
some cases into, human trials before seeking a marketing partner, which we
believe places us in a stronger position to retain a greater share of future
revenues. We believe the merits of this strategy are demonstrated by our
securing a distribution partnership with B. Braun for our LidoSite product,
which we developed on our own through Phase III clinical trials and NDA filings.
Currently, we are focusing on FDA-approved drugs expected to gain better
utilization and extended patent protection when incorporated into our drug
delivery systems. We believe this strategy may greatly reduce development time
and cost, as well as regulatory and market risk. In the future we may apply our
drug delivery technology to selected development-stage drugs for which the
specific market opportunity warrants additional development and regulatory
risks.
THE OFFERING
THIS SUMMARY ASSUMES CONSUMMATION OF THE REINCORPORATION MERGER PRIOR TO THE
COMMENCEMENT OF THE OFFERING OF SHARES BY THE SELLING STOCKHOLDERS.
Vyteris Holdings shares offered by Vyteris Holdings...... NONE
Shares of Vyteris Holdings common stock which may
be resold by selling security holders.................... 12,960,174 shares, including 5,140,554 shares covered by warrants
Shares of Vyteris Holdings common stock outstanding...... 19,294,002 shares, giving effect to the reincorporation merger
Shares of Vyteris Holdings preferred stock outstanding... 7,500,000 shares of Series B Convertible Preferred Stock, initially
convertible into a total of 785,625 shares of Vyteris Holdings common
stock, giving effect to there incorporation merge
Use of proceeds.......................................... We will not receive any of the proceeds from the sale of these shares
by the selling stockholders, but we will receive proceeds from the
exercise of warrants, if any.
Risks.................................................... An investment in our common stock is subject to substantial risks
which we have described under the heading "Risk Factors" below,
beginning on page 12
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VYTERIS, INC. SUMMARY FINANCIAL DATA (1)
STATEMENT OF OPERATIONS DATA
Years ended Six Months ended
December 31, June 30,
--------------------------------------- ---------------------------------------
2002 2003 2003 2004
------------------ ------------------ ------------------ ------------------
(unaudited)
Revenues $ 151,452 $ 200,000 $ 145,000 $ 60,000
Total operating expenses $ 10,100,364 $ 11,189,793 $ 5,364,188 $ 6,721,231
Net loss $ (10,767,694) $ (12,532,577) $ (5,990,547) $ (9,303,618)
BALANCE SHEET DATA (2)
As of December 31, As of June 30,
--------------------------------------- ------------------
2002 2003 2004
------------------ ------------------ ------------------
(unaudited)
Total assets $ 3,124,014 $ 5,314,307 $ 8,266,585
Total liabilities $ 13,097,843 $ 27,745,619 $ 8,587,586
Preferred stock $ 3,250,973 $ 3,250,973 $ 7,833,333
Total stockholders' deficit $ (13,224,802) $ (25,682,285) $ (8,154,334)
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(1) During the periods presented in this prospectus prior to the Treasure
Mountain/Vyteris, Inc. merger, Treasure Mountain Holdings had negligible
revenues, expenses, net loss, assets, liabilities and stockholders'
deficit. Accordingly, the summary information presented above relates
solely to Vyteris, Inc. For financial information regarding Treasure
Mountain Holdings, see "Pro Forma Financial Information" and "Index to
Financial Statements".
(2) Immediately prior to the consummation of the Treasure Mountain/Vyteris,
Inc. merger in September 2004, Vyteris, Inc. consummated a securities
offering in which it raised net proceeds of approximately $12.8 million
and $8.5 million of Vyteris, Inc. debt was converted into equity.
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISKS. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, TOGETHER WITH ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE DECIDING TO PURCHASE OUR COMMON
STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR OPERATING RESULTS MAY BE HARMED. IN THAT CASE, YOU MAY LOSE PART OR
ALL OF YOUR INVESTMENT IN OUR COMMON STOCK.
WE HAVE A HISTORY OF OPERATING LOSSES AND IT IS UNCERTAIN WHETHER WE WILL BE
PROFITABLE IN THE FUTURE.
From November 2000 through June 30, 2004, Vyteris, Inc. incurred net
losses in excess of $42 million, as we have been engaged primarily in clinical
testing and development activities, and have had no revenues from the sale of
products. Vyteris, Inc. has never been profitable, we may never be profitable,
and, if we become profitable, we may be unable to sustain profitability. We
expect to continue to incur significant losses for the foreseeable future.
WE WILL LIKELY BE REQUIRED TO RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE
AVAILABLE ON ACCEPTABLE TERMS, OR AT ALL.
The success of our business depends on our ability to develop products
based on our drug delivery technologies, put those products through rigorous and
time-consuming clinical testing, and obtain regulatory approval for and
manufacture those products. The development of complex drug delivery products
requires that we maintain a relatively large staff of skilled engineers and
scientists. Further, our manufacturing equipment must be custom made for us.
Substantial expenditures must be made on a particular product for several years
before we can commence sales of that product, even if we have a marketing and
development partner. We believe that we have sufficient capital to finance
operations through September 30, 2005. At present, we have a working capital
facility which allows us to borrow up to $5.0 million, assuming that certain
borrowing base conditions are met. We expect that we will need to rely on the
capital available to us under the working capital facility to finance our
operations from time to time during the next twelve months. Pursuant to the
current terms of that working capital facility, amounts drawn under the facility
must be repaid on or before November 15, 2005. We do not anticipate having
sufficient capital to meet such obligation and may be forced to seek additional
financing to fund such repayment. Such additional financing may not be available
to us on favorable terms, if at all. The working capital facility is secured by
a first priority lien on all of the assets of our operating subsidiary. If we
are unable to raise sufficient capital to timely repay our obligations under the
working capital facility, the lenders -- each of whom are affiliated with our
principal stockholder -- will be entitled to enforce their lien and take title
to substantially all of our assets, which may be critical to our continuing
operations.
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The exact amount of future capital requirements will depend on numerous
factors, some of which are not within our control, including the progress of our
research and development efforts, the costs of testing and manufacturing
products, and changes in governmental regulation. If we are unable to raise
adequate additional capital on acceptable terms, we may be forced to restrict
new product development. We expect to finance certain new products through
technical and financial collaborations with pharmaceutical companies. We cannot
assure you that such collaborations will be put in place or successful.
THE MOST RECENT REPORT OF OUR INDEPENDENT AUDITORS ON OUR FINANCIAL STATEMENTS
CONTAINS AN EXPLANATORY PARAGRAPH REGARDING OUR ABILITY TO CONTINUE AS A GOING
CONCERN.
The report of independent auditors accompanying the audit of the
Vyteris, Inc. financial statements for the year ended December 31, 2003
contained an explanatory paragraph expressing uncertainty regarding our ability
to continue as a going concern because of our operating losses and our need for
additional capital. A similar qualification was given by the auditors for
Treasure Mountain Holdings in connection with the Treasure Mountain Holdings
financial statements for the year ended December 31, 2003. Our financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that might occur if we are unable to continue in
business as a going concern.
While Vyteris, Inc. did raise additional capital during the first nine
months of 2004, we anticipate that unless we raise additional capital prior to
the release of our 2004 year-end financial statements, a similar explanatory
paragraph will be contained in the report of the independent auditors
accompanying the audit of our 2004 year-end financial statements. If a going
concern explanatory paragraph is included in the report of our independent
auditors, such inclusion could make it more difficult for us to raise additional
capital and may materially and adversely affect the terms of any financing that
we may obtain.
SINCE WE ARE A COMPANY WITH A LIMITED INDEPENDENT OPERATING HISTORY AS A DRUG
DELIVERY BUSINESS, IT IS DIFFICULT TO PREDICT OUR FUTURE GROWTH AND OPERATING
RESULTS.
Our limited operating history as an independent drug delivery business
makes predicting our future growth and operating results difficult. Vyteris,
Inc. was incorporated in Delaware in 2000, although a substantial portion of its
business was developed by Becton Dickinson from prior to 1990 until 2000. You
should consider the risks and uncertainties that a company with a limited
independent existence will face in the rapidly evolving market for drug delivery
technologies.
In particular, you should consider that we have not proven that we can:
o raise significant capital in the public or private
markets;
o obtain the regulatory approvals necessary to commence
selling drug delivery systems that we may develop in the
future,
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o manufacture products, including our LidoSite product, in
a manner that enables us to be profitable or meets
regulatory, strategic partner or customer requirements;
o attract, retain and manage a large, diverse staff of
engineers and scientists;
o develop the relationships with strategic partners and
key vendors that are necessary to our ability to exploit
the processes and technologies that we develop;
o develop new products and drug delivery processes and new
applications for our drug delivery technology; or
o respond effectively to competitive pressures.
If we cannot accomplish these goals, our business is not likely to
succeed.
TO DATE, OUR DRUG DELIVERY BUSINESS HAS NOT GENERATED ANY REVENUE FROM SALES OF
PRODUCTS.
To date, we have not generated any revenue from sales of drug delivery
products, including our LidoSite product. We may not be successful in obtaining
regulatory approval for additional products or in engaging strategic partners to
finance and manage the sales and marketing of such other products. As a result
of those and other factors, we cannot assure you that we will be able to
generate revenue from sales of drug delivery systems.
EVEN THOUGH WE HAVE RECEIVED THE NECESSARY APPROVALS TO COMMENCE THE SALE OF OUR
LIDOSITE PRODUCT IN THE UNITED STATES, WE WILL CONTINUE TO FACE SUBSTANTIAL
REGULATORY HURDLES WITH RESPECT TO NEW PRODUCTS THAT WE MAY DEVELOP AND THE SALE
OF LIDOSITE OUTSIDE OF THE UNITED STATES.
Any drug delivery systems that we may develop in the future cannot be
sold in the United States until the FDA approves such products for medical use.
Similar foreign regulatory approvals will be needed in order to sell any drug
delivery system, including our LidoSite product, outside of the U.S. We may not
be able to obtain FDA or foreign regulatory approval for our products in a
timely manner, or at all.
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FOR THE FORESEEABLE FUTURE, WE WILL RELY ON A SINGLE PRODUCT, OUR LIDOSITE
PRODUCT, TO GENERATE PRODUCT REVENUE.
Although we have other products in various stages of early development,
our primary focus at this time is the manufacture, sale and marketing in the
United States of our LidoSite product in collaboration with B. Braun. Currently,
our LidoSite product is our only product that could provide revenue for us. Our
ability to achieve profitability in the foreseeable future is principally
dependent on the manufacture and sale of our LidoSite product. If our LidoSite
product is not commercially successful, our business, financial condition,
operating results and future prospects would likely suffer significantly.
FOR THE FORESEEABLE FUTURE, WE WILL RELY ON A SINGLE CUSTOMER, B. BRAUN, TO
GENERATE PRODUCT REVENUE.
We have granted B. Braun the right to be our exclusive, worldwide sales
and marketing distributor for LidoSite. As a result, we are dependent on B.
Braun and its ability to effectively market our only current product. If B.
Braun is unable to sell our LidoSite product effectively, we will not have the
ability to seek other customers for our LidoSite product at least until such
time as satisfactory arrangements are made with B. Braun.
WE DEPEND ON SINGLE SUPPLIERS FOR CERTAIN KEY MATERIALS AND COMPONENTS USED IN
OUR LIDOSITE PRODUCT.
Certain raw materials and components used in the manufacture of our
LidoSite product are available only from single suppliers. Some of those
materials or components are custom-made for us and are the result of long
periods of collaboration with our suppliers. The hydrogel that we use to hold
lidocaine in the patch and the electrodes that we use to carry current through
our lidocaine delivery system, for example, are both provided by single
suppliers. Any curtailment of the availability of such raw materials or
components could be accompanied by production or other delays and could result
in a material loss of sales, with resulting adverse effects on our business and
operating results. In addition, because raw material sources for pharmaceutical
products must generally be approved by regulatory authorities, changes in raw
material suppliers may eventually result in production delays, higher raw
material costs and loss of sales, customers and market share.
We believe that, if necessary, alternative sources of raw materials and
components could be located, alternate raw materials and components can be
substituted for each single-sourced raw material or component, or we could
redesign products to avoid the need for single-sourced raw materials or
components. However, the development or identification of alternative sources,
or redesigning products, could be time-consuming and expensive. Although we have
not experienced difficulty acquiring raw materials and components on
commercially reasonable terms and in sufficient quantities to maintain required
production levels for our clinical testing, we cannot assure you that price
increases or interruptions in the supply of these materials will not occur in
the future or that we will not have to seek alternate suppliers or obtain
substitute raw
-15-
materials or components, which may require additional product validations and
regulatory approvals. Further, our suppliers could experience price increases or
interruptions in the supply of materials from their suppliers, or could fail to
meet our or governmental manufacturing standards. Any significant price
increase, interruption of supply, our inability to secure an alternate source or
our inability to qualify a substitute material could have a material adverse
effect on our ability to manufacture our LidoSite product or maintain regulatory
approval.
AS AN ORGANIZATION, WE HAVE NO EXPERIENCE WITH MANUFACTURING DRUG DELIVERY
SYSTEMS FOR COMMERCIAL SALE.
Although some of our management personnel have manufacturing experience,
as an organization we do not have any experience in manufacturing drug delivery
systems for commercial sale. We must increase our production capabilities
significantly beyond our present manufacturing capacity, which has been focused
on producing small quantities of our LidoSite product for research and clinical
testing, in order to be able to sell our LidoSite product in commercial
quantities. The equipment and machinery that we use to manufacture the drug and
patches for our LidoSite product are expensive and custom-built, and have never
been used in the large-scale production of pre-filled drug delivery patches.
We cannot assure investors that we can:
o successfully increase our manufacturing capabilities and
develop large-scale manufacturing processes on a
profitable basis;
o hire and retain skilled personnel to oversee our
manufacturing operations;
o avoid design and manufacturing defects; or
o develop and maintain our manufacturing facility in
compliance with governmental regulations, including the
FDA's good manufacturing practices.
We may not be able to manufacture our LidoSite product, or any future
products, in a manner that ensures that the systems provide reproducible dosages
of stable formulations of drugs for sufficient periods after manufacture. If we
cannot ensure that our products have sufficient post-production shelf-life, we
may be unable to produce our products in sufficient quantities to develop an
economical supply chain. Accordingly, we may not be able to successfully manage
our inventory.
WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO CONTINUE MANUFACTURING PRODUCTS
FROM OUR CURRENT FACILITY WITH OUR CURRENT EQUIPMENT EFFECTIVELY, OR IN A
COST-EFFECTIVE MANNER.
All of our manufacturing, research and development and administrative
functions are operated out of a single facility that we sublease from Becton
Dickinson. We have developed and installed our first generation manufacturing
line, which will only provide sufficient capacity to meet the anticipated first
year's demand for our LidoSite product.
-16-
Additional capacity, and additional capital expense, including the purchase of
additional equipment and upgrading the heating, ventilation and air
conditioning, or HVAC, system and other aspects of our manufacturing facility,
is needed before we will be able to manufacture our LidoSite product in
commercial volumes in a cost effective manner. If we are unable to manufacture
products in our current facility, it would be necessary to make additional
capital expenditures to prepare a new facility for manufacturing, which could
also result in a substantial delay in our ability to manufacture products. We
are currently exploring the leasing of a second facility to be utilized as we
expand our manufacturing capacity. At least until we operate out of more than
one facility, we are subject to substantial business disruption risks in the
event that events outside of our control - such as a fire, adverse weather
conditions or acts of terrorism - preclude us from operating in our existing
facility.
MARKET ACCEPTANCE OF OUR PRODUCTS, INCLUDING OUR LIDOSITE PRODUCT, IS VITAL TO
OUR FUTURE SUCCESS.
Our future success depends upon the acceptance of our LidoSite product
and any of our potential future products by health care providers and patients.
In addition, our future success may be dependent upon acceptance by third-party
payors -- including, without limitation, health insurance companies, Medicaid
and Medicare -- of products that we may develop in the future. Such market
acceptance may depend on numerous factors, many of which may not be under our
control, including:
o the safety and efficacy of our products;
o regulatory approval and product labeling;
o the availability, safety, efficacy and ease of use of
alternative technologies;
o the price of our products relative to alternative
technologies; and
o for future products, the availability of third-party
reimbursement.
Our LidoSite product is based upon a method of transdermal drug delivery
called iontophoresis that, to date, has not gained widespread market acceptance.
We cannot assure you that LidoSite or any future product will ever gain broad
market acceptance.
In addition, the adoption of new pharmaceutical products is greatly
influenced by health care administrators, inclusion in hospital formularies, and
reimbursement by third party payors. Because our existing and proposed drug
delivery systems encompass both a device and a drug and may be used by many
different departments within a hospital or health care facility, buying
decisions in these settings require more departmental approvals than are
required for either a stand-alone drug or a stand-alone device. As a result, it
may be more difficult and more time consuming to achieve market penetration with
our products. We cannot assure investors that health care administrators,
hospitals or third party payors will accept our products on a large scale or on
a timely basis, if at all, or that we will be able to obtain approvals for
additional indications and labeling for our products which facilitate or expand
their market acceptance or use. In addition, unanticipated side effects, patient
discomfort, defects or unfavorable publicity concerning any of our products, or
any other product incorporating technology similar to that used by
-17-
our products, could have a material adverse effect on our ability to
commercialize our products or achieve market acceptance..
IT WILL BE NECESSARY FOR US TO SECURE STRATEGIC PARTNERS FOR MARKETING, SALES
AND DISTRIBUTION OF OUR PRODUCTS.
We plan to seek to enter into arrangements with strategic partners with
respect to the marketing, sales and distribution of our potential future
products, similar to our agreement with B. Braun for our LidoSite product. With
respect to such potential future products, we expect that strategic partners
will finance some of our research and development costs and finance most of the
costs of marketing, sales and distribution, while we remain responsible for
manufacturing. Although we are exploring potential strategic arrangements with
respect to marketing, sales and distribution of our future products, and with
respect to the development of new applications for our drug delivery technology,
we cannot assure investors that we will be able to negotiate such agreements on
terms that are acceptable to us, or at all. Nor can we guarantee that any
strategic partner, including B. Braun, will not also engage in independent
development of competitive delivery technologies.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY AND
PRESERVE OUR TRADE SECRETS.
Our ability to successfully commercialize our LidoSite product and any
other products that we develop will depend, in large measure, on our ability to
protect those products and our technology with United States and foreign
patents. We will also need to continue to preserve our trade secrets. The
issuance of a patent is not conclusive as to its validity or as to the
enforceable scope of the claims of the patent. The patent positions of
pharmaceutical, biotechnology and drug delivery companies, including our
company, are uncertain and involve complex legal and factual issues.
We cannot assure you that our patents will prevent other companies from
developing similar or therapeutically equivalent products, or that other
companies will not be issued patents that may prevent the sale of our products
or require us to pay significant licensing fees in order to market our products.
Accordingly, if our patent applications are not approved or, even if approved,
if such patents are circumvented or not upheld in a court of law, our ability to
competitively exploit our patented products and technologies may be
significantly reduced. Additionally, the coverage claimed in a patent
application can be significantly reduced before the patent is issued. As a
consequence, we do not know whether any of our patent applications will be
granted with broad coverage or whether the claims that eventually issue or that
relate to our current patents will be circumvented. Since patent applications in
the United States can be maintained in secrecy until patents issue, and since
publication of discoveries in scientific or patent literature often lag behind
actual discoveries, we cannot be certain that we were the first inventor of
inventions covered by our issued patents or pending patent applications or that
we were the first to file patent applications for such inventions. Moreover, we
may have to participate in interference proceedings declared by the United
States Patent and Trademark Office to determine priority of invention, which
could result in substantial cost to us, even if the eventual outcome is
favorable. An adverse outcome
-18-
could subject us to significant liabilities to third parties, require disputed
rights to be licensed from or to third parties or require us to cease using the
technology in dispute.
Also, patents may or may not provide competitive advantages for their
respective products or they may be challenged or circumvented by competitors, in
which case our ability to commercially exploit these products may be diminished.
From time to time, we may need to obtain licenses to patents and other
proprietary rights held by third parties in order to develop, manufacture and
market our products. If we are unable to timely obtain these licenses on
commercially reasonable terms, our ability to commercially exploit such products
may be inhibited or prevented. Additionally, we cannot assure investors that any
of our products or technology will be patentable or that any future patents we
obtain will give us an exclusive position in the subject matter claimed by those
patents. Nor can we assure investors that our pending patent applications will
result in issued patents, that patent protection will be secured for any
particular technology, or that our issued patents will be valid, enforceable and
provide us with meaningful protection.
Although we have entered into invention assignment agreements with our
employees and with the members of our scientific advisory board, if those
employees or scientific advisory board members develop inventions or processes
independently which may relate to products or technology under development by
us, disputes may arise about the ownership of those inventions or processes.
Protracted and costly litigation could be necessary to enforce and determine the
scope of our rights.
We also rely on trade secrets and proprietary know-how that we seek to
protect, in part, through confidentiality agreements with our strategic
partners, customers, suppliers, employees and consultants. It is possible that
these agreements will be breached or will not be enforceable in every instance,
and that we will not have adequate remedies for any such breach. It is also
possible that our trade secrets will otherwise become known or independently
developed by competitors.
We may find it necessary to initiate litigation to enforce our patent
rights, to protect our trade secrets or know-how or to determine the scope and
validity of the proprietary rights of others. We plan to aggressively defend our
proprietary technology and any issued patents. Litigation concerning patents,
trademarks, copyrights and proprietary technologies can often be protracted and
expensive and, as with litigation generally, the outcome is inherently
uncertain.
OTHER COMPANIES MAY CLAIM THAT OUR TECHNOLOGY INFRINGES ON THEIR INTELLECTUAL
PROPERTY OR PROPRIETARY RIGHTS.
Because of the complex and difficult legal and factual questions that
relate to patent positions in our industry, we cannot assure you that our
products or technology will not be found to infringe upon the intellectual
property or proprietary rights of others. Third parties may claim that our
products or technology infringe on their patents, copyrights, trademarks or
other proprietary rights and demand that we cease development or marketing of
those products or technology or pay license fees. We may not be able to avoid
costly patent infringement litigation, which will divert the attention of
management away from the development of new products and the operation of our
business. We
-19-
cannot assure investors that we would prevail in any such litigation. If we are
found to have infringed on a third party's intellectual property rights, we may
be liable for money damages, encounter significant delays in bringing products
to market or be precluded from manufacturing particular products or using
particular technology.
Other parties have challenged certain of our foreign patents. If such
parties are successful in opposing our foreign patents, we will lose some or all
of the protection afforded by those patents in particular jurisdictions and may
face additional proceedings with respect to similar patents in other
jurisdictions, as well as related patents. The loss of patent protection in one
jurisdiction may influence our ability to maintain patent protection for the
same technology in another jurisdiction.
THE DEVELOPMENT AND MANUFACTURE OF DRUG DELIVERY SYSTEMS REQUIRES SIGNIFICANT
CAPITAL INVESTMENT; WE MAY NOT ACCURATELY PREDICT DEMAND FOR OUR PRODUCTS WHEN
DECIDING TO INVEST IN NEW PRODUCTS.
Research and development, clinical testing and obtaining regulatory
approvals for new drug delivery systems takes a significant amount of time and
requires significant investment in skilled engineering and scientific personnel
and in expensive equipment. Furthermore, manufacturing our lidocaine delivery
system requires expensive, custom-built machinery. We have made these
investments, and intend to continue to make such investments, for our LidoSite
product based on internal projections of the potential market for that system
and of our potential profit margins on sales of that system. If those
projections are inaccurate, we may not be able to obtain an acceptable return on
our investment in the development of our LidoSite product. If our projections of
the prospects of new products are inaccurate, we may make investments in the
development, testing and approval of those products that may result in
unsatisfactory returns.
WE MUST HIRE AND RETAIN SKILLED ENGINEERS AND SCIENTISTS IN A TIGHT LABOR
MARKET.
Skilled employees in our industry are in great demand. We are competing
for employees against companies located near our headquarters that are more
established than we are and have the ability to pay more cash compensation than
we do. We require scientific and engineering personnel in many fields, some of
which are addressed by relatively few companies. As a result, we may continue to
experience difficulty in hiring and retaining highly skilled employees,
particularly engineers and scientists. If we are unable to hire and retain
skilled engineers and scientists, our business, financial condition, operating
results and future prospects could be materially adversely affected.
WE MUST RETAIN OUR KEY MANAGEMENT PERSONNEL IN ORDER TO BE SUCCESSFUL.
Our future success depends, to a significant degree, on the skills,
experience and efforts of our key management personnel, principally Vincent De
Caprio, Ph.D., our president and chief executive officer, Michael McGuinness,
our chief financial officer, and James Garrison, our vice president of business
development. If any of those individuals were unable or unwilling to continue in
their present positions, our business, financial condition, operating results
and future prospects could be materially adversely affected. Mr. McGuinness is
not bound by an employment agreement with the Company.
-20-
We do not maintain key person life insurance on any of our management personnel.
WE MAY NOT BE ABLE TO DEVELOP PRODUCTS OR TECHNOLOGIES THAT WILL BE MARKETABLE.
We may not be able to develop drug delivery products or technologies
that will be marketable. Even if we are able to develop marketable drug delivery
products or technologies, we may not be able to develop them or obtain patent
protection, successful clinical trial results or regulatory approval for them.
Our research and development efforts may be hampered by a variety of factors,
many of which are outside of our control.
WE FACE SUBSTANTIAL COMPETITION FOR OUR LIDOSITE PRODUCT AND ANY FUTURE PRODUCTS
THAT WE MAY DEVELOP, AS WELL AS FOR STRATEGIC PARTNERSHIP TRANSACTIONS.
There is substantial competition to develop alternative drug delivery
solutions from both drug delivery technology and pharmaceutical companies, most
of which are much larger and have far greater resources than we do. Further, the
drug delivery, pharmaceutical and biotechnology industries are highly
competitive and rapidly evolving. We expect that significant developments in
those industries will continue at a rapid pace. Our success will depend on our
ability to establish and maintain a strong competitive position for our LidoSite
product while developing new products that are effective and safe. We cannot
assure you that any of our products will have advantages over alternative
products and technologies that may be developed later and that may be
significant enough to cause health care providers to prefer those products or
technologies over ours.
In the active transdermal, or iontophoretic, drug delivery segment, we
are aware of several companies that are developing or marketing products based
on this process, including Alza, Iomed Inc., Smith and Nephew, Empi and
LifeTech, Inc. We also face competition from companies that are currently
testing or already marketing delivery systems or products for lidocaine or
similar topical anesthetics, including AstraZeneca's EMLA(R) product, Iomed's
Numby Stuff(R) product, Smith & Nephew's amethocaine patch and other creams and
ointments. We face indirect competition from companies that are actively
involved in the development and commercialization of modified drug delivery
technologies, including oral, pulmonary, bucal, nasal and needle-less
injections, as well as companies working on passive transdermal systems.
We also expect to compete with other drug delivery companies and
technologies in the establishment of strategic partnering arrangements with
large pharmaceutical companies to assist in the development or marketing of
products. Current and future competitors for such strategic partnering
arrangements include companies such as Alza, Alkermes, Aradigm, Emisphere
Technologies, Genetronics, Nektar, Nastech, AlgoRx, SkyePharma, Watson
Pharmaceuticals, Inc., Noven Pharmaceuticals, Inc. and others. Competition is
expected to intensify as more companies enter the field. Potential future
competitors for strategic partner arrangements may include companies such as
Altea, EpiCept and ZARS.
Many competitors, including public and private businesses, academic
institutions, governmental agencies and public and private research
organizations, are involved in the development of drug delivery systems,
including the development of transdermal and
-21-
iontophoretic processes. Many of those competitors have substantially greater
financial, technical, research and other resources, are more experienced in
research and development, manufacturing, pre-clinical and clinical testing, and
obtaining regulatory approvals, and are larger, more established and have more
collaborative partners than we do. In addition, those other entities may offer
broader product lines and have greater name recognition than we do. Those other
entities may succeed in developing competing technologies and obtaining
regulatory approvals and market share more rapidly than we can. Some of those
companies have competing products that have already been approved by the FDA and
foreign authorities, or are further along in development than is our LidoSite
product. We cannot assure you that those competitors will not succeed in
developing or marketing products that are more effective or more commercially
acceptable than our lidocaine delivery system or any future product. We cannot
assure you that we will have the financial resources, technical or management
expertise or manufacturing and sales capability to compete in the future.
Becton Dickinson has substantial insight into the potential applications
of our drug delivery technologies, and our business model, as we were operated
as a division of Becton Dickinson for over ten years. Further, Becton Dickinson
had a designee on our Board of Directors until May 2001. Becton Dickinson is in
the business of developing alternative drug delivery technologies and we may
compete in the future with alternative technologies developed or acquired by
Becton Dickinson.
Increased competition may result in price cuts, reduced gross margins
and loss of market share, any of which could have a material adverse effect on
our business, financial condition, results of operations and future prospects.
WE MAY NOT BE ABLE TO LICENSE COMPLEMENTARY DRUG DELIVERY TECHNOLOGIES OR DRUG
REFORMULATIONS TO EXPAND OUR PRODUCT OFFERINGS.
In order to enhance our platform technology, strengthen our intellectual
property portfolio and expand our overall market opportunity beyond that for our
LidoSite product, we may seek to acquire or license rights to additional drug
delivery technologies or reformulations of FDA-approved drugs that compliment
our core drug delivery platform. We may not be able to acquire or license such
other technologies or drug reformulations on terms that are acceptable to us, if
at all. Further, efforts to identify such technologies and attempts to negotiate
the terms of such acquisitions or licenses may divert the attention of our
management away from the internal development of new applications for our
existing technology and from the operation of our business.
IF ANY OF OUR PRODUCTS INJURES A USER, WE COULD BE SUBJECT TO PRODUCT LIABILITY
EXPOSURE IN EXCESS OF AMOUNTS FOR WHICH WE ARE INSURED.
Clinical trials and subsequent sales of our LidoSite product or any
other drug delivery system we may develop or manufacture in the future may
result in injuries to persons using those products as a result of mislabeling,
misuse or product failure. While we carry product liability insurance with
respect to the now-completed clinical trials and for the commercial sale of our
LidoSite product, there can be no assurance that our coverage will be adequate
to protect us against future liability claims. Although we have
-22-
liability insurance with respect to the commercial sale of our LidoSite product,
we cannot assure you that that we can afford to maintain that insurance. Product
liability insurance is expensive and there can be no assurance that this
insurance will be available to us in the future for the commercial sale of our
lidocaine delivery system or for any new products, on terms satisfactory to us,
if at all. A successful product liability claim or series of claims brought
against us in excess of our insurance coverage could have a material adverse
effect on our business, financial condition, results of operations and future
prospects.
WE DO NOT INTEND TO PAY DIVIDENDS.
We do not expect to pay cash dividends in the foreseeable future on our
common stock.
IF WE ARE UNABLE TO REGISTER CERTAIN OF OUR SECURITIES IN A TIMELY MANNER, WE
WILL BE REQUIRED TO MAKE LIQUIDATED DAMAGES PAYMENTS TO CERTAIN OF THE SELLING
STOCKHOLDERS, WHICH COULD MATERIALLY AFFECT OUR FINANCIAL CONDITION.
In the event that the registration statement of which this prospectus is
a part is not declared effective by the SEC by February 25, 2005, we must pay to
certain of the selling stockholders an amount, for each month, or portion of a
month, in which such delay occurs, equal to (a) for the first month, 1% of the
purchase price paid by such selling stockholder for the shares owned by such
selling stockholder which are covered by this prospectus and (b) for each month
thereafter, 2% of such purchase price, until we have cured the delay, with an
overall cap on such liquidated damages of 10% of the aggregate purchase price
paid by such selling stockholders for such shares. There are many reasons,
including those over which we have no control, which could keep the registration
statement from being declared effective within 150 days after the closing,
resulting from the SEC review process and comments raised by the SEC during that
process. If we are required to pay such liquidated damages, which could amount
to up to $2.4 million, our financial condition may be materially harmed.
OUR COMPLIANCE WITH THE SARBANES-OXLEY ACT AND SEC RULES CONCERNING INTERNAL
CONTROLS MAY BE TIME CONSUMING, DIFFICULT AND COSTLY.
Although individual members of our management have experience as
officers of publicly-traded companies, that experience came prior to the
adoption of the Sarbanes-Oxley Act of 2002. Vyteris, Inc. had never operated as
a publicly-traded company. It may be time consuming, difficult and costly for us
to develop and implement the internal controls and reporting procedures required
by the Sarbanes-Oxley Act. We may need to hire additional financial reporting,
internal controls and other finance staff in order to develop and implement
appropriate internal controls and reporting procedures. If we are unable to
comply with the internal controls requirements of the Sarbanes-Oxley Act, we may
not be able to obtain the independent accountant certifications that the
Sarbanes-Oxley Act requires publicly-traded companies to obtain.
-23-
OUR PRINCIPAL STOCKHOLDER CONTROLS US AND HAS THE POWER TO MAKE IMPORTANT
DECISIONS ON OUR BEHALF.
Kevin Kimberlin, though his ownership of Spencer Trask Specialty Group,
LLC, or STSG, and related parties is, and has been since our inception, our
controlling stockholder. Mr. Kimberlin and related parties beneficially own over
60% of our voting stock, after giving effect to the reincorporation merger
Accordingly, Mr. Kimberlin controls us and has the power to elect our directors
and to generally approve all actions requiring the approval of the holders of
our voting stock, including adopting amendments to our certificate of
incorporation and bylaws and approving mergers, certain acquisitions or sales of
all or substantially all of our assets, which could delay or prevent someone
from acquiring or merging with us.
THERE HAS BEEN NO ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK, AND STOCKHOLDERS
MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE PURCHASE PRICE PAID BY
SUCH STOCKHOLDER, OR AT ALL.
There is no current active public market for Vyteris Holdings common
stock or Treasure Mountain Holdings common stock. An active public market for
our common stock may not develop or be sustained in the future. The market price
of our common stock may fluctuate significantly in response to factors, some of
which are beyond our control, such as: the announcement of new products or
product enhancements by us or our competitors; developments concerning
intellectual property rights and regulatory approvals; quarterly variations in
our competitors' results of operations; changes in earnings estimates or
recommendations by securities analysts; developments in our industry; and
general market conditions and other factors, including factors unrelated to our
own operating performance. The stock market in general has recently experienced
extreme price and volume fluctuations. Continued market fluctuations could
result in extreme volatility in the price of our common stock, which could cause
a decline in the value of our common stock. Prospective investors should also be
aware that price volatility might be worse if the trading volume of our common
stock is low.
WE MAY NOT BE ABLE TO ATTRACT THE ATTENTION OF MAJOR BROKERAGE FIRMS.
Security analysts of major brokerage firms may not provide coverage of
us since there is no incentive to brokerage firms to recommend the purchase of
our common stock. No assurance can be given that brokerage firms will want to
conduct any secondary offerings on our behalf in the future.
WE CANNOT ASSURE YOU THAT WE WILL LIST OUR COMMON STOCK ON NASDAQ OR ANY OTHER
SECURITIES EXCHANGE.
Although we may apply to list our common stock on Nasdaq or the American
Stock Exchange in the future, we cannot assure you that we will be able to meet
the initial listing standards, including the minimum per share price and minimum
capitalization requirements, of either of those or any other stock exchange, or
that we will be able to maintain a listing of our common stock on either of
those or any other stock exchange. If we are unable to list our common stock on
Nasdaq, the American Stock Exchange or another stock
-24-
exchange, or to maintain its listing, we expect that our common stock will trade
on the OTC Bulletin Board maintained by Nasdaq, another over-the-counter
quotation system, or on the "pink sheets," where an investor may find it more
difficult to dispose of shares or obtain accurate quotations as to the market
value of our common stock. In addition, we are subject to an SEC rule that, if
we fail to meet the criteria set forth in such rule, imposes various practice
requirements on broker-dealers who sell securities governed by the rule to
persons other than established customers and accredited investors. Consequently,
such rule may deter broker-dealers from recommending or selling our common
stock, which may further affect the liquidity of our common stock. It would also
make it more difficult for us to raise additional capital.
OUR COMMON STOCK MAY BE CONSIDERED A "PENNY STOCK" AND MAY BE DIFFICULT TO SELL.
The SEC has adopted regulations which generally define a "penny stock"
to be an equity security that has a market price of less than $5.00 per share or
an exercise price of less than $5.00 per share, subject to specific exemptions.
The market price of our common stock is less than $5.00 per share and therefore
it may be designated as a "penny stock" according to SEC rules. This designation
requires any broker or dealer selling these securities to disclose certain
information concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable to purchase
the securities. These rules may restrict the ability of brokers or dealers to
sell our common stock and may affect the ability of investors to sell their
shares.
WHEN AND IF THE SELLING STOCKHOLDERS MAY UTILIZE THIS PROSPECTUS TO SELL THEIR
SHARES OF OUR COMMON STOCK, A SIGNIFICANT NUMBER OF SHARES WILL BE ELIGIBLE FOR
SALE, AND SUCH SALES COULD DEPRESS THE MARKET PRICE OF OUR STOCK.
Sales of a significant number of shares of our common stock in the
public market could harm the market price of our common stock. As additional
shares of our common stock become available for resale pursuant to this
prospectus, the supply of our common stock will increase, which could decrease
its market price.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT MAY NOT BE ACCURATE
INDICATORS OF FUTURE PERFORMANCE.
Certain statements under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Our Business" and elsewhere in this prospectus are
forward-looking statements. These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks" and "estimates" and
similar expressions are generally intended to identify forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed
-25-
or implied by these forward-looking statements, including our plans, objectives,
expectations and intentions and other factors discussed under "Risk Factors."
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock offered by the selling stockholders. If any of the selling stockholders
exercise warrants in order to sell the shares underlying such warrants, we will
receive proceeds from the exercise of such warrants, if any.
DIVIDEND POLICY
Vyteris, Inc. never declared or paid any dividends on its common stock.
We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance operations and the expansion of our business. Any future determination
to pay cash dividends will be at the discretion of the board of directors and
will depend upon our financial condition, operating results, capital
requirements and other factors the board of directors deems relevant, including
the provisions of any applicable credit agreements..
-26-
CAPITALIZATION
The following table sets forth the capitalization of Vyteris, Inc. (i)
as of June 30, 2004 and (ii) as adjusted to give effect to a financing effected
by Vyteris, Inc. in September 2004, including the conversion of 8% convertible
secured promissory notes due December 31, 2004, which we refer to as the
December Notes, the exchange of the $500,000 convertible promissory note due
July 1, 2004, which we refer to as the BD Note or the Becton Dickinson Note, for
common stock, warrants and cash, the exchange of common stock and warrants for
Vyteris, Inc. Series A convertible preferred stock in September 2004, the
consummation of the Treasure Mountain/Vyteris, Inc. merger on September 29, 2004
and the consummation of the reincorporation merger. See "Pro Form Financial
Information" for additional information regarding such adjustments.
VYTERIS, INC. AS ADJUSTED
--------------------------------
Capital lease obligation, less current portion $19,429 $19,429
December Notes 5,430,297 --
BD Notes 500,000 --
Convertible secured promissory notes to
related parties 500,000 --
Preferred stock:
Series A convertible 333,333 -
Series C convertible 7,500,000 7,500,000
Stockholders' deficit:
Common stock 2,485 19,289
Additional paid-in capital 34,709,950 52,744,915
Deferred compensation (87,394) (87,394)
Accumulated deficit (42,779,375) (42,779,375)
--------------------------------
Total stockholders' (deficit) equity (8,154,334) 9,897,435
--------------------------------
Total capitalization $6,128,725 $17,416,864
================================
-27-
SELECTED FINANCIAL DATA
THE FOLLOWING SELECTED FINANCIAL DATA FOR THE YEARS ENDED DECEMBER 31,
2002 AND 2003 ARE DERIVED FROM THE AUDITED FINANCIAL STATEMENTS OF VYTERIS, INC.
THE FINANCIAL DATA FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2003 AND 2004 ARE
DERIVED FROM UNAUDITED FINANCIAL STATEMENTS. THE UNAUDITED FINANCIAL STATEMENTS
INCLUDE ALL ADJUSTMENTS, CONSISTING OF NORMAL RECURRING ACCRUALS, WHICH VYTERIS,
INC. CONSIDERS NECESSARY FOR A FAIR PRESENTATION OF THE FINANCIAL POSITION AND
THE RESULTS OF OPERATIONS FOR THESE PERIODS. OPERATING RESULTS FOR THE SIX
MONTHS ENDED JUNE 30, 2004 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS THAT
MAY BE EXPECTED FOR THE ENTIRE YEAR ENDING DECEMBER 31, 2004. THE DATA SHOULD BE
READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS, RELATED NOTES AND OTHER
FINANCIAL INFORMATION INCLUDED HEREIN.
DURING THE PERIODS PRESENTED IN THIS PROSPECTUS PRIOR TO THE TREASURE
MOUNTAIN/VYTERIS, INC. MERGER, TREASURE MOUNTAIN HOLDINGS HAD NEGLIGIBLE
REVENUES, EXPENSES, NET LOSS, ASSETS, LIABILITIES AND STOCKHOLDERS' DEFICIT.
ACCORDINGLY, THE SELECTED FINANCIAL DATA PRESENTED BELOW RELATES SOLELY TO
VYTERIS, INC. FOR FINANCIAL INFORMATION REGARDING TREASURE MOUNTAIN HOLDINGS,
SEE "PRO FORMA FINANCIAL INFORMATION" AND "INDEX TO FINANCIAL STATEMENTS".
VYTERIS, INC. STATEMENT OF OPERATIONS DATA
Years ended Six Months ended
December 31, June 30,
--------------------------------------- ---------------------------------------
2002 2003 2003 2004
------------------ ------------------ ------------------ ------------------
(unaudited)
Revenues $ 1 51,452 $ 200,000 $ 145,000 $ 60,000
Operating expenses:
Research and development 7,209,796 8,734,871 4,185,379 5,233,696
General and administrative 2,890,568 2,454,922 1,178,809 1,487,535
------------------ ------------------ ------------------ ------------------
Total operating expenses 10,100,364 11,189,793 5,364,188 6,721,231
Interest (net) 818,782 1,781,368 771,359 2,642,387
Benefit from state income taxes -- 238,584 -- --
------------------ ------------------ ------------------ ------------------
Net loss $ (10,767,694) $ (12,532,577) $ (5,990,547) $ (9,303,618)
------------------ ------------------ ------------------ ------------------
Basic and diluted loss per share $ (6.25) $ (6.91) $ (3.31) $ (0.69)
================== ================== ================== ==================
Basic and diluted weighted
average number of common
shares outstanding 1,722,744 1,812,479 1,812,479 13,445,240
================== ================== ================== ==================
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VYTERIS, INC. BALANCE SHEET DATA (1)
As of December 31, As of June 30,
--------------------------------------- ------------------
2002 2003 2004
------------------ ------------------ ------------------
(unaudited)
Cash and equivalents $ 765,123 $ 2,286,167 $ 2,989,979
Equipment $ 1,972,096 $ 2,934,902 $ 2,871,712
Total assets $ 3,124,014 $ 5,314,307 $ 8,266,585
Total liabilities $ 13,097,843 $ 27,745,619 $ 8,587,586
Preferred stock $ 3,250,973 $ 3,250,973 $ 7,833,333
Total stockholders' deficit $ (13,224,802) $ (25,682,285) $ (8,154,334)
(1) Immediately prior to the consummation of the Treasure Mountain/Vyteris,
Inc. merger in September 2004, Vyteris, Inc. consummated a securities offering
in which it raised net proceeds of approximately $12.8 million and $8.5 million
of debt was converted into equity.
-29-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF VYTERIS, INC.
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF VYTERIS, INC. SHOULD BE READ TOGETHER WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES OF VYTERIS, INC. INCLUDED IN THIS PROSPECTUS. THOSE
FINANCIAL STATEMENTS PROVIDE INFORMATION CONCERNING THE PERIOD FROM THE
INCEPTION OF VYTERIS, INC. THROUGH JUNE 30, 2004.
OVERVIEW OF VYTERIS
Vyteris, Inc. has developed and produced the first intelligent,
pre-filled, active transdermal drug delivery system that delivers drugs through
the skin comfortably, without needles. This platform technology can be used to
non-invasively administer certain small molecule, peptide, and protein
therapeutics in a wide range of programmed doses, both systemically and locally.
Vyteris, Inc. is a development stage enterprise and, as yet, has not generated
any revenues from product sales. Since we began our operations in November 2000,
we have devoted the majority of our resources to the development of our first
product, LidoSite. We have been unprofitable since our inception and have
incurred a cumulative loss of $42.8 million through June 30, 2004. These losses
have resulted principally from expenses incurred in research and development
activities. From inception through June 30, 2004, we have incurred approximately
$28.6 million of research and development expenses, $10.2 million of general and
administrative expenses and $5.0 million of interest expense. Losses are
expected to continue as we advance our product candidates to commercialization.
On May 6, 2004, we received approval from the FDA to commercially launch
our first product, LidoSite. LidoSite is a topical delivery system indicated for
use on normal intact skin to provide local anesthesia for needle stick
procedures such as injections and intravenous therapies as well as superficial
dermatological procedures. Our clinical data indicates that LidoSite reduces the
pain associated with needle-stick procedures. We have entered into a marketing
agreement with B. Braun to act as our exclusive, worldwide sales and marketing
distributor for LidoSite. We expect to commence shipments of our LidoSite
product to B. Braun during the fourth quarter of 2004 and we expect sales by B.
Braun to commence during the first quarter of 2005. We will have royalty
obligations to Becton Dickinson resulting from such sales and other sales of
iontophoretic products, commencing on November 10, 2005.
We have funded our operations from inception through June 30, 2004
through an initial $9 million equity investment made by Spencer Trask Specialty
Group, LLC, or STSG, $24 million of debt financing from STSG and its related
parties which was converted to equity on March 31, 2004 and $8 million from the
sale of bridge notes and warrants through a private placement; $500,000 of debt
financing from Becton
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Dickinson; $800,000 received under a license, development and marketing
agreement covering LidoSite; and $239,000 through the sale of our New Jersey net
operating losses.
Subsequent to June 30, 2004, Vyteris, Inc. consummated an offering in
which we raised gross proceeds of $15 million (including certain funds that were
loaned to Vyteris shortly prior to the closing and then converted into equity)
from the sale of stock and warrants. We relied on borrowed funds to preserve our
liquidity until that offering was completed. Immediately prior to the
consummation of that offering, STSG agreed to provide us with up to $5,000,000
in a working capital facility.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations are based on our financial statements, which have been prepared in
conformity with U.S. generally accepted accounting principles. Management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. The determination of the fair value of
options granted to consultants requires the use of estimates, such as the fair
value of a common share on the date of grant and the expected life of the
option. In addition, the determination of the fair value of warrants issued in
connection with various debt securities requires the sue of estimates. Actual
results could differ from those estimates.
We consider certain accounting policies related to revenue recognition
and research and development to be critical to our business operations and the
understanding of our results of operations:
REVENUE RECOGNITION
Contract revenue from collaborative research and marketing agreements is
recorded when earned based on the performance requirements of the contract.
Revenue from non-refundable up-front license fees and certain guaranteed
payments where we continue involvement through collaborative development are
deferred and recognized as revenue over the contract life or period of continued
involvement. Revenue from feasibility arrangements is recognized on the
percentage completed basis. Our research revenue is derived from pharmaceutical
companies and consists of reimbursement of development costs and reimbursement
of certain expenses. Payments relating to our marketing agreement for milestones
achieved are deferred and recorded as revenue over the contract life.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expenses as incurred.
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STOCK-BASED COMPENSATION
Stock-based compensation charges represent the difference between the
exercise price of options granted to employees and directors and the fair value
of our common stock on the date of grant for financial statement purposes in
accordance with Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and its related interpretations. We recognize the
compensation charge over the vesting periods of the shares purchasable upon the
exercise of options.
RESULTS OF OPERATIONS
The following table sets forth the percentage increases or decreases in
certain line items on our income statement for the periods presented:
- -------------------------------------------------- ----------------------------- ------------------------------
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
2003 VS. 2002 JUNE 30,
2004 VS. 2003
- -------------------------------------------------- ----------------------------- ------------------------------
CHANGES IN:
- -------------------------------------------------- ----------------------------- ------------------------------
Revenues 32% (59)%
- -------------------------------------------------- ----------------------------- ------------------------------
Research and development expenses 21% 25%
- -------------------------------------------------- ----------------------------- ------------------------------
General and administrative expenses (15%) 26%
- -------------------------------------------------- ----------------------------- ------------------------------
Interest expense, net 115% 242%
- -------------------------------------------------- ----------------------------- ------------------------------
Net loss 16% 55%
- -------------------------------------------------- ----------------------------- ------------------------------
-32-
INCEPTION THROUGH JUNE 30, 2004
REVENUES
Our revenues from inception through June 30, 2004 have been minimal,
totaling $688,000 and derived solely from research feasibility studies for
pharmaceutical companies. We signed a License, Development and Distribution
Agreement with B. Braun on September 20, 2002. Upon execution of that agreement,
B. Braun made a milestone payment of $300,000 to us and invested $500,000 in
Vyteris common stock. The agreement also provides B. Braun with the option to
invest up to $500,000 to purchase additional shares of common stock upon the
commercial introduction of LidoSite. The $300,000 milestone payment will be
recognized as revenue ratably over the ten-year contract term beginning with the
commercial introduction of LidoSite.
We expect our revenues to increase beginning in the first quarter of
2005 with the expected commencement of sales our LidoSite product by B. Braun.
Our current production capacity is limited, as we will be launching LidoSite
from a pilot manufacturing operation and, therefore, our revenues during the
early part of 2005 from LidoSite will be constrained by our production capacity.
We recently entered into an agreement with a pharmaceutical company for
the development, licensing and supply of a product for female infertility.
Product development activities and related revenues to Vyteris are expected to
commence during the fourth quarter of 2004.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT EXPENSES. Since inception our research and
development activities have been focused primarily on completing the development
of, gaining regulatory approval for, and preparing for the commercial launch of,
our first product, LidoSite.
All costs related to the development of, and gaining regulatory approval
for, a product, and all costs incurred in preparing for the commercial launch of
a product that must be approved by the FDA before commercial sales can commence,
are expensed as incurred, including raw materials costs, manufacturing labor and
allocation of overhead. Products manufactured with raw materials acquired
subsequent to FDA approval will be capitalized as inventory. We expect that our
research and development expenses associated with LidoSite may be reduced in the
latter part of 2004 and subsequent periods as a result of this accounting
treatment; however, we do not expect our total cash outlays to be less.
GENERAL AND ADMINISTRATIVE EXPENSES. Since inception, our general and
administrative activities have been focused primarily on supporting our LidoSite
product, attracting pharmaceutical partners, fundraising activities, maintenance
and defense of our patent portfolio, building our staff and preparing ourselves
to be part of a publicly-held company.
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YEARS ENDED DECEMBER 31, 2002 AND 2003
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT EXPENSES.
We incurred $7.2 million of research and development expenses during
2002. During 2003, our research and development expenses increased by $1.5
million to $8.7 million. During 2002 most of our research and development
activities were devoted to the preparation and filing of our NDA for LidoSite.
During 2003 our research and development efforts were focused upon the
stabilization of suppliers of raw materials for LidoSite, responding to the FDA
on our NDA for LidoSite, preparing and validating our systems and processes for
our FDA inspection, increasing our production and quality staff and preparing
our facility for the commercial manufacture of our LidoSite product.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses totaled $2.9 million in 2002.
General and administrative expenses declined to $2.5 million in 2003. This
decline in 2003 reflected the fact that the costs of maintaining and defending
our patent portfolio were materially less in 2003 than in 2002. Our focus during
2002 was in attracting and signing a partner for LidoSite, the defense of
several of our patents in European courts and the support of our research and
development activities with respect to LidoSite. During 2003, our focus was on
attracting and signing a letter of intent with a pharmaceutical company for the
development of an infertility product, supporting our research and development
efforts and building our staff.
INTEREST EXPENSE.
During 2001 and 2002, we issued approximately $11.0 million aggregate
principal amount of debt instruments, resulting in interest expense of $0.8
million for the year ended December 31, 2002. During 2003, we issued an
additional $13.0 million aggregate principal amount of debt instruments,
resulting in interest expense of $1.8 million for the year ended December 31,
2003.
SIX MONTH PERIODS ENDED JUNE 30, 2003 AND 2004
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT EXPENSES.
We incurred $4.2 million of research and development expenses during the
six month period ended June 30, 2003. During the six months ended June 30, 2004,
we incurred research and development expenses of $5.2 million, a $1.0 million,
or 25%, increase over the comparable period in 2003. This increase is due to an
increase in our production, quality control and quality assurance staff in
anticipation of commercializing LidoSite and expenditures for raw materials for
practice production runs in addition to
-34-
continued spending on stabilizing raw material suppliers and in preparation of
the FDA's inspection of our facility and processes.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses amounted to $1.5 million during the
six months ended June 30, 2004, an increase of $300,000, or 26%, over the $1.2
million in general and administrative expenses incurred during the first six
months of 2003. The increase in 2004 reflects the efforts undertaken by us in
devising and executing our strategy to raise additional capital to support our
development.
INTEREST EXPENSE.
During the six months ended June 30, 2004, we incurred interest expense
of $2.6 million, as compared to interest expense of approximately $0.8 million
for the comparable period in 2003. This increase of $1.8 million, or 242%, is
principally attributable to $1.9 million of non-cash interest expense related to
the fair value of warrants issued with, and beneficial conversion associated
with, the bridge notes issued in March, April and May 2004.
INCOME TAXES.
As of December 31, 2003, we had approximately $33.7 million of net
operating loss carry forwards for federal tax purposes, available to offset
future taxable income. These carry-forwards begin to expire in 2020.
In June 2003, we applied to sell $260,000 of our New Jersey net
operating losses and research and development credits through the New Jersey
Technology Business Tax Certificate Program, at a sale price of $0.89 per $1.00
of tax benefit. In December 2003 we closed on the sale, yielding net proceeds to
us of $238,584.
LIQUIDITY AND CAPITAL RESOURCES
From inception through June 30, 2004, we have used $34.9 million in cash
in our operating activities. The principal factor in this use of cash has been
our net loss, which aggregated $42.8 million from November 1, 2000, the
inception date of Vyteris, Inc., through June 30, 2004. Our cumulative net loss,
in turn, has resulted principally from the expenditures we have incurred in our
research and development efforts.
From inception through June 30, 2004, we used $2.6 million of cash in
investing activities, reflecting purchases of equipment, the most expensive of
which is our manufacturing line. We have nearly completed the payments -- $1.6
million paid by June 30, 2004 of the total purchase price of $1.8 million -- on
our second automated manufacturing line. We can expect a significant increase in
equipment purchases when and if it becomes necessary to add additional
manufacturing capacity.
We have funded our operations and equipment purchases through our
financing activities, producing $40.5 million in net cash from inception through
June 30,
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2004. Our principal stockholder, STSG, contributed $9.0 million at our
inception; we used those funds to fund our initial operations after we acquired
the transdermal systems unit of Becton Dickinson from Becton Dickinson. From
that time until 2004, STSG remained our principal source of capital. During 2002
we financed our operations through the issuance of $9.7 million of convertible
debt to STSG and other related parties, as well as through a $0.5 million equity
investment by B. Braun and an up-front license fee payment by B. Braun of $0.3
million. During 2003, we issued $10 million of convertible debt and $2.9 million
of secured debt to STSG and other related parties.
On March 31, 2004, we consummated a transaction with STSG and a related
entity to improve our balance sheet. We issued to STSG and such related party an
aggregate of 23 million shares of Vyteris, Inc. common stock, and 7.5 million
shares of Vyteris, Inc. Series C convertible preferred stock in exchange for (i)
the cancellation of $20.4 million principal amount of convertible, secured
promissory notes, $2.9 million principal amount of secured promissory notes and
$2.6 million of accrued and unpaid interest, (ii) the return of 3,000,000 shares
of Vyteris, Inc. Series B convertible preferred stock and (iii) the cancellation
of warrants to purchase 2,035,000 shares of Vyteris, Inc. common stock. This
transaction reduced our debt by approximately $25.9 million, increased our
preferred stock by approximately $4.6 million and increased our common sock and
paid-in capital by approximately $21.3 million. On the same date, we completed a
1:4 reverse stock split of the Vyteris, Inc. common stock. All Vyteris, Inc.
share figures presented in this prospectus give retroactive effect to that stock
split.
During March, April and May, 2004, we issued $8.0 million of bridge
notes, maturing December 31, 2004. Additionally, $0.5 million principal amount
of convertible debt issued to related parties in the first quarter of 2004
converted into that financing. Spencer Trask Ventures, Inc., a related party to
STSG, acted as placement agent in that transaction and received a 10% placement
fee, a 3% non-accountable expense allowance and warrants to purchase 2,549,250
shares of Vyteris, Inc. common stock at $1.00 per share as compensation for
acting as placement agent. We also issued warrants to the investors to purchase
4,248,750 shares of Vyteris, Inc. common stock at an exercise price of $1.00 per
share. During September 2004 the $8,497,500 of bridge notes converted into a
total of 8,497,500 shares of Vyteris, Inc. common stock.
In an offering consummated in September 2004, Vyteris, Inc. received
gross proceeds of approximately $15 million -- including debt incurred in
September 2004 which was subsequently converted into equity -- upon the sale of
Vyteris, Inc. common stock and warrants. We issued to the investors a total of
10,040,076 shares of Vyteris, Inc. common stock and also issued warrants to the
investors to purchase 2,510,019 shares of Vyteris, Inc, common stock at an
exercise price of $1.875 per share. Spencer Trask Ventures, an affiliate of
STSG, acted as one of two placement agents in that offering. The placement
agents received a 10% placement fee, a 3% non-accountable expense allowance and
warrants to purchase 2,510,019 shares of Vyteris, Inc. common stock at $1.50 per
share as compensation for acting as placement agents.
In September 2004, we entered into a credit facility with affiliates of
Spencer Trask. The credit facility enables us to borrow up to the lesser of $5.0
million or
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the sum of qualifying accounts receivable and inventory. At present, our
qualifying accounts receivable and inventory are DE MINIMUS, pending
commencement of the commercialization of our first product.
We evaluate our liquidity in terms of quick capital. Quick capital is
calculated by adding our cash and accounts receivable balances and subtracting
our accounts payable and accrued liability balances, excluding interest and
other amounts payable to related parties. We have used quick capital as our
primary liquidity metric, rather than the more traditional working capital
metric, because a substantial portion of our financing to date has been debt in
the form of short-term, convertible debt. As of December 31, 2003, we had a cash
balance of $2.3 million and quick capital of $0.8 million. As of June 30, 2004,
we had a cash balance of $3.0 million and quick capital of $1.3 million.
Our cash positions as of December 31, 2003 and June 30, 2004 were not
sufficient to fund our ongoing operations. We intend to use the net proceeds
from Vyteris' September 2004 offering and the funds available to us under the
working capital facility to cure that insufficiency.
We expect that the internal and external costs of complying with the
Sarbanes-Oxley Act of 2002 will be substantial.
We expect to devote substantial resources to scale-up the manufacturing
process for our LidoSite product and to continue the development of our
infertility and migraine products. Our funding requirements will depend on
numerous factors, including
o the shipments of our initial product, LidoSite, which are expected to
begin in the fourth quarter of 2004;
o the time required for us to install our second manufacturing line and to
have that line become operational;
o our ability to enter into development partnerships with pharmaceutical
companies;
o the results of the development activities on our planned new products;
and
o the cost involved in preparing, filing, prosecuting, defending,
maintaining and enforcing patent claims and other patent related costs.
We expect that our current cash, together with the funds to be made
available to us under the working capital facility, will be sufficient to
finance our operations at least through September 2005. We may need to raise
additional funds, however, in order to fund operating contingencies, to develop
new applications of our technologies, to respond to competitive pressures and/or
to acquire or invest in
-37-
complementary businesses, technologies or services. Additional funding may not
be available on favorable terms or at all.
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANTS
Ernst & Young LLP is the independent auditor for Vyteris, Inc. and has
been since Vyteris, Inc. was incorporated in 2000. By virtue of the Treasure
Mountain/Vyteris, Inc. merger, there was deemed to have been a change in
Treasure Mountain Holding's certifying accountants. On November 10, 2004 the
audit committee of Treasure Mountain Holding's Board of Directors approved the
engagement of Ernst & Young as its independent auditors for the fiscal year
ending December 31, 2004 to replace Madsen & Associates.
Madsen & Associates served as Treasure Mountain Holding's certifying
accountants with respect to the financial statements for the year ended December
31, 2003. As noted in Treasure Mountain Holding's Annual Report on Form 10-KSB
for the year ended December 31, 2003, the firm of Sellers and Andersen, LLC
served as Treasure Mountain Holding's independent certifying accountants for the
prior year. As reported in Treasure Mountain Holding's Annual Report on Form
10-KSB for the year ended December 31, 2003, there were no disagreements with
Sellers & Andersen on any matters of accounting principles and practices,
financial statement disclosure, or auditing scope or procedures which, if not
resolved to the satisfaction of Sellers & Andersen, would have caused them to
make reference to the subject matter of the disagreement in connection with its
report on the financial statements. Further, during 2004 there have been no
disagreements with Madsen & Associates on any matters of accounting principles
and practices, financial statement disclosure, or auditing scope or procedures
which, if not resolved to the satisfaction of Madsen & Associates, would have
caused them to make reference to the subject matter of the disagreement in
connection with its report on the financial statements. Further, for 2002 and
2003 and through November 5, 2004, there were no reportable events as defined in
the SEC's Regulation S-KB, Item 304 (a)(1)(iv).
Audit reports of Sellers & Andersen and of Madsen & Associates for
Treasure Mountain Holding's 2002 and 2003 year-end financial statements
contained a modification expressing substantial doubt as to Treasure Mountain/s
ability to continue as a going concern.
We previously requested Madsen & Associates to furnish a letter
addressed to the SEC stating whether it agrees with the above statements. A copy
of that letter dated November 5, 2004 was filed as Exhibit 16.1 to our Current
Report on Form 8-K/A filed on November 5, 2004.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The unaudited pro forma consolidated balance sheet as of June 30, 2004
and the unaudited pro forma consolidated statements of income for the year ended
December 31, 2003 and the six months ended June 30, 2004, combine the historical
financial statements of Treasure Mountain with Vyteris, Inc. after giving effect
to the Treasure Mountain/Vyteris, Inc. merger by recording the transaction as
the issuance of Vyteris, Inc. stock for the net monetary assets of Treasure
Mountain, accompanied by a recapitalization with no goodwill or other
intangibles recorded. Pro forma adjustments to the balance sheet are computed as
if the transaction occurred at June 30, 2004, while the pro forma adjustments to
the statements of operations are computed as if the transaction occurred on
January 1 of each period presented.
The following unaudited pro forma condensed consolidated financial
information gives effect to the $15,000,000 private placement of units completed
by Vyteris, Inc. on September 29, 2004, the conversion of the $8,497,500
principal amount of convertible secured promissory notes payable into 8,497,500
shares of Vyteris, Inc. common stock, the exchange of Vyteris, Inc. Series A
convertible, redeemable preferred stock for 666,667 shares of Vyteris, Inc.
common stock and common stock purchase warrants, the exchange of a Becton
Dickinson note for 166,667 shares of Vyteris, Inc. common stock, common stock
warrants and cash, the issuance of 1,000,000 shares of Vyteris, Inc. common
stock as consideration for the commitment to provide up to $5,000,000 in working
capital loans and the Treasure Mountain/Vyteris, Inc. merger, including the 4.19
to 1 conversion of 45,220,888 Vyteris, Inc. shares into 189,475,520 shares of
Treasure Mountain common stock. These pro forma statements are presented for
illustrative purposes only. The pro forma adjustments are based upon available
information and assumptions that we believe are reasonable. The unaudited pro
forma condensed consolidated financial statements do not purport to represent
what the consolidated results of operations or financial position of Treasure
Mountain would actually have been if the Treasure Mountain/Vyteris, Inc. merger
had in fact occurred on the dates that we refer to below, nor do they purport to
project the results of operations or financial position of Treasure Mountain for
any future period or as of any date.
The unaudited pro forma condensed consolidated balance sheet as of June
30, 2004, was prepared by combining the balance sheet as of June 30, 2004 of
Treasure Mountain with the balance sheet of Vyteris, Inc. as of June 30, 2004,
giving effect to the Treasure Mountain/Vyteris, Inc. merger as if it occurred on
June 30, 2004.
The unaudited condensed consolidated statements of operations for the
periods presented were prepared by combining Treasure Mountain's statements of
operations for the six months ended June 30, 2004 and the year ended December
31, 2003 with the statements of operations of Vyteris, Inc. for the same
periods, giving effect to the Treasure Mountain/Vyteris, Inc. merger as if it
occurred on January 1 of each period.
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The historical financial information regarding Treasure Mountain for the
year ended December 31, 2003 has been derived from the audited financial
statements of Treasure Mountain for the year ended December 31, 2003 included
elsewhere in this prospectus. The historical financial information regarding
Treasure Mountain for the six months ended June 30, 2004 has been derived from
the unaudited financial statements of Treasure Mountain for the six months ended
June 30, 2004 included elsewhere in this prospectus. The historical financial
information regarding Vyteris, Inc. for the year ended December 31, 2003 has
been derived from the audited financial statements of Vyteris, Inc. for the year
ended December 31, 2003, included elsewhere in this prospectus. The historical
financial information regarding Vyteris, Inc. for the six months ended June 30,
2004 has been derived from the unaudited financial statements of Vyteris, Inc.
for the six months ended June 30, 2004, included elsewhere in this prospectus.
-40-
TREASURE MOUNTAIN HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET - UNAUDITED
AS OF JUNE 30, 2004
TREASURE ADJUSTMENT
MOUNTAIN VYTERIS, INC. REFERENCE ADJUSTMENTS COMBINED
--------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,454 $ 2,989,979 (1) $ 12,793,724 $ 15,535,157
(2) (250,000)
Accounts receivable - 32,500 32,500
Prepaid expenses - 354,388 354,388
Accrued interest receivable - 1,704 - 1,704
----------------------------------- ---------------------------------
Total current assets 1,454 3,378,571 12,543,724 15,923,749
Equipment, net - 2,871,712 - 2,871,712
Deferred financing costs - 1,757,692 (3) 1,275,000 1,275,000
(4) (1,757,692)
Deferred offering costs - 258,610 (1) (258,610)
----------------------------------- ---------------------------------
Total assets $ 1,454 $ 8,266,585 $ 11,802,422 $ 20,070,461
=================================== =================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 3,570 $ 911,302 $ 914,872
Accrued expenses - 640,816 640,816
Interest payable - 194,331 194,331
Deferred revenue - 300,000 300,000
Due to related party - 71,587 71,587
Short-term debt 12,167 6,430,297 (2) (500,000) 512,167
(4) (5,430,297)
Current portion of capital lease obligation 19,824 19,824
----------------------------------- ---------------------------------
Total current liabilities 15,737 8,568,157 (5,930,297) 2,653,597
Capital lease obligation, less current portion - 19,429 19,429
Preferred stock:
Series A convertible - 333,333 (2) (333,333) -
Series C convertible - 7,500,000 7,500,000
Stockholders' deficit:
Common stock 3,392 2,485 (1) 1,004 19,289
(2) 83
(3) 100
(4) 850
(5) (3,392)
(6) 14,767
Additional paid-in capital 742,379 34,709,950 (1) 12,534,110 52,744,915
(2) 583,250
(3) 1,274,900
(4) 3,671,755
(5) (756,662)
(6) (14,767)
Deferred compensation (87,394) (87,394)
Accumulated deficit (760,054) (42,779,375) (5) 760,054 (42,779,375)
----------------------------------- ---------------------------------
Total stockholders' (deficit) equity (14,283) (8,154,334) 18,066,052 9,897,435
----------------------------------- ---------------------------------
Total liabilities and stockholders' deficit $ 1,454 $ 8,266,585 $ 11,802,422 $ 20,070,461
=================================== =================================
-41-
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
VYTERIS, INC. PRE-MERGER TRANSACTIONS WHICH WERE PRE-CONDITIONS TO COMPLETION OF
THE MERGER
NOTE 1. To record the issuance of 2,510,019 units, each unit consisting of four
shares of Vyteris, Inc. common stock and a warrant to purchase one share of
Vyteris, Inc. common stock, for approximately $12.8 million in cash
($15.1million net of $1.9 million of placement agent fees and non-accountable
expenses and $.525 million of other expenses related to the transaction) based
upon the assumption the transaction occurred as of June 30, 2004.
NOTE 2. To record the redemption of 333,333 outstanding shares of Series A
convertible, redeemable preferred stock and a $500,000 principal amount Becton
Dickinson convertible note for 833,333 shares of Vyteris, Inc. common stock,
common stock warrants and cash based upon the assumption the transaction
occurred as of June 30, 2004.
NOTE 3. To record the issuance of 1,000,000 shares Vyteris, Inc. common stock as
a cost to establish a $5 million working capital facility based upon the
assumption the transaction occurred as of June 30, 2004.
NOTE 4. To record the conversion of $8,497,500 aggregate principal amount of
convertible secured promissory notes to 8,497,500 shares of Vyteris, Inc. common
stock.
MERGER TRANSACTION
NOTE 5. To record the elimination of Treasure Mountain equity as a result of the
combination.
NOTE 6. To record the 4.19 to 1 conversion of Vyteris, Inc. common shares to
Treasure Mountain common shares and the related adjusted par value.
-42-
TREASURE MOUNTAIN HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
SIX MONTHS ENDED JUNE 30, 2004
TREASURE ADJUSTMENT
MOUNTAIN VYTERIS, INC. REFERENCE ADJUSTMENTS COMBINED
--------------------------------------------------------------------------------------
Revenues $ -- $ 60,000 $ 60,000
Operating expenses:
Research and development -- 5,233,696 5,233,696
General and administrative 64,454 1,487,535 1,551,989
----------------------------------- ---------------------------------
Total operating expenses 64,454 6,721,231 6,785,685
Interest income -- (5,763) (5,763)
Interest expense 209 2,648,150 (1) (2,013,631) 4,534,068
(2) (19,945)
(3) 3,919,285
----------------------------------- ---------------------------------
Net loss $ (64,663) $ (9,303,618) $ 1,855,709 $ (11,253,990)
=================================== =================================
Basic and diluted net loss per share $ (0.08)
=================================
Basic and diluted shares outstanding 145,101,785
=================================
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
VYTERIS, INC. PRE-MERGER TRANSACTIONS WHICH WERE PRE-CONDITIONS TO COMPLETION OF
THE MERGER
NOTE 1. To record the effect on interest expense of the conversion of $8,497,500
aggregate principal amount of convertible secured promissory notes to 8,497,500
shares of Vyteris, Inc. common stock based upon the assumption that the debt was
converted to capital at the date of the initial transaction.
NOTE 2. To eliminate the interest expense for the period January 1, 2004 to June
30, 2004 assuming that the exchange of the $500,000 principal amount Becton
Dickinson convertible note for 166,667 shares of Vyteris, Inc. common stock,
common stock warrants and $250,000 in cash based upon the assumption the
transaction occurred as of January 1, 2004.
NOTE 3. To record the unamortized beneficial conversion feature as interest
expense upon the conversion of the $8,497,500 convertible secured promissory
notes.
-43-
TREASURE MOUNTAIN HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
FOR THE YEAR ENDED DECEMBER 31, 2003
TREASURE ADJUSTMENT
MOUNTAIN VYTERIS, INC. REFERENCE ADJUSTMENTS COMBINED
--------------------------------------------------------------------------------------
Revenues $ 2,297 $ 200,000 $ 202,297
Operating expenses:
Research and development - 8,734,871 8,734,871
General and administrative 30,247 2,454,922 (1) 425,000 2,910,169
----------------------------------- ---------------------------------
Total operating expenses 30,247 11,189,793 425,000 11,645,040
Interest income - (5,775) (5,775)
Interest expense 144 1,787,143 (2) (20,055) 1,767,232
----------------------------------- ---------------------------------
Net loss before state income taxes (28,094) (12,771,161) (20,055) (13,204,200)
Benefit from state income taxes - 238,584 238,584
----------------------------------- ---------------------------------
Net loss $ (28,094) $ (12,532,577) $ (404,945) $ (12,965,616)
=================================== =================================
Basic and diluted net loss per share $ (0.13)
=================================
Basic and diluted shares outstanding 93,360,517
=================================
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
MERGER TRANSACTION
NOTE 1. To record $.425 million of expenses related to the reverse merger
transaction based upon the assumption the transaction occurred as of January 1,
2003.
VYTERIS, INC. PRE-MERGER TRANSACTIONS WHICH WERE PRE-CONDITIONS TO COMPLETION OF
THE MERGER
NOTE 2. To eliminate the interest expense for the period July 1, 2003 to
December 31, 2003 assuming that the exchange of $500,000 principal amount of
Becton Dickinson convertible note for 166,667 shares of common stock, common
stock warrants and $250,000 in cash based on the assumption the transaction
occurred on the issue date, July 1, 2003.
-44-
OUR BUSINESS
OVERVIEW
We have developed and produced the first intelligent, pre-filled, active
transdermal drug delivery system that delivers drugs through the skin
comfortably, without needles. This platform technology can be used to
non-invasively administer certain small molecule, peptide, and protein
therapeutics in a wide range of programmed doses, both systemically and locally.
We believe the control and convenience enabled by our technology has the
potential to:
o improve therapeutic outcomes;
o reduce side-effects;
o increase patient compliance; and
o improve overall cost-effectiveness of drug therapies.
On May 6, 2004, we received approval from the FDA to commercially launch
our first product, LidoSite. LidoSite is a topical delivery system indicated for
use on normal intact skin to provide local anesthesia for needle stick
procedures such as injections and intravenous therapies as well as superficial
dermatological procedures. We have entered into a marketing agreement with B.
Braun to act as our exclusive, worldwide sales and marketing distributor for
LidoSite. We expect to commence shipments of our LidoSite product to B. Braun
during the fourth quarter of 2004 and we expect sales by B. Braun to commence
during the first quarter of 2005. Our clinical data indicates that LidoSite
reduces the pain associated with needle-stick procedures.
We have identified over 90 other FDA-approved drugs to which our drug
delivery technology might be applied. We are focusing our development efforts on
a number of drugs within this group that target large potential markets and for
which our technology may offer significant therapeutic, economic or lifestyle
advantages over existing drug delivery methods. In addition to LidoSite, we have
initiated development of two other products -- one to deliver a drug therapy for
female infertility and one to deliver a drug therapy for migraine headaches. We
believe that our drug delivery technology may significantly improve the
effectiveness of those already-marketed drugs. We also have a third product, at
an earlier stage of development, for the active transdermal delivery of a
currently-marketed therapeutic drug to treat Parkinson's disease.
We recently entered into an agreement with a leading pharmaceutical
company in women's health with respect to the development, licensing and
marketing of a female infertility therapy product based on our technology.
Our LidoSite product consists of single-use, disposable patch containing
a medication, lidocaine, and a small, re-usable and programmable electronic dose
controller. Our compact system can be pre-programmed to deliver medication in
numerous delivery profiles, from a single large dose to multiple timed and
variable doses. We expect that our additional products will be similarly
constituted and that these advantages may increase the potential markets for
targeted therapeutics, and in some cases create new markets.
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The intellectual property that we own is based on significant
improvements we have made to electrotransport, sometimes called iontophoresis,
technology during our 14 years of research and development, 11 of which were as
a division of Becton Dickinson. We have a portfolio of U.S. and international
issued patents. A significant portion of our intellectual property relates to
the design and manufacture of our proprietary disposable, active transdermal
patches and electronic dose controllers.
TECHNOLOGY
OVERVIEW OF ELECTROTRANSPORT
Electrotransport, or more specifically iontophoresis, is an active
transdermal drug delivery process by which drugs can be transported through the
skin, for local or systemic therapeutic applications, by applying a low-level
electrical current. This process differs significantly from passive transdermal
drug delivery that relies on the slow, steady diffusion of small molecule drugs
through skin. Passive drug delivery patches have applications in smoking
cessation, birth control and hormone replacement therapy, and angina. Passive
patches have been successfully commercialized because they provide a slow,
steady release and avoid the blood level peaks and valleys associated with oral
dosing. However, we believe that their applications are limited to a small
number of drug compounds.
By contrast, using active transdermal drug delivery -- iontophoresis --
certain drugs can be delivered through the skin many times faster than by
passive transdermal patches. Moreover, this technology is programmable to allow
a variety of different dosing profiles. For example, active transdermal delivery
can non-invasively duplicate the steady or periodic delivery patterns of
intravenous infusion.
Our proprietary drug delivery technology offers the potential to expand
the applications for transdermal patches to a broader array of drugs across a
wider variety of therapeutic indications. We believe that iontophoretic -- or
active transdermal -- drug delivery retains the advantages of passive patches in
that it is comfortable, non-invasive, easy to use, and convenient. In addition,
because the drug is only delivered when the current is on, our iontophoresis
delivery system is precise, controllable, and programmable. We believe that
these are distinct advantages for the administration of many drugs where
achieving optimal blood levels will greatly improve therapeutic outcomes as well
as reduce or eliminate side effects.
THE VYTERIS APPROACH TO ELECTROTRANSPORT
Our proprietary technology is the result of over 14 years of research
and an investment of over $115 million while part of Becton Dickinson and after
our acquisition from Becton Dickinson. Our goal, and the goal of the original
developers of our technology at Becton Dickinson, was to fully realize the
potential of iontophoresis by creating irritation-free, easy to use, wearable,
low-cost, and disposable systems that would be specifically designed to improve
the administration of certain drugs to address high-value unmet medical needs.
-46-
We have developed a proprietary approach encompassing a series of
significant improvements to iontophoretic drug delivery covering patch and
controller design, drug formulation, commercial manufacturing and more. We have
used this approach with our first product, our LidoSite product, which we expect
to launch commercially with our distribution partner B. Braun in the near
future: we expect to commence shipments of our LidoSite product to B. Braun
during the fourth quarter of 2004 and we expect sales by B. Braun to commence
during the first quarter of 2005. We believe our technology represents the first
viable commercial approach to iontophoretic drug delivery and will enable the
healthcare industry to take full advantage of its benefits.
Many of our innovations center on the way we have approached designing
and producing iontophoretic drug delivery patches. Our iontophoretic drug
delivery patches are pre-filled with the drug during the manufacturing process,
making them easy to use. Our patches are designed to be low cost and disposable
after a single use. Further, we have designed our drug delivery patches so they
could be quickly and cost-effectively mass-produced using automated systems,
which we believe will provide us with substantial cost efficiencies as we scale
up our operations. Our patch design enables us to produce patches that are small
and discreet.
To complement our patch design, we have approached the design of
electronic controllers to ensure they can be small, wearable, simple to operate
and programmable to handle simple as well as complex drug delivery routines. The
dose controller contains a miniature battery and circuitry controlling delivery
rate and is capable of recording information on the amount and time of drug
delivered. We believe the controllability and programmability offered by our
technology are distinct competitive advantages that will enable our products to
deliver more consistent and predicable results for a broad range of existing and
new drugs. Using this technology, we believe we can create a variety of
cost-effective, wearable, drug delivery systems that are non-invasive, discreet
and easy to use in both a clinical environment as well as for day-to-day
self-medication programs such as hormone treatment and pain management.
We have approached the design and development of our active transdermal
drug delivery systems with the objective of maximizing overall delivery system
efficiency while addressing commercial requirements for reproducibility,
formulation stability, safety, convenience and low cost. To achieve this goal,
our delivery system integrates proprietary and patented technology with
commercially available, off-the-shelf components. We believe our active,
transdermal approach offers a level of convenience, control and programmability
not available with other methods of drug delivery, except with programmable
intravenous infusion pumps. Our products can be programmed to precisely control
the rate, dosage and pattern of drug delivery through the skin.
We believe the key advantages of our drug delivery technology are:
o HIGHLY CONTROLLABLE - Enables accurate control over dosage and
duration of delivery - drugs can be delivered fast or slow, in a
single dose or in several doses over time at selected intervals.
o PROGRAMMABLE - Electronic controllers can be programmed to
handle a wide variety of drug delivery dosage profiles with or
without manual adjustment.
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o NON-INVASIVE AND COMFORTABLE - Achieves comparable results to
injections and intravenous administrations without the pain, and
therefore the anxiety, associated with those methods.
o CONSISTENT AND RELIABLE - Enables highly controlled delivery of
intended doses systemically or to a specified target area,
producing predictable results.
o BROADLY APPLICABLE - Potentially useful for delivery of a wide
range of drugs, including certain protein or peptide-based
biotechnology compounds.
o VERIFIABLE - Our systems are capable of automatically capturing
and storing information regarding the exact time and dosage of
drug delivered. This information can be used in disease
management to verify that patients comply with drug therapy
regimens.
We believe our active transdermal drug delivery by iontophoresis
overcomes the limitations of traditional, passive transdermal delivery systems,
such as patches or creams, that are slow to take effect, difficult to control,
and useful for only a limited number of drugs with small molecular structures.
Certain drugs can be delivered by iontophoresis many times faster than by
passive transdermal patches.
Our iontophoretic drug delivery systems have the potential to overcome
many of the limitations associated with other drug delivery methods as well.
Iontophoresis is capable of duplicating the steady or periodic delivery routines
of intravenous infusion non-invasively - without the needle. Further,
iontophoretic administration enables more precise control of drug delivery rates
and dosages, generating more consistent and sustainable drug dosage levels than
oral delivery methods. Further, because iontophoretic drug delivery is
electronically controlled, drugs can be administered gradually over long periods
of time, enabling a sustained-release or programmed delivery.
PRODUCTS
After careful analysis of many FDA-approved drugs suitable for
iontophoresis, we have, thus far, identified approximately 90 drugs where our
technology may offer considerable therapeutic, economic or lifestyle advantages
over existing methods of administration.
From these candidates, we have selected four initial areas in which to
concentrate our product development efforts:
o local anesthesia, our LidoSite product;
o female infertility;
o migraine; and
o Parkinson's disease.
We have signed a worldwide marketing and license agreement with B. Braun for our
first product, our LidoSite product. We recently signed a second agreement, a
development,
-48-
licensing and marketing agreement for a female infertility product with a
leading pharmaceutical company in woman's health. We plan to initiate clinical
studies for our female infertility and migraine products in 2004, and in 2005
for the Parkinson's disease product. There are several other products for
treatment of osteoporosis, deep vein thrombosis, congestive heart failure,
nausea and muscular dysfunction for which we are analyzing market need,
technical feasibility and degree of difficulty in developing.
FIRST COMMERCIAL PRODUCT: LIDOSITE
Many patients, parents, and medical professionals see the pain of needle
insertion as a significant concern. Pharmaceutical companies are developing
products, including pulmonary insulin, nasal flu vaccine, and oral heparin,
ostensibly to avoid needle-based administration. In a 2001 national survey by
Omnital Bruskin Research, 63% of parents considered children's visits to the
doctor uncomfortable, and 1 in 5 said the pain associated with needle injections
was a major concern. According to Vyteris' internal research, There are over 250
million needle-stick procedures performed annually in U.S. hospitals, 33 million
of which are pediatric, and an estimated 80 million pediatric immunization
procedures performed in physicians' offices.
In an attempt to numb the skin prior to needle-stick procedures,
clinicians have used local anesthesia products based on passive transdermal
technology -- i.e., patches and creams. Such products have enjoyed some
commercial success but have significant drawbacks because they are very slow to
take effect -- 60 to 90 minutes -- and achieve limited depth of anesthesia.
Our LidoSite product uses our iontophoretic drug delivery technology to
achieve more rapid, deep local anesthesia prior to needle-stick procedures. We
have received FDA approval to begin selling our LidoSite product in the United
States and expect to begin shipments of our LidoSite product to B. Braun, our
marketing partner for that product, in the fourth quarter of 2004.
Our LidoSite product uses iontophoresis to deliver lidocaine, along with
a small quantity of a vasoconstrictor, epinephrine. Epinephrine accelerates the
onset of anesthesia and extends the duration of pain reduction. The system
comprises a flexible, integrated, pre-filled drug patch and a small reusable
battery-powered, wearable electronic dose controller. Placebo-controlled
clinical studies have shown that use of our LidoSite product will significantly
reduce the pain of both pediatric and adult needle-stick procedures, including
blood draws and intravenous catheter insertions, as well as other skin incision
or puncture procedures.
Our agreement with B. Braun calls for Vyteris to be responsible for
manufacturing and to share a substantial portion of the revenue from the sale by
B. Braun of our LidoSite product. B. Braun will be responsible for marketing,
distribution and international registration. B. Braun, a multinational medical
products company based in Melsungen, Germany, has over $2.7 billion in worldwide
revenue, and operates in over 50 countries with more than 28,000 employees. B.
Braun is a U.S. market leader in regional anesthesia products with a U.S. sales
force comprised of 100 dedicated sales representatives and more than 1,000 sales
representatives through its distributor network. B. Braun markets a wide variety
of healthcare products including infusion pumps,
-49-
medical filters, needle-free intravenous systems, wound care products,
hemodialysis control systems, surgical and anesthesia trays used for pain
control, catheters, urological solutions and other medical and surgical
supplies. We believe that B. Braun's focus on pain management, critical care and
anesthesia products and its global marketing reach make it an excellent
distribution partner for our LidoSite product.
TARGET MARKETS FOR OUR LIDOSITE PRODUCT
We believe the need for rapid dermal anesthesia is present in a broad
and diverse array of market segments. The roll out of market adoption is planned
to occur in four phases:
o U.S. HOSPITALS - Projected launch in the first quarter
of 2005. We believe that B. Braun is positioning our
LidoSite product for use with pediatric patients, 5-17
years old, and adults in hospitals to provide local
dermal anesthesia prior to intravenous therapy starts,
blood draws and other similar needle stick procedures.
o OTHER U.S. MARKETS - Planned launch in 2005. These
markets include dermatological and medical clinics.
o FOREIGN MARKETS - Planned launch in 2006.
o U.S. IMMUNIZATION MARKET - Planned launch in 2007.
Targeted for children younger than five years, we intend
to conduct clinical trials and apply to the FDA to
extend our labeling to the younger segment to be able to
serve more of the market for clinic and physician-office
based immunizations, of which we estimate there are
approximately 80 million performed annually in the U.S.,
based on birthrate statistics from the Department of
Health and Human Services.
KEY ADVANTAGES OF OUR LIDOSITE PRODUCT
We believe that our LidoSite product will have substantial advantages
over other local anesthesia products available on the market because our
clinical trials have shown it consistently prevents pain to a greater depth,
thereby being useful for a wider range of procedures, reliably takes effect
within 10 minutes as compared to 60 to 90 minutes for passive patches or creams,
and is easy to use.
TRENDS SUPPORTING THE MARKET OPPORTUNITY FOR OUR LIDOSITE PRODUCT
Currently, the principal means of administering local dermal anesthesia,
such as lidocaine, is by needle injection, which is fast, effective and long
lasting. However, lidocaine injection, although widely-used for adult
dermatological procedures, such as skin biopsy, and prior to the placement of
large-bore hypodermic needles, such as for spinal punctures, is rarely used in
children for the many routine needle-sticks associated with blood draws,
intravenous catheter insertions and immunization.
The unmet clinical need for an alternative to lidocaine injection is
evidenced by the market acceptance of a topically applied lidocaine cream,
EMLA(R), marketed by Astra
-50-
Zeneca. EMLA was introduced in 1997. According to IMS, sales of EMLA have
increased each year since its introduction and approached $80 million in 2002.
According to the JOURNAL OF THE AMERICAN ACADEMY OF DERMATOLOGY (April, 2001),
EMLA takes 60 to 90 minutes to achieve anesthesia. Despite this, EMLA has gained
widespread acceptance as an alternative to lidocaine injection, especially in
pediatric hospitals and clinics. Even when EMLA is given enough time to become
effective -- that is, 60-90 minutes -- anesthesia is limited to a depth of 2-3
mm according to the JOURNAL OF THE AMERICAN ACADEMY OF DERMATOLOGY (April,
2001). Vyteris believes the onset time required and the depth of anesthesia
achieved makes this product less suitable or impractical for many potential
applications. Yet, despite the many drawbacks to EMLA, it has captured
significant market share and growth since its introduction. Vyteris believes
this is primarily due to its being the only legitimate alternative to an
injection of lidocaine for topical anesthesia. Clinical trials have shown that
our LidoSite product offers:
o a significantly shorter onset time -- 10 minutes;
o greater depth of anesthesia -- 6-10 mm; and
o better efficacy.
We anticipate that our LidoSite product will be priced competitively with EMLA
on a per procedure basis.
ADDITIONAL PRODUCT PIPELINE
FEMALE INFERTILITY
We are in the early stages of development of an iontophoretic system for
treatment of female infertility, designed to deliver an FDA-approved hormone
which induces ovulation when delivered in short, timed pulses throughout the day
and night. Current delivery methods are injection and intravenous pumps. These
products, although effective, are extremely inconvenient, costly and invasive.
To be effective, medication must be delivered in multiple daily doses for 14
days during a female's 28-day cycle. Women seeking the benefits of this therapy
must either receive multiple injections per day or wear an uncomfortable
intravenous pump. We believe that our potential infertility product would offer
the possibility of administering this hormone in multiple transdermal pulses
automatically, around the clock, in a convenient and comfortable manner.
According to a 2002 study from Business Communications Company, Inc.,
the total US market for the treatment of infertility was $2.1 billion in 2001
and is expected to grow to $5.2 billion in 2006. With a multinational
pharmaceutical company specializing in woman's health, we have already completed
pre-clinical testing of this product and have demonstrated the feasibility of
delivering multiple infusions of this hormone via iontophoresis through IN VIVO
animal studies. Our data demonstrates that we can achieve blood hormone levels
using pulsed iontophoretic delivery that are comparable to that achieved by
multiple injections. We recently signed a development, licensing and marketing
agreement with this pharmaceutical company for a specific FDA-approved
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hormone. We plan to begin Phase I clinical studies for this potential
infertility product in 2005.
MIGRAINE
The treatment of migraine requires rapid onset of medication. A class of
compounds known as "triptans" is currently considered the best treatment. We
believe that a significant opportunity exists to improve the efficacy of triptan
therapy for migraines by changing the method and profile of drug delivery. Taken
orally, triptans often fail to deliver sufficient quantities of medication in
the short time frame required to optimally treat migraine onset. Further, they
often fail to prevent the second episode, known as recurrence, that many
migraine patients suffer within 12 to 18 hours after a first attack. Our
technology's programmed delivery capability allows rapid delivery, to combat the
initial onset, followed by a steady low-level maintenance dose, to combat
recurrence. This can be accomplished automatically in a non-invasive, convenient
product. We know of no other product in the market or under development with
this dual capability. This profile of delivery represents a unique and
significantly improved therapy and Vyteris believes it could be a potentially
effective way of preventing recurrence.
According to The Gale Group (PRNewswire, June 1999), approximately 23
million people in the U.S. suffer from severe migraine headaches. According to a
report from Decision Resources, sales of prescription drugs to treat migraine
totaled approximately $1.9 billion in 1999 in the world's largest pharmaceutical
markets, the U.S., the United Kingdom, France, Germany, Italy and Spain. That
report also estimated that such sales would grow to $3.1 billion by 2009. Many
who suffer from migraine claim they cannot work or function during an attack;
others feel extremely ill or depressed. We believe that being able to deliver a
rapid dose followed by a steady, low-level maintenance dose non-invasively, over
an extended period, would benefit many migraine suffers. We initiated Phase I
clinical investigations of a migraine product in July of 2004.
PARKINSON'S DISEASE
Parkinson's disease is a progressively debilitating illness, which
breaks down areas of the brain that are thought to control the coordination of
body movements. While the cause of this disease is unknown, the
neurophysiological reason for the symptoms is the reduced availability of the
neurotransmitter dopamine in the areas of the brain attacked by the disease.
Parkinson's is generally treated with dopamine or drugs that stimulate
dopamine production called dopamine agonists, either alone or in combination.
There are significant disadvantages and side effects associated with the oral
delivery of dopamine agonists. We believe these side effects can be greatly
reduced with our drug delivery technology. We have conducted preliminary
research with a drug commonly used in the treatment of Parkinson's disease. We
believe that active transdermal administration of this drug would provide a safe
vehicle for delivery at levels beyond those that can be safely obtained by oral
administration. Bypassing the gastro-intestinal tract could reduce
-52-
the incidence of nausea, and stable plasma concentration could reduce the
incidence of hallucination and nightmare. In addition, use of a once-a-day
patch, in lieu of orally dosing three times per day, may improve patient
convenience and compliance and may provide greater flexibility and control of
dosing.
According to the National Parkinson Foundation, Inc.'s website, as many
as 1.5 million Americans are currently afflicted with Parkinson's. This number
is expected to grow to 2 million in 2005.
OTHER THERAPEUTIC AREAS
We believe that the ability to provide painless, non-invasive
programmable medication delivery has wide applicability in a variety of
healthcare settings and for a wide variety of compounds and therapies. We have
identified approximately 90 compounds that could be capable of being delivered
by our transdermal system, and our research and business development efforts are
geared towards quantifying the opportunities and moving forward with the most
promising of them. Examples of additional opportunities are: osteoporosis,
deep-vein thrombosis, nausea, muscular dysfunction and congestive heart failure.
OUR STRATEGY
Our goal is to exploit our proprietary technology through the
development and commercial introduction of a number of successful products
incorporating pharmaceuticals into our drug delivery systems. Our business
strategy is to identify unmet medical needs, define products that address those
needs, evaluate the market potential of the defined products, develop such
products through an appropriate clinical stage, partner with strong marketing
companies, complete the development of such products in collaboration with our
partners, manufacture such products, and commercially launch such products
through our marketing partners.
We focus our efforts on applying our platform technology in therapeutic
areas where our approach to drug delivery can substantially improve a drug
therapy, offering therapeutic, economic and lifestyle advantages over existing
methods of delivering the same drug. We intend to partner with pharmaceutical
and other healthcare companies that are market leaders in the specific
therapeutic areas and which can provide immediate market access and financial
support during the later stages of clinical studies. Currently, we are focused
on FDA-approved drugs. We believe this approach reduces clinical risks and
eliminates certain costly and time consuming pre-clinical and clinical studies,
thereby shortening time to approval and materially reducing costs.
To achieve our objectives, we plan to implement the following business
strategy:
o APPLY OUR DRUG DELIVERY TECHNOLOGY TO SPECIFIC THERAPIES
WHERE IT CAN IMPROVE DELIVERY AND EFFICACY WHILE
REDUCING SIDE EFFECTS. We plan to use our proprietary
technology to create products that provide fundamental
improvements in therapy, greatly improving drug
efficacy, eliminating side effects, reducing patient
discomfort and inconvenience, thereby improving
compliance and lowering healthcare costs.
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We believe our patented platform drug delivery
technology is applicable to a broad range of
pharmaceuticals, including small molecules as well as
certain larger compounds and biotechnology-derived
macromolecules, such as proteins and peptides. Our goal
is to use our technology to develop pharmaceutical
products that are programmable, non-invasive, safe and
effective, as well as offer consistent, predictable and
reproducible results.
We intend to develop pharmaceutical products based on
FDA-approved drugs that can substantially improve the
therapeutic value of drugs currently delivered by oral
means, injection, infusion or other means; expand market
penetration for existing therapeutics currently
delivered by oral means, injection, infusion or other
routes; extend existing patent protection or offer new
patent protection, providing important competitive
advantages to our strategic partners and ourselves; and
enable the commercialization of drugs or therapies that
cannot be effectively administered through other drug
delivery methods.
o REDUCE DEVELOPMENT RISK AND COSTS BY FOCUSING ON
APPROVED DRUGS. We plan to focus on drugs with proven
safety and efficacy and that are approved for marketing
by the FDA, but which have certain limitations in their
existing delivery forms. We believe that working
primarily with drugs that have demonstrated safety and
efficacy reduces our technical risks and development
costs and we believe we will be able to bring new
products to market faster.
o RETAIN CONTROL OF PRODUCT DEVELOPMENT. In most cases, we
plan to develop products through to at least proof of
concept in humans before strategic partnering, thereby
establishing more value for our products. We believe
this will put us in a stronger position to negotiate
marketing agreements with prospective partners that will
provide more value to us. We also plan to retain control
of product development after partnering through to
commercial introduction. By retaining control of product
development we believe we will be able to retain a more
significant share of product revenues.
o DEVELOP MARKETING ARRANGEMENTS WITH LEADERS IN SPECIFIC
THERAPEUTIC AREAS. We will seek marketing and late stage
development partnerships with pharmaceutical companies
that can provide established, significant market access
as well as finance late stage clinical trials.
Generally, we will expect our partners to handle sales,
marketing and distribution while we retain manufacturing
responsibility.
o CONCENTRATE ON THERAPEUTIC AREAS WITH LARGE MARKETS. We
intend to focus on areas where we believe the United
States market potential for each of our products is at
least $200 million annually and more than $300 million
on a worldwide basis. We intend to target highly
profitable market segments where we believe we can
materially increase, or even create, the market.
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o MANUFACTURE COMPLETE PRODUCTS. We have established an
experienced manufacturing team. A substantial portion of
our intellectual property resides in the design and
manufacturing of our proprietary products. We intend to
formulate, manufacture and package the patches and
outsource the manufacture of the controllers. By
controlling manufacturing, we believe that we can retain
a greater share of product revenues, better protect and
enhance our intellectual property, position ourselves to
establish manufacturing economies of scale, create
capacity to support a number of product partnerships,
control costs, assure high quality and oversee
regulatory compliance.
o EXTEND THE APPLICATION OF OUR TECHNOLOGY. We intend to
continue to further the development of our technology,
through university collaborations and licensing and
technology collaborations, to extend the ability of our
technology to deliver larger molecules, and other
high-value applications. We intend to continue to seek
patent protection in the U.S. and elsewhere for our
technological advances.
CLINICAL STUDIES
We have received FDA approval for the sale of our LidoSite product in
the United States. Prior to receiving FDA approval, LidoSite underwent extensive
clinical and laboratory testing, culminating in the completion of Phase III
clinical studies in the fourth quarter of 2001. Those Phase III clinical studies
involved 15 sites within the U.S. and over 1,000 human applications of our
system, testing various aspects such as safety, wearability, pain sensation and
reliability. Under the appropriate Investigative New Drug provision of the Food,
Drug and Cosmetic Act, we conducted the following studies of our lidocaine
system in humans.
PHASE I CLINICAL STUDIES.
Phase I clinical studies were initiated as early as 1995 and consisted
of several series:
o design optimization;
o depth of anesthesia;
o pharmacokinetic study;
o effect of delivery site on analgesia;
o non-interference with diagnostic analytes; and
o comparison to EMLA lidocaine cream.
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PHASE II CLINICAL STUDIES.
One study of 48 pediatric -- i.e., 5-18 years old -- patients was
conducted in a major mid-west children's hospital to measure the pain sensation,
or lack thereof, associated with actual clinical use of the Vyteris lidocaine
system. The participants were patients that needed to receive a venipuncture
because of the need to draw blood or the need to place an intravenous catheter.
During these studies, which were randomized and placebo-controlled, clinical
investigators noted pain scores during needle penetration. From these studies,
we were able to conclude that the system could be used easily on these patients
and a statistically significant pain reduction was noted over the placebo
patches.
PHASE III CLINICAL STUDIES.
Vyteris conducted four Phase III clinical studies to demonstrate the
efficacy and safety of our lidocaine delivery system when used for local dermal
anesthesia on intact skin. These Phase III studies consisted of two large-scale
placebo controlled pivotal studies and two supportive dermatological studies. In
all, over 650 patients were evaluated in the four studies. The two pivotal
studies consisted of a double-blind evaluation of our lidocaine delivery system
in pediatric patients, ages 5 to 17, and a double-blind evaluation of the system
in adult patients. In children aged 5 to 17 as well as adults, the study results
demonstrated that those treated with our lidocaine delivery system reported
significantly less pain associated with venipuncture or intravenous insertion
compared to subjects treated with a placebo system.
REGULATORY STATUS OF OUR LIDOSITE PRODUCT
Our LidoSite product is considered a "combination" product by the FDA,
as it consists of a drug-filled patch and a device, our controller. For a
combination product, approval by the FDA requires that a NDA and a 510(k)
notification be submitted to the FDA. In addition, an acceptable Pre-approval
Inspection, or PAI, of our facility, quality systems and data documentation by
the FDA is required. We have reached the following milestones with respect to
the FDA approval process of our LidoSite product:
o JULY 25, 2003. We received an "approvable" letter from
the FDA indicating that the NDA for the drug component
of the LidoSite product -- i.e., the lidocaine-filled
patch -- was approvable pending a successful PAI,
submission of certain additional information requested
by the FDA and final determination of labels and
labeling.
o AUGUST 20, 2003. Our 510(k) pre-market notification of
the electronic dose controller was determined by the FDA
to be substantially equivalent to prior marketed devices
and, therefore, cleared for sale.
o JANUARY 30, 2004. The FDA completed its PAI of our
facility. As a result of that inspection, the FDA's New
Jersey District office recommended that the NDA be
placed in an approvable status.
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o MAY 6, 2004. We received approval from the FDA to
commercially launch our LidoSite product in the United
States.
COMPETITION
Our LidoSite product, and any future products which we may develop, will
likely compete with both conventional drug delivery methods and advanced drug
delivery methods.
CONVENTIONAL DRUG DELIVERY METHODS
Traditionally, the pharmaceutical industry has relied on oral delivery
and injection as the primary methods of administering drugs:
o CONVENTIONAL ORAL METHOD. Conventional, oral drug dosage forms,
such as pills and capsules, are the most common types of drug
delivery. Oral drug delivery methods are easy to administer, but
their efficacy can be limited because drugs must first pass
through the digestive system and liver before being absorbed
into the bloodstream. Orally delivered drug dosages must,
therefore, be large to overcome the degradation that occurs in
the gastrointestinal tract and liver. As a result, conventional
oral dosage forms often produce higher initial drug levels than
are required to achieve the desired therapeutic effects, thereby
increasing the risk of side effects, some of which can be
serious. Also, it is difficult to maintain therapeutically
optimal drug levels using oral drug delivery methods. Further,
oral drug delivery methods can require patients to follow
inconvenient dosing routines, which may diminish patient
compliance with self-medication schedules.
o INJECTION METHODS. Injectable drug dosage forms generally
provide rapid onset of therapeutic action and offer many of the
same advantages as conventional oral drug dosage methods.
Injectable drug delivery methods use needles, raising the
possibility of needle-stick injuries, as well as the risk of
infection to the caregiver and the patient. The use of needles
also increases patient anxiety due to the pain of injection.
Further, patients often find self-injectable therapies
unpleasant. As a result, injected drugs for many chronic and
subchronic diseases meet with varying degrees of patient
acceptance and compliance with the prescribed regimens, which
can lead to increased incidence of medical complications and
potentially higher disease management costs. In addition, some
elderly, infirm or pediatric patients cannot administer their
own injections and require assistance, thereby increasing both
the inconvenience to these patients and the cost of therapy.
ADVANCED DRUG DELIVERY TECHNOLOGIES
The limitations of conventional forms of drug delivery, such as oral and
injection methods, have driven demand for advanced drug delivery alternatives
that are safer, more effective and more convenient. Advanced drug delivery
technologies have improved oral
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and injection methods as well as offering new means of administering drugs, such
as through the skin and the respiratory system. Advanced drug delivery
technologies include sustained release pills and injectables, passive
transdermal patches, infusion pumps, as well as pulmonary, nasal and
transmucosal methods. In some cases, these technologies offer better control
over the release of drugs into the bloodstream, thereby improving therapeutic
efficacy and reducing side effects and risks. In other cases, advanced drug
delivery technologies make therapies easier to administer and support more
complex therapeutic regimens. Innovative drug delivery technologies can offer
many advantages over traditional methods, including ease of use and
administration, greater control of drug concentration in the blood, improved
safety and efficacy, improved patient compliance, expanded indications for
certain therapies, and totally new therapies using drugs that cannot be
delivered otherwise.
The following is an overview of advanced drug delivery technologies and
other alternative methods that could be direct or indirect competitors of our
LidoSite product and any of our potential future products:
o SUSTAINED RELEASE ORAL DOSAGE FORMS are designed to
release the active ingredients of the drug into the body
at either a predetermined point in time or at a
predetermined rate over an extended period of time, but
they generally do not provide rapid onset of action and
may not achieve optimal bioavailability.
o PASSIVE TRANSDERMAL PATCHES allow absorption of drugs
through the skin and generally provide a convenient
method of administering drugs at a steady rate over an
extended period of time, but onset of action may take
hours after application, and absorption of the drug may
continue for hours after the patch is removed, which can
increase side effects. Additionally, because human skin
is an effective barrier, most drug formulations will not
passively permeate the skin in therapeutic quantities.
There is also an element of variability associated with
passive transdermal systems due to variations in skin
characteristics.
o SUSTAINED RELEASE INJECTABLE PREPARATIONS allow
conventional injectable drugs to be incorporated into a
biodegradable material that is then injected and
absorbed slowly into the surrounding tissue. These
preparations reduce the frequency of injections by
creating a small "depot" of the drug beneath the skin
that is slowly absorbed by the body thus increasing the
interval between injections. They can turn a
conventional once-a-day injection into a once weekly or
even longer regimen.
o CONTINUOUS INFUSION PUMPS are small implantable or
externally-worn battery-powered pumps that introduce
drugs directly into the body, using a needle or catheter
inserted into the subcutaneous tissue or directly into
the blood stream or spinal space. They use conventional
drugs, and provide rapid onset of action as well as
sustained or programmed delivery of medication. These
are costly, complex electromechanical devices reserved
mostly for treatment of chronic conditions such as the
delivery of
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insulin for certain diabetes patients and for chronic
intractable pain management for the treatment of certain
forms of spasticity.
o PULMONARY AND NASAL METHODS. Both pulmonary, or
inhalation, delivery and nasal sprays are designed to
provide rapid onset of action or to deliver drugs that
are not orally bioavailable. Variations in a user's
respiratory tract can markedly affect the dose-to-dose
effectiveness of inhaled drugs. Nasal sprays can cause
irritation in some patients and can be difficult to
administer in variable intranasal conditions. In
addition, the patient cannot control dosage over a
period of time, and patients and caregivers may have
difficulty maintaining desired therapeutic effects.
o TRANSMUCOSAL. Transmucosal technology enables drugs to
be delivered through the body's mucosal surfaces. There
are four means by which drugs can be delivered in this
fashion: orally, nasally, rectally and vaginally. In
limited situations, drug absorption through mucosal
surfaces is effective because mucosal tissue is usually
rich in blood supply, providing the means for rapid drug
transport to the systemic circulation.
o JET INJECTION. Jet injection drug delivery technology
uses stored mechanical energy from either a spring or
compressed gas cylinder to ballistically deliver a
liquid or powder through the skin without a needle.
Liquid jet injection has been used for many years with
minimal success. A new technology allows the
administration of small amounts of drugs in dry powder
form through the skin using a specially engineered
device, which propels the drug using a high-powered jet
of helium gas. The gas accelerates the dry drug
particles, enabling penetration of the skin.
We expect that competition for our drug delivery products will come from
current and future marketed products in our targeted therapeutic areas, drug
delivery methods other than iontophoresis and other iontophoresis products.
The attractiveness of the local anesthesia market has compelled new
entrants to challenge EMLA's market share and expand the market still further.
One company, Iomed, Inc., has introduced an iontophoretic lidocaine delivery
system into the market that is faster-acting than EMLA. However, we believe that
Iomed's product, marketed under the label Numby Stuff(R), is complex and
difficult to administer. Numby Stuff uses two separate, large electrode patches:
a drug patch and a grounding patch. The drug patch does not come pre-filled with
the drug; rather, it must be saturated with a specific liquid formula of
lidocaine called Iontocaine(R), which is drawn from a vial prior to use. Both
electrode patches in the Numby Stuff system must then be manually connected to
the power supply/controller using "alligator" clip wires. The electronic
controller is a benchtop model that is manually controlled by a nurse or doctor
and cannot be conveniently worn by the patient.
A number of other advanced local anesthesia products are currently or
potentially under development. AlgoRx Pharmaceuticals, Inc., a spinout of
Powderject plc, for example, is developing a jet injection lidocaine delivery
system that will use a high-powder jet of gas to propel a powder formulation of
the drug through the skin. Other companies, such as Empi, Inc. and Life-Tech,
Inc., have also developed iontophoretic
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systems similar to Iomed's Numby Stuff, but their systems are currently used
with drugs other than lidocaine. We believe that the growing interest in local
anesthesia products, despite their clinical limitations, is a positive
indication of the healthcare industry's strong desire for an effective,
non-invasive, local dermal anesthetic.
Alza Corporation, a Johnson & Johnson subsidiary, with its E-TRANS(R)
system, is the only other company known to have developed pre-filled
iontophoresis technology. Alza has chosen a very different application --
delivery of an opiate-based product for systemic pain management -- for its
first product. Alza has announced that it has received an "approvable" letter
from the FDA. We believe that if there is eventual approval and market
acceptance of Alza's first product, it would provide further validation of the
potential value and utility of iontophoretic drug delivery, making this class of
technology more attractive to the pharmaceutical and health-care industries.
Birch Point Medical, a development stage company, currently markets in
the U.S., through Smith and Nephew, a single use iontophoretic system called
IontoPatch(TM), aimed at the physical therapy market. We believe that the
IontoPatch product is not FDA-approved for any specific therapeutic indication
and is not pre-filled with medication.
Becton Dickinson has substantial insight into the potential applications
of our drug delivery technologies, and our business model, as we were operated
as a division of Becton Dickinson for over ten years. Further, Becton Dickinson
had a designee on our Board of Directors until May 2001. Becton Dickinson is in
the business of developing alternative drug delivery technologies and we may
compete in the future with alternative technologies developed or acquired by
Becton Dickinson.
INTELLECTUAL PROPERTY
We protect our technological and marketing position in advanced
transdermal drug delivery technology by filing U.S. patent applications and,
where appropriate, corresponding foreign patent applications. Trade secrets and
proprietary know-how are also part of our protective strategy. We also maintain
confidential relationships with strategic partners, key vendors and outside
experts. Our success will depend in part upon our ability to protect our
proprietary technology from infringement, misappropriation, duplication and
discovery. Our policy is to apply for patent protection for inventions and
improvements deemed important to the success of our business. We have a
portfolio of United States patents and foreign patents. We have approached the
design and development of our active transdermal drug delivery systems with the
objective of maximizing overall delivery system efficiency while addressing
commercial requirements for reproducibility, formulation stability, safety,
convenience and cost. To achieve this goal, our delivery systems integrate
proprietary and patented technology with commercially available, off-the-shelf
components.
Iontophoresis, as a way of delivering drugs, has been well known for
many years. Our patent portfolio consists of innovations that advance basic
iontophoresis technology through:
o enabling more efficient electrode designs;
o drug formulations enhancing iontophoresis;
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o specific transdermal patch features allowing convenient
use and low manufacturing cost;
o electronic circuitry and program algorithms improving
the safety and control of medication delivery; and
o ability to deliver specific classes of molecules not
previously possible.
We believe these patented features provide for improved clinical
performance and provide a competitive advantage in manufacturing cost and
quality. Some areas in which we have a particular concentration of patents are
components, designs and formulations resulting in little to no skin sensation
during delivery, delivery of cell adhesion inhibitors via iontophoresis,
creating safe, single-use patches that cannot be inadvertently reused, and
patches that can be used with drugs having limited aqueous stability.
MANUFACTURING
PATCH MANUFACTURING
We have completed the design and development of all components of our
single-use iontophoretic patches, including electrodes, printed circuitry,
packaging and drug reservoirs. We have also designed, developed and constructed
an automated manufacturing and assembly system for pre-commercial and commercial
production of LidoSite patches. With this competency in place, we have the
capability of developing and manufacturing other transdermal products.
We plan to conduct our manufacturing in a 14,000 square foot section of
our facility in Fair Lawn, New Jersey. We have developed and installed our first
generation manufacturing line, which should provide sufficient capacity to meet
the first year's demand. Additional capacity -- namely, a second automated
manufacturing line -- is under construction at our equipment supplier, with whom
we have a contract and to whom, as of June 30, 2004, we had made payment of
approximately $1,600,000 out of a total cost of $1,800,000 for the machinery,
which should provide us with sufficient capacity for up to three years. That
machinery is scheduled for delivery during 2004. We design, develop and maintain
our own manufacturing processes, but use third parties to build the automated
assembly equipment and fabricate replacement parts when necessary. While we
believe that we could install the second automated manufacturing line in our
current facility, we are currently exploring the leasing of a second facility to
be utilized as we expand our manufacturing capacity. Operation of a second
facility could result in substantial expenditures. See "Risk Factors -- We
cannot assure you that we will be able to continue manufacturing products from
our current facility with our current equipment effectively, or in a
cost-effective manner."
ELECTRONIC DOSE CONTROLLER DEVELOPMENT AND MANUFACTURING
To date, we have gained significant expertise in the design and
development of miniature, wearable electronic dose controllers using
commercially available, off the shelf components assembled onto miniature
circuit boards. The controller that has been developed for LidoSite is a simple,
single-pulse device initiated by the push of a button, which turns on the
electric current for a ten-minute interval as it delivers the drug.
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Sophisticated control circuitry senses the skin's electrical resistance and
limits the amount of current that is delivered to a safe, comfortable level,
thereby automatically adapting to a wide range of skin types and
characteristics.
Although we designed and developed the controller, have assembled
several prototypes and own various patents on its design, we outsource
manufacturing on a non-exclusive basis to a company specializing in contract
manufacturing of electronic medical devices. In this way, we can use the
knowledge and facilities of the supplier towards the goal of manufacturing a
high-quality, cost-effective controller available in quantities sufficient to
meet market demand. Manufacturing processes and electronic components for the
controller are fairly standardized and widely available.
Future versions of the dose controller for drugs other than lidocaine
may incorporate features such as enhanced programmability, custom componentry
including application specific integrated circuitry, or ASIC, chips, radio
frequency and telemetry technology as the designs evolve to fit various
therapeutic applications and lifestyle aspects of the patient.
GOVERNMENTAL REGULATION
Under the United States Food, Drug and Cosmetic Act, "new drugs" must
obtain clearance from the FDA before they can be marketed lawfully in the United
States. Applications for marketing clearance must be based on extensive clinical
and other testing, the cost of which is very substantial. Approvals -- sometimes
including pricing approvals -- are required from health regulatory authorities
in foreign countries before marketing of pharmaceutical products may commence in
those countries. Requirements for approval may differ from country to country,
and can involve additional testing. There can be substantial delays in obtaining
required clearances from both the FDA and foreign regulatory authorities after
applications are filed. Even after clearances are obtained, further delays may
be encountered before the products become commercially available in countries
requiring pricing approvals.
Product development generally involves the following steps which are
required by the regulatory process:
o preclinical development, during which initial laboratory
development and in vitro and in vivo testing takes place;
o submission to the FDA of an investigational new drug application
(IND) for the commencement of clinical studies;
o adequate and well-controlled human clinical trials -- Phase I,
II and III studies --to establish the safety and efficacy of the
product;
o submission of an NDA to the FDA requesting clearance to market
the product and comparable filings to regulatory agencies
outside the United States if the product is to be marketed
outside of the United States; and
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o clearance from the FDA -- and foreign regulatory authorities, if
applicable --must be obtained before the product can be
marketed.
Medical devices are subject to comparable regulatory requirements..
Each of these steps can take several years and can cost tens of millions
of dollars. Failure to obtain, or delays in obtaining, regulatory clearance to
market new products, as well as other regulatory actions and recalls, could
adversely affect our financial results.
The packaging, labeling and advertising of pharmaceutical products are
also subject to government regulation. The FDA recommends preclearing
advertising materials prior to the launch of a product, and the launch materials
for products receiving an accelerated FDA clearance must be precleared by the
FDA. With an accelerated FDA clearance, all labeling and advertising must be
submitted to the FDA 30 days prior to use, unless the FDA determines otherwise.
In addition, the FDA may require that additional clinical studies - Phase IV
studies - be completed after clearance to market a product has been granted.
FACILITIES
We sub-lease approximately 27,000 square feet of manufacturing,
warehouse, laboratory and office space in Fair Lawn, New Jersey from Becton
Dickinson. This sub-lease expires in 2006 and is renewable at Becton Dickinson's
option. These facilities include manufacturing space sufficient to house our
current patch manufacturing and packaging equipment, and a second manufacturing
line currently being built to our specifications. Our facilities also contain
prototype labs for simultaneous production of clinical supplies of multiple
products, and nine additional labs for research and development and quality
control purposes.
EMPLOYEES
At September 30, 2004, we had a staff of 67 employees. Of those, 21 are
in manufacturing and process development, 19 in regulatory, quality and
analytical services, 13 in research and development, one in business development
and marketing and 13 in administration and management. We believe that our
relations with our employees is good.
LEGAL PROCEEDINGS
In January 1999, Alza Corporation filed an opposition in the European
Patent Office, or EPO, against European Patent No. 0 547 482, entitled
"Iontophoresis System Having Features for Reducing Skin Irritation". We refer to
this patent as the 482 patent. Becton Dickinson owned the `482 patent at the
time Alza filed the opposition and filed an answer challenging the opposition.
Becton Dickinson subsequently assigned the patent to Vyteris, Inc. The EPO
issued a preliminary opinion on November 11, 2000 upholding the `482 patent.
During an oral hearing in the opposition on March 5, 2001, however, the EPO
ruled that the `482 patent's claims lacked an inventive step, and it therefore
revoked
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the patent. Vyteris appealed the EPO's decision. Vyteris requested oral
arguments and submitted written arguments to the EPO on March 26, 2004 to the
EPO for its consideration of amended claims believed patentable over the prior
art of record.
In August 2000, Alza filed an opposition in the EPO against European
Patent No. 0 783 346, entitled "Improved Iontophoretic Drug Delivery Device". We
refer to this patent as the "'346 patent". Becton Dickinson then owned the '346
patent, and subsequently assigned the patent to Vyteris, Inc. In the opposition,
Alza alleged that the patent should be revoked because, among other things, each
of the claims lacks novelty or an inventive step over the prior art. Vyteris
responded to the opposition by amending the specification of the patent,
canceling two of the patent's claims, and submitting arguments that the
remaining claims are patentable over the prior art. Subsequently the opposition
was heard at the EPO on October 8, 2002 and the EPO panel ruled in favor of
Vyteris. Alza has appealed the EPO panel's decision and final oral arguments
will be required prior to a decision on the appeal.
In September of 2004, Alza filed an opposition in the EPO against
European Patent No. 0 971 769, entitled, Circuit and Method for Automatically
Turning Off an Iontophoretic System, which we refer to as the "769 patent". In
the opposition, Alza has alleged that the `769 Patent should be revoked because
each of the claims lacks novelty or an inventive step over the prior art. A
deadline for a response has currently not been set.
MANAGEMENT
EXECUTIVE OFFICERS
The following table identifies our executive officers, their ages as of
September 30, 2004 and their current positions. Each listed person has the same
positions with Treasure Mountain Holdings, Vyteris, Inc. and Vyteris Holdings.
NAME AGE POSITION
---- --- --------
Vincent De Caprio, Ph.D. 53 Chief Executive Officer, President
and Vice Chairman of the Board of
Directors
Michael McGuinness 50 Chief Financial Officer
James Garrison 44 Vice President of Business
Development
C. Gregory Arnold 56 Vice President of Manufacturing and
Process Development
VINCENT DE CAPRIO, PH.D., Chief Executive Officer (June 2004 to
present), President (November 2000 to present) and Vice Chairman of the Board of
Directors (November 2000 to present), joined Vyteris in November 2000 after
spending 23 years at
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Becton Dickinson, a diversified medical products company, including serving as
Senior Vice President and General Manager (1999-2000), Senior Vice President and
Chief Technology Officer (1996-1999) and Senior Vice President, Planning and
Technology (1995-1996) of Becton Dickinson. Prior to that time, he served as
sector president of the Becton Dickinson Technique Products Group (1994-1995),
where he operated as the chief executive officer of four divisions with over
3,000 employees, multiple manufacturing locations and numerous worldwide sales
offices. He was also President of the Becton Dickinson Vascular Access Business.
Dr. De Caprio received a B.S.E.E. from the Newark College of Engineering (New
Jersey Institute of Technology) and an MS and Ph.D. in bioengineering from the
Polytechnic Institute of New York (Polytechnic University).
MICHAEL MCGUINNESS joined Vyteris in September 2001 and has served as
Chief Financial Officer since that time. Mr. McGuinness has 27 years of finance
and accounting experience with large multinational operations, medium sized
public companies and small, early stage companies. From 1998 to 2001, he was the
Chief Financial Officer and a member of the board of directors of EpiGenesis
Pharmaceuticals, Inc., a privately-held biotechnology company, where he was a
member of the negotiating team on two licensing and development agreements and
was instrumental in managing the growth from six to 40 employees. Prior to that
time, he was the Chief Financial Officer of BlueStone Capital Partners, an
investment bank and broker/dealer, and was the principal accounting officer of
Health-Chem Corporation, an American Stock Exchange listed company. Mr.
McGuinness received a BBA in public accounting from Hofstra University and
became certified as a public accountant in New York State in 1984. Mr.
McGuinness' CPA license is currently inactive.
JAMES GARRISON joined Vyteris at its inception in November 2000 and has
served as Vice President of Business Development since that time. From 1996 to
November 2000 Mr. Garrison was Director of Business Development for the Becton
Dickinson Transdermal Systems Group. Prior to that time, he served as Manager of
Business Development for the U.S. operations of Zambon Group SpA (a
pharmaceutical company). Prior to working for Zambon, he held a variety of
positions in research and marketing at American Cyanamid, Citicorp, NA, and JP
Morgan. Mr. Garrison received a BA in English from Rhode Island College, a
Masters of Information Services from Rutgers University and a Masters of
Business Administration from Seton Hall University.
C. GREGORY ARNOLD, Vice President of Manufacturing and Process
Development, joined Vyteris in November 2002. From 1993 to 2002 he was the
executive director of Transdermal Development for Watson Pharmaceuticals
(Theratech), and was responsible for managing manufacturing scale-up and
facility validation for the commercial launch of two transdermal products. Prior
to his employment with Watson, he was the Vice President of Operations for
Cygnus Therapeutic Systems, where he managed manufacturing scale-up and
facilities validation for the commercial introduction of a transdermal product.
Previously, he was Manager of Product Development for Ciba-Geigy Corporation
where he managed manufacturing scale-up and facilities validation for commercial
launches of two transdermal products. Mr. Arnold received a BS in Industrial
Engineering from The Pennsylvania State University.
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BOARD OF DIRECTORS
The following table identifies our directors and their ages as of
September 30, 2004. Each listed person serves on the Boards of each of Treasure
Mountain Holdings, Vyteris, Inc. and Vyteris Holdings. Biographical information
is presented below the table for all of the directors other than Dr. De Caprio,
whose biographical information is presented above.
NAME AGE
---- ---
Donald F. Farley 62
Vincent De Caprio, Ph.D. 53
Paul Citron 57
David DiGiacinto 51
Jack Reich, Ph.D. 56
Solomon Steiner, Ph.D. 67
DONALD F. FARLEY, chairman of the board of Treasure Mountain Holdings,
Vyteris, Inc. and Vyteris Holdings, has served as a member of the Vyteris Board
since its inception in November 2000. He is the chief executive officer of
Spencer Trask Specialty Group, LLC, or STSG, an investment firm which is
affiliated with our controlling stockholder and which is focused on investing in
emerging and development companies in specialty chemicals, food ingredients and
health care. Prior to joining STSG in 1998, Mr. Farley spent more than 30 years
at Pfizer (a diversified health care company), most recently serving as
President of Pfizer Consumer Health Care (from 1996 to 1998) and President of
Pfizer Food Science Group (from 1993 to 1996). Mr. Farley received a BS in
Chemical Engineering from the University of Rhode Island and a Masters of
Business Administration from the University of Hartford. Mr. Farley is also a
director of Minrad, Inc.
PAUL CITRON has served as a member of the Vyteris Board of Directors
since April 2001. Until his recent retirement in 2003, Mr. Citron was Vice
President of Technology Policy and Academic Relations for Medtronic, Inc., a
medical technology company, where he worked in various research and development
and management positions beginning in 1972. He is a founding fellow of the
American Institute of Medical and Biological Engineering and has twice won the
American College of Cardiology Governor's Award for Excellence. Mr. Citron was
elected to the National Academy of Engineering in 2003. He received a BS in
Electrical Engineering from Drexel University and an MS in Electrical
Engineering from University of Minnesota.
DAVID DIGIACINTO has served as the Secretary of Vyteris and a member of
the Board of Directors since its inception in November 2000. He has been a
Senior Managing Director of STSG since April 2000. From December 1982 to March
2000, he worked at Pfizer in various positions including sales, marketing,
business development and general management in the Chemical/Food Science and
Consumer Health Care
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Groups. He holds a BS in Engineering from the U.S. Military Academy at West
Point. Mr. DiGiacinto is also a director of Minrad, Inc.
JACK REICH, PH.D. has served as a member of the Vyteris Board of
Directors since December 2002. Dr. Reich has been an independent consultant
since June 2002. Prior to that time, he was a co-founder and Chief Executive
Officer (March 1999 to June 2002) and director of Collateral Therapeutics, Inc.,
a developer of non-surgical gene therapy products to promote and enhance
angiogenesis that was acquired by Schering AG in 2002. Dr. Reich received a BA
in Biology from Washington and Jefferson College, a BS in Pharmacy from
Creighton University, an MS in Hospital Pharmacy Administration from Temple
University, and a Ph.D. in Pharmaceuticals-International Pharmaceutical
Administration from Temple University.
SOLOMON STEINER, PH.D has served as a member of the Vyteris Board of
Directors since December 2002. Dr. Steiner is founder, Chairman of the Board and
Chief Executive Officer of Global Positioning Group, a pharmaceutical consulting
company, where he has served since October 2002. Dr. Steiner founded
Pharmaceutical Development Corporation, or PDC, a company developing novel drug
delivery technology, in 1991, and is an inventor of its Technosphere(TM) drug
delivery system and MedTone(TM) dry powder inhaler. Dr. Steiner served as PDC's
chief executive officer and chairman of the board of directors from 1991 until
October of 2002 when it merged with MannKind Corporation. Prior to his
employment with PDC, he was a founder and the Chief Executive Officer of
Emisphere Technologies, Inc., a publicly-traded drug delivery company
(1985-1990). Dr. Steiner received a BA and a Ph.D. from New York University.
BOARD COMMITTEES
The Boards of Directors of Treasure Mountain and Vyteris Holdings have
three standing committees: an audit committee, a compensation committee and a
nominating committee. Each such committee is governed by a written charter
Messrs. Citron, Reich and Steiner are members of the audit committees of
Treasure Mountain and Vyteris Holdings, which committees have been established
in accordance with Section 3(a)(58)(A) of the Exchange Act. Dr. Reich serves as
chairman of our audit committee. The audit committee is responsible for the
hiring and dismissal of the outside auditors. During 2003, the Vyteris, Inc.
audit committee held one meeting.
Messrs. DiGiacinto, Farley and Steiner serve on the compensation
committees of Treasure Mountain and Vyteris Holdings, with Mr. Dr. Steiner
serving as chairman. The compensation committee reviews, recommends and approves
compensation for executive officers and other senior level employees, and
administers benefit and compensation plans. During 2003, the Vyteris, Inc.
compensation committee held two meetings.
Messrs. Citron, DiGiacinto and Farley serve on the recently established
nominating committees of Treasure Mountain and Vyteris Holdings, with Mr. Citron
serving as chairman. The nominating committee will be responsible for proposing
to the Board candidates for election to the Board. Vyteris, Inc. did not
maintain a nominating committee.
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Vyteris' Board of Directors conducted five meetings during 2003. No
director currently on Vyteris' Board of Directors attended less than 75% of the
Board and committee meetings that he was required to attend. Treasure Mountain
Holdings' Board of Directors did not conduct any meetings during 2003; all Board
actions were taken by means of the execution of a unanimous written consent by
the directors.
The Board of Directors of Vyteris Holdings has established a procedure
that enables stockholders to communicate in writing with members of the Board.
Any such communication should be addressed to the Chairman of the Board should
be sent to such individual c/o Vyteris Holdings, Inc., 13-01 Pollitt Drive, Fair
Lawn, New Jersey 07410. Any such communication must state, in a conspicuous
manner, that it is intended for distribution to the entire Board of Directors.
Under the procedures established by the Board, upon the Chairman's receipt of
such a communication, the Secretary of the Company will send a copy of such
communication to each member of the Board, identifying it as a communication
received from a stockholder. Absent unusual circumstances, at the next regularly
scheduled meeting of the Board held more than two days after such communication
has been distributed, the Board will consider the substance of any such
communication.
AUDIT COMMITTEE MATTERS
In connection with the preparation of the 2003 year-end audited
financial statements of Vyteris, Inc.:
(1) the Vyteris audit committee reviewed and discussed the audited
financial statements with Vyteris' management;
(2) the Vyteris audit committee discussed with Vyteris' independent
auditors the matters required to be discussed by SAS 61; and
(3) the Vyteris audit committee received and reviewed the written
disclosures and the letter from Vyteris' independent auditors required by the
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees) and discussed with Vyteris' independent auditors any relationships
that may impact their objectivity and independence and satisfied itself as to
the auditors' independence.
EXECUTIVE COMPENSATION
CASH COMPENSATION
The following table sets forth the total cash and non-cash compensation
that Vyteris, Inc. paid or accrued during the years ended December 31, 2003,
2002 and 2001 with respect to Donald Farley, and the individuals who, during
2003, were the four other most highly compensated executive officers of Vyteris,
Inc. The principal components of these individuals' current cash compensation
are the annual base salary and bonus included in the Summary Compensation Table.
We have also described below other compensation these individuals received under
employment agreements and Vyteris' stock option plan. We refer to the persons
identified in the table below as the "named
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executive officers". The number of securities covered by stock options have been
adjusted to give effect to the Treasure Mountain/Vyteris, Inc. merger and the
reincorporation merger.
SUMMARY COMPENSATION TABLE
ALL OTHER
ANNUAL LONG TERM COMPENSATION
COMPENSATION COMPENSATION $(3)
------------------------------------------------------------------------------
SECURITIES
UNDERLYING
OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) (#)(2)
- --------------------------- ---- ---------- ------------ ------
Donald Farley, 2003 -- -- 5,238
Chairman of the Board 2002 -- -- 2,619
2001 -- -- --
Vincent De Caprio, Ph.D., 2003 250,000 122,500 -- 7,000
President and Vice Chairman 2002 250,000 125,000 15,713 5,500
2001 250,000 100,000 -- 5,104
Michael McGuinness, 2003 167,193 69,190 (5) 8,904 4,845
Chief Financial Officer (4) 2002 152,500 23,000 10,475 4,791
2001 47,000 7,000 15,713 953
James Garrison, 2003 150,000 45,000 4,454 4,500
Vice President of Business 2002 128,000 25,600 13,094 4,326
2001 108,000 16,200 -- 3,240
C. Gregory Arnold, 2003 175,000 10,000 13,094 5,250
Vice President, Manufacturing 2002 20,200 -- -- --
and Process Development (6)
- ---------
(1) Bonuses for 2003 include certain bonuses that were earned in 2003 but
were not paid until 2004. Bonuses for 2002 include certain bonuses that
were earned in 2002 but were not paid until 2003. Bonuses for 2001
include certain bonuses that were earned in 2001 but were not paid until
2002.
(2) Options granted to Messrs. De Caprio, McGuinness, Garrison and Farley
during 2002 were canceled in 2004.
(3) Represents matching payment by Vyteris, Inc. under our 401(k) plan.
(4) Mr. McGuinness joined Vyteris, Inc. in September 2001. Mr. McGuinness
also received a retention bonus for 2003 of $22,500 which could only be
used for the exercise of stock options; such bonus was used in 2004 for
the purchase of Vyteris, Inc. common stock.
(5) Bonus includes a non-cash credit awarded to Mr. McGuinness to enable him
to exercise stock options and a $14,390 cash payment to cover taxes due
on such credit.
(6) Mr. Arnold joined Vyteris, Inc. in November 2002.
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The following table contains information regarding the base salary that
we expect to pay to and the cash bonuses that could be earned by Dr. De Caprio,
Mr. McGuinness and Mr. Garrison for the entire year ended December 31, 2004:
NAME AND TITLE BONUS SALARY
-------------- ----- ------
Vincent De Caprio, Ph.D., Chief Executive $280,000 $168,000 (1)
Officer, President and Vice Chairman
of the Board of Directors
Michael McGuinness, Chief Financial
Officer $180,000 $ 60,000 (1)
James Garrison, Vice President of $160,000 $ 48,000 (1)
Business Development
- ---------
(1) Target bonus amount.
STOCK OPTIONS
The following table presents certain information regarding stock options
granted to the named executive officers during 2003 under the Vyteris, Inc.
stock option plan. The number of securities covered by stock options and the
exercise prices have been adjusted to give effect to the Treasure
Mountain/Vyteris, Inc. merger and the reincorporation merger.
INDIVIDUAL GRANTS
- ---------------------- ---------------------- ----------------------- ------------------ -------------------
NAME NUMBER OF
SECURITIES PERCENTAGE OF TOTAL
UNDERLYING OPTIONS OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION
GRANTED (#) EMPLOYEES ($) DATE
- ---------------------- ---------------------- ----------------------- ------------------ -------------------
D. Farley 5,238 4.8% $1.91 6/30/13
- ---------------------- ---------------------- ----------------------- ------------------ -------------------
V. De Caprio 0 0.0% N/A N/A
- ---------------------- ---------------------- ----------------------- ------------------ -------------------
M. McGuinness 8,904 8.1% $1.91 12/31/13
- ---------------------- ---------------------- ----------------------- ------------------ -------------------
J. Garrison 4,452 4.0% $1.91 12/31/13
- ---------------------- ---------------------- ----------------------- ------------------ -------------------
C. Arnold 13,094 11.9% $1.91 (1)
- ---------------------- ---------------------- ----------------------- ------------------ -------------------
- ---------
(1) Options to purchase 25,000 shares of common stock expire 6/30/13;
options to purchase 6,250 shares of common stock expire 12/31/13.
The following table presents information regarding the number of stock
options held by the named executive officers at December 31, 2003. None of the
stock options listed in the table were in-the-money at December 31, 2003. The
number of securities covered by stock options have been adjusted to give effect
to the Treasure Mountain/Vyteris, Inc. merger and the reincorporation merger.
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NUMBER OF SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END (#) OPTIONS AT FISCAL YEAR-END ($)
--------------------------------------------- ----------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
D. Farley 466 6,169 N/A N/A
V. De Caprio 0 15,713 N/A N/A
M. McGuinness 10,475 15,713 N/A N/A
J. Garrison 0 17,546 N/A N/A
C. Arnold 0 13,094 N/A N/A
None of the named executive officers exercised any stock options during
2003.
EMPLOYMENT AGREEMENTS AND MANAGEMENT COMPENSATION
VINCENT DE CAPRIO, PH.D. In June 2004 Vyteris, Inc. entered into an
amended and restated employment agreement with Vincent De Caprio, Ph.D., its
Chief Executive Officer, President and Vice-Chairman. The agreement expires on
December 31, 2005 and may be automatically extended for successive one year
periods until either Dr. De Caprio or Vyteris provides written notice of
termination at least 180 days prior to the end of the initial term or any
renewal term. Under the terms of the agreement, Dr. De Caprio is entitled to
receive a minimum base salary of $280,000 and annual cash bonuses of up to 60%
of base salary, subject to the achievement of certain revenue objectives and
strategic milestones. In September 2004, Vyteris granted Dr. De Caprio options
to purchase 425,000 shares of Vyteris, Inc. common stock, which were converted
into options to purchase 1,780,750 shares upon consummation of the Treasure
Mountain/Vyteris, Inc. merger and which will represent options to purchase
178,075 shares of Vyteris Holdings common stock upon consummation of the
reincorporation merger. Dr. De Caprio's employment agreement requires Vyteris to
grant him additional options from time to time to maintain his ownership of
Vyteris stock at 4% of Vyteris' stock, on a fully-diluted, as-converted basis,
after each financing transaction effected by Vyteris since March 31, 2004, up to
and including a total of $27 million, and in which Vyteris receives cash
proceeds in exchange for the issuance of its common stock or a security
convertible into, exchangeable for or exercisable for shares of common stock.
The agreement contains provisions prohibiting the non-solicitation of employees
and clients, a confidentiality provision and a non-competition provision.
JAMES GARRISON. In December 2003 Vyteris, Inc. entered into an
employment agreement with James Garrison, its Vice President of Business
Development. The agreement expires on December 31, 2005, and may be
automatically extended for successive one-year terms until either Mr. Garrison
or Vyteris provides written notice of termination at least 180 days prior to the
end of the initial term or any renewal term. Under the terms of the agreement,
Mr. Garrison is entitled to receive a minimum base salary of $150,000 and annual
cash bonuses of up to 30% of base salary. Mr. Garrison's qualification for
receiving bonuses is based on achievement of Vyteris' operating plan, budgets
and strategic development milestones, as established by our Board of Directors.
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If Mr. Garrison's employment with Vyteris is terminated by Vyteris
without cause, or by Mr. Garrison for good reason, Mr. Garrison is entitled to
receive his base salary for a period of six months from the date of termination,
as well as all earned but unpaid salary and bonus for the period prior to
termination. If Mr. Garrison's employment with Vyteris is terminated by Vyteris
for cause, or by Mr. Garrison without good reason, Vyteris has no obligation to
pay any further compensation, other than accrued but unpaid salary and bonus
through the date of termination. Mr. Garrison's employment agreement also
prohibits him from competing with Vyteris or interfering with Vyteris'
relationships with its customers, vendors or employees for a period of six
months after his employment is terminated for any reason. Under his employment
agreement, Mr. Garrison is also bound to keep certain information confidential
and to assign to Vyteris any intellectual property developed by him during the
term of his employment.
LIMITATION OF LIABILITY AND INDEMNIFICATION OBLIGATIONS
Pursuant to the provisions of our Certificate of Incorporation, By-laws
and Delaware law, our directors are not personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or any transaction in which a director has derived an improper
personal benefit.
Our By-laws provide for indemnification against liabilities of our
directors, officers, employees and agents, and any person who serves at our
request, as a director, officer, employee, member or agent of another
corporation, partnership, or other enterprise as provided by Delaware law. Our
obligation to indemnify the individuals described above is limited to those
instances in which the individual acted in good faith in the transaction which
is the subject of the lawsuit, and in a manner he or she reasonably believed to
be in, or not opposed to, our best interests. In the case of a suit brought by
us or in our right against any of the above-described individuals, such
individuals will not be indemnified to the extent they are found liable for
gross negligence or willful misconduct, unless the court involved determines
that such individuals are entitled to indemnification. This obligation requires
us to indemnify these individuals or entities against certain liabilities,
including attorneys' fees, which may arise by reason of their status with or
service for us. In connection with our indemnification obligation, we may
advance expenses to these individuals as they are incurred, provided that they
provide a suitable undertaking to repay those advances in certain circumstances.
We also maintains directors' and officers' insurance to cover such individuals.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OVERVIEW
Vyteris, Inc. was incorporated in Delaware in July 2000 by STSG. In
November 2000, Vyteris, Inc. purchased assets from Becton Dickinson comprising
Becton Dickinson's iontophoresis drug delivery products and related research and
development
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program, as well as related patents, patent applications and other intellectual
property. We refer to that transaction as the "Acquisition".
An affiliate of STSG acquired an 82% interest in Treasure Mountain
Holdings in February 2004, resulting in a change in control of Treasure Mountain
Holdings.
Throughout the corporate history of Vyteris, Inc., Vyteris, Inc. has had
material relationships with STSG, its related parties and Becton Dickinson.
Since February 2004, Vyteris, Inc. and Treasure Mountain Holdings were
controlled by STSG and its affiliates, which control Vyteris Holdings as well.
CERTAIN RELATIONSHIPS WITH STSG AND ITS RELATED PARTIES
All references under this caption to the number of shares of Vyteris,
Inc. common stock issued by us have been adjusted to give effect to the Treasure
Mountain/Vyteris, Inc. merger and the reincorporation.
THE ACQUISITION
STSG provided the financing to Vyteris, Inc. for the Acquisition. In
consideration of its initial capital contribution of $9,000,000 made at the time
of the Acquisition in November 2000, STSG acquired 628,500 shares of common
stock and 3,000,000 shares of Vyteris' Series B Convertible Preferred Stock, all
of which shares of preferred stock were subsequently sold back to Vyteris for
nominal consideration and cancelled pursuant to a transaction referred to below
as the "Recapitalization." In connection with the Acquisition, STSG transferred
34,917 and 6,984 shares of common stock held by it to Dr. De Caprio and Mr.
Garrison, respectively.
DEBT FINANCINGS
After Vyteris, Inc. utilized the capital contributed by STSG in the
Acquisition, Vyteris, Inc. was largely dependent upon STSG for its financing.
Between November 2001 and December 2003, STSG and its related parties provided
Vyteris, Inc. with an aggregate amount of debt financing equal to $25,900,000,
representing principal and accrued and unpaid interest calculated through March
31, 2004. On March 31, 2004, Vyteris, Inc. consummated a recapitalization in
which it issued to STSG, and to a trust beneficially owned by Donald Farley, our
Chairman of the Board, in the aggregate, 9,637,000 shares of common stock,
7,500,000 shares of a newly-designated Series C convertible preferred stock and
other nominal consideration, in exchange for $20,350,000 in aggregate principal
amount of 8% convertible secured promissory notes, $2,900,000 principal amount
of 8% secured promissory notes -- which we refer to collectively as the "STSG
Notes" -- $2,615,000 of accrued and unpaid interest as of March 31, 2004 on the
STSG Notes, 3,000,000 shares of Vyteris' Series B Convertible Preferred Stock
and the cancellation of warrants held by STSG to purchase 852,665 shares of
Vyteris, Inc. common stock. We refer to this transaction as the
"Recapitalization."
During February 2004, Vyteris issued secured promissory notes in the
aggregate principal amount of $1,000,000 to STSG and related parties of STSG.
Each of these notes was scheduled to mature 120 days from its respective date of
issuance and bore an annual interest rate of 12%, which was payable on maturity,
and was convertible into
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common stock, at the option of the holders under certain circumstances. During
May 2004, $500,000 in principal amount of these notes was converted into the
Bridge Notes described below. The remaining $500,000 of principal amount of such
notes was due on June 26, 2004 and has been paid in full.
THE BRIDGE FINANCING
In March, April and May of 2004, Vyteris, Inc. issued $8,497,500 in 8%
secured convertible notes, which were scheduled to mature on December 31, 2004,
in a private placement managed by Spencer Trask Ventures, an affiliate of STSG.
We refer to this issuance as the "Bridge Financing" and to the notes issued in
the Bridge Financing as the "Bridge Notes". In the Bridge Financing, Spencer
Trask Ventures received placement fees and non-accountable expense allowances of
$1,039,675 and warrants to purchase 1,068,136 shares of common stock, at an
exercise price of $2.387 per share, as compensation for acting as placement
agent for the Bridge Financing. .
As part of the Bridge Financing, Vyteris, Inc. agreed that in the event
that Spencer Trask Ventures introduces Vyteris, Inc. to a third party which may
be interested in engaging in a business combination or financing arrangement
with Vyteris, Inc., which may include a merger or purchase of some or all of the
stock or assets of Vyteris, an investment in the securities of Vyteris or a loan
to Vyteris, Spencer Trask Ventures will be paid a finder's fee of 7% of the
first $1,000,000 or portion thereof of the consideration paid in such
transaction; PLUS; 6% of the next $1,000,000 or portion thereof of the
consideration paid in such transaction; PLUS 5% of the next $5,000,000 or
portion thereof of the consideration paid in such transaction; PLUS 4% of the
next $1,000,000 or portion thereof of the consideration paid in such
transaction; PLUS 3% of the next $1,000,000 or portion thereof of the
consideration paid in such transaction; PLUS 2.5% of any consideration paid in
such transaction in excess of $9,000,000. Such finder's fee will not be
applicable to an investment by STSG and/or its related parties.
SEPTEMBER 2004 FINANCING
In September 2004, Vyteris, Inc. consummated a private placement of
units consisting of common stock and warrants. Spencer Trask Ventures served as
one of two placement agents in that offering. In connection with this
transaction, Spencer Trask Ventures received placement fees and non-accountable
expense allowances of $1,807,801 and warrants to purchase 971,114 shares of
Vyteris, Inc. common stock, at an exercise price of $3.58 per share, as
compensation for acting as placement agent. We also agreed to pay Spencer Trask
Ventures, as well as an unrelated placement agent, similar cash and warrant
compensation with respect to, and based on, any investment by any investor in
the September 2004 transaction who subsequently invests in us at any time on or
before September 29, 2006: PROVIDED, HOWEVER, neither placement agent will be
entitled to any such compensation for investments made as part of an
underwritten public offering, investments made by STSG or investments made by
any of our employees. In addition, we entered into a right of first refusal
agreement with Spencer Trask Ventures which grants to Spencer Trask Ventures the
irrevocable preferential right of first refusal to purchase for its account or
to act as agent for any proposed private offering of our securities.
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During September 2004, STSG and a trust beneficially owned by Donald
Farley advanced certain sums to Vyteris, Inc. which were converted into units as
part of the September 2004 financing.
CREDIT FACILITY.
In September 2004, we entered into a working capital facility that
enables us to borrow from STSG and related parties up to the lesser of $5.0
million or the sum of qualifying accounts receivable and inventory. As
consideration for receiving this facility, we issued 419,000 shares of common
stock to STSG and related parties. If we borrow funds under this facility, we
will be required to issue 11.5% demand promissory notes to the lenders. These
notes, if any, will be secured by a first priority lien on all the assets of
Vyteris, Inc. Upon each borrowing, we will be required to issue five-year
warrants to purchase our common stock at a price of $3.58 per share in an amount
equal to 40% of the amount of such borrowing.
RELATIONSHIP WITH BECTON DICKINSON
In connection with the Acquisition, Becton Dickinson received 333,333
shares of Vyteris, Inc. Series A convertible preferred stock and 69,834 shares
of common stock and Vyteris, Inc. assumed certain liabilities under contracts
transferred from Becton Dickinson to us. Until May 2001, Becton Dickinson had a
contractual right to designate a member of the Board of Directors of Vyteris,
Inc. and a designee of Becton Dickinson served as a board member until that
time.
In connection with the Acquisition, Becton Dickinson agreed to treat and
hold as confidential for five years all confidential information relating to the
operations and affairs of the business that we purchased. Additionally, for five
years Becton Dickinson agreed not to sell, manufacture, develop, license or
lease any iontophoresis system anywhere in the world, or create, develop or
implement a business plan or strategy for a business that would, directly or
indirectly, sell, manufacture, develop, license or lease any iontophoresis
system anywhere in the world.
We are required to pay Becton Dickinson a royalty in respect of sales of
each iontophoresis product stemming from intellectual property received by us
from Becton Dickinson in the Acquisition. For each such product, on a
country-by-country basis, that obligation continues for the later of 10 years
after the date of the first commercial sale of such product in a country and the
date of the original expiration of the last-to-expire patent related to such
product granted in such country. The royalty, which is to be calculated
semi-annually, will be equal to the greater of 5% of all direct revenues, as
defined below, or 20% of all royalty revenues, with respect to the worldwide
sales on a product by product basis. No royalties will be earned by Becton
Dickinson prior to November 10, 2005. "Direct revenues" are the gross revenues
actually received by us from the commercial sale of any iontophoresis product,
including upfront payments, less amounts paid for taxes, duties, discounts,
rebates, freight, shipping and handling charges or certain other expenses.
"Royalty revenues" are the gross revenues actually received by Vyteris from any
licensing or other fees directly relating to the licensing of any
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iontophoresis product, including upfront payments, less amounts paid for taxes,
duties, discounts, rebates, freight, shipping and handling charges and certain
other expenses.
In connection with the Acquisition, we agreed to hold Becton Dickinson
harmless against damages arising from any breach of the representations,
warranties, agreements and covenants made by us in the related Acquisition
agreement, and we assumed certain liabilities, including liabilities under
environmental laws. Our indemnification obligations generally lasted for two
years, although indemnification obligations with respect to certain
representations and warranties made by us in the Acquisition agreement will last
for the applicable statute of limitations period, which will be longer than two
years.
In connection with the Acquisition, we entered into a sublease agreement
with Becton, Dickinson with respect to our 27,000 square-foot, Fair Lawn, New
Jersey, facility. We pay to Becton Dickinson $23,500 per month in base and
additional rent. For the years ended December 31, 2001, 2002 and 2003 and the
first nine months of 2004, we paid Becton Dickinson $327,000, $292,000, $301,300
and $197,679, respectively, under the sublease. The sublease expires in
September 2006.
In July 2003, Becton Dickinson purchased a $500,000 principal amount 8%
convertible promissory note from Vyteris. The note matured on July 1, 2004.
Warrants to purchase 50,000 shares of common stock at an exercise price of $4.00
per share were issued to Becton Dickinson in connection with its purchase of
that note.
In September 2004, we entered into an exchange agreement with Becton
Dickinson. Pursuant to that agreement, we issued 279,333 shares of common stock
and warrants to purchase an additional 69,833 shares of common stock and
cancelled all of the Series A convertible preferred stock issued to Becton
Dickinson in connection with the Acquisition. At the same time, we converted
$250,000 of debt into 69,833 shares of common stock and warrants to purchase
17,458 shares of common stock and paid Becton Dickinson approximately $300,000
in payment of the balance of our indebtedness to Becton Dickinson.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Vyteris Holdings common stock as of September 30, 2004,
after giving effect to the pending reincorporation of Treasure Mountain Holdings
into Vyteris Holdings, by (i) each person who is known by us to be the
beneficial owner of more than 5% of our outstanding common stock; (ii) each of
our directors and executive officers; and (iii) all of our directors and
executive officers as a group. Unless otherwise specified, the address of each
of the persons set forth below is in care of Vyteris, Inc, 13-01 Pollitt Drive,
Fair Lawn, New Jersey 07410. In determining the number and percentage of shares
beneficially owned by each person, shares that may be acquired by such person
under options or warrants exercisable within 60 days of September 30, 2004,
assuming consummation of the reincorporation merger, are deemed beneficially
owned by such person and are deemed outstanding for purposes of determining the
total number of outstanding shares for such person and are not deemed
outstanding for such purpose for all other stockholders..
-76-
PERCENTAGE
NAME OF BENEFICIAL OWNER AMOUNT (1) OF OUTSTANDING
------------------------ ---------- --------------
Kevin Kimberlin (2) 13,795,178 62.3%
Vincent De Caprio (3) 88,339 *
Michael McGuinness (4) 56,146 *
James Garrison (5) 44,309 *
C. Gregory Arnold (6) 10,789 *
Donald Farley (7) 228,590 1.2
Paul Citron (8) 9,270 *
David DiGiacinto (9) 9,270 *
Jack Reich (10) 7,175 *
Solomon Steiner (11) 38,600 *
Directors and Officers
as a group (9 persons)(12) 492,490 2.5
* Represents less than one percent.
(1) Since this table gives effect to the reincorporation merger, all
shareholdings have been adjusted to reflect the 1 for 10 reverse stock split
that will occur in connection with the reincorporation merger.
(2) Represents (i) 10,247,648 shares of common stock which were acquired upon
consummation of the Treasure Mountain/Vyteris, Inc. merger by STSG, of which Mr.
Kimberlin is the non-member manager; (ii) 419,000 shares of common stock which
were acquired by STSG in exchange for extending to us a line of credit through
November 15, 2005; (iii) 278,164 shares of common stock owned by Scimitar
Holdings, LLC, or Scimitar, a New York limited liability company and
wholly-owned subsidiary of Spencer Trask & Co., a Delaware corporation, of which
Mr. Kimberlin is the controlling stockholder and chairman, (iv) 776,199 shares
of common stock issuable upon conversion of our Series B convertible preferred
stock; (v) 2,039,249 shares of common stock issuable upon exercise of warrants
to purchase a total of 2,039,249 shares of common stock issued to Spencer Trask
Ventures, Inc., and (vi) 34,917 shares of common stock issuable upon exercise of
warrants issued to STSG. Does not include (a) 388,273 shares of common stock
acquired in the Treasure Mountain/Vyteris, Inc. by Spencer Trask Private Equity
Fund I LP, Spencer Trask Private Equity Fund II LP, Spencer Trask Private Equity
Accredited Fund III LLC, and Spencer Trask Illumination Fund LLC, which we refer
to as the "Funds", as to which Mr. Kimberlin disclaims beneficial ownership, or
(b) 758,156 shares of common stock acquired in the Treasure Mountain/Vyteris,
Inc. by Qubit Holdings, LLC, a Delaware limited liability company owned by
certain trusts for the benefit of Mr. Kimberlin's children, as to which Mr.
Kimberlin disclaims beneficial ownership. Spencer Trask & Co. is a 100% owner of
the manager of each of the Funds. The Funds also own warrants to purchase an
aggregate of 149,443 shares of common stock, as to which Mr. Kimberlin disclaims
beneficial ownership, and Qubit Holdings, LLC also owns warrants to purchase an
aggregate of 189,539 shares of common stock, as to which Mr. Kimberlin disclaims
beneficial ownership. The information provided in this prospectus with respect
to Mr. Kimberlin is derived in part from a Form 4 report submitted by Mr.
Kimberlin to the SEC.
(3) Includes 17,808 shares of common stock which are issuable upon the exercise
of warrants. Dr. De Caprio also owns options to purchase shares of common stock
which will not vest prior to November 30, 2004.
(4) Includes 40,433 shares of common stock which are issuable upon the exercise
of stock options. Mr. McGuinness also owns options to purchase additional shares
of common stock which will not vest prior to November 30, 2004.
-77-
(5) Includes 37,325 shares of common stock which are issuable upon the exercise
of stock options. Mr. Garrison also owns options to purchase additional shares
of common stock which will not vest prior to November 30, 2004.
(6) Represents shares of common stock which are issuable upon the exercise of
stock options. Mr. Arnold also owns options to purchase additional shares of
common stock which will not vest prior to November 30, 2004.
(7) Includes (i) 115,619 shares of common stock owned by a trust for which Mr.
Farley serves as a trustee, (ii) 9,425 shares issuable shares of common stock
issuable upon conversion of our Series B convertible preferred stock, (iii)
23,045 shares of common stock issuable upon exercise of warrants and (iv) 9,270
shares of common stock which are issuable upon the exercise of stock options.
Mr. Farley also owns options to purchase additional shares of common stock which
will not vest prior to November 30, 2004. Mr. Farley, an employee of an
affiliate of STSG, disclaims beneficial ownership with respect to securities
owned by STSG and its affiliates, as he has no power to vote or dispose of those
securities.
(8) Represents shares of common stock which are issuable upon the exercise of
stock options. Mr. Citron also owns options to purchase additional shares of
common stock which will not vest prior to November 30, 2004.
(9) Represents shares of common stock which are issuable upon the exercise of
stock options. Mr. DiGiacinto also owns options to purchase additional shares of
common stock which will not vest prior to November 30, 2004. Mr. DiGiacinto, an
employee of an affiliate of STSG, disclaims beneficial ownership with respect to
securities owned by STSG and its affiliates, as he has no power to vote or
dispose of those securities.
(10) Represents shares of common stock which are issuable upon the exercise of
stock options. Mr. Reich also owns options to purchase additional shares of
common stock which will not vest prior to November 30, 2004.
(11) Includes (i) 10,475 shares of common stock issuable upon the exercise of
warrants, and (ii) 7,175 shares of common stock which are issuable upon the
exercise of stock options. Dr. Steiner also owns options to purchase additional
shares of common stock which will not vest prior to November 30, 2004.
(12) Includes (i) 115,619 shares of common stock owned by a trust for which Mr.
Farley serves as a trustee, (ii) 9,425 shares issuable shares of common stock
issuable upon conversion of our Series B convertible preferred stock, (y) 51,327
shares of common stock issuable upon the exercise of warrants and (iv) 130,711
shares of common stock which are issuable upon the exercise of stock options.
The directors and executive officers also own options to purchase additional
shares of common stock which will not vest prior to November 30, 2004.
SELLING STOCKHOLDERS
The following table provides information regarding the selling
stockholders and the number of shares of common stock they are offering, which
includes shares issuable upon exercise of warrants held by the selling
stockholders. Under the rules of the SEC, beneficial ownership includes shares
over which the indicated beneficial owner exercises voting or investment power.
Shares of common stock subject to warrants and options that are currently
exercisable or will become exercisable within 60 days are deemed outstanding for
purposes of computing the percentage ownership of the person holding the
warrants and options but are not deemed outstanding for purposes of computing
the percentage ownership of any other person.
-78-
Unless otherwise indicated in the footnotes below, we believe that the
persons and entities named in the table have sole voting and investment power
with respect to all shares beneficially owned. The information regarding shares
beneficially owned after the offering assumes the sale of all shares offered by
each of the selling stockholders. The percentage ownership data is based on
19,294,002 shares of our common stock issued and outstanding as of October 31,
2004. In the table, the number in parenthesis reflects the portion of the
immediately preceding number that represents shares covered by warrants. All
such warrants are immediately exercisable upon consummation of our
reincorporation merger except as otherwise stated in the footnotes to the table.
The following persons identified in the table below as selling
stockholders are affiliated or associated with Kevin Kimberlin, our principal
and controlling shareholder:
o Spencer Trask Ventures, which was the placement agent in
two recent financings by Vyteris, Inc.;
o Spencer Trask Private Equity Fund I, Spencer Trask
Private Equity Fund II, Spencer Trask Private Equity
Accredited Fund III, LLC and Spencer Trask Illumination
Fund, each of which funds is managed by an entity which
is 100% owned by Spencer Trask & Co., an affiliate of
Mr. Kimberlin; Mr. Kimberlin disclaims any pecuniary
interest in such funds.
See "Certain Relationships and Related Transactions -- Certain Relationships
with STSG and its Related Parties" and "Principal Stockholders".
The following persons identified in the table below as selling
stockholders are directors of Vyteris Holdings and Treasure Mountain: Vincent De
Caprio, Donald Farley and Solomon Steiner. Dr. De Caprio is also an executive
officer of Vyteris Holdings and Treasure Mountain.
Lane Clissold and George Norman are former executive officers and
directors of Treasure Mountain.
Except as noted above, no selling stockholder has had any material
relationship with us or any of our affiliates within the past three years, other
than as a stockholder.
The shares of common stock covered by this prospectus may be sold by the
selling stockholders, by those persons or entities to whom they transfer,
donate, devise, pledge or distribute their shares or by other successors in
interest. We are registering the shares of our common stock for resale by the
selling stockholders defined below.
-79-
- ----------------------------------- ------------------------- -------------------------- ---------------------
Number of Shares
Number of shares beneficially owned
beneficially owned Number of Shares Offered after the Offering
Selling Stockholder prior to the Offering(1) by this Prospectus* *(2) (3)
- ----------------------------------- ------------------------- -------------------------- ---------------------
- ----------------------------------- ------------------------- -------------------------- ---------------------
Northlea Partners Ltd. 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Issac Abishour 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Arnaud Achour 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Lincoln Adair & Sally Adair TIC 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Eula L. Adams 69,833 (13,967) 69,833 (13,967) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Evan B. Azrilant 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
William D. Barnes 3,143 (629) 3,143 (629) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
David T. Barry 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Hayman Partners, LP 34,917 (6,983) 34,917 (6,983) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Michal Beckenstein 3,492 (698) 3,492 (698) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Joe N. & Jamie Behrendt Revocable 8,380 (1,676) 8,380 (1,676) 0
Trust 10/26/96
- ----------------------------------- ------------------------- -------------------------- ---------------------
Gibralt Capital Corporation 104,750 (20,950) 104,750 (20,950) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
James & Catherine Benedict TIC 3,562 (712) 3,562 (712) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Jeffrey Benton 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Robert Berger 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Roger A. Berger 1,781 (356) 1,781 (356) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Robert G. Betterman 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Samir H. Bhatt 5,238 (1,048) 5,238 (1,048) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Fred B. Bialek 20,950 (4,190) 20,950 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Ronni & Paul Bianco JTWROS 2,095 (419) 2,095 (419) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Jeffrey Blomstedt & Susan Lascala 4,190 (838) 4,190 (838) 0
JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Hans C. Bodmer 69,833 (13,967) 69,833 (13,967) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Delaware Charter GTY & TR C/F Sep 4,365 (873) 4,365 (873) 0
IRA Istvan Boksay M.D.
- ----------------------------------- ------------------------- -------------------------- ---------------------
Delaware Charter G&T Co FBO 4,190(838) 4,190(838) 0
Elizabeth H. Bone SEP IRA
- ----------------------------------- ------------------------- -------------------------- ---------------------
James Bonvissuto 25,140 (5,028) 25,140 (5,028) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Dorothy Breslin 52,375 (10,475) 52,375 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Vincent J. Buccellato & Ellen N. 4,190 (838) 4,190 (838) 0
Buccellato JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Robert Burkhardt 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Kenneth G.D. Campbell 3,562 (712) 3,562 (712) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Adrian Catalano 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Kreidietbank (Suisse) SA Acting 17,458 (3,492) 17,458 (3,492) 0
for Customers A/C
- ----------------------------------- ------------------------- -------------------------- ---------------------
Robert D. Charles 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Paul Chiamulera 2,095 (419) 2,095 (419) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Donald E. Cohen 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Rick Cohen 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Stephen L. Cohen 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
J.M.O Colton 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Larry Colvin 6,983 (1,397) 6,983 (1,397) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Kevin P. Conroy 34,917 (6,983) 34,917 (6,983) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Douglas T. Conti 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Paul Cosgrave Retirement Plan 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Jeffrey W. Csiszar 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Paul Curtis 3,143 (629) 3,143 (629) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
David D' Addario 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
-80-
- ----------------------------------- ------------------------- -------------------------- ---------------------
Number of Shares
Number of shares beneficially owned
beneficially owned Number of Shares Offered after the Offering
Selling Stockholder prior to the Offering(1) by this Prospectus* *(2) (3)
- ----------------------------------- ------------------------- -------------------------- ---------------------
James A. Davenport & Rebecca C. 4,190 (838) 4,190 (838) 0
Davenport JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Jacqueline de Sibour 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Dean Delis 35,615 (7,123) 35,615 (7,123) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Dennis R. Deloach, Jr. 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Nicholas & Barbara DeLuca JTWROS 4,365 (873) 4,365 (873) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Tan/DeMattei Family Trust of 8,380 (1,676) 8,380 (1,676) 0
1999
- ----------------------------------- ------------------------- -------------------------- ---------------------
David A. Dent 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
DeWaay Holding Company 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Lincoln Associates LLC 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Garfield Associates LLC 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Spencer Trask Private Equity Fund 175,980 (50,280) 175,980 (50,280) 0
I LP
- ----------------------------------- ------------------------- -------------------------- ---------------------
Spencer Trask Private Equity Fund 90,085 (25,559) 90,085 (25,559) 0
II LP
- ----------------------------------- ------------------------- -------------------------- ---------------------
Spencer Trask Private Equity 113,829 (32,403) 113,829 (32,403) 0
Accredited Fund III, LLC
- ----------------------------------- ------------------------- -------------------------- ---------------------
Spencer Trask Illumination Fund, 157,824 (41,202) 157,824 (41,202) 0
LLC
- ----------------------------------- ------------------------- -------------------------- ---------------------
Lorraine DiPaolo 20,950 (4,190) 20,950 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Dr. Richard Dold 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Reading Finance Ltd. 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Turret Oy AB 52,375 (10,475) 52,375 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Delaware Charter G&T C/F 4,190 (838) 4,190 (838) 0
Elizabeth A. Eller IRA
- ----------------------------------- ------------------------- -------------------------- ---------------------
Bel Air Associates, LLC 17,458 (3,492) 17,458 (3,492) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Suzanne B. Engel 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Donald F. Farley 228,589 (23,045) (4) 94,275 (23,045) 134,314 (0)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Reiner Fenske 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
The Meadowbrook Capital Corp. 20,950 (4,190) 20,950 (4,190) 0
Profit Sharing Plan (5)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Field & Field Limited Partnership 35,615 (7,123) 35,615 (7,123) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
W. Thomas Finley & Wendy W. Finley 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Michel Finzi 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Brian Baruch Fischoff & Andrea 4,190 (838) 4,190 (838) 0
Fischoff JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Stephen Fitzpatrick 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Jonathan D. Fleisig 35,615 (7,123) 35,615 (7,123) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Qubit Holdings, LLC 947,696 (189,539) (6) 947,696 (189,539) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
James L. Foght 17,458 (3,492) 17,458 (3,492) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Otto Folkerts 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Robert Frankel 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Gilles P. des Gachons 27,235 (5,447) 27,235 (5,447) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Chicago Investments, Inc. 20,950 (4,190) 20,950 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Walter G. Gans 17,458 (3,492) 17,458 (3,492) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Crisostomo Garcia Trust 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
William N. Gardiner Jr. 17,808 (3,562) 17,808 (3,562) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Harold S. Gault 27,933 (5,587) 27,933 (5,587) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Richard Gearns & Linda Gearns 4,190 (838) 4,190 (838) 0
JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
-81-
- ----------------------------------- ------------------------- -------------------------- ---------------------
Number of Shares
Number of shares beneficially owned
beneficially owned Number of Shares Offered after the Offering
Selling Stockholder prior to the Offering(1) by this Prospectus* *(2) (3)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Bear Stearns Corp Custodian FBO 8,729 (1,746) 8,729 (1,746) 0
Alan Gibstein IRA R/O
- ----------------------------------- ------------------------- -------------------------- ---------------------
Richard Gill 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Jerome Z. Ginsburg 34,917 (6,983) 34,917 (6,983) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Adam Gnall & Joan Gnall 5,238 (1,048) 5,238 (1,048) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Adam Gnall Jr. 5,238 (1,048) 5,238 (1,048) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Steven Gomez 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Jo Frank Goodman Living Trust 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Steve Goodman 31,425 (6,285) 31,425 (6,285) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Hubert Graham 2,095 (419) 2,095 (419) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Michael Gray 16,760 (3,352) 16,760 (3,352) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Richard Gunst 20,950 (4,190) 20,950 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Jamie Haberman 3,143 (629) 3,143 (629) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
The Brice T. Hall Family Trust 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Roland F. Hartman Trust DTD 4,190 (838) 4,190 (838) 0
6/5/98 Roland F. Hartman TTEE
- ----------------------------------- ------------------------- -------------------------- ---------------------
Harold A. Havekotte 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
R.H. & S.H. Farms LLC 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
George C. Holzinger, Jr. 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Byron C. & Julie L. Hughey 4,190 (838) 4,190 (838) 0
Tenants By the Entirety
- ----------------------------------- ------------------------- -------------------------- ---------------------
Andre Iseli 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Alec Jaret 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Roger O. Jeanty 20,950 (4,190) 20,950 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
DCG&T c/f Chatri Jhunjhnuwala SEP 34,917 (6,983) 34,917 (6,983) 0
IRA
- ----------------------------------- ------------------------- -------------------------- ---------------------
Craig Johnson & Kimberly Young 69,833 (13,967) 69,833 (13,967) 0
JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Craig Jones 52,375 (10,475) 52,375 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
W. Kentley Jones 17,458 (3,492) 17,458 (3,492) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
David V. Kahn 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Jonathan E. Kahn 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Intertel & Co. 34,568 (6,914) 34,568 (6,914) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Kanter Family Foundation 20,950 (4,190) 20,950 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
OY FINCOMP AP 34,917 (6,984) 34,917 (6,984) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
The Shirley Keys Family Trust UAD 4,190 (838) 4,190 (838) 0
4/22/99 - Shirely Keys TTEE
- ----------------------------------- ------------------------- -------------------------- ---------------------
Delaware Charter G&T Co. FBO 8,380 (1,676) 8,380 (1,676) 0
Benjamin King IRA
- ----------------------------------- ------------------------- -------------------------- ---------------------
Steven King 20,950 (4,190) 20,950 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Everett P. Kirch & Linda R. Kirch 4,190 (838) 4,190 (838) 0
JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Charles F. Kireker III 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
William R. Kirk Jr. 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Robert Klein 20,950 (4,190) 20,950 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
William P. Klingenstein 83,800 (16,760) 83,800 (16,760) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
A. Eugene Kohn 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
La Capitale Oy 18,855 (3,771) 18,855 (3,771) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Benny Kokia 5,238 (1,048) 5,238 (1,048) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
-82-
- ----------------------------------- ------------------------- -------------------------- ---------------------
Number of Shares
Number of shares beneficially owned
beneficially owned Number of Shares Offered after the Offering
Selling Stockholder prior to the Offering(1) by this Prospectus* *(2) (3)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Christian Kolster 35,615 (7,123) 35,615 (7,123) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Warren Kramer 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
K&R Negotiation Associates LLC 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Thaddeus B. Kubis & Maria G. 6,285 (1,257) 6,285 (1,257) 0
Kubis JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Shellie Lyn Peck Lee 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Amnon Levav 6,983 (1,397) 6,983 (1,397) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Joanna Struett 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Robert Levy Jr. 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
George Ligeti and Jennifer 8,380 (1,676) 8,380 (1,676) 0
Ligeti, Tenants by the Entirety
- ----------------------------------- ------------------------- -------------------------- ---------------------
Banque Carnegie Luxembourg SA 34,915 (6,983) 34,915 (6,983) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Peter Lissy 2,095 (419) 2,095 (419) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Charles J. Loegering 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Herbert London 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Stephen H. Lulla 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Thomas Lustenring 5,238 (1,048) 5,238 (1,048) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
GSSF Master Fund, L.P. 349,167 (69,834)(7) 349,167 (69,834) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Timothy Maher 17,458 (3,492) 17,458 (3,492) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Richard M. Mandell 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Joseph O Manzi 39,805 (12,151) 39,805 (12,151) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Malcolm Marsden 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Thomas A. Masci, Jr. 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Richard Mayeri 3,143 (629) 3,143 (629) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Bradley Resources Company (8) 16,760 (3,352) 16,760 (3,352) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Michael McGuire 12,570 (2,514) 12,570 (2,514) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Kathleen S. McHugh 2,095 (419) 2,095 (419) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Paul McVeety 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Plum Glen Partners LP 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Robert Merkle 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Maurice Meyer III 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Lawrence W. Milne, M.D.& Debra 10,475 (2,095) 10,475 (2,095) 0
J. Milne JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
David J. Moore 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Marvin Moser 20,950 (4,190) 20,950 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Mouton Family Living Trust 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Michael Murray 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Amy M. Musiker 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Harold Nicholson & Maryanne 2,095 (419) 2,095 (419) 0
Nicholson JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Linda Nicholson & Michael 2,095 (419) 2,095 (419) 0
Nicholson JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Gus & Karen Nicolopoulos 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Mel Okeon M.D. Med. Corp Profit 10,475 (2,095) 10,475 (2,095) 0
Sharing Trust
- ----------------------------------- ------------------------- -------------------------- ---------------------
Gilbert S. Omenn 31,425 (9,637) 31,425 (9,637) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Bremer Otso 17,458 (3,492) 17,458 (3,492) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Kim Palmroos 26,188 (5,238) 26,188 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Suresh Patel 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
-83-
- ----------------------------------- ------------------------- -------------------------- ---------------------
Number of Shares
Number of shares beneficially owned
beneficially owned Number of Shares Offered after the Offering
Selling Stockholder prior to the Offering(1) by this Prospectus* *(2) (3)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Craig Patnode 6,983 (1,397) 6,983 (1,397) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Bruce H. Paul 20,950 (4,190) 20,950 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Christopher K. Pepper 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
C. Don Petersen, Sr. 3,143 (629) 3,143 (629) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Lisa Peterson & Mark Smith JTWROS 5,238 (1048) 5,238 (1048) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Salvatore Piga 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
James Pizzo 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Richard H. Pollak 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Edward W. Probert 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
K.V. Rajagopalan 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Kevin L. Reilly 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Donald S. Rice 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Louis E. Rosen & Randi H. Rosen 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Edward J. Rovegno 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Bernard D. Sadow 17,458 (3,492) 17,458 (3,492) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Richard Santos 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Darren Saville 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Daniel R. Schmidt 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
J. Fred Schmidt & J. Fred Schmidt 6,285 (1,257) 6,285 (1,257) 0
III
- ----------------------------------- ------------------------- -------------------------- ---------------------
Schulman Associates (9) 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Larry Schwartz 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Donald Seiden & Jane B. Seiden 12,570 (2,514) 12,570 (2,514) 0
JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Allen Sessoms 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Rami Ben Shalom 41,900 (8,380) 41,900 (8,380) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Shea Ventures LLC 34,917 (6,983) 34,917 (6,983) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Barry Shemaria 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Ronald M. Shippel 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Laurie K. Silverman 2,095 (419) 2,095 (419) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Adam Glen Smith 3,143 (629) 3,143 (629) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Elliot Sokolow 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Bluegrass Growth Fund LP 43,646 (8,729) 43,646 (8,729) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Bluegrass Growth Fund, Ltd. 43,646 (8,729) 43,646 (8,729) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Harvey Sorkin 20,950 (4,190) 20,950 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Howard Sorkin 20,950 (4,190) 20,950 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
James & Deborah Soyak JTWROS 59,358 (11,872) 59,358 (11,872) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
David & Susan Stollwerk JT/WROS 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Clayton Struve 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Matthew A. Sutton Revocable Trust 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Dr. Patrick Sutton 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Gerald B. Swartz 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Ship Commodities International 10,475 (2,095) 10,475 (2,095) 0
Inc. (10)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Amy Taus 10,475 (2,095) 10,475 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Kenneth E. Thorpe 5,238 (1,048) 5,238 (1,048) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Tretter Family Revocable Living 20,950 (4,190) 20,950 (4,190) 0
Trust
- ----------------------------------- ------------------------- -------------------------- ---------------------
-84-
- ----------------------------------- ------------------------- -------------------------- ---------------------
Number of Shares
Number of shares beneficially owned
beneficially owned Number of Shares Offered after the Offering
Selling Stockholder prior to the Offering(1) by this Prospectus* *(2) (3)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Sysco Oy 17,458 (3,492) 17,458 (3,492) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Daniel Valk 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Jorma Vanhanen 73,325 (14,665) 73,325 (14,665) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Peter D. Veritas 6,285 (1,257) 6,285 (1,257) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
DCG&T Co FBO Ross G. Walker III 12,570 (2,514) 12,570 (2,514) 0
IRA R/O
- ----------------------------------- ------------------------- -------------------------- ---------------------
Joan K. Warnke 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Paul J. Weir 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Howard Wenig 20,950 (4,190) 20,950 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Peter Westermann 8,904 (1,781) 8,904 (1,781) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Joseph Westley 8,380 (1,676) 8,380 (1,676) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
DIYR Plans Inc. Money Purchase 69,833 (13,967) 69,833 (13,967) 0
Plan and Trust as adopted by Don
Wheeler Enterprises, Inc. (11)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Mark S. Whiting 104,750 (20,950) 104,750 (20,950) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Lester O. Wuerfl, Barbara W. 4,190 (838) 4,190 (838) 0
Wuerfl and Patricia O'Brien
(TTEEs) (12)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Ray Y. Yamada 4,190 (838) 4,190 (838) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Wayne P. Yetter 5,238 (1,048) 5,238 (1,048) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Oded Zucker 8,729 (1,746) 8,729 (1,746) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Bristol Investment Fund, Ltd. (13) 244,417 (48,883)(14) 244,417 (48,883) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Cranshire Capital, LP (15) 87,292 (17,458) 87,292 (17,458) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Crescent International Ltd. (16) 71,213 (14,243) 71,213 (14,243) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Metropolitan Eye Surgery, PC 78,563 (26,188) 78,563 (26,188) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
DCG&T C/F Jack T. Badgett IRA R/O 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Robert S. Beadle 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
The Joe N. and Jamie Behrendt 31,425 (10,475) 31,425 (10,475) 0
Revocable Trust 10/30/96 (17)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Lon E. Bell 78,563 (26,188) 78,563 (26,188) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Peter Bellini 9,428 (3,143) 9,428 (3,143) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Robert Bennie 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Kim M. Berretta Trust DTD 10/24/94 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Cliff Berger 157,125 (52,375) 157,125 (52,375) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
PEAK Private Equity AG 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
The Bansi Bhaswani Revocable 15,713 (5,238) 15,713 (5,238) 0
Trust dtd-6-23-92 (18)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Gregory A. Burrows & Lorraine E. 15,713 (5,238) 15,713 (5,238) 0
Burrows JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Edward P. Callahan 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
John J. Callahan 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Jack Cardwell 94,275 (31,425) 94,275 (31,425) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Daniel C. Chestler 25,140 (8,380) 25,140 (8,380) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Andrew Cohen Profit Sharing Plan 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Lawrence Cohen Investment Trust 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Morris Holdings, LLC 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Warren Cohen 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Arthur G. Cooper 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
AS Capital Partners, LLC 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
85
- ----------------------------------- ------------------------- -------------------------- ---------------------
Number of Shares
Number of shares beneficially owned
beneficially owned Number of Shares Offered after the Offering
Selling Stockholder prior to the Offering(1) by this Prospectus* *(2) (3)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Malcom R. Currie 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Vincent De Caprio 88,340 (17,808) 53,423 (17,808) 34,917 (0)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Steven H Deutsch & Wilma K. 18,855 (6,285) 18,855 (6,285) 0
Deutsch JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Cindy Dolgin 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Jules H. Dreyfuss 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
U. Bertram Ellis Jr. 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Joseph Fabiani 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Dr. Saul Fenster 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Harold Finelt 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Andrew Fisher 314,250 (104,750) (19) 314,250 (104,750) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Richard J. Forsyth 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
John P. Funkey Revocable Trust 31,425 (10,475) 31,425 (10,475) 0
2/26/90
- ----------------------------------- ------------------------- -------------------------- ---------------------
James B. Gallinatti Jr. & Ellen 62,850 (20,950) 62,850 (20,950) 0
T. Gallinatti
- ----------------------------------- ------------------------- -------------------------- ---------------------
David M. Gilson 21,998 (7,333) 21,998 (7,333) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Samuel Goekjian 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Camino Investment Corp. 12,570 (4,190) 12,570 (4,190) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Allan S. & Edward S. Gordon TTEE 31,425 (10,475) 31,425 (10,475) 0
s u/a 12/19/86 FBO Allan S. Gordon
- ----------------------------------- ------------------------- -------------------------- ---------------------
Indata Services Co. 62,850 (20,950) 62,850 (20,950) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Palladium Equity Partners 6,285 (2,095) 6,285 (2,095) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Peter C. Gould 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Maurice and Stacey Gozlan 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Greenwood Partners, LP 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Cape May Investors, Inc. 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
James M. Grooms Trust 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Star Ridge Management Corporation 628,500 (209,500)(20) 628,500 (209,500) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Joseph W. Halligan Trust DTD 31,425 (10,475) 31,425 (10,475) 0
12/20/21
- ----------------------------------- ------------------------- -------------------------- ---------------------
Douglas Hannah 21,998 (7,333) 21,998 (7,333) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Gerald Hannahs 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Robert Harrigan & Cindy Lane 15,713 (5,238) 15,713 (5,238) 0
(JTWROS)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Todd W. Harrigan & Amy R. 15,713 (5,238) 15,713 (5,238) 0
Harrigan JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Roland F. Hartman Trust DTD 15,713 (5,238) 15,713 (5,238) 0
6/5/98 Roland F. Hartman TTEE
- ----------------------------------- ------------------------- -------------------------- ---------------------
DCG&T c/f Robert G. Heidenreich 15,713 (5,238) 15,713 (5,238) 0
IRA
- ----------------------------------- ------------------------- -------------------------- ---------------------
Eagle Drive Partners 37,710 (12,570) 37,710 (12,570) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Speedus Corporation 377,100 (125,700) (21) 377,100 (125,700) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Clariden Bank 125,700 (41,900) 125,700 (41,900) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Andre Iseli 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
John J. Kealy Revocable Trust dtd 15,713 (5,238) 15,713 (5,238) 0
8/15/96 John J. Kealy TTEE
- ----------------------------------- ------------------------- -------------------------- ---------------------
Robert Klein 62,850 (20,950) 62,850 (20,950) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
John Kokales 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Kenneth J. Kostal 62,850 (20,950) 62,850 (20,950) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Gregory Leishman 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
-86-
- ----------------------------------- ------------------------- -------------------------- ---------------------
Number of Shares
Number of shares beneficially owned
beneficially owned Number of Shares Offered after the Offering
Selling Stockholder prior to the Offering(1) by this Prospectus* *(2) (3)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Lee Levine 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Delaware Charter Guarantee & 15,713 (5,238) 15,713 (5,238) 0
Trust Co. C/F Seshagiri Rao
Mallampati IRA
- ----------------------------------- ------------------------- -------------------------- ---------------------
Rakesh Mathur 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Gerald & Patricia Mc Bride JTWROS 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Awatto Ltd. Partn. 62,850 (20,950) 62,850 (20,950) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Aegon LTD. 25,140 (8,380) 25,140 (8,380) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Craig H. Millet 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Richard J. Mish 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Richard Molinsky 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
E.A. Moos & Co. LP 78,563 (26,188) 78,563 (26,188) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
DCG&T Co FBO Edward A. Moos IRA 78,563 (26,188) 78,563 (26,188) 0
ROTH
- ----------------------------------- ------------------------- -------------------------- ---------------------
Union Securities Ltd. 62,850 (20,950) 62,850 (20,950) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Barry Newman 94,275 (31,425) 94,275 (31,425) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Amy Newmark c/f Elle Anne Damiano 15,713 (5,238) 15,713 (5,238) 0
UGMA
- ----------------------------------- ------------------------- -------------------------- ---------------------
Amy Newmark c/f Michael Jay 15,713 (5,238) 15,713 (5,238) 0
Damiano UGMA
- ----------------------------------- ------------------------- -------------------------- ---------------------
Edward J. O'Connell 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
John Orlando 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
THE PAUL F PETRUS REV TRUST OF 21,998 (7,333) 21,998 (7,333) 0
1988 UAD 4-15-88
- ----------------------------------- ------------------------- -------------------------- ---------------------
Michael J. Pierce 47,138 (15,713) 47,138 (15,713) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Michael M. Pierce 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Dr. V.J. L.K. Raju & Dr. Govind 15,713 (5,238) 15,713 (5,238) 0
S. Raju JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Dr. Daniel Ruben 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Alan J. Rubin 78,563 (26,188) 78,563 (26,188) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Burton M. Sack 62,850 (20,950) 62,850 (20,950) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Sack Family Partners L.P. 53,423 (17,808) 53,423 (17,808) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Howard Schrager 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Shea Ventures, LLC 62,850 (20,950) 62,850 (20,950) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
J. Edward Shrawder 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Arthur Silverman 18,855 (6,285) 18,855 (6,285) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Sweetland L.L.C. 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Craig Spieker 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
S & S Separate Property Trust DTD 15,713 (5,238) 15,713 (5,238) 0
3/7/03
- ----------------------------------- ------------------------- -------------------------- ---------------------
Statler Family Trust 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Solomon S. Steiner 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Richard E. Stites & Jane L. 37,710 (12,570) 37,710 (12,570) 0
Stites JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
David Sydorick 157,125 (52,375) 157,125 (52,375) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Richard Paney 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
William Thacker & Susan Thacker 31,425 (10,475) 31,425 (10,475) 0
JTWROS
- ----------------------------------- ------------------------- -------------------------- ---------------------
Malcolm Thompson 25,140 (8,380) 25,140 (8,380) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
-87-
- ----------------------------------- ------------------------- -------------------------- ---------------------
Number of Shares
Number of shares beneficially owned
beneficially owned Number of Shares Offered after the Offering
Selling Stockholder prior to the Offering(1) by this Prospectus* *(2) (3)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Samuel V. Vail 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
2,039,250 2,039,250 (2,039,250) 0
Spencer Trask Ventures, Inc. (2,039,250)(22)
- ----------------------------------- ------------------------- -------------------------- ---------------------
Rodman & Renshaw 80,584 (80,584) 80,584 (80,584) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Premnath Viswanath 39,281 (13,094) 39,281 (13,094) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
John V. Wagner, Jr. 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Thomas G. Wales 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Kevin Weisbeck 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
James R. Whiting 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Ralph C. Wintrode Trust dtd May 15,713 (5,238) 15,713 (5,238) 0
9, 2001
- ----------------------------------- ------------------------- -------------------------- ---------------------
Marvin Woodall 31,425 (10,475) 31,425 (10,475) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Michael Zimmerman 15,713 (5,238) 15,713 (5,238) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
B. Braun Medical, Inc. 91,172 (38,797) 91,172 (38,797) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Lane Clissold 75,000 (75,000) 75,000 (75,000) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
George I. Norman 75,000 (75,000) 75,000 (75,000) 0
- ----------------------------------- ------------------------- -------------------------- ---------------------
Spencer Trask Specialty Group, LLC 11,477,764 (34,967)(23) 174,583 (34,917) 11,303,181 (0)(24)
- ----------------------------------- ------------------------- -------------------------- ---------------------
* The number in parenthesis reflects the portion of the immediately preceding
number that represents shares covered by warrants. All such warrants are
immediately exercisable upon consummation of our reincorporation merger except
as otherwise stated in the footnotes to this table.
(1) Except as expressly indicated in a footnote to this table, such shares
represent less than one percent of the shares of Vyteris Holdings' common stock
to be outstanding upon consummation of the reincorporation merger.
(2) Assumes that each selling stockholder will sell all of the shares set forth
in the column "Shares Offered by this Prospectus." There can be no assurance
that the selling stockholders will actually sell all or any of the shares
offered hereunder.
(3) Except as expressly indicated in a footnote to this table, such shares
represent less than one percent of the shares of Vyteris Holdings' common stock
to be outstanding upon consummation of the reincorporation merger.
(4) Prior to the sale of shares by the selling stockholders, which we refer to
as the "Offering", Mr. Farley's beneficial ownership is approximately 1.33% of
the outstanding shares. Includes (i) 115,619 shares of common stock owned by a
trust for which Mr. Farley serves as a trustee, (ii) 9,425 shares issuable
shares of common stock issuable upon conversion of our Series B convertible
preferred stock, (iii) 23,045 shares of common stock issuable upon exercise of
warrants and (iv) 9,270 shares of common stock which are issuable upon the
exercise of stock options. Mr. Farley also owns options to purchase additional
shares of common stock which will not vest prior to November 30, 2004. Mr.
Farley, an employee of an affiliate of STSG, disclaims beneficial ownership with
respect to securities owned by STSG and its affiliates.
(5) Voting and/or investment control is held by Louis Ferrari.
(6) Prior to the Offering, Qubit Holdings, LLC's beneficial ownership is
approximately 4.9% of the outstanding shares.
(7) Prior to the Offering, GSSF Master Fund, L.P.'s beneficial ownership is
approximately 1.8% of the outstanding shares.
(8) Voting and/or investment control is held by George W. Holbrook, Jr. and
James R. McGoogan.
(9) Voting and/or investment control is held by Benjamin Schulman.
(10) Voting and/or investment control is held by Celia Sexton Tate.
(11) Voting and/or investment control is held by Donald Wheeler.
(12) Voting and/or investment control is held by Barbara Wuerfl and Patricia
O'Brien.
(13) Voting and investment control is held by Paul Kessler, as manager of
Bristol Capital Advisors, LLC, the investment manager to Bristol Investment
Fund, Ltd.
(14) Prior to the Offering, Bristol Investment Fund, Ltd.'s beneficial ownership
is approximately 1.26% of the outstanding shares.
(15) Voting control and investment discretion is held by Mel Craw and Maxi
Brezzi, in their capacity as managers of Greenlight (Switzerland) SA, the
investment advisor to Crescent International Ltd. Mssrs. Craw and Brezzl
disclaim beneficial ownership of such shares.
(16) Voting and/or investment control is held by Brice Hall.
(17) Voting and/or investment control is held by Joe N. Behrendt and Jamie W.
Behrendt.
(18) Voting and/or investment control is held by Bansi Bharwani.
-88-
(19) Prior to the Offering, Mr. Fisher's beneficial ownership is approximately
1.62% of the outstanding shares.
(20) Prior to the Offering, Star Ridge Management Corporation's beneficial
ownership is approximately 3.22% of the outstanding shares.
(21) Prior to the Offering, Speedus Corporation's beneficial ownership is
approximately 1.94% of the outstanding shares.
(22) Prior to the Offering, Spencer Trask Ventures, Inc.'s beneficial ownership
is approximately 9.56% of the outstanding shares.
(23) Prior to the Offering, STSG's beneficial ownership is approximately 57.09%
of the outstanding shares.
(24) Following the Offering, STSG's beneficial ownership will be approximately
56.32% of the outstanding shares.
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PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, donees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility on
which the shares arc traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:
o ordinary brokerage transactions and transactions in
which the broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to
sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the
transaction;
o purchases by a broker-dealer as principal and resale by
the broker-dealer for its account;
o an exchange distribution in accordance with the rules of
the applicable exchange;
o privately negotiated transactions;
o settlement of short sales;
o broker-dealers may agree with the selling stockholders
to sell a specified number of such shares at a
stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144, if
available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts relating to its sales of shares to exceed what is customary in the
types of transactions involved.
The selling stockholders may from time to time pledge or grant a
security interest in some or all of the common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and
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sell the shares of common stock from time to time under this prospectus, or
under an amendment to this Prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The selling stockholders have
informed Vyteris Holdings that it does not have any agreement or understanding,
directly or indirectly, with any person to distribute the common stock.
Vyteris Holdings is required to pay all fees and expenses incurred by
Vyteris Holdings incident to the registration of the shares. Vyteris Holdings
has agreed to indemnify the selling stockholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act.
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ORGANIZATIONAL HISTORY AND DESCRIPTION OF OUR CAPITAL STOCK
ORGANIZATIONAL HISTORY
VYTERIS, INC.
Vyteris, Inc. was incorporated in Delaware in July 2000. Since the
closing of the Acquisition in November 2000, Vyteris, Inc. has been engaged in
the development of its drug delivery system business.
TREASURE MOUNTAIN HOLDINGS, INC.
Treasure Mountain Holdings, Inc. was organized in Utah as Treasure
Mountain Mining Company in 1954 to engage in the business of mining, milling,
processing and marketing various minerals, primarily tungsten. Treasure Mountain
engaged in the mining business for a period of time after inception and acquired
various mineral leases, but became relatively inactive for several years until
approximately 1997. In 1997, the corporation's name was changed to Treasure
Mountain Holdings, Inc., it was re-domiciled as a Nevada corporation and the
Utah corporation was subsequently dissolved.
On August 11, 2001, Treasure Mountain Holdings executed a license
agreement to acquire the worldwide, exclusive license to make, manufacture,
sell, attach a trademark or trade name to, and to exercise incidents of
ownership in and to all interests, proprietary rights and improvement in and to
a product known as the "Java Stir". On February 26, 2004, an affiliate of the
controlling stockholder of Vyteris, Inc. acquired 82% of the outstanding common
stock of Treasure Mountain Holdings. In its Annual Report on Form 10-KSB for the
year ended December 31, 2003, Treasure Mountain Holdings stated that:
"Management is reviewing and evaluating our present business and
financial position and it is anticipated that our business
activities and plan of operations will change following the
change of control. We have terminated our exclusive license
agreement to manufacture and market the "Java Stir" product.
Presently, we have no definitive plans as to our future
operations nor have we entered into any agreement or
understanding involving any potential new business or activity."
TREASURE MOUNTAIN HOLDINGS/VYTERIS MERGER
On July 8, 2004, Treasure Mountain Holdings and Vyteris, Inc. entered
into a merger agreement and plan of reorganization. We refer to that agreement,
as amended on September 29, 2004, as the "Treasure Mountain Merger Agreement".
Pursuant to the Treasure Mountain Merger Agreement, on September 29, 2004:
o a wholly-owned subsidiary of Treasure Mountain Holdings merged
with and into Vyteris, Inc.;
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o Vyteris, Inc. became a wholly-owned subsidiary of Treasure
Mountain Holdings;
o the existing directors of Treasure Mountain Holdings resigned
and the directors of Vyteris, Inc. immediately prior to the consummation of the
Merger - Donald Farley, Paul Citron, David DiGiacinto, Jack Reich, Solomon
Steiner and Vincent DeCaprio - became the sole directors of Treasure Mountain
Holdings;
o the existing officers of Treasure Mountain Holdings resigned and
the executive officers of Vyteris, Inc. immediately prior to the consummation of
the merger became the executive officers of Treasure Mountain Holdings; more
specifically, Vincent De Caprio became the Chief Executive Officer of Treasure
Mountain Holdings, Michael McGuinness became the Chief Financial Officer of
Treasure Mountain Holdings, James Garrison became the Vice President of Business
Development of Treasure Mountain Holdings and C. Gregory Arnold became the Vice
President of Manufacturing and Process Development of Treasure Mountain
Holdings; and
o as more specifically described below, the outstanding capital
stock of Vyteris, Inc was automatically converted into the right to receive
capital stock of Treasure Mountain Holdings, the outstanding warrants to
purchase Vyteris, Inc. common stock were automatically converted into the right
to receive warrants to purchase Treasure Mountain Holdings common stock and the
outstanding options to purchase Vyteris, Inc. common stock were automatically
converted into the right to receive options to purchase Treasure Mountain
Holdings Common Stock.
The conversion ratio provided for in the Treasure Mountain Merger
Agreement was 4.19. As a result of the use of this conversion ratio:
o Each outstanding share of Vyteris, Inc. common stock was
automatically converted into the right to receive 4.19 shares of
Treasure Mountain Holdings common stock. Immediately prior to
the consummation of the Treasure Mountain/Vyteris, Inc. merger,
there were 45,236,797 shares of Vyteris, Inc. common stock
outstanding. Accordingly, the shares of Vyteris, Inc. common
stock outstanding immediately prior to the consummation of the
Treasure Mountain/Vyteris, Inc. merger were converted into the
right to receive approximately 189,542,180 shares of Treasure
Mountain Holdings common sock.
o Each outstanding share of Vyteris, Inc. Series C convertible
preferred stock was automatically converted into the right to
receive one share of Treasure Mountain Holdings Series B
convertible preferred stock. Each share of Treasure Mountain
Holdings Series B convertible preferred stock is convertible
into a number of shares of Treasure Mountain Holdings common
stock equal to (i) 4.19 multiplied by (ii) the number of shares
of Vyteris, Inc. common stock into which one share of Vyteris,
Inc. Series C convertible preferred stock was convertible prior
to the consummation of the Treasure Mountain/Vyteris, Inc.
merger. The Vyteris, Inc. Series C
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convertible preferred stock was convertible into one quarter of
a share of Vyteris, Inc. common stock if converted at any time
within 18 months of March 31, 2004, one third of a share of
Vyteris, Inc. common stock if converted at any time within the
18 months thereafter and two thirds of a share of Vyteris, Inc.
common stock if converted at any time thereafter. Immediately
prior to the consummation of the Treasure Mountain/Vyteris, Inc.
merger, there were 7,500,000 shares of Vyteris, Inc. Series C
convertible preferred stock outstanding. Accordingly, the shares
of Vyteris, Inc. Series C convertible preferred stock
outstanding immediately prior to the consummation of the
Treasure Mountain/Vyteris, Inc. merger have been converted into
the right to receive 7,500,000 shares of Treasure Mountain
Holdings Series B convertible preferred stock, which shares are
initially convertible into the right to receive a total of
7,856,250 shares of Treasure Mountain Holdings common stock.
o Each outstanding option and warrant to purchase one or more
shares of Vyteris, Inc. common stock -- which we refer to as an
existing option or an existing warrant - was automatically
converted into an option or warrant to purchase one or more
shares of Treasure Mountain Holdings common stock -- which we
refer to as a new option or a new warrant. The number of shares
of Treasure Mountain Holdings common stock covered by each new
option or new warrant equals the number of shares of Vyteris,
Inc. common stock covered by the corresponding existing option
or existing warrant multiplied by 4.19. The exercise price of
each new option or new warrant equals the exercise price of the
corresponding existing option or existing warrant divided by
4.19. Immediately prior to the consummation of the Treasure
Mountain/Vyteris, Inc. merger, there were existing options
outstanding covering 3,766,911 shares of Vyteris, Inc. common
stock and there were existing warrants outstanding covering
12,168,965 shares of Vyteris, Inc. common stock. Accordingly,
upon consummation of the Treasure Mountain/Vyteris, Inc. merger,
the existing options were converted into new options to purchase
a total of 15,783,357 shares of Treasure Mountain Holdings
common sock and the existing warrants were converted into new
warrants to purchase a total of 50,987,962 shares of Treasure
Mountain Holdings common stock.
In summary, the following number of shares of Treasure Mountain Holdings
common stock became issuable to former holders of Vyteris, Inc. capital stock,
options and warrants by virtue of the consummation of the Treasure
Mountain/Vyteris, Inc. merger:
o 189,542,180 shares upon conversion of the outstanding
Vyteris, Inc. common stock in the Treasure
Mountain/Vyteris, Inc. merger;
o 7,856,250 shares initially issuable upon conversion of
the Treasure Mountain Holdings Series B convertible
preferred stock issuable in the Treasure
Mountain/Vyteris, Inc. merger;
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o 15,783,357 shares issuable upon exercise of the new
options; and
o 50,987,962 shares issuable upon exercise of the new
warrants.
The sum of these shares, 269,067,587 shares, represent the number of shares of
Treasure Mountain Holdings common stock issuable pursuant to the Treasure
Mountain/Vyteris, Inc. merger. We refer to this sum as the "Vyteris Fully
Diluted Number".
Immediately prior to the consummation of the Treasure Mountain/Vyteris,
Inc. merger, there were 3,397,836 shares of Treasure Mountain Common Stock
outstanding. By virtue of the Treasure Mountain/Vyteris, Inc. merger, warrants
covering an additional 1,500,000 shares of Treasure Mountain Holdings common
stock were granted to two former executive officers and directors of Treasure
Mountain Holdings. We refer to the sum of these shares, 4,897,836 shares, as the
"Initial Treasure Mountain Fully Diluted Number".
The sum of the Vyteris Fully Diluted Number and the Initial Treasure
Mountain Fully Diluted Number, 273,979,704 shares, represents the number of
shares of Treasure Mountain Holdings common stock that were issued or issuable
upon consummation of the Treasure Mountain/Vyteris, Inc. merger. We refer to
this sum as the "Treasure Mountain Fully Diluted Number".
At the time that the Treasure Mountain/Vyteris, Inc. merger was
completed, Treasure Mountain Holdings was only authorized to issue 50,000,000
shares of Treasure Mountain Holdings common stock, which amount is substantially
less than the Treasure Mountain Fully Diluted Number. Furthermore, at that time
Treasure Mountain Holdings was not authorized to issue any shares of preferred
stock. To assure the former holders of Vyteris, Inc. capital stock, existing
options and existing warrants that they will receive the securities to which
they are entitled pursuant to the Treasure Mountain Merger Agreement, the
Treasure Mountain Merger Agreement provided for the following steps to occur:
o the former holders of Vyteris, Inc. common stock received stock
certificates representing a total of 45,062,883 shares of
Treasure Mountain Holdings common stock, allocated on a
proportional basis among such former holders; we refer to these
shares as the "Initially Certificated Shares";
o the former holders of Vyteris, Inc. common stock received common
stock rights certificates entitling such holders to receive a
total of 144,479,297 shares of Treasure Mountain common stock,
or a total of 14,447,930 shares of Vyteris Holdings common
stock, as soon as one of the remedial steps described below is
taken;
o the former holders of Vyteris, Inc. Series C convertible
preferred stock received preferred stock rights certificates
entitling such holders to receive a total of 7,500,000 shares of
Treasure Mountain Holdings Series B
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convertible preferred stock initially convertible into a total
of 7,856,250 shares of Treasure Mountain Holdings common stock,
or a total of 7,500,000 shares of Vyteris Holdings Series B
convertible preferred stock initially convertible into a total
of 785,625 shares of Vyteris Holdings common stock, as soon as
one of the remedial steps described below is taken;
o the new options to purchase a total of 15,783,357 shares of
Treasure Mountain Holdings common stock may not be exercised
until one of the remedial steps described below is taken;
o the new warrants to purchase a total of 50,987,962 shares of
Treasure Mountain Holdings common stock may not be exercised
until one of the remedial steps described below is taken; and
o Treasure Mountain Holdings was required to take one of two
remedial steps: either Treasure Mountain would reincorporate
into a Delaware wholly-owned subsidiary that has a sufficient
number of authorized shares of capital stock to satisfy Treasure
Mountain Holding's obligations under the above-mentioned rights
certificates, new options and new warrants or Treasure Mountain
Holdings would amend its certificate of incorporation to
authorize a sufficient number of authorized shares of capital
stock to satisfy Treasure Mountain Holding's obligations under
the above-mentioned rights certificates, new options and new
warrants
REINCORPORATION MERGER.
Immediately after the consummation of the Treasure Mountain/Vyteris,
Inc. merger, the new Board of Directors of Treasure Mountain Holdings authorized
management of Treasure Mountain to proceed with the above-mentioned
reincorporation process. While such process requires the approval of Treasure
Mountain's stockholders, former stockholders of Vyteris, Inc. who control a
substantial majority of the outstanding shares of Treasure Mountain Holdings
common stock have agreed to vote their shares of Treasure Mountain Holdings
common stock in favor of the reincorporation merger.
The following steps have been taken to effect the reincorporation
merger:
o Vyteris Holdings was incorporated in Delaware on October 20,
2004. The certificate of incorporation authorizes the issuance
of 100,000,000 shares of common stock and 50,000,000 shares of
preferred stock, consisting of 7,500,000 shares of Series B
convertible preferred stock and 42,500,000 shares of preferred
stock, the terms of which may be determined from time to time by
the Board of Directors of Vyteris Holdings.
o Vyteris Holdings issued one share of its common stock to
Treasure Mountain Holdings. As a result, Vyteris Holdings became
a wholly-owned subsidiary of Treasure Mountain Holdings.
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o The Boards of Directors of Treasure Mountain Holdings and
Vyteris Holdings approved a plan of merger, subject to approval
by Treasure Mountain Holdings' stockholders. The plan of merger
provides for:
o Treasure Mountain Holdings to be merged with and into
Vyteris Holdings;
o each outstanding share of Treasure Mountain Holdings
common stock to be converted into one tenth of a share
of Vyteris Holdings common stock;
o each Treasure Mountain Holdings common stock rights
certificate entitling the holder to acquire one share of
Treasure Mountain Holdings common stock to be converted
into one tenth of a share of Vyteris Holdings common
stock;
o each Treasure Mountain Holdings preferred stock rights
certificate entitling the holder to acquire one share of
Treasure Mountain Holdings Series B convertible
preferred stock to be converted into one share of
Vyteris Holdings Series B convertible preferred stock,
which in turn is initially convertible into .10475 of a
share of Vyteris Holdings common stock;
o each new option to purchase one share of Treasure
Mountain Holdings common stock to be converted into an
option to purchase one tenth of a share of Vyteris
Holdings common stock at an exercise price equal to ten
times the exercise price of such new option; and
o each new warrant to purchase one share of Treasure
Mountain Holdings common stock to be converted into a
warrant to purchase one tenth of a share of Vyteris
Holdings common stock at an exercise price equal to ten
times the exercise price of such new warrant.
o On , 2004, the stockholders of Treasure Mountain Holdings
approved the reincorporation merger and on , 2004, the
reincorporation merger was consummated. Upon consummation of the
reincorporation merger, there were:
o 7,500,000 shares of Vyteris Holdings Series B
convertible preferred stock outstanding, initially
convertible into a total of 785,625 shares of Vyteris
Holdings common stock;
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o 19,294,002 shares of Vyteris Holdings common stock
outstanding;
o options outstanding to purchase a total of 1,578,336
shares of Vyteris Holdings common stock; and
o warrants outstanding to purchase a total of 5,248,796
shares of Vyteris Holdings common stock.
DESCRIPTION OF OUR CAPITAL STOCK
The following statements are brief summaries of certain provisions of
our certificate of incorporation relating to Vyteris Holdings common stock,
Series B convertible preferred stock and other preferred stock.
AUTHORIZED CAPITAL STOCK
Our authorized capital stock consists of 100 million shares of common
stock and 50 million shares of preferred stock. A total of 7,500,000 shares of
our authorized preferred stock have been designated as Series B convertible
preferred stock.
COMMON STOCK
DIVIDENDS. The holders of our common stock are entitled to receive,
ratably, dividends when, as and if declared by our Board of Directors out of
funds legally available therefor and after provision is made for each class or
series of stock, if any, having preference over the common stock, including our
Series B convertible preferred stock.
LIQUIDATION PREFERENCE. In the event of our liquidation, dissolution or
winding up, the holders of our common stock are entitled, subject to the rights
of holders of preferred stock, if any, to share ratably in all assets remaining
available for distribution to them after payment of all liabilities and after
provision is made for each class of stock, if any, having preference over the
common stock, including our Series B convertible preferred stock.
CONVERSION. The holders of our common stock have no conversion rights
and they are not subject to further calls or assessments by us.
PREEMPTIVE RIGHTS. The holders of our common stock have no preemptive
rights.
VOTING RIGHTS. The holders of our common stock are entitled to one vote
for each share held of record on all matters on which the holders of our common
stock are entitled to vote.
REDEMPTION. There are no redemption or sinking fund provisions
applicable to our common stock.
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SERIES B CONVERTIBLE PREFERRED STOCK
DIVIDENDS. The holders of our Series B convertible preferred stock are
entitled to receive, ratably, an annual 8% cumulative cash dividend out of funds
legally available therefor, payable quarterly.
LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding up
of our company, whether voluntarily or involuntarily, holders of Series B
convertible preferred stock will be entitled to receive a liquidation preference
of $1.00 per share, adjusted for stock splits, combinations, stock dividends,
recapitalizations, and the like, plus an amount equal to all accrued but unpaid
dividends on Series B convertible preferred stock. With respect to the
distribution of assets upon liquidation, dissolution or winding up of our
company, the Series B convertible preferred stock ranks senior to our common
stock. Certain corporate transactions may be treated as a liquidation event at
the election of the holders of a majority of the shares of our Series B
convertible preferred stock.
CONVERSION. Each share of our Series B convertible preferred stock is
convertible at any time, upon the option of the holder, into the following
number of shares of our common stock: (i) if converted within 18 months from
March 31, 0.10475; (ii) if converted within the next 18 months, 0.13967; or if
converted at any time thereafter, 0.27933.
PREEMPTIVE RIGHTS. The holders of our Series B convertible preferred
stock have no preemptive rights.
VOTING RIGHTS. The holders of our Series B convertible preferred stock
and the holders of any other series of preferred stock with similar voting
rights vote together with the holders of shares of our common stock as a single
class on all matters to be voted on by our stockholders, except that the vote or
consent of the holders of a majority of the shares of our Series B convertible
preferred stock is necessary to (i) authorize or issue any equity security
having any preference over or being on a parity with our Series B convertible
preferred stock with respect to dividend or liquidation preference, (ii)
increase the number of authorized shares of our Series B convertible preferred
stock, or (iii) amend, alter or repeal any provision of, or add any provision
to, our Certificate of Incorporation, any Certificate of Designations we may
file or our By-laws, if such action would adversely alter or change in any
material respect the rights, preferences or privileges of our Series B
convertible preferred stock.
MANDATORY REDEMPTION. Commencing as of the first anniversary date of FDA
approval of LidoSite for commercial sale, and continuing for one year
thereafter, we will be required to redeem, on a quarterly basis, an amount of
our Series B convertible preferred stock equal to 5% of our gross profits
derived from the sale of LidoSite. During the following years, we will also be
required to redeem, on a quarterly basis, an amount of our Series B convertible
preferred stock in an amount equal to 10% of our gross profits derived from the
sale of LidoSite. The redemption price is $1.00 per share of our Series B
convertible preferred stock adjusted for stock splits, combinations, stock
dividends, recapitalizations, and the like, plus any accrued but unpaid
dividends thereon.
OTHER SERIES OF PREFERRED STOCK
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Our board of directors has the authority, without further action by the
stockholders, to issue our authorized and unissued shares of preferred stock in
one or more series and to fix the number of shares, designations, voting powers,
preferences, optional and other special rights and the restrictions or
qualifications relating to each such series. The rights, preferences, privileges
and powers of each series of preferred stock may differ with respect to dividend
rates, amounts payable on liquidation, voting rights, conversion rights,
redemption provisions, sinking fund provisions and other matters. The issuance
of shares of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of shares of our common stock and could
adversely affect the rights and powers, including voting rights, of holders of
shares of our common stock. The existence of authorized and undesignated shares
of preferred stock may also have an adverse effect on the market price of our
common stock. While we have no present intention to issue shares of preferred
stock, any such issuance of preferred stock could have the effect of delaying,
deferring or preventing a change of control of Vyteris Holdings.
STOCK OPTION PLAN
We have adopted a stock option plan, which we refer to as the Plan and
which substantially mirrors the Vyteris, Inc. 2001 Stock Option Plan. Under the
Plan, incentive stock options and non-qualified stock options to purchase shares
of our common stock may be granted to directors, officers, employees and
consultants. A total of 2,901,902 shares of our common stock may be issued
pursuant to the Plan.
The per share exercise price for incentive stock options granted under
the Plan must at least equal the fair market value of the underlying common
stock on the date of grant. The option price for shares purchased through the
exercise of an option is payable in cash or, at the discretion of our
compensation committee, in common stock or a combination of both common stock
and cash. Our Compensation Committee may determine the initial vesting period
and the expiration date of each option at the time that it is granted.
The Plan provides that in the event of a change in control, unless the
successor assumes a holder's options or replaces them with comparable options
for its stock, our Board of Directors will provide that all outstanding options
will be immediately and fully exercisable on a date prior to the consummation of
the change of control transaction. Any option assumed by a successor will
automatically accelerate upon termination of an option holder's employment or
service for certain specified reasons within 18 months following the change in
control.
The Plan provides for options to terminate within specified periods of
time after employment is terminated, depending upon the reason for termination.
Unless otherwise provided by our Compensation Committee, options are not
transferable by the option holder and can be exercised only by the option holder
during his or her lifetime, or upon the option holder's death, only by the
personal representative of his or her estate. The Plan may be amended or
terminated by our Board of Directors at any time; PROVIDED, HOWEVER, that no
such action may adversely affect any outstanding options without the consent of
the applicable option holder.
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OUTSTANDING WARRANTS
Upon consummation of the reincorporation merger, we had outstanding
warrants covering a total of 5,248,796 shares of our common stock. The following
table shows, for each tranche of our warrants, the exercise price, the number of
shares of our common stock covered thereby and the expiration date.
- -------------------------------- ------------------------------- --------------------------------
NUMBER OF SHARES EXERCISE PRICE PER SHARE EXPIRATION DATE
- -------------------------------- ------------------------------- --------------------------------
38,796 $12.89 Commercial launch of LidoSite
- -------------------------------- ------------------------------- --------------------------------
20,950 $9.55 2010
- -------------------------------- ------------------------------- --------------------------------
1,138,990 $4.47 2009
- -------------------------------- ------------------------------- --------------------------------
1,780,226 $2.39 2009
- -------------------------------- ------------------------------- --------------------------------
1,068,136 $2.39 2014
- -------------------------------- ------------------------------- --------------------------------
1,051,698 $3.58 2009
- -------------------------------- ------------------------------- --------------------------------
150,000 $1.00 2006
- -------------------------------- ------------------------------- --------------------------------
CERTAIN CHANGE OF CONTROL PROVISIONS
The authorization of undesignated preferred stock makes it possible for
our board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
Vyteris Holdings.
Our by-laws will establish an advance notice procedure for stockholder
proposals and for nominating candidates for election as directors. The amendment
of any of these provisions would require approval of at least two-thirds of the
outstanding common stock.
The above-mentioned provisions of our certificate of incorporation and
by-laws may have the effect of delaying, deterring or preventing a change in
control of Vyteris Holdings, may discourage bids for the common stock at a
premium over the prevailing market price, and may adversely affect the market
price, and the voting and other rights of the holders, of our common stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is Western States
Transfer and Registrar Inc.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Treasure Mountain's common stock became eligible to be traded in the
over-the-counter market in February 2002. Quotations are published on the OTC
Bulletin Board under the symbol "TMHI" and in the National Quotation Bureau,
Inc. "pink sheets" under Treasure Mountain Holdings, Inc. We are not aware of an
active trading
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market in Treasure Mountain shares and, accordingly, there is no history of
reported trades in the public market for Treasure Mountain shares. We expect
that Vyteris Holdings shares will be similarly treated upon consummation of the
reincorporation merger.
The ability of an individual stockholder to trade such shares in a
particular state may be subject to various rules and regulations of that state.
A number of states require that an issuer's securities be registered in their
states or appropriately exempted from registration before the securities are
permitted to trade in that state. We are required to pursue such state
registrations and/or exemptions with respect to the shares to be sold by the
selling stockholders.
It is most likely that our shares will be subject to the provisions of
Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the
"penny stock" rule. See "Risk Factors -- Our common stock may be considered a
"penny stock" and may be difficult to sell." The SEC generally defines penny
stock to be any equity security that has a market price less than $5.00 per
share, subject to certain exceptions. Rule 3a51-1 provides that any equity
security is considered to be a penny stock unless that security is: registered
and traded on a national securities exchange meeting specified criteria set by
the SEC; authorized for quotation on The NASDAQ Stock Market; issued by a
registered investment company; excluded from the definition because it has a
price of at least $5.00 per share or the issuer's net tangible assets exceed
certain minimum amounts; or exempted from the definition by the SEC.
If our shares are deemed to be a penny stock, trading in the shares will
be subject to additional sales practice requirements on broker-dealers who sell
penny stocks to persons other than established customers and accredited
investors, generally persons with assets in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 together with their spouse. For
transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in our common stock and may affect the ability of
shareholders to sell their shares.
Based on shares outstanding as of September 30, 2004 and rights granted
pursuant to the Treasure Mountain/Vyteris, Inc. merger, upon consummation of the
reincorporation merger:
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o there will be approximately 845 holders of Vyteris
Holdings' common stock and two holders of Vyteris
Holdings' Series B convertible preferred stock;
o 12,827 shares of Vyteris Holdings' common stock will be
considered freely tradeable and may be sold, transferred
or otherwise traded in the public market, pursuant to
Rule 144(k) or otherwise, unless held by an affiliate or
controlling shareholder; and
o the balance of Vyteris Holdings' outstanding shares of
common stock -- 11,474,382 shares -- will be considered
restricted securities, of which 7,819,620 shares may be
sold in the public market pursuant to this prospectus
when the registration statement of which this prospectus
is a part is declared effective.
Under the provisions of Rule 144 of the Securities Act of 1933,
restricted securities may be sold into the public market, subject to holding
period, volume and other limitations set forth under the Rule. In general, under
Rule 144 as currently in effect, a person -- or persons whose shares are
aggregated -- who has beneficially owned restricted shares for at least one
year, including any person who may be deemed to be an "affiliate" and has held
the shares for at least one year, is entitled to sell, within any three-month
period, an amount of shares that does not exceed the greater of:
o the average weekly trading volume in the common stock,
as reported through the automated quotation system of a
registered securities association, during the four
calendar weeks preceding such sale, or
o 1% of the shares then outstanding.
In order for a shareholder to rely on Rule 144, we must have available adequate
current public information with respect to our business and financial status. A
person who is not deemed to be an "affiliate" and has not been an affiliate for
the most recent three months, and who has held restricted shares for at least
two years would be entitled to sell such shares under Rule 144(k) without regard
to the various resale limitations of Rule 144.
Upon consummation of the reincorporation merger, we expect to have
outstanding, in addition to our shares of common stock, warrants to purchase a
total of 5,248,796 shares of common stock, options to purchase a total of
1,578,336 shares of common stock and 7,500,000 shares of Series B convertible
preferred stock. See "Organizational History and Description of our Capital
Stock -- Description of our Capital Stock". The shares underlying such warrants
may be sold in the public market pursuant to this prospectus when the
registration statement of which this prospectus is a part is declared effective.
Unless registered, the shares of common stock underlying such options and
preferred shares will be restricted securities.
The above-mentioned options will be granted to replace options initially
granted by Vyteris, Inc. pursuant to an equity compensation plan approved by the
stockholders of
-103-
Vyteris, Inc. Vyteris, Inc. did not grant options, warrants or rights pursuant
to any other equity compensation plans. As of December 31, 2003, neither
Treasure Mountain nor Vyteris Holdings had adopted any equity compensation plan.
The following table provides information regarding options outstanding as of
December 31, 2003 under the Vyteris, Inc. equity compensation plan:
(c)
Number of Securities
(a) (b) Remaining Available For
Number Of Securities To Be Weighted-Average Exercise Future Issuance Under Equity
Issued Upon Exercise Of Price of Outstanding Compensation Plans
Outstanding Options, Options, WARRANTS AND (Excluding Securities
PLAN CATEGORY WARRANTS AND RIGHTS RIGHTS REFLECTED IN COLUMN (A))
------------- ------------------- ---------------------- ------------------------
Equity Compensation Plans
Approved by Stockholders
of Vyteris, Inc............ 448,709 $1.70 1,030,479
Equity Compensation Plans
Not Approved by Such
Stockholders............... -- -- --
------------ ---------- ----------
TOTAL 448,709 $1.70 1,030,479
LEGAL MATTERS
The validity of the issuance of the shares of Vyteris Holdings common
stock described herein shall be passed upon for us by Lowenstein Sandler PC,
Roseland, New Jersey.
EXPERTS
Ernst & Young LLP, independent registered public accounting firm, have
audited our financial statements at December 31, 2002 and 2003, and for the
period from our November 10, 2000 date of inception to December 31, 2003 and the
years ended December 31, 2002 and 2003, as set forth in their report. We've
included our financial statements in this prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
Madsen & Associates, CPA's Inc., independent auditors, have audited the
financial statements of Treasure Mountain Holdings, Inc. at December 31, 2003,
and for the period from our January 1, 1958 date of inception to December 31,
2003 and the years ended December 31, 2002 and 2003, as set forth in their
report. The financial statements of Treasure Mountain Holdings, Inc. are
included in this prospectus
-104-
and elsewhere in the registration statement in reliance on the report of Madsen
& Associates, CPA's Inc., given on their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act of 1933 with respect to the common stock offered hereby. This
prospectus does not contain all of the information set forth in the registration
statement, certain portions of which are omitted as permitted by the rules and
regulations of the SEC. For further information pertaining to us and the common
stock which may be sold by the selling stockholders, reference is made to the
registration statement, including the exhibits thereto and the financial
statements and notes filed as a part thereof. This prospectus summarizes
material provisions of contracts and other documents to which we refer you.
Since this prospectus may not contain all of the information that you may find
important, you may desire to review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
You should only rely on the information contained in this prospectus and
the registration statement. We have not authorized anyone to provide you with
information different from that contained in this prospectus. The selling
stockholders are offering to sell, and seeking offers to buy, shares of common
stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of our common stock.
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and file reports, proxy statements and other information
with the SEC. Such reports, proxy statements and other information, as well as
the registration statement and the exhibits thereto, may be inspected, without
charge, at the public reference facility maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for information regarding the public reference rooms.
Copies of such material may also be obtained from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such materials can also be inspected on the SEC's web site at
HTTP://WWW.SEC.GOV.
-105-
INDEX TO FINANCIAL STATEMENTS
AUDITED YEAR-END FINANCIAL STATEMENTS OF VYTERIS, INC.:
Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2003 and 2002
Statements of Operations for the years ended December 31, 2003
and 2002 and for the period from November 10, 2000 (inception) to
December 31, 2003
Statements of Changes in Stockholders' Equity (Deficit) for the period from
November 10, 2000 (inception) to December 31, 2003
Statements of Cash Flows for the years ended December 31, 2003
and 2002 and for the period from November 10, 2000 (inception) to
December 31, 2003
Notes to Year-End Financial Statements
UNAUDITED INTERIM FINANCIAL STATEMENTS OF VYTERIS, INC.:
Balance Sheets as of June 30, 2004 and December 31, 2003
Statements of Operations for the six months ended June 30,
2004 and 2003 and for the period from November 10, 2000 (inception)
to June 30, 2004
Statements of Changes in Stockholders' Equity (Deficit) for the period
from November 10, 2000 (inception) to June 30, 2004
Statements of Cash Flows for the six months ended June 30, 2004 and 2003
and for the period from November 10, 2000 (inception) to June 30, 2004
Notes to Interim Financial Statements
AUDITED YEAR-END FINANCIAL STATEMENTS OF TREASURE MOUNTAIN HOLDINGS, INC.:
Report of Independent Registered Public Accounting Firm
Balance Sheet as of December 31, 2003
Statements of Operations for the years ended December 31, 2003 and 2002
and for the period from January 1, 1958 (inception) to
December 31, 2003
Statements of Changes in Stockholders' Equity (Deficit) for the years ended
December 31, 2003 and 2002 and for the period from January 1, 1958
(inception) to December 31, 2003
Statements of Cash Flows for the years ended December 31, 2003 and 2002
and for the period from January 1, 1958 (inception) to
December 31, 2003
Notes to Year-End Financial Statements
-106-
UNAUDITED INTERIM FINANCIAL STATEMENTS OF TREASURE MOUNTAIN HOLDINGS, INC.:
Balance Sheets as of June 30, 2004 and December 31, 2003
Statements of Operations for the six months ended June 30, 2004 and 2003
and for the period from January 1, 1958 (inception) to June 30, 2004
Statements of Cash Flows for the six months ended June 30, 2004 and 2003
and for the period from January 1, 1958 (inception) to June 30, 2004
Notes to Interim Financial Statements
-107-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Vyteris, Inc.
We have audited the accompanying balance sheets of Vyteris, Inc. (a development
stage enterprise) as of December 31, 2003 and 2002, and the related statements
of operations, changes in stockholders' equity (deficit), and cash flows for the
years then ended and the period from November 10, 2000 (inception) to December
31, 2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vyteris, Inc. at December 31,
2003 and 2002, and the results of its operations and its cash flows for the
years then ended and the period from November 10, 2000 (inception) to December
31, 2003 in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As more fully described in Note 1, the Company
has incurred recurring losses and defaulted on the payment of certain debt
obligations and is dependent upon obtaining sufficient financing to fund
operations. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects of the recoverability of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
May 4, 2004,
except for Note 17E, as to which the date is
May 6, 2004
-108-
Vyteris, Inc.
(A Development Stage Enterprise)
Balance Sheets
DECEMBER 31,
2003 2002
----------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,286,167 $ 765,123
Due from the U.S. Food and Drug Administration - 313,320
Prepaid expenses and other current assets 93,238 73,475
----------------------------------
Total current assets 2,379,405 1,151,918
Property and equipment, net 2,934,902 1,972,096
----------------------------------
Total assets $ 5,314,307 $ 3,124,014
==================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 887,858 $ 1,139,743
Accrued expenses 627,523 589,559
Interest payable to related parties 2,056,495 490,511
Deferred revenue 300,000 300,000
Due to a related party 71,577 71,577
Convertible, secured promissory notes payable to related parties 20,350,000 10,462,146
Secured promissory notes payable to related parties 2,900,000 -
Convertible promissory note payable to a related party 500,000 -
Current portion of capital lease obligation 22,620 17,758
----------------------------------
Total current liabilities 27,716,073 13,071,294
Capital lease obligation, less current portion 29,546 26,549
Preferred stock, par value $0.0001 per share; 50,000,000
shares authorized:
Series A convertible, redeemable preferred stock; 333,333 shares
issued and outstanding on December 31, 2003 and 2002;
liquidation preference $9,999,990 333,333 333,333
Series B convertible, redeemable preferred stock; 3,000,000
shares issued and outstanding on December 31, 2003 and 2002;
liquidation preference $9,000,000 2,917,640 2,917,640
Stockholders' deficit:
Common stock, par value $0.0001 per share; 75,000,000 shares
authorized, 1,812,479 shares issued and outstanding on December
31, 2003 and 2002, respectively 181 181
Additional paid-in capital 7,836,638 7,825,000
Deferred compensation (43,347) (106,803)
Deficit accumulated in development stage (33,475,757) (20,943,180)
----------------------------------
Total stockholders' deficit (25,682,285) (13,224,802)
----------------------------------
Total liabilities and stockholders' deficit $ 5,314,307 $ 3,124,014
==================================
SEE ACCOMPANYING NOTES.
-109-
Vyteris, Inc.
(A Development Stage Enterprise)
Statements of Operations
PERIOD FROM
NOVEMBER
10, 2000
(INCEPTION) TO
YEAR ENDED DECEMBER 31, DECEMBER
2003 2002 31, 2003
-------------------------------------------------------------
Revenue:
Contract research revenue $ 200,000 $ 151,452 $ 628,000
Operating expenses:
Research and development 8,734,871 7,209,796 23,317,759
General and administrative 2,454,922 2,890,568 8,710,953
-------------------------------------------------------------
Total operating expenses 11,189,793 10,100,364 32,028,712
Interest income (5,775) (10,834) (318,378)
Interest expense 1,787,143 829,616 2,632,007
-------------------------------------------------------------
Loss before benefit from state income taxes (12,771,161) (10,767,694) (33,714,341)
Benefit from state income taxes (238,584) - (238,584)
-------------------------------------------------------------
Net loss $ (12,532,577) $ (10,767,694) $ (33,475,757)
=============================================================
Basic and diluted loss applicable to common
shareholders per share $ (6.91) $ (6.25)
========================================
Weighted-average number of shares of common stock
outstanding 1,812,479 1,722,744
========================================
SEE ACCOMPANYING NOTES.
-110-
Vyteris, Inc.
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Equity (Deficit)
DEFICIT TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED STOCKHOLDERS'
---------------------- PAID-IN DEFERRED IN DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL COMPENSATION STAGE (DEFICIT)
------------------------------------------------------------------------------------
Balance at November 10, 2000 (inception) - $ - $ - $ - $ - $ -
Issuance of common stock 1,666,667 167 6,501,860 - - 6,502,027
Net loss - - - - (716,621) (716,621)
------------------------------------------------------------------------------------
Balance at December 31, 2000 1,666,667 167 6,501,860 - (716,621) 5,785,406
Compensation associated with stock
option grants - - 260,810 (260,810) - -
Amortization of deferred compensation - - - 48,177 - 48,177
Exercise of stock options 20,625 2 12,372 - - 12,374
Issuance of warrants - - 64,000 - - 64,000
Consultant compensation associated with
stock option grants - - 8,799 - - 8,799
Net loss - - - - (9,458,865) (9,458,865)
------------------------------------------------------------------------------------
Balance at December 31, 2001 1,687,292 169 6,847,841 (212,633) (10,175,486) (3,540,109)
Issuance of common stock 125,000 12 499,988 - - 500,000
Forfeited stock options - - (25,161) 25,161 - -
Amortization of deferred compensation - - - 80,669 - 80,669
Exercise of stock options 187 - 112 - - 112
Issuance of warrants - - 502,220 - - 502,220
Net loss - - - - (10,767,694) (10,767,694)
------------------------------------------------------------------------------------
Balance at December 31, 2002 1,812,479 181 7,825,000 (106,803) (20,943,180) (13,224,802)
Forfeited stock options - - (272) 272 - -
Compensation associated with stock
option grants - - 9,480 (9,480) - -
Amortization of deferred compensation - - - 72,664 - 72,664
Consultant compensation associated with
stock option grants - - 2,430 - - 2,430
Net loss - - - - (12,532,577) (12,532,577)
------------------------------------------------------------------------------------
Balance at December 31, 2003 1,812,479 $ 181 $ 7,836,638 $ (43,347) $ (33,475,757) $ (25,682,285)
====================================================================================
SEE ACCOMPANYING NOTES.
-111-
Vyteris, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
PERIOD FROM
NOVEMBER
10, 2000
(INCEPTION) TO
YEAR ENDED DECEMBER 31, DECEMBER
2003 2002 31, 2003
-----------------------------------------------------
OPERATING ACTIVITIES
Net loss $ (12,532,577) $ (10,767,694) $(33,475,757)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 288,041 239,490 639,498
Amortization of notes payable discount 217,854 341,788 566,220
Amortization of deferred compensation 72,664 80,669 201,510
Noncash compensation 2,430 - 11,229
Changes in operating assets and liabilities:
Accounts receivable - 96,548 -
Due from the U.S. Food and Drug Administration 313,320 (313,320) -
Due from Becton Dickinson and Co. - 50,416 -
Prepaid expenses and other current assets (19,763) (65,946) (93,238)
Accounts payable (251,885) 484,790 887,858
Accrued expenses 37,964 (216,165) 627,523
Interest payable to related parties 1,565,984 482,311 2,056,495
Deferred revenue - 300,000 300,000
Due to Spencer Trask - 61,577 71,577
-----------------------------------------------------
Net cash used in operating activities (10,305,968) (9,225,536) (28,207,085)
-----------------------------------------------------
INVESTING ACTIVITIES
Purchases of equipment (1,225,631) (700,292) (2,492,966)
-----------------------------------------------------
Net cash used in investing activities (1,225,631) (700,292) (2,492,966)
-----------------------------------------------------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock - 500,000 6,335,360
Net proceeds from issuance of convertible redeemable
preferred stock - - 2,917,640
Proceeds from exercise of options - 112 12,486
Proceeds from issuance of convertible promissory notes
to related parties 9,670,000 9,680,000 20,350,000
Proceeds from issuance of secured promissory notes
to related parties 2,900,000 - 2,900,000
Proceeds from issuance of promissory note to related party 500,000 - 500,000
Repayment of capital lease obligations (17,357) (11,012) (29,268)
-----------------------------------------------------
Net cash provided by financing activities 13,052,643 10,169,100 32,986,218
-----------------------------------------------------
Net increase in cash and cash equivalents 1,521,044 243,272 2,286,167
Cash and cash equivalents, beginning of period 765,123 521,851 -
-----------------------------------------------------
Cash and cash equivalents, end of period $ 2,286,167 $ 765,123 $ 2,286,167
=====================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Issuance of capital stock in exchange for equipment $ - $ - $ 1,000,000
=====================================================
Equipment acquired under capital lease $ 25,216 $ 43,043 $ 81,434
=====================================================
Issuance of warrants in connection with issuance of
convertible secured promissory notes payable to
related parties $ - $ 502,220 $ 566,220
=====================================================
Interest paid $ 3,354 $ 3,197 $ 7,201
=====================================================
SEE ACCOMPANYING NOTES.
-112-
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Vyteris, Inc. ("Vyteris"), formerly Drug Delivery Technologies, Inc., was
incorporated on July 19, 2000 in the State of Delaware. Vyteris had no operating
activity prior to November 10, 2000.
Effective November 10, 2000, Vyteris, Becton Dickinson and Co. ("Becton") and
Spencer Trask Specialty Group, LLC ("Spencer Trask") entered into a
stockholders' agreement ("Stockholders' Agreement"), in conjunction with a
transaction agreement ("Transaction Agreement"), also effective on November 10,
2000, whereby Becton agreed to transfer to Vyteris certain assets in exchange
for common stock and Series A convertible redeemable preferred stock and Spencer
Trask agreed to contribute $9,000,000 in cash in exchange for common stock and
Series B convertible redeemable preferred stock.
Vyteris paid certain Transaction Agreement expenses on behalf of Spencer Trask
approximating $250,000. The reimbursement was recorded as a reduction in paid-in
capital associated with the common stock and Series B convertible, redeemable
preferred stock issued to Spencer Trask.
Vyteris is engaged in the development of noninvasive, transdermal drug delivery
systems. Vyteris holds over 60 U.S. patents relating to the delivery of drugs
across the skin using a mild electric current. The Company operates in one
business segment.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that Vyteris
will continue as a going concern; however, at its current and planned rate of
spending, Vyteris' cash and cash equivalents are not sufficient to allow it to
continue operations through December 31, 2004. Additionally, Vyteris defaulted
on the payment of certain debt obligations. Vyteris requires additional sources
of capital to meet budgeted expenditures in order to continue its operations
through that date.
Although Vyteris obtained financing of approximately $8 million subsequent to
December 31, 2003, no assurance can be given that Vyteris will be successful in
arranging the additional planned financing needed to continue the execution of
its business plan, which include the launch of a commercial product. Failure to
obtain such financing may require management to substantially curtail
operations, which may result in a material adverse effect on the financial
position or results of operations of Vyteris.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Vyteris considers all highly liquid instruments with maturities of three months
or less at the date of purchase to be cash equivalents.
-113-
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, except for certain equipment acquired
in connection with the Transaction Agreement, which is recorded at the fair
value of the equipment on the date of acquisition. Vyteris provides for
depreciation using the straight-line method over the estimated useful lives of
the respective assets (3-10 years). Equipment held under capital leases is
recorded at the present value of the minimum lease payments at the inception of
the lease and is amortized on the straight-line method over the shorter of the
lease term or the estimated useful life of the equipment. Amortization of
equipment held under capital leases is included in depreciation and amortization
expense in the accompanying financial statements.
DEFERRED REVENUE
Non-refundable upfront fees received from B. Braun Medical, Inc. ("Braun")
(refer to Note 13) are deferred and will be recognized as revenue on a
straight-line basis commencing on the commercial start date (as defined in the
agreement) over the 10-year life of the agreement.
REVERSE COMMON STOCK SPLIT
On March 31, 2004 Vyteris completed a 1:4 reverse stock split of its common
stock (refer to Note 16). All share information with respect to Vyteris' common
stock, options, and warrants have been adjusted to give retroactive effect to
the reverse common stock split for all periods presented.
STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation ("SFAS No. 123"), Vyteris has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB No. 25") and related interpretations in accounting for its
employee stock-based compensation because the alternative fair value method of
accounting provided for under SFAS No. 123 requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB No. 25, no compensation expense is recognized at the time of option grant if
the exercise price of the employee stock option is fixed and equals or exceeds
the fair value of the underlying common stock on the date of grant and the
number of shares to be issued pursuant to the exercise of such option are known
and fixed at the date of grant. The Board of Directors determines the fair value
of common stock.
Vyteris accounts for options issued to non-employees under SFAS No. 123 and
Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services. Therefore, the fair value of options issued to
non-employees is recorded as an expense and periodically re-measured over the
vesting terms.
Vyteris has adopted the disclosure-only provisions of SFAS No. 123. Pro forma
information regarding net loss is required by SFAS No. 123, which requires that
the information is to be determined as if Vyteris had accounted for its employee
stock options granted under the fair value provisions of SFAS No. 123. For
purposes of SFAS No. 123 pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods.
-114-
The fair value of each option granted was estimated at the date of grant using
the minimum value option pricing model with the following assumptions for the
grants made during 2003; weighted average risk-free interest rate of 3.22%, no
dividend yield and weighted-average expected option life of six years, and for
grants made during 2002; weighted average risk-free interest rate of 4.75%, no
dividend yield and weighted-average expected option life of six years.
In addition, the option valuation models require input of highly subjective
assumptions. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of employee
stock options.
The pro forma net loss may not be representative of future disclosure since the
estimated fair value of stock options is amortized to expense over the vesting
period and additional options may be granted in future years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Vyteris' pro forma
information is as follows:
PERIOD FROM NOVEMBER
10, 2000 (INCEPTION)
TO
YEAR ENDED DECEMBER 31 DECEMBER
2003 2002 31, 2003
-------------------------------------------------------------------
Net loss as reported: $(12,532,577) $(10,767,694) $(33,475,757)
Add stock-based employee compensation
expense included in reported net loss 72,664 80,669 201,510
Deduct total stock-based employee
compensation expense determined under the
fair value based method for all awards (140,829) (130,133) (331,604)
-------------------------------------------------------------------
Pro forma net loss $(12,600,742) $(10,817,158) $(33,605,851)
===================================================================
Basic and diluted pro forma net loss per share $(6.95) $(6.28)
applicable to common stockholders per share
===================================================================
-115-
INCOME TAXES
Vyteris records deferred tax assets and liabilities based on the differences
between the financial statement and tax bases of assets and liabilities and on
operating loss carryforwards using enacted tax rates in effect for the year in
which the differences are expected to reverse. A valuation allowance is provided
when it is more likely than not that some portion or all of a deferred tax asset
will not be realized.
CONTRACT RESEARCH REVENUE
During 2003 and 2002, Vyteris had research arrangements with three U.S.
pharmaceutical companies to develop iontophoretic transdermal patch systems for
the administration of drugs for use in pre-clinical and clinical development.
All contract research revenue has been received from the three pharmaceutical
companies described above. Contract research revenue is recognized utilizing the
percentage of completion method.
The cost of contract research revenue was approximately $161,000, $104,000, and
$521,000, for the years ended December 31, 2003 and 2002 and for the period from
November 10, 2000 (inception) to December 31, 2003, respectively, and is
included in research and development expense in the accompanying financial
statements.
UNIVERSITY RESEARCH AGREEMENTS
During 2003, Vyteris funded two separate University research programs. The first
aimed to advance the iontophoretic delivery of drugs through the skin. The
second targeted the delivery of therapeutic drugs for a specific condition. The
cost of the research programs was approximately $168,000 in 2003, and is
included in research and development expense in the accompanying financial
statements. The agreements provide for future funding of approximately $200,000
in 2004, $84,000 in 2005 and $4,000 in 2006.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" ("SFAS No. 128"). Under the provisions of SFAS No. 128,
basic net loss per common share ("Basic EPS") is computed by dividing net loss
by the weighted-average number of common shares outstanding. Diluted net loss
per common share ("Diluted EPS") is computing by dividing net loss by the
weighted average number of shares and dilutive common share equivalents then
outstanding. Common equivalent shares consist of the incremental common shares
issuable upon the exercise of stock options and warrants and the conversion of
preferred stock. Diluted EPS is identical to Basic EPS since common equivalent
shares are excluded from the calculation, as their effect is anti-dilutive.
-116-
RECLASSIFICATION OF EXPENSES
Certain amounts in the accompanying financial statements have been reclassified
to conform to the 2003 presentation.
3. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
DECEMBER 31,
2003 2002
-----------------------------------
Manufacturing and laboratory equipment $1,235,815 $1,116,626
Furniture and fixtures 32,743 7,899
Office equipment 104,516 50,008
Software 82,200 43,840
-----------------------------------
1,455,274 1,218,373
Less accumulated depreciation and amortization
639,498 351,457
-----------------------------------
815,776 866,916
In-process equipment 1,888,396 1,105,180
Construction in progress 230,730 -
-----------------------------------
$2,934,902 $1,972,096
===================================
At December 31, 2003 and 2002, equipment held under capital lease included
manufacturing and laboratory equipment and software of approximately $81,000 and
$56,000, respectively. Depreciation and amortization expense, included in
research and development expense and general and administrative expense in the
accompanying financial statements, was approximately $288,000, $239,000, and
$639,000, respectively, for the years ended December 31, 2003 and 2002 and for
the period from November 10, 2000 (inception) to December 31, 2003.
At December 31, 2003 and 2002, in-process equipment included advances of
approximately $1,561,000 and $1,040,000, respectively for a continuous motion
patch machine that is being custom manufactured for Vyteris. Additionally, at
December 31, 2003 and 2002, in-process equipment included advances of
approximately $96,000 and $65,000 for patch controller manufacturing equipment
that is being custom manufactured for Vyteris.
Total open purchase commitments related to property and equipment were as
follows at December 31, 2003:
Continuous motion patch machine $ 239,000
Controller manufacturing equipment 29,000
Facility expansion project 101,000
Laboratory equipment 17,000
---------------
Total $ 386,000
===============
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4. PROMISSORY NOTES
During 2003, 2002 and 2001, Vyteris issued convertible secured promissory notes
(the "Convertible Notes") with an aggregate principal amount of $20,350,000 to
the related parties listed below. Each of the Convertible Notes matures one year
from its respective date of issuance and bears an annual interest rate of 8%,
which is payable on maturity (the annual interest rate increases to 11% if
payment of the principal and is overdue).
Vyteris defaulted on payment of the entire principal and accrued interest due on
the Convertible Notes dated November 21, 2001, December 3, 2001, January 25,
2002, February 22, 2002, April 10, 2002, May 9, 2002, July 12, 2002, August 20,
2002, October 17, 2002, November 26, 2002, and December 23, 2002. Therefore,
Vyteris accrued interest at an annual rate of 11% for each of the Notes in
default starting on their respective maturity dates. As of December 31, 2003, no
principal or interest has been paid on any of the Convertible Notes. The
Convertible Notes are secured by all of Vyteris' domestic and foreign patents.
The following is a schedule of the Convertible Notes:
BALANCE AT BALANCE AT
ISSUANCE PRINCIPAL DECEMBER 31, DECEMBER 31,
PAYEE DATE AMOUNT 2003 2002
- -----------------------------------------------------------------------------------------------------------
Spencer Trask Specialty Group, LLC November 21, 2001 $ 750,000 $ 750,000 $ 750,000
Member of Vyteris Board of Directors December 3, 2001 250,000 250,000 250,000
Spencer Trask Specialty Group, LLC January 25, 2002 750,000 750,000 750,000
Spencer Trask Specialty Group, LLC February 22, 2002 1,500,000 1,500,000 1,500,000
Spencer Trask Specialty Group, LLC April 10, 2002 1,000,000 1,000,000 1,000,000
Spencer Trask Specialty Group, LLC May 9, 2002 2,000,000 2,000,000 2,000,000
Spencer Trask Specialty Group, LLC July 12, 2002 1,000,000 1,000,000 1,000,000
Spencer Trask Specialty Group, LLC August 20, 2002 625,000 625,000 625,000
Spencer Trask Specialty Group, LLC October 17, 2002 925,000 925,000 925,000
Spencer Trask Specialty Group, LLC November 26, 2002 880,000 880,000 880,000
Spencer Trask Specialty Group, LLC December 23, 2002 1,000,000 1,000,000 1,000,000
Spencer Trask Specialty Group, LLC January 24, 2003 1,000,000 1,000,000 -
Spencer Trask Specialty Group, LLC March 7, 2003 1,155,000 1,155,000 -
Spencer Trask Specialty Group, LLC March 28, 2003 1,150,000 1,150,000 -
Spencer Trask Specialty Group, LLC April 30, 2003 607,500 607,500 -
Spencer Trask Specialty Group, LLC May 30, 2003 1,152,500 1,152,500 -
Spencer Trask Specialty Group, LLC July 8, 2003 1,240,000 1,240,000 -
Spencer Trask Specialty Group, LLC July 29, 2003 1,200,000 1,200,000 -
Spencer Trask Specialty Group, LLC August 28, 2003 1,165,000 1,165,000 -
Spencer Trask Specialty Group, LLC October 3, 2003 1,000,000 1,000,000 -
-------------------------------
20,350,000 10,680,000
Less discount from issuance of warrants - 217,854
-------------------------------
$ 20,350,000 $ 10,462,146
===============================
In connection with the issuance of the Convertible Notes, Vyteris issued
warrants ("Warrants") to purchase 2,035,000 shares (967,000 during 2003, 968,000
during 2002 and 100,000 during 2001) of Vyteris' common stock at an exercise
price of $4.00 per share. Management estimated that the Warrants had an
aggregate fair value of approximately $566,000 (None for 2003 issues, $502,000
for 2002 issues, and $64,000 for 2001 issues) based on a valuation on each of
the respective dates of issue. Therefore, Vyteris has recorded an aggregate
discount on the Convertible Notes of
-118-
approximately $566,000 and paid-in capital of approximately $502,000 and $64,000
in the accompanying statements of changes in stockholders' equity (deficit) for
the years ended December 31, 2002 and 2001, respectively (none in 2003). The
discount is amortized over each of the Convertible Notes respective one-year
life.
The Warrants had an expiration date of the earlier of seven years from the date
of issuance or three years from the date of a qualified initial public offering
("IPO"). A qualified IPO is defined as one in which the minimum gross proceeds
are $10,000,000 and the minimum price per common share is $12.00.
At December 31, 2003 and 2002, approximately $2,023,000 and $490,000 of accrued
interest on the Convertible Notes was recorded in interest payable to related
parties in the accompanying balance sheets.
At any time prior to maturity, all interest and principal on the Convertible
Notes were, at the option of the holder, convertible into shares of Vyteris'
stock, as defined below, upon the closing of a private equity financing
("Private Equity Financing") in which the minimum gross proceeds are $3,000,000.
The Convertible Notes were convertible into capital stock of the same class or
series of capital stock and at the same price per share of the capital stock
issued in the Private Equity Financing.
The Convertible Notes issued during 2001 were amended during 2002 to be
convertible at the option of the holder (the original terms included automatic
conversion) upon closing of a Private Equity Financing, as described above.
If Vyteris proposed to consolidate with, or merge into, another corporation or
entity, or to sell all or substantially all of its assets, then Vyteris was
required to provide holders of the Convertible Notes with at least ten days'
prior written notice of any such proposed action, and the holders of the
Convertible Notes will, at their option, have the right to demand immediate
prepayment of all principal and interest due under the Notes.
Due to the short-term nature of the Convertible Notes, their carrying value
approximates fair value.
As discussed in Note 17, the Convertible Notes were exchanged for Vyteris'
common stock and Series C convertible, redeemable preferred stock in 2004.
On July 1, 2003, Vyteris issued a convertible promissory note to Becton
Dickinson and Company ("the BD Convertible Note") with an aggregate principal
amount of $500,000. The BD Convertible Note matures one year from its date of
issuance and bears an annual interest rate of 8%, which is payable on maturity
(the annual interest rate increases to 11% if payment of the principal and is
overdue).
In connection with the issuance of the BD Convertible Note, Vyteris issued
warrants (the Becton "Warrants") to purchase 50,000 of Vyteris' common stock at
an exercise price of $4.00 per share. Management estimated that the Becton
Warrants had no fair value on the date of issue. The Becton Warrants expire at
the earlier of seven years from the date of issuance or three years from the
date of a qualified initial public offering with minimum gross proceeds are
$10,000,000.
-119-
At December 31, 2003 approximately $20,000 of accrued interest (none at December
31, 2002) on the BD Convertible Note was recorded in interest payable to related
parties in the accompanying balance sheet.
At any time prior to maturity, all interest and principal on the BD Convertible
Note shall, at the option of the holder, convert into shares of Vyteris' common
stock at a conversion price of $4 per share.
Due to the short-term nature of the BD Convertible Note, the carrying value
approximates fair value.
5. SECURED PROMISSORY NOTES
During 2003, Vyteris issued secured promissory notes (the "Notes") with an
aggregate principal amount of $2,900,000 to the related parties listed below.
Each of the Notes matures one year from its respective date of issuance and
bears an annual interest rate of 8%, which is payable on maturity (the annual
interest rate increases to 11% if payment of the principal is overdue). The
Notes are secured by all of Vyteris' domestic and foreign patents.
The following is a schedule of the Notes:
BALANCE AT
ISSUANCE PRINCIPAL DECEMBER 31,
PAYEE DATE AMOUNT 2003
- --------------------------------------------------------------------------------------------
Spencer Trask Specialty Group, LLC November 6, 2003 $ 800,000 $ 800,000
Spencer Trask Specialty Group, LLC December 12, 2003 1,000,000 1,000,000
Spencer Trask Specialty Group, LLC December 30, 2003 1,100,000 1,100,000
-----------------
$ 2,900,000
=================
At December 31, 2003, approximately $13,000 (none at December 31, 2002) of
accrued interest on the Notes was recorded in interest payable to related
parties in the accompanying balance sheet.
Due to the short-term nature of the Notes, their carrying values approximate
fair value.
Spencer Trask had the option to demand immediate repayment of the Notes in the
event that Vyteris receives proceeds greater than $6 million from the sale of
securities. As discussed in Note 17, the Notes were exchanged for Vyteris'
common stock and Series C convertible, redeemable preferred stock in 2004.
6. COMMON STOCK AND CONVERTIBLE, REDEEMABLE PREFERRED STOCK
In connection with the Transaction Agreement, 1,666,667 shares of common stock
and 3,333,333 of convertible, redeemable preferred stock (333,333 Series A and
3,000,000 Series B) were issued. All shares have a $0.0001 par value and were
issued in exchange for cash and equipment.
During 2002, 125,000 common shares were issued to B. Braun Medical, Inc. in
connection with a license, development and distribution agreement (refer to Note
13).
-120-
Each stockholder is entitled to receive dividends if and when declared by the
Board of Directors. Convertible, redeemable preferred stockholders have equal
priority over any distribution to holders of common stock.
Holders of outstanding shares vote as a single class. Each holder of common
stock shall be entitled to one vote per share. Each holder of convertible,
redeemable preferred stock shall be entitled to the number of votes that such
holder would have if the convertible, redeemable preferred stock held was
converted into common stock. Holders of convertible, redeemable preferred stock
have the option, at any point after the date of issuance, to convert said shares
into common stock based on a conversion ratio in place at that time. The
conversion ratio at December 31, 2003 was 1:4; however, in the event of another
common stock split, a common stock dividend or another similar occurrence, such
ratio would be adjusted. Further, each share of convertible, redeemable
preferred stock is to be automatically converted into common stock (based on a
conversion ratio in place at that time) upon a public offering, as defined in
the Stockholders' Agreement.
Under the terms of the Transaction Agreement, for each $100,000 in excess of
$10,000,000 in gross proceeds received by Vyteris as a result of a sale and
closing of a capital private placement (or series of such transactions), each
convertible, redeemable preferred stockholder has the right to require Vyteris
to redeem up to 1% of such stockholder's Series A convertible, redeemable
preferred stock at a price of at least $3 per share (adjusted for stock splits
or combinations of such stock, recapitalizations, or other similar transactions
that have the effect of increasing or decreasing the number of shares
represented by each outstanding share of such stock) during a period beginning
the day after the sale and closing of the capital private placement (or series
of such transactions) and ending one year following such date. No accretion of
this redemption feature has occurred, as such redemption is uncertain at this
time.
In the event of liquidation, each share of convertible, redeemable preferred
Series A and Series B stock entitles its holder to receive $30 per share and $3
per share, respectively, plus unpaid dividends. In the event of a stock split, a
stock dividend or another similar occurrence, such per share amounts may be
adjusted. Series A and Series B convertible, redeemable preferred stock may be
subject to involuntary conversion at the Board of Directors' discretion.
At December 31, 2003, Vyteris reserved shares of common stock for issuance as
follows:
Exercise of stock options 1,479,188
Conversion of Series A convertible,
redeemable preferred stock 83,333
Conversion of Series B convertible,
redeemable preferred stock 750,000
Conversion of convertible promissory notes 5,212,500
Exercise of warrants 2,400,000
B.Braun option to purchase additional shares 92,593
---------------
Total 10,017,614
===============
-121-
On January 16, 2003, Vyteris' Board of Directors authorized an increase in the
number of shares of stock from 50,000,000 to 125,000,000. Authorized common
stock increased from 30,000,000 to 75,000,000 and authorized preferred stock
increased from 20,000,000 to 50,000,000.
7. STOCK COMPENSATION PLAN
In March 2001, the Board of Directors and stockholders of Vyteris approved the
adoption of the Vyteris, Inc. 2001 Stock Option Plan (the "Option Plan"). The
Option Plan provides for the granting of both incentive and nonqualified stock
options to employees, officers, directors, and consultants of Vyteris to
purchase up to 1,500,000 shares of Vyteris' common stock, in the aggregate. Only
employees of Vyteris may be granted incentive stock options under the Option
Plan.
Options granted under the Option Plan vest as determined by the Compensation
Committee of the Board of Directors ("Compensation Committee") and terminate
after the earliest of the following events: expiration of the option as provided
in the option agreement, termination of the employee, or ten years from the date
of grant (five years from the date of grant for incentive options granted to an
employee who owns more than 10% of the total combined voting power of all
classes of Vyteris stock at the date of grant). Granted stock options are
immediately exercisable into restricted shares of common stock, which vest in
accordance with the original terms of the related options. If an optionee's
status as an employee or consultant changes due to termination, Vyteris has the
right to purchase from the optionee all unvested shares at the original option
exercise price.
The option price of each share of common stock shall be determined by the
Compensation Committee, provided that with respect to incentive stock options,
the option price per share shall in all cases be equal to or greater than 100%
of the fair value of a share of common stock on the date of the grant, except an
incentive option granted under the Option Plan to a shareholder that at any time
an option is granted owns more than 10% of the total combined voting power of
all classes of Vyteris stock, shall have an exercise price of not less than 110%
of the fair value of a share of common stock on the date of grant. No
participant may be granted incentive stock options, which would result in shares
with an aggregate fair value of more than $100,000 first becoming exercisable in
one calendar year.
-122-
A summary of Vyteris' stock option activity under the Option Plan, and related
information for the years ended December 31 is as follows:
2003 2002
---------------------------------------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------------------------------------------------------------
Outstanding at beginning of year 192,959 $2.92 75,854 $0.60
Granted 262,375 .80 134,542 4.00
Exercised - - (187) 0.60
Forfeited and canceled (6,625) 1.33 (17,250) 1.40
---------------------------------------------------------------
Outstanding and exercisable to acquire
restricted stock at end of year 448,709 $1.70 192,959 $2.92
===============================================================
Weighted-average grant date fair value of
options granted during the year for
options with an exercise price less than
the fair value of a common share on the
date of grant $ 0.76 -
Weighted-average grant date fair value of
options granted during the year for
options with an exercise price equal to
the fair value of a common share on the
date of grant - $ 0.96
A summary of Vyteris' options outstanding under the Option Plan at December 31,
2003 and the related exercise prices and weighted-average remaining lives is as
follows:
WEIGHTED-AVERAGE
REMAINING LIFE
EXERCISE PRICE OUTSTANDING (YEARS)
------------------------------------------------------
$0.60 61,917 7.5
$0.80 257,375 9.7
$4.00 129,417 8.0
------------------------------
448,709 8.9
==============================
Vyteris granted 262,375 options during the year ended December 31, 2003. All
options granted during 2003 have an exercise price of $0.80 per share. 155,500
of the options have an exercise price that approximates fair value for
accounting purposes of a share of common stock on the date of grant. 106,875 of
the options have an exercise price which is lower that fair value for accounting
purposes of a share of common stock on the date of grant. Vyteris granted
134,542 options during the year ended December 31, 2002. All options granted
during 2002 have an exercise price of $4.00 per share, which approximates the
fair value for accounting purposes of a share of common stock on the date of
grant. Accordingly, Vyteris recorded deferred compensation of approximately
$9,500 during 2003, none during 2002 and $260,800 during 2001 and amortization
of deferred compensation of approximately $72,600, $80,700, and $201,500 for the
years ended December 31, 2003 and 2002 and the period from November 10, 2001
(inception) to December 31, 2003, respectively. During 2003 and 2002, stock
options with an intrinsic value of approximately $270 and $25,200 were
forfeited, respectively. All options granted in 2001 and 2002 have a vesting
period of three years. Options
-123-
granted in 2003 have different vesting periods, with 135,250 options vesting
over thirty months and 127,125 options vesting over three years.
8. COMMITMENTS AND CONTINGENCIES
LEASES
At December 31, 2003, the minimum lease payments under capital lease obligations
and a non-cancelable operating sublease with Becton for office and facility
space are as follows:
CAPITAL OPERATING
LEASE OBLIGATIONS LEASE
-------------------------------------
Years ended December 31,
2004 $26,059 $304,000
2005 20,288 304,000
2006 11,333 228,000
2007 - -
2008 - -
-------------------------------------
Total minimum lease payments 57,680 $836,000
==================
Less amounts representing interest (interest imputed using
rates from 7.4%-13.8%) 5,514
------------------
Present value of minimum capital lease payments 52,166
Less current portion of capital lease obligation 22,620
------------------
Capital least obligation, less current portion $29,546
==================
Rent expense recorded in the accompanying statements of operations was
approximately $301,300, $292,000, and $942,300 for the years ended December 31,
2003 and 2002 and the period from November 10, 2000 (inception) to December 31,
2003, respectively.
OTHER MATTERS
Vyteris is involved in patent defense litigation in the normal course of
business. The ultimate outcome cannot be predicted at this time. Management does
not believe that the litigation will have a material adverse effect on the
financial position, results of operations or cash flows of Vyteris.
9. RELATED PARTY TRANSACTIONS
SPENCER TRASK
In addition to the Convertible Notes and the Notes described in Note 4, Vyteris
had the following transactions with Spencer Trask:
At December 31, 2003 and 2002, approximately $62,000 is included in due to
Spencer Trask in the accompanying balance sheets for amounts owed to Spencer
Trask and Spencer Trask Ventures, Inc. for certain expenses paid on behalf of
Vyteris.
During December 2001, $10,000 of Spencer Trask's funds were deposited in
Vyteris' bank account in error by Vyteris' bank. Therefore, at December 31, 2003
and December 31, 2002, $10,000 is included in due to Spencer Trask in the
accompanying balance sheets.
-124-
BECTON DICKINSON AND CO.
In addition to the BD Convertible Note described in Note 4, Vyteris had the
following transactions with Becton:
Becton provided certain transitional services to Vyteris during 2001 and 2000 in
accordance with the Transaction Agreement. Vyteris paid Becton approximately
$92,000 for transitional services during the period from November 10, 2000
(inception) to December 31, 2003 (none in 2003 or 2002).
In accordance with the Transaction Agreement, Becton was required to reimburse
Vyteris for certain legal expenses. For the period from November 10, 2000
(inception) to December 31, 2003, Becton reimbursed Vyteris for legal expenses
of approximately $100,000. Becton did not reimburse Vyteris for any legal
expenses during 2003 or 2002.
We are required to pay BD a royalty in respect of sales of each iontophoresis
product stemming from intellectual property received by us from BD. For our
LidoSite product, on a country-by-country basis, that obligation continues for
the later of 10 years after the date of the first commercial sale in a country
and the date of the original expiration of the last-to-expire patent granted in
such country. The royalty on our LidoSite product, which is to be calculated
semi-annually, wil be 5% of all direct revenues as defined in the Transaction
Agreement. No royalties will be earned by BD prior to November 10, 2005.
10. NEW DRUG APPLICATION
During 2002, Vyteris filed new drug applications for its iontophoretic lidocaine
patch system with the United States Food and Drug Administration ("FDA").
Certain fees accompany such applications. In light of Vyteris' early stage of
development in 2002, it filed a request for refund of certain of the fees. On
March 14, 2003, Vyteris was notified by the FDA that the FDA was refunding
approximately $313,000 in human drug application fees paid by Vyteris because
Vyteris qualified for a small business waiver.
Therefore, at December 31, 2002, Vyteris recorded a receivable from the FDA of
approximately $313,300 and a reduction in research and development expenses of
approximately $313,300 for the year ended December 31, 2002 and the period from
November 10, 2000 (inception) to December 31, 2003. The receivable was collected
in 2003.
11. INCOME TAXES
Vyteris has available for federal income tax purposes net operating loss
carryforwards, subject to review by the Internal Revenue Service, aggregating
approximately $33,670,000 and expiring from 2020 to 2023. The difference between
the deficit accumulated during the development stage for financial reporting
purposes and the net operating loss carryforwards for income tax purposes is
primarily due to differences in accounting and tax bases of certain assets
resulting from the Transaction Agreement.
Utilization of net operating loss carryforwards and credits may be subject to a
substantial annual limitation due to the ownership limitations provided by the
Internal Revenue Code of 1986, as amended, and similar state provisions. The
Company has not performed a detailed analysis to determine whether an ownership
change under Section 382 of the Internal Revenue Code occurred. The effect of an
ownership change would be the imposition of an annual limitation on the use of
net operating loss carryforwards attributable to periods before the change.
-125-
Except as described below, Vyteris has not recorded a provision for or benefit
from income taxes in the accompanying financial statements due to recurring
losses and the uncertainty of the future recoverability of its deferred tax
assets. Accordingly, Vyteris has provided a full valuation allowance against its
federal deferred tax assets of approximately $12,742,000 and $8,671,000 at
December 31, 2003 and 2002, respectively. The deferred tax assets are
principally due to net operating loss carryforwards.
Significant components of the Company's deferred tax assets at December 31, 2003
and 2002 are as follows:
DECEMBER 31, DECEMBER 31,
2003 2002
-------------------- --------------------
Deferred tax assets:
Net operating tax loss carryforwards $ 12,284,000 $ 8,427,000
Research tax credits 441,000 242,000
Other 17,000 2,000
-------------------- --------------------
Total deferred tax asset 12,742,000 8,671,000
Less valuation allowance (12,742,000) (8,671,000)
-------------------- --------------------
Net deferred tax asset $ -- $ --
==================== ====================
During 2003, Vyteris recognized a benefit from state income taxes of
approximately $239,000 related to the sale of approximately $2,979,000 state net
operating loss carryforwards.
A reconciliation of the statutory tax rates for the years ended December 31,
2003 and 2002 is as follows:
DECEMBER 31, DECEMBER 31,
2003 2002
------------------- ------------------
Statutory rate (34)% (34)%
State income tax (6)% (6)%
Change in valuation allowance 40% 40%
------------------- ------------------
Benefit for income tax 0% 0%
=================== ==================
12. EMPLOYEE BENEFIT PLAN
During December 2000, Vyteris' Board of Directors adopted a 401(k) plan (the
"Plan") effective January 1, 2001 that covers substantially all employees.
Vyteris expensed approximately $80,000, $55,000 and $179,000 in contributions to
the Plan for the years ended December 31, 2003 and 2002 and for the period from
November 10, 2000 (inception) to December 31, 2003, respectively. no
contributions were made to the Plan prior to 2001.
-126-
13. BRAUN MEDICAL, INC. LICENSE, DEVELOPMENT AND DISTRIBUTION AGREEMENT
On September 20, 2002, Vyteris entered into an agreement with Braun, whereby
Braun agrees to (upon U.S. F.D.A. approval) market, sell and distribute the
Vyteris transdermal lidocaine delivery system (the "Product"). Under the general
terms of the agreement, Vyteris is responsible for the cost of manufacturing the
product and Braun is responsible for the cost of marketing and selling the
product. Vyteris and Braun will share the revenues generated by the product in
accordance with the agreement. Upon signing the agreement, Braun made an
upfront, non-refundable milestone payment of $300,000 (refer to Note 2) and
purchased 125,000 shares of Vyteris common stock for $500,000 ($4.00 per share)
(refer to Note 6).
Braun has an option to purchase in the future, an additional 92,593 shares of
Vyteris' common stock for $5.40 per share, adjusted for stock splits and
recapitalizations.
14. LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss
attributable to common stockholders per share.
YEAR ENDED DECEMBER 31
2003 2002
----------------------------------
Numerator:
Net loss $(12,532,577) $(10,767,694)
Denominator:
Weighted average shares 1,812,479 1,722,744
----------------------------------
Basic and diluted net loss
attributable to common
stockholders per share $ (6.91) $ (6.25)
==================================
The following table shows dilutive common share equivalents outstanding, which
are not included in the above historical calculations, as the effect of their
inclusion is anti-dilutive during each period.
DECEMBER 31
2003 2002
-------------------------------
Convertible preferred stock 833,333 833,333
Convertible debt 5,212,500 2,670,000
Warrants 2,085,000 1,068,000
Options 448,709 192,959
B. Braun purchase right 92,593 92,593
-------------------------------
Total 8,672,135 4,856,885
===============================
15. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject Vyteris to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. Vyteris deposits its cash and cash equivalents with
major financial institutions. At December 31, 2003, Vyteris had a cash balance
in a financial institution that exceeded federal deposit insurance limits.
Management believes that credit risk related to this deposit is minimal. Vyteris
extends credit without collateral to companies that contract with it under
contract research arrangements.
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16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERS ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------------------------------
2002
Contract research revenue $35,000 $96,452 $20,000 $ -
Net loss $(2,304,707) $(2,836,718) $(3,055,794) $(2,570,475)
Basic and diluted net (loss) per
common share* $(1.36) $(1.68) $(1.79) $(1.42)
2003
Contract research revenue $105,000 $40,000 $55,000 $ -
Net loss $(2,700,327) $(3,290,218) $(3,310,183) $(3,231,849)
Basic and diluted net (loss) per
common share* $(1.49) $(1.82) $(1.83) $(1.78)
* Per common share amounts for the quarters and full years have been calculated
separately. Accordingly, quarterly amounts do not add up to the annual amount
because of differences in the weighted average common shares outstanding during
each period principally due to the effect of the Company's issuing shares of its
common stock during the year.
Diluted net loss per share is identical to Basic net loss per share since common
equivalent shares are excluded from the calculation, as their effect is
anti-dilutive. All per share amounts reflect the reverse stock split described
in Note 2.
17. SUBSEQUENT EVENTS
A. SECURED PROMISSORY NOTES
During February 2004, Vyteris issued secured promissory notes with
principal of $1,000,000 to Spencer Trask and related parties. Each of the Notes
matures 120 days from its respective date of issuance and bears an annual
interest rate of 12%, which is payable on maturity, and are convertible into
stock, at the option of the holders under certain circumstances.
B. RECAPITALIZATION TRANSACTION
On March 31, 2004 Spencer Trask and a related entity ("Spencer Trask
and Related Party") consummated a transaction with Vyteris wherein Vyteris
issued to Spencer Trask and Related Party 23 million shares of common stock, 7.5
million shares of Series C Convertible Redeemable Preferred Stock (the "Series C
Preferred Stock") with a par value of $0.0001 per share, and other nominal
consideration in exchange for $20,350,000 principal amount of the Convertible
Notes, $2,900,000 of the Notes (collectively the "Spencer Trask Notes"),
$2,615,000 of accrued and unpaid interest as of March 31, 2004 on the Spencer
Trask Notes, 3,000,000 shares of Series B convertible preferred stock and the
cancellation of warrants to purchase 2,035,000 shares of common stock (the
"Recapitalization Transaction"). Management is in the process of determining the
effect of this transaction on Vyteris' financial statements.
-128-
C. SERIES C CONVERTIBLE REDEEMABLE PREFERRED STOCK
On March 31, 2004 Vyteris issued 7.5 million shares of the "Series C
Preferred Stock to Spencer Trask and Related Party in the Recapitalization
Transaction. The Series C Preferred Stock is entitled to receive dividends when,
as and if declared by the Board of Directors as long as any shares of the Series
A Preferred Stock shall remain outstanding. Effective upon the cancellation,
conversion or redemption of all shares of the Series A convertible redeemable
preferred stock, the Series C Preferred Stock shall be entitled to cumulative
dividends at the rate of 8% per annum of the then applicable Redemption Value,
as defined. Dividends may be paid in cash and/or in shares of common stock, as
determined, in good faith, by the Board of Directors. The Series C Preferred
Stock has a liquidation preference of $1.00 per share.
The Series C Preferred Stock shall participate on a per share basis
equally with the common stock on distributions in excess of the Liquidation
Amount, as defined. The Series C Preferred stock is convertible into common
stock at $4.00 per share if converted within 18 months of issuance; $3.00 per
share if converted during the following 18 month period; and $1.50 per share if
converted at any time thereafter. The holders of the Series C Preferred Stock
shall be entitled to vote the number of votes that such holder would have if the
Series C Preferred Stock were converted into common stock on the record date.
The Series C Preferred Stock has redemption rights such that Vyteris shall,
during the period commencing two years after the date Vyteris first receives
revenue relating to commercial sale of the Vyteris' LidoSite product and ending
one year thereafter (the "Initial Redemption Period"), redeem an amount of
Series C Preferred Stock, based on the then applicable Redemption Price, equal
to 5% of the gross profits received by Vyteris from the sale of LidoSite and
commencing on the day after the termination of the Initial Redemption Period,
Vyteris shall redeem an amount of Series C Preferred Stock, based on the then
applicable Redemption Price, equal to 10% of the gross profits received by the
Company from the sale of LidoSite.
D. PRIVATE PLACEMENT
In March and April of 2004, Vyteris sold $8 million of convertible
notes in a private placement transaction. Spencer Trask Ventures, Inc., a
related party to Vyteris' principal stockholder acted as placement agent in this
transaction. Warrants to purchase 4 million shares of Vyteris' common stock at
$1.00 per share were issued to the investors in this transaction. Spencer Trask
Ventures, Inc. received a 10% placement fee, a 3% non-accountable expense
allowance and warrants to purchase 2.4 million shares of common stock at $1.00
as compensation for acting as placement agent.
E. FDA APPROVAL
On May 6, 2004, the Food and Drug Administration approved Vyteris' New Drug
Application (NDA 215-04) for its LidoSite(TM) Patch and Controller.
-129-
Vyteris, Inc.
(A Development Stage Enterprise)
Balance Sheets
JUNE 30, DECEMBER 31,
2004 2003
(UNAUDITED)
----------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,989,979 $ 2,286,167
Accounts receivable 32,500 -
Prepaid expenses 354,388 92,817
Accrued interest receivable 1,704 421
----------------------------------
Total current assets 3,378,571 2,379,405
Equipment, net 2,871,712 2,934,902
Deferred debt financing costs, net 1,757,692 -
Deferred offering costs 258,610 -
----------------------------------
Total assets $ 8,266,585 $ 5,314,307
==================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 911,302 $ 887,858
Accrued expenses 640,816 627,523
Interest payable 134,331 -
Interest payable to related parties 60,000 2,056,495
Deferred revenue 300,000 300,000
Due to related party 71,587 71,577
Convertible, secured promissory notes payable to related parties 115,122 -
Convertible, secured promissory notes payable 5,315,175 -
Convertible, secured promissory notes payable to related parties 500,000 20,350,000
Convertible promissory note payable to related party 500,000 500,000
Secured promissory notes payable to related parties - 2,900,000
Current portion of capital lease obligation 19,824 22,620
----------------------------------
Total current liabilities 8,568,157 27,716,073
Capital lease obligation, less current portion 19,429 29,546
Preferred stock, par value $0.0001 per share; 50,000,000 shares authorized:
Series A convertible, redeemable preferred stock; 333,333 shares issued and
outstanding on June 30, 2004 and December 31, 2003; liquidation preference
$9,999,990 333,333 333,333
Series B convertible, redeemable preferred stock; 3,000,000 shares issued and
outstanding December 31, 2003; liquidation preference $9,000,000; no shares issued
and outstanding on June 30, 2004 - 2,917,640
Series C convertible, redeemable preferred stock; 7,500,000 shares issued and
outstanding on June 30, 2004; liquidation preference $7,500,000; no shares issued
and outstanding on December 31, 2003 7,500,000 -
Stockholders' deficit:
Common stock, par value $0.0001 per share; 75,000,000 shares authorized,
24,849,979 and 1,812,479 shares issued and outstanding on June 30, 2004 and
December 31,
2003; respectively 2,485 181
Additional paid-in capital 34,709,950 7,836,638
Deferred compensation (87,394) (43,347)
Deficit accumulated in development stage (42,779,375) (33,475,757)
----------------------------------
Total stockholders' deficit (8,154,334) (25,682,285)
----------------------------------
Total liabilities and stockholders' deficit $ 8,266,585 $ 5,314,307
==================================
SEE ACCOMPANYING NOTES.
-130-
Vyteris, Inc.
(A Development Stage Enterprise)
Statements of Operations
(Unaudited)
NOVEMBER
SIX MONTHS ENDED THREE MONTHS ENDED 10, 2000
JUNE 30, JUNE 30, (INCEPTION) TO
--------------------------------------------------------------------------------------------
2004 2003
--------------------------------------------------------------------------------------------
Revenue:
Contract research revenue $ 60,000 $ 145,000 $ 60,000 $ 40,000 $ 688,000
Operating expenses:
Research and development 5,233,696 4,185,379 2,841,571 2,345,305 28,551,455
General and administrative 1,487,535 1,178,809 714,168 577,059 10,198,488
--------------------------------------------------------------------------------------------
Total operating expenses 6,721,231 5,364,188 3,555,739 2,922,364 38,749,943
Interest income (5,763) (3,327) (4,667) (1,636) (324,141)
Interest expense to related parties 676,192 771,923 75,958 407,860 3,298,908
Interest expense 1,971,958 2,763 1,970,705 1,630 1,981,249
--------------------------------------------------------------------------------------------
Net loss before state income taxes (9,303,618) (5,990,547) (5,537,735) (3,290,218) (43,017,959)
Benefit from state income taxes - - - - (238,584)
--------------------------------------------------------------------------------------------
Net loss $ (9,303,618) $ (5,990,547) $ (5,537,735) $ (3,290,218) $ (42,779,375)
============================================================================================
Basic and diluted net loss per share $ (0.69) $ (3.31) (0.22) (1.82)
=============== ============== ============== ==============
Basic and diluted weighted average
number of common shares outstanding 13,445,240 1,812,479 24,825,254 1,812,479
=============== ============== ============== ==============
SEE ACCOMPANYING NOTES.
-131-
Vyteris, Inc.
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Equity (Deficit)
(Unaudited)
DEFICIT TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED STOCKHOLDERS'
-------------------- PAID-IN DEFERRED IN DEVELOPMENT EQUITY /
SHARES AMOUNT CAPITAL COMPENSATION STAGE (DEFICIT)
------------------------------------------------------------------------------
Balance at November 10, 2000 (inception) - $ - $ - $ - $ - $ -
Issuance of common stock 1,666,667 167 6,501,860 - - 6,502,027
Net Loss - - - - (716,621) (716,621)
------------------------------------------------------------------------------
Balance at December 31, 2000 1,666,667 167 6,501,860 - (716,621) 5,785,406
Compensation associated with stock option grants - - 260,810 (260,810) - -
Amortization of deferred compensation - - - 48,177 - 48,177
Exercise of stock options 20,625 2 12,372 - - 12,374
Issuance of warrants - - 64,000 - - 64,000
Consultant compensation associated with stock
option grants - - 8,799 - - 8,799
Net Loss - - - - (9,458,865) (9,458,865)
------------------------------------------------------------------------------
Balance at December 31, 2001 1,687,292 169 6,847,841 (212,633) 10,175,486) (3,540,109)
Issuance of common stock 125,000 12 499,988 - - 500,000
Forfeited stock options - - (25,161) 25,161 - -
Amortization of deferred compensation - - - 80,669 - 80,669
Exercise of stock options 187 - 112 - - 112
Issuance of warrants - - 502,220 - - 502,220
Net Loss - - - - 10,767,694) (10,767,694)
------------------------------------------------------------------------------
Balance at December 31, 2002 1,812,479 181 7,825,000 (106,803) 20,943,180) (13,224,802)
Adjustment for cancelled-unamortized, stock
option grants - - (272) 272 - -
Compensation associated with stock option grants - - 9,480 (9,480) - -
Amortization of deferred compensation - - - 72,664 - 72,664
Consultant compensation associated with stock
option grants - - 2,430 - - 2,430
Net Loss - - - - 12,532,577) (12,532,577)
------------------------------------------------------------------------------
Balance at December 31, 2003 1,812,479 181 7,836,638 (43,347) (33,475,757) (25,682,285)
Adjustment for cancelled-unamortized, stock
option grants - - (553) 553 - -
Compensation associated with stock option grants - - 131,246 (131,246) - -
Amortization of deferred compensation - - - 86,646 - 86,646
Exercise of stock options 37,500 4 22,496 - - 22,500
Issuance of warrants to convertible note holders - - 1,856,104 - - 1,856,104
Beneficial conversion of convertible debt - - 2,401,057 - - 2,401,057
Issuance of common stock on conversion of
debt and preferred stock 23,000,000 2,300 21,280,698 - - 21,282,998
Issuance of warrants associated with fund raising - - 1,182,264 - - 1,182,264
Net Loss - - - - (9,303,618) (9,303,618)
------------------------------------------------------------------------------
Balance at June 30, 2004 24,849,979 $2,485 $34,709,950 $ (87,394) $ (42,779,375) $(8,154,334)
==============================================================================
SEE ACCOMPANYING NOTES.
-132-
Vyteris, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
(Unaudited)
PERIOD FROM
NOVEMBER 10,
SIX MONTHS ENDED 2000
JUNE 30, (INCEPTION) TO
2004 2003 JUNE 30, 2004
----------------------------------------------------
OPERATING ACTIVITIES
Net loss $ (9,303,618) $ (5,990,547) $ (42,779,375)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 182,664 137,211 822,162
Amortization of notes payable discount 1,189,958 169,110 1,756,178
Amortization of deferred compensation 86,646 37,090 288,156
Amortization of deferred financing costs 689,342 - 689,342
Noncash compensation - - 11,229
Changes in operating assets and liabilities:
Accounts receivable (32,500) - (32,500)
Due from the U.S. Food and Drug Administration - 313,320 -
Prepaid expenses (261,571) (52,447) (354,389)
Deferred offering costs - (39,242) -
Accrued interest receivable (1,283) (537) (1,703)
Accounts payable 23,444 148,681 911,302
Accrued expenses 13,293 (21,740) 640,816
Interest payable to related parties 618,873 603,718 2,675,368
Interest payable 134,331 - 134,331
Deferred revenue - 7,500 300,000
Due to related party - - 71,577
----------------------------------------------------
Net cash used in operating activities (6,660,421) (4,687,883) (34,867,506)
----------------------------------------------------
INVESTING ACTIVITIES
Purchases of equipment (119,474) (730,352) (2,612,440)
----------------------------------------------------
Net cash used in investing activities (119,474) (730,352) (2,612,440)
----------------------------------------------------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock - - 6,335,360
Net proceeds from issuance of convertible
redeemable preferred stock - - 2,917,640
Proceeds from exercise of options 22,500 - 34,986
Proceeds from issuance of convertible secured promissory
notes payable to related parties - 5,065,000 20,350,000
Proceeds from issuance of secured promissory notes
payable to related parties - - 2,900,000
Proceeds from issuance of convertible secured promissory
notes payable to related parties 500,000 - 500,000
Proceeds from issuance of convertible secured promissory
note payable to related party 500,000 - 500,000
Repayment of convertible secured promissory note payable
to related party (500,000) - (500,000)
Proceeds from issuance of convertible promissory note
payable to a related party - - 500,000
Net proceeds from issuance of convertible secured
promissory notes payable 7,232,730 - 7,232,730
Deferred offering costs (258,610) - (258,610)
Repayment of capital lease obligations (12,913) (8,698) (42,181)
----------------------------------------------------
Net cash provided by financing activities 7,483,707 5, 056,302 40,469,925
----------------------------------------------------
Net increase (decrease) in cash and cash equivalents 703,812 (361,933) 2,989,979
Cash and cash equivalents, beginning of period 2,286,167 765,123 -
----------------------------------------------------
Cash and cash equivalents, end of period $ 2,989,979 $ 403,190 $ 2,989,979
====================================================
-133-
Vyteris, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows (continued)
(Unaudited)
PERIOD FROM
NOVEMBER 10,
SIX MONTHS ENDED 2000
JUNE 30, (INCEPTION) TO
2004 2003 JUNE 30, 2004
--------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Issuance of capital stock in exchange for equipment $ -- $ -- $ 1,000,000
========================================================
Equipment acquired under capital lease $ -- $ -- $ 81,434
========================================================
Cancellation of warrants $ (566,220) $ -- $ --
========================================================
Issuance of warrants in connection with issuance of
convertible secured promissory notes payable $ 1,856,104 $ -- $ 1,856,104
========================================================
Issuance of warrants to placement agents $ 1,182,264 $ -- $ 1,182,264
========================================================
Beneficial conversion of convertible notes $ 2,401,057 $ 2,401,057
========================================================
Conversion of convertible secured promissory notes
payable to related parties into convertible secured
promissory notes payable $ 500,000 $ -- $ 500,000
========================================================
Interest paid $ 15,597 $ 1,858 $ 22,798
========================================================
Recapitalization transaction:
Exchanged:
Interest payable to related parties $ (2,615,368) -- $ (2,615,368)
Convertible secured promissory notes payable to
related parties $ (20,350,000) -- $ (20,350,000)
Warrants which were issued with convertible,
secured promissory notes payable to related
parties $ (566,220) -- $ (566,220)
Secured promissory notes payable to related parties
$ (2,900,000) -- $ (2,900,000)
Convertible redeemable preferred stock $ (2,917,640) -- $ (2,917,640)
For:
Due to Spencer Trask Specialty Group, LLC $ 10 -- $ 10
Proceeds from issuance of convertible redeemable
preferred stock $ 7,500,000 -- $ 7,500,000
Common stock 2,300 -- 2,300
Paid in capital $ 21,846,918 -- $ 21,846,918
--------------------------------------------------------
$ -- $ -- $ --
========================================================
SEE ACCOMPANYING NOTES
-134-
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Vyteris, Inc. ("Vyteris"), formerly Drug Delivery Technologies, Inc., was
incorporated on July 19, 2000 in the State of Delaware. Vyteris had no operating
activity prior to November 10, 2000.
Effective November 10, 2000, Vyteris, Becton Dickinson and Co. ("Becton") and
Spencer Trask Specialty Group, LLC ("Spencer Trask") entered into a
stockholders' agreement ("Stockholders' Agreement"), in conjunction with a
transaction agreement ("Transaction Agreement"), also effective on November 10,
2000, whereby Becton agreed to transfer to Vyteris certain assets in exchange
for common stock and Series A convertible redeemable preferred stock and Spencer
Trask agreed to contribute $9,000,000 in cash in exchange for common stock and
Series B convertible redeemable preferred stock.
Vyteris paid certain Transaction Agreement expenses on behalf of Spencer Trask
approximating $250,000. The reimbursement was recorded as a reduction in paid-in
capital associated with the common stock and Series B convertible, redeemable
preferred stock issued to Spencer Trask.
Vyteris is engaged in the development of noninvasive, transdermal drug delivery
systems. Vyteris holds over 60 U.S. patents relating to the delivery of drugs
across the skin using a mild electric current. The Company operates in one
business segment.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with U.S. generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by U.S. generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 2004 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2004.
-135-
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
The condensed balance sheet at December 31, 2003 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements. For further information, refer to
the financial statements and footnotes thereto, included in Vyteris, Inc.'s
audited financial statements for the year ended December 31, 2003.
The accompanying financial statements have been prepared assuming that Vyteris
will continue as a going concern; however, at its current and planned rate of
spending, Vyteris' cash and cash equivalents as of June 30, 2004 are not
sufficient to allow it to continue operations through June 30, 2005. As of June
30, 2004, Vyteris requires additional sources of capital to meet budgeted
expenditures in order to continue its operations through that date.
On September 29, 2004 Vyteris consummated a $15 million private placement
transaction (the "Private Placement") (refer to note 13). Immediately prior to
the closing of the Private Placement, certain related parties agreed to provide
Vyteris with up to $5 million in working capital loans (the "Working Capital
Facility") (refer to note 13). We expect that the net proceeds from the Private
Placement, together with the funds to be made available to us under the Working
Capital Facility, will be sufficient to finance the operations of Vyteris for at
least 12 months.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Vyteris considers all highly liquid instruments with maturities of three months
or less at the date of purchase to be cash equivalents.
DEFERRED REVENUE
Non-refundable upfront fees received from B. Braun Medical, Inc. ("Braun") are
deferred and recognized as revenue on a straight-line basis commencing on the
commercial start date (as defined in the agreement) over the 10-year life of the
agreement.
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVERSE COMMON STOCK SPLIT
On March 31, 2004 Vyteris completed a 1:4 reverse split of its common stock. All
share information with respect to Vyteris' common stock, options, warrants, and
basic and diluted loss per share have been adjusted to give retroactive effect
to the reverse common stock split for all periods presented.
-136-
STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION ("SFAS No. 123"), Vyteris has elected to follow
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES ("APB No. 25") and related interpretations in accounting for its
employee stock-based compensation because the alternative fair value method of
accounting provided for under SFAS No. 123 requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB No. 25, no compensation expense is recognized at the time of option grant if
the exercise price of the employee stock option is fixed and equals or exceeds
the fair value of the underlying common stock on the date of grant and the
number of shares to be issued pursuant to the exercise of such option are known
and fixed at the date of grant. The Board of Directors determines the fair value
of common stock.
Vyteris accounts for options issued to non-employees under SFAS No. 123 and
Emerging Issues Task Force Issue No. 96-18, ACCOUNTING FOR EQUITY INSTRUMENTS
THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH
SELLING, GOODS OR SERVICES. Therefore, the fair value of options issued to
non-employees is recorded as an expense and periodically re-measured over the
vesting terms.
Vyteris has adopted the disclosure-only provisions of SFAS No. 123. Pro forma
information regarding net loss is required by SFAS No. 123, which requires that
the information is to be determined as if Vyteris had accounted for its employee
stock options granted under the fair value provisions of SFAS No. 123. For
purposes of SFAS No. 123 pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods.
-137-
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The fair value of each option granted was estimated at the date of grant using
the minimum value option pricing model with the following assumptions:
WEIGHTED- WEIGHTED-
AVERAGE RISK- AVERAGE
FREE INTEREST DIVIDEND EXPECTED
GRANT PERIOD RATE YIELD OPTION LIFE
- ----------------------------------------------------------------------------------------
Six months ended June 30, 2004 4.09% 0% six years
Six months ended June 30, 2003 2.78% 0% six years
Three months ended June 30, 2004 4.10% 0% six years
Three months ended June 30, 2003 2.78% 0% six years
In addition, the option valuation models require input of highly subjective
assumptions. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of employee
stock options.
The pro forma net loss may not be representative of future disclosure since the
estimated fair value of stock options is amortized to expense over the vesting
period and additional options may be granted in future years.
-138-
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the employee
options is amortized to expense over the options' vesting period. Vyteris' pro
forma information is as follows:
PERIOD FROM
NOVEMBER 10,
SIX MONTHS ENDED THREE MONTHS ENDED 2000
JUNE 30, JUNE 30, (INCEPTION)
2004 2003 2004 2003 TO JUNE 30, 2004
-----------------------------------------------------------------------------------------------
Net loss as reported: $ (9,303,618) $ (5,990,547) $ (5,537,735) $ (3,290,218) $ (42,779,375)
Add stock-based
employee
compensation
expense included
in reported net
loss $ 86,646 $ 37,090 $ 69,946 $ 18,253 $ 288,156
Deduct total
stock-based
employee
compensation
expense
determined under
the fair value
based method for
all awards $ (187,097) $ (68,383) $ (147,384) $ (34,531) $ (518,701)
-----------------------------------------------------------------------------------------------
Pro forma net loss $ (9,404,069) $ (6,021,840) $ (5,615,173) $ (3,306,496) $ (43,009,920)
-----------------------------------------------------------------------------------------------
Basic and diluted net
loss per share $ (0.70) $ (3.32) $ (0.23) $ (1.82)
-----------------------------------------------------------------------------------------------
-139-
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Vyteris records deferred tax assets and liabilities based on the differences
between the financial statement and tax bases of assets and liabilities and on
operating loss carryforwards using enacted tax rates in effect for the year in
which the differences are expected to reverse. A valuation allowance is provided
when it is more likely than not that some portion or all of a deferred tax asset
will not be realized.
CONTRACT RESEARCH REVENUE
During the three and six-month periods ended June 30, 2004 and 2003, Vyteris had
research arrangements with pharmaceutical companies to develop iontophoretic
transdermal patch systems for the administration of drugs for use in
pre-clinical and clinical development. Contract research revenue is recognized
utilizing the percentage of completion method. The cost of contract research
revenue was approximately $99,000 and $33,000 for the three month periods ended
June 30, 2004 and 2003, respectively, $102,000 and $145,000 for the six month
periods ended June 30, 2004 and 2003, respectively, and $623,000 for the period
from November 10, 2000 (inception) to June 30, 2004, and is included in research
and development expense in the accompanying financial statements.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" ("SFAS No. 128"). Under the provisions of SFAS No. 128,
basic net loss per common share ("Basic EPS") is computed by dividing net loss
by the weighted-average number of common shares outstanding. Diluted net loss
per common share ("Diluted EPS") is computing by dividing net loss by the
weighted average number of shares and dilutive common share equivalents then
outstanding. Common equivalent shares consist of the incremental common shares
issuable upon the exercise of stock options and warrants and the conversion of
preferred stock. Diluted EPS is identical to Basic EPS since common equivalent
shares are excluded from the calculation, as their effect is anti-dilutive.
3. CONVERTIBLE SECURED PROMISSORY NOTES PAYABLE
During the six months ended June 30, 2004, Vyteris issued $8,497,500 of 8%
convertible secured promissory notes payable, maturing December 31, 2004 (the
"December Notes"), in a
-140-
private placement transaction. The December Notes are convertible at any time
prior to maturity into Vyteris common stock at a conversion price of the lower
of $1.00 per share or the per share price of common stock sold prior to the
conversion, as described in the agreements. The December Notes are subject to
automatic conversion if Vyteris consummates, before December 31, 2004, a private
equity financing or series of related financings of at least $8,000,000, in
which case the principal amount of the December Notes will automatically convert
into shares of Vyteris common stock at a conversion price equal to the lower of
$1.00 or eighty-five percent (85%) of the offering price of the securities sold
in the financing.
In connection with the issuance of the December Notes, Vyteris issued warrants
("Warrants") to purchase 4,248,750 shares of Vyteris' common stock at an
exercise price of $1.00 per share. The Warrants have an expiration date of five
years from the date of issuance. Management estimated that the Warrants had an
aggregate fair value of approximately $1,856,000 based on an estimate of the
value by Vyteris. In addition Vyteris estimates that the December Notes
contained a beneficial conversion feature valued at approximately $2,401,000.
Therefore, Vyteris has recorded a discount on the December Notes and increased
paid-in capital by approximately $4,257,000. The discount is being amortized
over the life of the December Notes. Amortization of the discount included in
interest expense in the accompanying financial statements was approximately
$1,190,000 for the three and six month periods ended June 30, 2004 and for the
period from November 10, 2000 (inception) to June 30, 2004. Accumulated
amortization of the discount was $1,190,000 at June 30, 2004.
Included in the aforementioned offering are convertible secured promissory notes
payable with principal of $185,000 and 92,500 warrants issued to members of
Vyteris Board of Directors and senior management, who purchased the December
Notes on the same terms and conditions as all other purchasers of the December
Notes.
Spencer Trask Ventures, Inc., a related party to Vyteris' principal stockholder
acted as placement agent in this transaction. Spencer Trask Ventures, Inc.
received a 10% placement fee, a 3% non-accountable expense allowance and
warrants to purchase 2,549,250 shares of common stock at an exercise price of
$1.00 as compensation for acting as placement agent. In addition, Vyteris
granted Spencer Trask Ventures, Inc. an irrevocable right of first refusal for a
period of two years following the closing of the aforementioned offering to
either purchase for its own account or act as agent for any proposed private
offering of our securities by us, other than notes or convertible notes to be
issued to STSG.
Costs relating to the private placement transaction are capitalized and
amortized over the term of the December Notes. At June 30, 2004 total deferred
financing costs of approximately $2,447,000 included placement agent fees and
non-accountable expenses of approximately $1,105,000, legal and other expenses
of $160,000 and warrants issued to the placement agent valued at approximately
$1,182,000. Amortization expense, included in interest expense in the
accompanying financial statements, was approximately $689,000 in the three and
six months ended June 30, 2004 and for the period from November 10, 2000
(inception) to June 30, 2004. Accumulated amortization of deferred financing
costs at June 30, 2004 was approximately $689,000 .
-141-
At June 30, 2004 accrued and unpaid interest on the December Notes was $134,331,
including $2,127 due to related parties, and is recorded in the accompanying
balance sheet as interest payable.
4. CONVERTIBLE SECURED PROMISSORY NOTES PAYABLE TO RELATED PARTIES
During February 2004, Vyteris issued secured promissory notes with principal of
$1,000,000 to Spencer Trask and related parties. Each of the Notes matures 120
days from its respective date of issuance and bears an annual interest rate of
12%, which is payable on maturity, and are convertible into common stock, at the
option of the holders under certain circumstances at $1 per share.
During May 2004, the holders of $500,000 principal amount of the secured
promissory notes issued to related parties converted their notes into
convertible secured promissory notes and warrants in a private placement
transaction (refer to Note 3).
The remaining $500,000 principal amount of the secured promissory note issued to
related parties elected not to convert. This note and interest thereon were
repaid in full subsequent to June 30, 2004 in accordance with their original
terms (refer to Note 13).
At June 30, 2004 accrued and unpaid interest on the remaining $500,000 secured
promissory note issued to related parties was $20,000 and is included in
interest payable to related parties in the accompanying balance sheet.
5. CONVERTIBLE PROMISSORY NOTE PAYABLE TO A RELATED PARTY
At June 30, 2004 and December 31, 2003 $500,000 of convertible promissory notes
payable to Becton Dickinson and Co. (the "BD Convertible Note") were recorded in
the accompanying balance sheet. At June 30, 2004 and December 31, 2003, accrued
and unpaid interest on the BD Convertible Note was $40,000 and $20,000,
respectively, and is reflected in the accompanying balance sheets as interest
payable to related parties.
6. RECAPITALIZATION TRANSACTION
On March 31, 2004 Spencer Trask and a related entity ("Spencer Trask and Related
Party") consummated a transaction with Vyteris wherein Vyteris issued to Spencer
Trask and Related Party 23 million shares of common stock, 7.5 million shares of
Series C Convertible Redeemable Preferred Stock (the "Series C Preferred Stock")
with a par value of $0.0001 per share, and other nominal consideration in
exchange for $20,350,000 principal amount of the convertible, secured promissory
notes payable to related parties, $2,900,000 of the secured promissory notes
payable to related parties (collectively the "Spencer Trask Notes"), $2,615,000
of accrued and unpaid interest on the Spencer Trask Notes, 3,000,000 shares of
Series B convertible preferred stock and the cancellation of warrants to
purchase 2,035,000 shares of common stock with a paid-in capital value of
$566,000 (the "Recapitalization Transaction").
Each shareholder of Series C Preferred Stock is entitled to receive dividends
when, as and if declared by the Board of Directors as long as any shares of the
Series A Preferred Stock shall remain outstanding. Effective upon cancellation
of all outstanding shares of Series A Convertible Preferred Stock, the holders
of Series C Redeemable Convertible Preferred Stock are entitled to receive,
ratably, an annual cash dividend of 8% of the then applicable redemption
-142-
price, as defined, out of funds legally available, payable quarterly. Subject to
the prior rights of the Series A Preferred Stock, the dividends on the Series C
Preferred Stock shall be cumulative, whether or not earned or declared and shall
be paid quarterly in arrears. Additionally, the holders of Series A Convertible
Preferred Stock are entitled to receive ratably, dividends if declared by the
Board of Directors out of funds legally available, before any dividends are
received by holders of common stock. In the event of liquidation, holders of
Series C Redeemable Convertible Preferred Stock are entitled to receive a
liquidation preference of $1.00 per share (adjusted for stock splits or
combinations of such stock, recapitalizations, or other similar transactions
that have the effect of increasing or decreasing the number of shares
represented by each outstanding share of such stock), plus an amount equal to
all declared but unpaid dividends on the Series C Redeemable Convertible
Preferred Stock.
With respect to the distribution of assets, Series C Redeemable Convertible
Preferred Stock ranks senior to our common stock, but junior to Series A
Convertible Preferred Stock. Each share of the Series C Redeemable Convertible
Preferred Stock is convertible at any time, at the option of the holder, into
common stock at a price per share if converted within 18 months from March 31,
2004, of $4.00; if converted within the next 18 months, $3.00; or if converted
any time thereafter, $1.50. The holders of Series C Preferred Stock (and the
holders of any other series of preferred stock with similar voting rights as the
Series C Preferred Stock) vote together with the holders of shares of common
stock and Series A Convertible Preferred Stock as a single class in all matters
to be voted on by shareholders of Vyteris, except that the vote or consent of
the holders of a majority of the shares of Series C Redeemable Convertible
Preferred Stock is necessary to authorize or issue an equity security having any
preference over or being on a parity with the Series C Redeemable Preferred
Stock with respect to dividend or liquidation preference; increase the number of
authorized shares of Series C Redeemable Convertible Preferred Stock; or amend,
alter or repeal any provision of Vyteris Certificate of Incorporation,
Certificate of Designations or By-laws, if such action would alter, in any
material respect, the rights of the Series C Redeemable Preferred Stock.
Commencing on of the first anniversary date of the first commercial sale of
LidoSite, and continuing for one year thereafter, Vyteris will be required to
redeem (on a quarterly basis) an amount of Series C Preferred Stock equal to 5%
of the gross profits derived from the sale of LidoSite. During the following
years, Vyteris will be required to redeem (on a quarterly basis) an amount of
Series C Preferred Stock equal to 10% of the gross profits derived from the sale
of LidoSite. The redemption price of the Series C Preferred Stock is $1.00 per
share (adjusted for splits, etc.) plus any accrued but unpaid dividends.
Since these transactions were between Vyteris and its majority shareholder, the
transactions were treated as capital transactions and no gain or loss has been
reflected in the accompanying financial statements.
-143-
7. STOCK COMPENSATION PLAN
A summary of Vyteris' stock option activity under the Vyteris, Inc. 2001 Stock
Option Plan, and related information for the six months ended June 30, 2004, is
as follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
---------------------------------------------------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------------------------------------------------------------------------
Outstanding at beginning of year 448,709 $1.70 192,959 $2.92
Granted 1,093,724 .80 262,375 0.80
Exercised (37,500) .60 - -
Forfeited and canceled (135,916) 3.85 (6,625) 1.33
---------------------------------------------------------------------------
Outstanding and exercisable to
acquire restricted stock at end of
the period 1,369,017 $0.80 448,709 $1.70
===========================================================================
Weighted-average grant date
fair value of options granted
during the period for options
with an exercise price less
than the fair value of a
common share on the date
of grant
$ 0.29 $0.76
===========================================================================
A summary of Vyteris' options outstanding under the Option Plan at June 30, 2004
and related exercise prices and weighted-average remaining lives is as follows:
WEIGHTED-
AVERAGE
REMAINING
EXERCISE PRICE OUTSTANDING LIFE (YEARS)
------------------------------------------------------------------
$0.60 24,418 6.8
$0.80 1,344,599 9.8
------------------------------------
1,369,017 9.7
====================================
During the six months ended June 30, 2004, 37,500 stock options were exercised,
6,500 stock options were forfeited, and 129,416 stock options were cancelled.
91,917 of the cancelled stock options were reissued with an exercise price of
$0.80. In accordance with APB No. 25 and FASB Interpretation No. 44, ACCOUNTING
FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION, AN INTERPRETATION OF APB
OPINION NO. 25, the reissued options are accounted for as a direct re-
-144-
pricing, which requires the options to be re-measured at intrinsic value over
the vesting period. Additionally, 1,001,807 stock options were granted with an
exercise price of $0.80.
8. LOSS PER SHARE
The following table shows dilutive common share equivalents outstanding, which
are not included in the above historical calculations, as the effect of their
inclusion is anti-dilutive during each period.
JUNE 30,
2004 2003
----------------------------------
Convertible preferred stock 1,958,333 833,333
Convertible debt 8,622,500 4,061,250
Warrants 6,848,000 1,624,500
Options 1,369,017 328,210
B. Braun purchase right 92,593 92,593
----------------------------------
Total 18,890,443 6,939,886
==================================
9. RELATED PARTY TRANSACTIONS
SPENCER TRASK
In addition to the convertible secured promissory notes payable to related
parties described in Note 4, the Recapitalization Transaction described in Note
6, and the Private Placement described in Note 3, Vyteris had the following
transactions with Spencer Trask:
At June 30, 2004 and December 31, 2003, approximately $62,000 is included in due
related party in the accompanying balance sheets for amounts owed to Spencer
Trask and Spencer Trask Ventures, Inc. for certain expenses paid on behalf of
Vyteris.
During December 2001, $10,000 of Spencer Trask's funds were deposited in
Vyteris' bank account in error by Vyteris' bank. Therefore, at June 30, 2004 and
December 31, 2003, $10,000 is included in due to related party in the
accompanying balance sheets.
10. INCOME TAXES
At December 31, 2003, Vyteris has available for federal income tax purposes net
operating loss carryforwards, subject to review by the Internal Revenue Service,
aggregating approximately $34 million and expiring from 2020 to 2023.
11. FDA APPROVAL
On May 6, 2004, the Food and Drug Administration approved Vyteris' New Drug
Application (NDA 215-04) for its LidoSite(TM) Patch.
-145-
12. MATERIAL AGREEMENTS
In September 2004, Vyteris entered into an agreement with a pharmaceutical
company for the licensing and development of an iontophoretic product for the
treatment of female infertility. In July 2004 a non-refundable payment of $0.1
million was made to Vyteris by this pharmaceutical company.
We are required to pay BD a royalty in respect of sales of each iontophoresis
product stemming from intellectual property received by us from BD. For our
LidoSite product, on a country-by-country basis, that obligation continues for
the later of 10 years after the date of the first commercial sale in a country
and the date of the original expiration of the last-to-expire patent granted in
such country. The royalty on our LidoSite product, which is to be calculated
semi-annually, will be 5% of all direct revenues as defined in the Transaction
Agreement. No royalties will be earned by BD prior to November 10, 2005.
In June 2004 the Company entered into a two year employment contract with a key
executive. The contract calls for the issuance of options to purchase 425,000
shares of the Company's common stock at a price of $.80 per share upon execution
of the contract. Such options were issued in September 2004. The contract also
calls for the issuance of additional options to this key executive upon the
closing of a financing or series of financings aggregating up to $27 million,
such that that executive's total potential ownership of the Company is equal to
4% of the shares outstanding after such financing or series of financing.
13. SUBSEQUENT EVENTS
INCREASE IN SHARES AUTHORIZED FOR ISSUANCE UNDER THE EMPLOYEE STOCK OPTION PLAN
In July the Company's Board of directors and stockholders approved increasing
the number of shares of common stock available for issuance under the 2001 stock
option plan from 1,500,000 to 7,000,000.
INCREASE IN AUTHORIZED CAPITAL
In July the Company's Board of directors and stockholders approved an increase
in the Company's authorized common stock from 75,000,000 shares to 100,000,000
shares.
SECURED PROMISSORY NOTES
On July 7, 2004, $500,000 of the secured promissory notes issued to related
parties (refer to Note 4) was repaid together with interest of $20,000.
CONVERTIBLE PROMISSORY NOTES
The terms of the $500,000 BD Convertible Note were changed subsequent to June
30, 2004. The BD Note was originally due to be repaid on July 1, 2004. BD and
Vyteris have agreed to change the repayment date to the earlier of September 30,
2004 or the closing of the sale of units and merger with Treasure Mountain
Holdings, Inc. The Note will continue to accrue interest at a rate of 8% (refer
to Note 5). In September 2004, BD agreed to the redemption of $250,000 of the
principal amount of the BD Note in exchange for 166,667 shares of common stock
and warrants to purchase 41,667 shares of common stock at $1.875 per share. The
remaining $250,000 in principal amount and all interest accrued to date on the
BD Convertible Note was paid on October 1, 2004.
REDEMPTION OF SERIES A CONVERTIBLE REDEEMABLE PREFERRED SHARES
In September 2004, BD redeemed all 333,333 of its Series A Convertible
Redeemable Preferred Shares (the "Series A Shares"). In lieu of cash, BD elected
to redeem its Series A Shares for 666,667 shares of common stock and warrants to
purchase a total of 166,667 shares of common stock at $1.875 per share.
SALE OF UNITS, CONVERSION OF DECEMBER NOTES AND MERGER WITH TREASURE MOUNTAIN
HOLDINGS, INC.
-146-
On September 29, 2004 Vyteris consummated a $15,060,114 private placement
transaction ( the "Private Placement") of 2,510,019 units (the "Units"). Each
Unit consisted of 4 shares of common stock and a warrant to purchase one share
of common stock at an exercise price of $1.875 per share. The common stock
issued in the Private Placement has registration rights, the Company will cause
a registration statement to be filed within 45 days after the closing of the
Private Placement. The Private Placement included the conversion of $1.6 million
of loans made to Vyteris during the month of September 2004 by Spencer Trask and
certain of its related parties (the "September Notes"). Net proceeds to Vyteris
from the Private Placement were approximately $12 million.
Simultaneously with the closing of the Private Placement the $8,497,500
principal amount of the December Notes (refer to Note 3) converted into
8,497,500 shares of Vyteris common stock and immediately thereafter Vyteris
merged with a subsidiary of Treasure Mountain Holdings, Inc. ("TMHI") (the
"Merger"). Each outstanding share of Vyteris' common stock automatically
converted into the right to receive 4.19 shares of TMHI. Immediately after the
Merger Vyteris stockholders owned 98.2% of the outstanding common stock and
rights to receive common stock of TMHI.
The directors of TMHI resigned immediately prior to the Merger and the directors
of Vyteris immediately prior to the Merger became the sole directors of TMHI,
and the officers of TMHI resigned immediately prior to the Merger and the
executive officers of Vyteris immediately prior to the Merger became the sole
officers of TMHI.
THE CREDIT FACILITY
Immediately prior to the closing of the Private Placement, Spencer Trask and
certain of its related parties agreed to provide Vyteris with up to $5,000,000
in working capital loans in the form of 11.5% secured demand promissory notes
("Working Capital Facility"). As consideration for the commitment of the Working
Capital Facility Vyteris issued 1,000,000 shares of its common stock to Spencer
Trask and certain of its related parties. Each time funds are loaned to Vyteris
under the Working Capital Facility Vyteris shall issue to the lender a common
stock purchase warrant to purchase such number of shares equal to the quotient
obtained by dividing (i) 40% of the amount loaned by (ii) 1.50. The warrants are
exercisable for five years from the date of issuance and have an initial
exercise price of $1.50 per share. As of October 31, 2004 no amounts have been
loaned to Vyteris under the Working Capital Facility.
LICENSE AND DEVELOPMENT AGREEMENT
In September 2004, Vyteris entered into an agreement with a major, European,
pharmaceutical company for the licensing and development of an iontophoretic
product for the treatment of female infertility. In July 2004 a non-refundable
payment of $150,000 was made to Vyteris by this European pharmaceutical company.
-147-
MADSEN & ASSOCIATES, CPA's INC. 684 East Vine St, # 3
Murray, Utah 84107
Certified Public Accountants and
Business Consultants Telephone 801-268-2632
Fax 801-262-3978
Board of Directors
Treasure Mountain Holdings, Inc.
Salt Lake City, Utah
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheet of Treasure Mountain
Holdings, Inc. (development stage company) at December 31, 2003, and the
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 2003 and 2002 and the period January 1, 1958 (date of
inception of development stage) to December 31, 2003. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the over all
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Treasure Mountain
Holdings, Inc. at December 31, 2003 and the results of operations and cash flows
for the years ended December 31, 2003 and 2002, and the period January 1, 1958
to December 31, 2003 in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company will need additional
working capital to service its debt and for any planned activity, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are described in the notes to the financial
statements. These additional statements do not include any adjustments that
might result from the outcome of this uncertainty.
Salt Lake City, Utah /s/ Madsen & Associates
March 23, 2004
-148-
TREASURE MOUNTAIN HOLDINGS, INC.
(Development Stage Company)
BALANCE SHEET
December 31, 2003
-------------
ASSETS
CURRENT ASSETS
Cash 145
-------------
Total Current Assets 145
===
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and accrued interest - related party 5,144
Accounts payable 2,640
-------------
Total Current Liabilities 7,784
-------------
STOCKHOLDERS' DEFICIENCY
Common Stock
50,000,000 shares authorized, at $0.001 par value,
3,382,117 shares issued and outstanding 3,382
Capital in excess of par value 684,370
Accumulated deficit - Note 1 (695,391)
-------------
Total Stockholders' Deficiency (7,639)
-------------
145
The accompanying notes are an integral part of these financial statements.
-149-
TREASURE MOUNTAIN HOLDINGS, INC.
(Development Stage Company)
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2003 and 2002
and the Period January 1, 1958 (date of inception of
development stage) to December 31, 2003
Dec 31, Dec 31, Jan 1, 1958 to
2003 2004 Dec 31, 2003
-------------- --------------- -------------------
REVENUES $ 2,297 $ 8,400 $ 10,697
EXPENSES
Administrative 30,247 34,029 682,776
-------------- --------------- -------------------
NET LOSS - before other income & expense (27,950) (25,629) (672,079)
OTHER INCOME AND EXPENSE
Gain from settlement of debt -- -- 19,000
Interest expense $ (144) $ (393) $ (537)
-------------- --------------- -------------------
NET LOSS $ (28,094) $ (26,022) $ (653,616)
============== ============== ===================
NET LOSS PER COMMON SHARE
Basic and diluted $ (.01) $ (.02)
-------------- --------------
AVERAGE OUTSTANDING SHARES
Basic (stated in 1,000's) 2,682 1,418
-------------- --------------
The accompanying notes are an integral part of these financial statements.
-150-
TREASURE MOUNTAIN HOLDINGS, INC.
(Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period January 1, 1958 (date
of inception of development stage)
to December 31, 2003
Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit
---------------------------------------------------------------------
Balance January 1, 1958 14,810 15 126,154 (41,775)
Net operating loss for the years ended
December 31, 1958 -- -- -- (43,600)
December 31, 1959 -- -- -- (28,619)
December 31, 1960 -- -- -- (42,175)
December 31, 1961 -- -- -- (23,449)
Issuance of common shares for services - 1969
400 -- 2,000 --
Net operating loss for the year ended
December 31, 1969 -- -- -- (2,000)
Issuance of common shares for payment of accounts
payable - 1970 9,720 10 52,064 --
Issuance of common shares for cash - 1970 1,000 1 4,999 --
Issuance of common shares for all
outstanding stock of Queen Hills - 1970 32,000 32 159,968 --
Net operating loss for the year ended
December 31, 1970 -- -- -- (9,670)
Issuance of common shares for cash and payment of
accounts payable - 1972 550 1 1,374 --
Issuance of common shares for cash and payment of
accounts payable - 1973 2,900 3 4,667 --
Net operating loss for the year ended
December 31, 1975 -- -- -- (160,000)
Issuance of common shares for services - 1985 3,630 4 18,146 --
-151-
Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit
---------------------------------------------------------------------
Issuance of common shares for all outstanding
stock of Notch Peak Corp - 1985 40,331 40 201,617 --
Net operating loss for the year ended
December 31, 1985 -- -- -- (18,150)
Net operating loss for the year ended
December 31, 1988 -- -- -- (201,657)
Issuance of common shares for services - 1997 22,610,000 22,610 7,390 --
Issuance of common shares for cash - 1997 100,000 100 9,900 --
Issuance of additional common shares
resulting from stock split - 1997 31,206 31 (31) --
Net operating loss for the year ended
December 31, 1997 -- -- -- (64,560)
Contributions to capital - 1997 -- -- 750 --
Balance December 31, 1997 22,846,547 22,847 588,998 (635,655)
Contributions to capital - 1998 -- -- 450 --
Net operating loss for the year ended
December 31, 1998 -- -- -- (573)
Contributions to capital - settlement
of debt - related party -- -- 5,000 --
Net operating profits for the year ended
December 31, 1999 -- -- -- 18,497
Common shares returned and canceled
by related parties as capital
contribution - September 27, 2000 (21,909,000) (21,909) 21,909 --
Net operating loss for the year ended
December 31, 2000 -- -- -- (6,618)
Net operating loss for the year ended
December 31, 2001 -- -- -- (16,926)
Issuance of common shares for payment of debt at
$.10 - March 29, 2002 284,570 284 28,173 --
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Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit
---------------------------------------------------------------------
Issuance of common shares for expenses at $.025 -
related parties - August 9, 2002 640,000 640 15,360 --
Issuance of common shares for expenses at $.025 -
related parties - December 30, 2002 320,000 320 7,680 --
Net operating loss for the year ended
December 31, 2002 -- -- -- (26,022)
Balance December 31, 2002 2,182,117 2,182 667,570 (667,297)
Issuance of common shares for expenses at $.015 -
March 31, 2003 - related parties 400,000 400 5,600 --
Issuance of common shares for expenses at $0.15 -
September 30, 2003 - related parties 800,000 800 11,200 --
Net operating loss for year ended
December 31, 2003 -- -- -- (28,094)
Balance December 31, 2003 $3,382,117 $ 3,382 $ 684,370 $ (695,391)
========== ============== ============= ================
The accompanying notes are an integral part of these financial statements.
-153-
TREASURE MOUNTAIN HOLDINGS, INC.
(Development Stage Company)
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2003 and 2002
and the Period January 1, 1958 (date of inception of
development stage) to December 31, 2003
Dec 31, Dec 31, Jan 1, 1958 to
2003 2004 Dec 31, 2003
-------------- --------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(28,094) $(26,022) $(653,616)
Adjustments to reconcile net loss to
net cash provided by operating activities
Gain from settlement of debt -- -- (19,000)
Changes in notes and accounts payable 6,984 (557) 82,241
Issuance of common stock for expenses 18,000 24,000 575,520
-------------- --------------- -------------------
Net Change in Cash from Operations (3,110) (2,579) (14,855)
-------------- --------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES -- -- --
-------------- --------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock -- -- 15,000
-------------- --------------- -------------------
Net Increase (Decrease) in Cash (3,110) (2,579) 145
Cash at Beginning of Period 3,255 5,834 --
-------------- --------------- -------------------
Cash at End of Period $ 145 $3,255 $ 145
===== ====== ==============
-------------- --------------- -------------------
The accompanying notes are an integral part of these financial statements.
-154-
TREASURE MOUNTAIN HOLDINGS, INC.
(Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
Period January 1, 1958 (date of inception of
development stage) to December 31, 2003
SCHEDULE OF NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES
Issuance of 400 common shares for services - 1969 $ 2,000
Issuance of 9,720 common shares for payment of accounts payable - 1970 52,074
Issuance of 32,000 common shares for all outstanding stock of Queen Hills - 1970 160,000
Issuance of 550 common shares for cash and payment of accounts payable - 1972 1,375
Issuance of 2,900 common shares for cash and payment of accounts payable - 1973 4,670
Issuance of 3,630 common shares for services - 1985 18,150
Issuance of 40,331 common shares for all outstanding stock of Notch Peak Corp - 1985 201,657
Issuance of 22,610,000 common shares for services - 1997 30,000
Issuance of 284,570 common shares for payment of debt - 2002 28,457
Issuance of 960,000 common shares for expenses - 2002 24,000
Issuance of 1,200,000 common shares for expenses - 2003 18,000
-155-
TREASURE MOUNTAIN HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
1. ORGANIZATION
The Company was incorporated under the laws of the state of Utah on July 2, 1954
with authorized common stock of 1,000,000 shares at a par value of $.10 with the
name "Treasure Mountain Mining Company" and on March 21, 1970 the authorized
common stock was increased to 10,000,000 shares with a par value of $.10. On
February 11, 1997 the name was changed to "Treasure Mountain Holdings, Inc." and
the authorized common capital stock was increased to 50,000,000 shares with a
par value of $.001. On April 1, 1997 the domicile was changed from the state of
Utah to the state of Nevada.
The Company has been engaged in the activity of the development and operations
of mining properties and in 1957 the operations were abandoned and the Company
became inactive. The Company has been in the developmental stage since that
date.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING METHODS
The Company recognizes income and expenses based on the accrual method of
accounting.
DIVIDEND POLICY
The Company has not yet adopted a policy regarding payment of dividends.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes. Under
the liability method deferred tax assets and liabilities are determined based on
the differences between financial reporting and the tax bases of the assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect, when the differences are expected to reverse. An allowance against
deferred tax assets is recorded, when it is more likely than not, that such tax
benefits will not be realized.
On December 31, 2003, the Company had a net operating loss available for carry
forward of $124,296. The income tax benefit of approximately $37,000 from the
loss carry forward has been fully offset by a valuation reserve because the use
of the future tax benefit is undeterminable since the Company has no operations.
The loss carryover expires in the years from 2003 through 2024.
FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including cash and accounts
payable, are considered by management to be their estimated fair values.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share amounts are computed based on the weighted
average number of shares actually outstanding. Diluted net income (loss) per
share amounts are computed using
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the weighted average number of common shares and common equivalent shares
outstanding as if shares had been issued on the exercise of any common share
rights unless the exercise becomes antidilutive and then the diluted income
(loss) per shares is not shown.
FINANCIAL AND CONCENTRATIONS RISK
The Company does not have any concentration or related financial credit risk.
REVENUE RECOGNITION
Revenue is recognized on the sale and delivery of a product or the completion of
services provided.
ADVERTISING AND MARKET DEVELOPMENT
The company will expense advertising and market development costs as incurred.
STATEMENT OF CASH FLOWS
For the purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less to be cash
equivalents.
ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of the assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing these financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect that the adoption of other recent accounting
pronouncements will have a material impact on its financial statements.
3. CAPITAL STOCK
The Company was incorporated in 1954 and became inactive in 1957. During the
following years errors developed in the stock records and therefore the Company
issued 14,281 shares to be held in escrow by the transfer agent in the event of
any valid claims for shares not recorded in the Company records.
During 2002 and 2003 the Company issued common shares to the officers-directors
as outlined in note 6.
4. WARRANTS
On September 27, 2000 the board of directors of the Company approved the
issuance of warrants entitling the holders to purchase up to 3,000,000
restricted common shares of the Company, at $.25 per share, at any time before
18 months from the date the warrant is granted. At the date of this report no
warrants had been granted.
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5. SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
Officers-directors, their controlled entities, and a major stockholder have
acquired 96% of the outstanding common capital stock.
During 2002 the Company issued 1,244,570 common shares to related parties for
payment of notes payable due them and for expenses paid for the Company.
During 2003 the Company issued 1,200,000 common shares to related parties as
payment for expenses paid for the Company.
On December 31, 2003 the Company had a demand, 6% note payable, due an officer
of $5,000 plus accrued interest of $144. The note and accrued interest was
forgiven on February 21, 2004 and a contribution to capital was made.
During February 2003 officer-directors made a contribution to capital of the
Company by assuming and paying the accounts payable of $2,640.
6. GOING CONCERN
The Company intends to acquire interests in various business opportunities
which, in the opinion of management, will provide a profit to the Company,
however, the Company does not have the working capital to be successful in this
effort and to service its debt, which raises substantial doubt about its ability
to continue as a going concern.
Continuation of the Company as a going concern is dependent upon obtaining
additional working capital and the management of the Company has developed a
strategy, which it believes will accomplish this objective through additional
equity funding and long term financing, which will enable the Company to operate
for the coming year.
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The accompanying unaudited balance sheet of Treasure Mountain Holdings Inc. at
June 30, 2004, related statements of operations, changes in stockholders' equity
and cash flows for the three and six months ended June 30, 2004 and 2003 and the
period January 1, 1958 (date of inception of development stage) to June 30,
2004, have been prepared by management in conformity with accounting principles
generally accepted in the U.S. In the opinion of management, all adjustments
considered necessary for a fair presentation of the results of operations and
financial position have been included and all such adjustments are of a normal
recurring nature. Operating results for the quarter ended June 30, 2004, are not
necessarily indicative of the results that can be expected for the fiscal year
ending December 31, 2004.
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TREASURE MOUNTAIN HOLDINGS, INC.
(Development Stage Company)
BALANCE SHEETS
(unaudited)
June 30, 2004 and December 31, 2003
Jun 30, Dec 31,
2004 2003
------------------- ---------------------
ASSETS
CURRENT ASSETS
Cash 1,454 145
------------------- ---------------------
Total Current Assets 1,454 145
===== ===
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - related party 12,167 5,144
Accounts payable 3,570 2,640
------------------- ---------------------
Total Current Liabilities 15,737 7,784
------------------- ---------------------
STOCKHOLDERS' EQUITY
Common Stock
50,000,000 shares authorized, at $0.001 par
value, 3,392,117 shares issued and out-
standing (See Note 3) 3,382 3,392
Capital in excess of par value 742,379 684,370
Accumulated deficit (See Note 1) (760,054) (695,391)
------------------- ---------------------
Total Stockholders' Equity (14,283) (7,639)
------------------- ---------------------
1,454 145
===== ===
The accompanying notes are an integral part of these financial statements.
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TREASURE MOUNTAIN HOLDINGS, INC.
(Development Stage Company)
STATEMENTS OF OPERATIONS
(unaudited)
For the Three and Six Months Ended June 30, 2004 and 2003
and the Period January 1, 1958 (date of inception of
development stage) to June 30, 2004
Three Months Six Months Jan 1, 1958
Jun 30, Jun 30, Jun 30, Jun 30, to Jun 30,
2004 2003 2004 2003 2004
-------------- ------------- ------------ ---------------------------------
REVENUES -- $ 1,310 -- $ 2,097 10,697
EXPENSES 58,921 10,767 64,454 17,465 747,230
-------------- ------------- ------------ ---------------------------------
NET LOSS - before other income
and expenses (58,921) (9,457) (64,454) (15,368) (736,533)
OTHER INCOME AND EXPENSE
Gain from settlement of debt -- -- -- -- 19,000
Interest expense (165) -- (209) -- (746)
NET LOSS (59,086) $ (9,457) (64,663) $ (15,368) $ 718,279)
======== ======= ======== ======== ============
NET LOSS PER COMMON SHARE
Basic and diluted -- -- -- $ -- --
-------------- ------------- ------------ ---------------------------------
AVERAGE OUTSTANDING SHARES
(stated in 1,000's)
Basic 3,382 2,582 3,382 2,582 --
-------------- ------------- ------------ ---------------------------------
The accompanying notes are an integral part of these financial statements.
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TREASURE MOUNTAIN HOLDINGS, INC.
(Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period January 1, 1958 (date of inception of
development stage) to June 30, 2004
Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit
-------------------------------------------------------------------------
Balance January 1, 1958 14,810 15 126,154 (41,775)
Net operating loss for the years ended
December 31, 1958 -- -- -- (43,600)
December 31, 1959 -- -- -- (28,619)
December 31, 1960 -- -- -- (42,175)
December 31, 1961 -- -- -- (23,449)
Issuance of common shares for services - 1969 400 -- 2,000 --
Net operating loss for the year ended
December 31, 1969 -- -- -- (2,000)
Issuance of common shares for payment of
accounts payable - 1970 9,720 10 52,064 --
Issuance of common shares for cash - 1970 1,000 1 4,999 --
Issuance of common shares for all outstanding
stock of Queen Hills - 1970 32,000 32 159,968 --
Net operating loss for the year ended
December 31, 1970 -- -- -- (9,670)
Issuance of common shares for cash and payment of
accounts payable - 1972 550 1 1,374 --
Issuance of common shares for cash and payment of
accounts payable - 1973 2,900 3 4,667 --
Net operating loss for the year ended
December 31, 1975 -- -- -- (160,000)
Issuance of common shares for services - 1985 3,630 4 18,146 --
Issuance of common shares for all outstanding
stock of Notch Peak Corp - 1985 40,331 40 201,617 --
Net operating loss for the year ended
December 31, 1985 -- -- -- (18,150)
Net operating loss for the year ended
December 31, 1988 -- -- -- (201,657)
Issuance of common shares for services - 1997 22,610,000 22,610 7,390 --
Issuance of common shares for cash - 1997 100,000 100 9,900 --
Issuance of additional common shares
resulting from stock split - 1997 31,206 31 (31) --
Net operating loss for the year ended
December 31, 1997 -- -- -- (64,560)
Contributions to capital - 1997 -- -- 750 --
Balance December 31, 1997 22,846,547 22,847 588,998 (635,655)
Contributions to capital - 1998 -- -- 450 --
Net operating loss for the year ended
December 31, 1998 -- -- -- (573)
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Contributions to capital - settlement
of debt - related party -- -- 5,000 --
Net operating profits for the year ended
December 31, 1999 -- -- -- 18,497
Common shares returned and canceled
by related parties as capital
contribution - September 27, 2000 (21,909,000) (21,909) 21,909 --
Net operating loss for the year ended
December 31, 2000 -- -- -- (6,618)
Net operating loss for the year ended
December 31, 2001 -- -- -- (16,926)
Issuance of common shares for payment
of debt at $.10 - March 29, 2002 284,570 284 28,173 --
Issuance of common shares for expenses
at $.025 - related parties - August 9, 2002 640,000 640 15,360 --
Issuance of common shares for expenses
at $.025 - related parties - December 30, 2002 320,000 320 7,680 --
Net operating loss for the year ended
December 31, 2002 -- -- -- (26,022)
Issuance of common shares for expenses
at $.015 - March 31, 2003 - related parties 400,000 400 5,600 --
Issuance of common shares for expenses
at $0.15 - September 30, 2003 - related parties 800,000 800 11,200 --
Net operating loss for year ended -- -- -- (28,094)
December 31, 2003
Balance December 31, 2003 3,382,117 3,382 684,370 (695,391)
Contribution to capital - settlement of
debt - related party -- -- 9,519 --
Issuance of common shares for services 10,000 10 990 --
Net operating loss for the six months
ended June 30, 2004 -- -- -- (64,663)
Contribution to capital - reimbursement
of expenses -- -- 47,500 --
------------------ ----------------- ------------------ ------------------
Balance June 30, 2004 $ 3,392,117 $ 3,392 $ 742,379 $ 760,054
=============== =============== ========== =============
The accompanying notes are an integral part of these financial statements.
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TREASURE MOUNTAIN HOLDINGS, INC.
(Development Stage Company)
STATEMENT OF CASH FLOWS
(unaudited)
For the Six Months Ended June 30, 2004 and 2003
and the Period January 1, 1958 (date of inception of
development stage) to June 30, 2004
Jun 30, Jun 30, Jan 1, 1958 to
2004 2003 Jun 30, 2004
--------------- ----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (64,663) $ (15,368) (718,279)
Adjustments to reconcile net loss to net cash provided by
operating activities
Gain from settlement of debt
-- -- (19,000)
Changes in notes and accounts payable
17,472 7,738 99,713
Issuance of common stock for expenses
1,000 6,000 576,520
Contribution to capital - reimbursement of expenses
47,500 47,500 --
--------------- ----------------------------------
Net Change in Cash from Operations 1,309 (1,630) (13,546)
--------------- ----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES -- -- --
--------------- ----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable -- -- --
Proceeds from issuance of common stock -- -- 15,000
--------------- ----------------------------------
Net Increase (Decrease) in Cash
1,309 (1,630) 1,454
Cash at Beginning of Period 145 3,255 --
--------------- ----------------------------------
Cash at End of Period $ 1,454 $ 1,625 $ 1,454
--------------- ----------------------------------
The accompanying notes are an integral part of these financial statements.
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TREASURE MOUNTAIN HOLDINGS, INC.
(Development Stage Company)
STATEMENT OF CASH FLOWS (Continued)
Period January 1, 1958 (date of inception of
development stage) to June 30, 2004
SCHEDULE OF NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES
Issuance of 400 common shares for services - 1969 $ 2,000
Issuance of 9,720 common shares for payment of accounts payable - 1970 52,074
Issuance of 32,000 common shares for all outstanding stock of Queen Hills - 1970 160,000
Issuance of 550 common shares for cash and payment of accounts payable - 1972 1,375
Issuance of 2,900 common shares for cash and payment of accounts payable - 1973 4,670
Issuance of 3,630 common shares for services - 1985 18,150
Issuance of 40,331 common shares for all outstanding stock of Notch Peak Corp - 1985 201,657
Issuance of 22,610,000 common shares for services - 1997 30,000
Issuance of 284,570 common shares for payment of debt - 2002 28,457
Issuance of 960,000 common shares for expenses - 2002 24,000
Issuance of 1,200,000 common shares for expenses - 2003 18,000
Issuance of 10,000 common shares for expenses 2004 1,000
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TREASURE MOUNTAIN HOLDINGS, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2004
1. ORGANIZATION
The Company was incorporated under the laws of the state of Utah on July 2, 1954
with authorized common stock of 1,000,000 shares at a par value of $.10 with the
name "Treasure Mountain Mining Company" and on March 21, 1970 the authorized
common stock was increased to 10,000,000 shares with a par value of $.10. On
February 11, 1997 the name was changed to "Treasure Mountain Holdings, Inc." and
the authorized common capital stock was increased to 50,000,000 shares with a
par value of $.001. On April 1, 1997 the domicile was changed from the state of
Utah to the state of Nevada.
The Company has been engaged in the activity of the development and operations
of mining properties and in 1957 the operations were abandoned and the Company
became inactive. The Company has been in the developmental stage since that
date.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING METHODS
The Company recognizes income and expenses based on the accrual method of
accounting.
DIVIDEND POLICY
The Company has not yet adopted a policy regarding payment of dividends.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes. Under
the liability method deferred tax assets and liabilities are determined based on
the differences between financial reporting and the tax bases of the assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect, when the differences are expected to reverse. An allowance against
deferred tax assets is recorded, when it is more likely than not, that such tax
benefits will not be realized.
On June 30, 2004, the Company had a net operating loss available for carry
forward of $188,959. The income tax benefit of approximately $56,000 from the
loss carryforward has been fully offset by a valuation reserve because the use
of the future tax benefit is undeterminable since the Company has no operations.
The loss carryover expires in the years from 2003 through 2025.
FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including cash and accounts
payable, are considered by management to be their estimated fair values.
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BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share amounts are computed based on the weighted
average number of shares actually outstanding. Diluted net income (loss) per
share amounts are computed using the weighted average number of common shares
and common equivalent shares outstanding as if shares had been issued on the
exercise of any common share rights unless the exercise becomes antidilutive and
then the diluted income (loss) per shares is not shown.
FINANCIAL AND CONCENTRATIONS RISK
The Company does not have any concentration or related financial credit risk.
REVENUE RECOGNITION
Revenue is recognized on the sale and delivery of a product or the completion of
services provided.
ADVERTISING AND MARKET DEVELOPMENT
The company will expense advertising and market development costs as incurred.
ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of the assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing these financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect that the adoption of other recent accounting
pronouncements will have a material impact on its financial statements.
3. CAPITAL STOCK
The Company was incorporated in 1954 and became inactive in 1957. During the
following years errors developed in the stock records and therefore the Company
issued 14,281 shares to be held in escrow by the transfer agent in the event of
any valid claims for shares not recorded in the Company records.
During 2002, 2003 and 2004 the Company issued common shares to the
officers-directors (See Note 5).
Does not include 10,000 shares due to the officers and directors for services as
of June 15, 2004 which has been included at $1,000 in the accounts payable
related parties.
4. WARRANTS
On September 27, 2000 the board of directors of the Company approved the
issuance of warrants entitling the holders to purchase up to 3,000,000
restricted common shares of the Company, at $.25 per share, at any time before
18 months from the date the warrant is granted. At the date of this report no
warrants had been granted.
On June 15, 2004 the board of directors of the Company authorized the issuance
to each of the current officers and directors a two year warrant to purchase up
to 75,000 shares at an exercise price of $1.00 per share giving effect to an
anticipated 1:10 reverse stock split (represents 750,000 shares at an exercise
price of $0.10 per share pre-split). It is expected the warrants be issued
contemporaneous with the consummation of a merger transaction (See Note 7) and
shall have a provision for cashless exercise and piggy-back registration rights.
5. SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
Officers-directors, their controlled entities, and a major stockholder own
approximately 96% of the outstanding common capital stock.
During February 2004 an officer cancelled accounts payable due him of $9,519 by
the Company which was recorded as a contribution of capital.
During May 2004 the Company authorized the issuance of 10,000 common shares due
May 15, 2004 to related parties for services.
On June 30, 2004 the Company had demand 6% interest notes payable due a
controlling stockholder of $11,167 including interest plus $1,000 due to the
officers and directors payable in the Company's common shares (See Note 3).
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6. GOING CONCERN
The Company as of June 30, 2004 has a deficit net working capital position of
$14,283, which raises substantial doubt about its ability to continue as a going
concern.
Continuation of the Company as a going concern is dependent upon obtaining
additional working capital. Pursuant to a merger agreement dated July 8, 2004 a
party to the merger agreement has agreed to reimburse all the Company's expenses
from February 26, 2004 until closing of the planned merger.
7. SUBSEQUENT EVENT-MERGER AGREEMENT
The Company on July 8, 2004 entered into a definitive merger agreement with
Vyteris, Inc., a privately held Delaware company. Under the terms of the
proposed merger, a wholly owned subsidiary of Treasure Mountain will merge with
and into Vyteris, upon which Vyteris will become a wholly owned subsidiary of
Treasure Mountain. Under the terms of the merger agreement, it is contemplated
that after Treasure Mountain takes certain post closing actions stockholders of
Vyteris will own approximately 98.4% of Treasure Mountain's common stock.
Subsequent to closing, Treasure Mountain intends to take appropriate action to
cause its stockholders to approve a reincorporation through a merger with a
wholly-owned subsidiary incorporated in Delaware effectively accomplishing a 1
for 10 reverse stock split. There are a number of conditions set forth in the
merger agreement that must be met in order to close the merger. Therefore,
pro-forma financials have not been included.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
VYTERIS HOLDINGS, INC. (DELAWARE)
Under Section 145 of the Delaware General Corporation Law (DGCL), a
corporation has the power to indemnify directors and officers under certain
prescribed circumstances and subject to certain limitations against certain
costs and expenses, including attorneys' fees actually and reasonably incurred
in connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which any of them is a party by reason of
his being a director or officer of the corporation if it is determined that he
acted in good faith and in a manner he believed to be in (or not opposed to) the
interests of the corporation, and, in the case of a criminal proceeding, he had
no reason to believe his conduct was unlawful. Our certificate of incorporation
provides that we will indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was a director or officer
of ours, or is or was serving at our request as a director, officer, employee,
manager or agent of another entity, against certain liabilities, costs and
expenses. It further permits us to maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of ours, or is or was
serving at our request as a director, officer, employee or agent of another
entity against any liability asserted against such person and incurred by such
person in any such capacity or arising out of his status as such, whether or not
we would have the power to indemnify such person against such liability under
the DGCL.
Section 102(b)(7) of the DGCL permits a corporation, in its certificate
of incorporation, to limit or eliminate, subject to certain statutory
limitations, the personal liability of directors to the corporation or its
stockholders for monetary damages for breaches of fiduciary duty, as a director
except for liability (a) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the DGCL, or (d) for any transaction from which the director
derived an improper personal benefit.
Our Certificate of Incorporation contains the following provision
regarding limitation of liability of our directors and officers:
" A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director; PROVIDED, however, that this provision
shall not eliminate or limit the liability of a director to the extent
that such elimination or limitation is expressly prohibited by the
Delaware General Corporation Law as in effect at the time of the alleged
breach of duty by such director. "
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TREASURE MOUNTAIN HOLDINGS (NEVADA)
The Nevada Corporation Code grants to Treasure Mountain Holdings the
power to indemnify the officers and directors of Treasure Mountain Holdings,
under certain circumstances and subject to certain conditions and limitations as
stated therein, against all expenses and liabilities incurred by or imposed upon
them as a result of suits brought against them as such officers and directors if
they act in good faith and in a manner they reasonably believe to be in or not
opposed to the best interests of Treasure Mountain Holdings and, with respect to
any criminal action or proceeding, have no reasonable cause to believe their
conduct was unlawful.
Article IX of the Treasure Mountain Holdings Certificate of
Incorporation provides as follows:
"To the fullest extent allowed by law, the directors and executive
officers of the Corporation shall be entitled to indemnification from the
Corporation for acts and omissions taking place in connection with their
activities in such capacities."
The registration rights agreement contains provisions pursuant to which
each selling stockholder severally agrees to indemnify us, any person
controlling us within the meaning of Section 15 of the Securities Act of 1933,
or Section 20 of the Securities Exchange Act of 1934, each of our directors, and
each officer of our company who signs this registration statement with respect
to information relating to such selling stockholder furnished in writing to us
by or on behalf of such selling stockholder specifically for inclusion in this
registration statement.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimated expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered:
Item Amount
---- -----------
SEC registration fee.............................. $ 5,691
Printing and engraving expenses................... 20,000
Legal fees and expenses........................... 175,000
Accounting fees and expenses...................... 50,000
Transfer agent and registrar fees................. 5,000
Miscellaneous..................................... 24,309
-----------
Total......................................... $ 280,000
===========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the three years preceding the filing of this registration
statement, Treasure Mountain Holdings sold shares of its capital stock in the
following transactions, each of which was intended to be exempt from the
registration requirements of the Securities Act of 1933 pursuant to Section 4(2)
of that Act:
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(1) During the past three years, Treasure Mountain Holdings issued a
total of 2,444,570 shares of its common stock (the equivalent of 244,457 shares
of Vyteris Holdings common stock) to Lane Clissold and George Norman, both of
whom were directors of Treasure Mountain Holdings at the time. These shares were
issued to reimburse Messrs. Clissold and Norman for cash payments which were
made to Treasure Mountain Capital to sustain Treasure Mountain Holdings during
periods when Treasure Mountain Holdings essentially had no other sources of
capital. The shares were issued in the following years for the following
purposes:
YEAR ENDED NUMBER OF SHARES PURPOSE
DECEMBER 31,
2002 284,570 Repayment of amounts loaned by Messrs.
Clissold and Norman
2002 640,000 Repayment of expenses paid by Messrs.
Clissold and Norman
2002 320,000 Repayment of expenses paid by Messrs.
Clissold and Norman
2003 1,200,000 Repayment of expenses paid by Messrs.
Clissold and Norman
2004 10,000 Reimbursement for services rendered by
Messrs. Clissold and Norman
The stock certificates representing all such shares bore restrictive legends.
(2) On September 29, 2004, a wholly-owned subsidiary of Treasure
Mountain Holdings merged with and into Vyteris, Inc. (the "Merger") pursuant to
a Merger Agreement and Plan of Reorganization, dated as of July 8, 2004, as
amended, by and among Treasure Mountain Holdings, its wholly-owned subsidiary
and Vyteris, Inc. (the "Merger Agreement"). Pursuant to the terms of the Merger
Agreement: (i) each outsanding share of Vyteris' Common Stock was automatically
converted into the right to receive 4.19 shares of Treasure Mountain Holdings
Common Stock, each outstanding share of Vyteris' Series C Convertible Preferred
Stock, was automatically converted into the right to receive one share of
Treasure Mountain's Series B Convertible Preferred Stock, par value $.0001 per
share, and each option and warrant to purchase one or more shares of Vyteris
Common Stock (an "Existing Option" or an "Existing Warrant") has been converted
into an option or warrant to purchase one or more shares of Treasure Mountain
Common Stock (a "New Option" or a "New Warrant"). The number of shares of
Treasure Mountain Common Stock covered by each New Option or New Warrant will
equal the number of shares of Vyteris Common Stock covered by the corresponding
Existing Option or Existing Warrant multiplied by 4.19. The exercise price of
each New Option or New Warrant will equal the exercise price of the
corresponding Existing Option or Existing Warrant divided by 4.19.
Pursuant to the Merger Agreement, Treasure Mountain Holdings issued
45,087,883 shares of its common stock, issued rights certificates ("Common
Rights Certificates") entitling holders to receive an additional 144,454,297
shares of Treasure Mountain common stock and issued rights certificates ("Series
B Rights Certificates") entitling holders to receive 7,500,000 shares of Series
B Preferred Stock. Upon consummation of the reincorporation merger pursuant to
which Treasure Mountain Holdings will merge into Vyteris Holdings, such
45,087,883 shares will convert into 4,508,788 shares of Vyteris Holdings Common
Stock and Vyteris Holdings will issue 14,445,429 shares of common stock to the
holders of the Common Rights Certificates and Vyteris Holdings will issue
7,500,000 shares of Series B Preferred Stock to the holders of the Series B
Rights Certificates.
The shares and rights certificates issued in the Merger were issued in a
private placement of securities
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exempt from registration under the Securities Act of 1933, as amended (the
"Act"), pursuant to Section 4(2) of the Act.. Treasure Mountain's reliance upon
the exemption from registration afforded by Section 4(2) of the Act is premised
on the following (covering all stockholders of Vyteris immediately prior to the
consummation of the Merger):
o In connection with Vyteris' approval of the Merger Agreement, a
special meeting of Vyteris' stockholders was held. At that time, there were a
total of 18 stockholders of record, consisting solely of five accredited
investors and 13 employees and former employees (excluding employees who are
accredited investors). Such accredited investors owned approximately 99% of the
Vyteris Common Stock outstanding at the time of the special meeting and all of
the Vyteris preferred stock outstanding at the time of the special meeting. Each
of such former stockholders has been advised, among other things, that (i) the
shares of Treasure Mountain capital stock issuable pursuant to the Merger would
not, upon consummation of the Merger, be registered under the Act and may not be
transferred in the absence of registration under the Act or an effective
exemption from the registration requirements of the Act, (ii) the certificates
representing the shares of Treasure Mountain capital stock issuable pursuant to
the Merger would bear a legend referring to such transfer restrictions and (iii)
Treasure Mountain's transfer agent would be instructed to enter stop transfer
notations on its records with respect to the shares of Treasure Mountain capital
stock issuable pursuant to the Merger. At least twenty days prior to such
special meeting, Vyteris delivered to all of its stockholders of record a notice
of meeting and information statement containing detailed information regarding
Vyteris, Treasure Mountain and the Merger.
o Subsequent to the special meeting, seven current and former
employees exercised stock options covering a total of 15,908 shares of Vyteris
common stock. Each of such employees has been advised that (i) the shares of
Treasure Mountain capital stock issuable pursuant to the Merger would not, upon
consummation of the Merger, be registered under the Act and may not be
transferred in the absence of registration under the Act or an effective
exemption from the registration requirements of the Act, (ii) the certificates
representing the shares of Treasure Mountain capital stock issuable pursuant to
the Merger would bear a legend referring to such transfer restrictions and (iii)
Treasure Mountain's transfer agent would be instructed to enter stop transfer
notations on its records with respect to the shares of Treasure Mountain capital
stock issuable pursuant to the Merger.
o Subsequent to the special meeting, Vyteris issued a total of
8,497,500 hares of Vyteris Common Stock to the former holders of Bridge Notes
issued during 2004. Each of such holders is an accredited investor. Each of such
holders was advised, among other things, that (i) the shares of Treasure
Mountain capital stock issuable pursuant to the Merger would not, upon
consummation of the Merger, be registered under the Act and may not be
transferred in the absence of registration under the Act or an effective
exemption from the registration requirements of the Act, (ii) the certificates
representing the shares of Treasure Mountain capital stock issuable pursuant to
the Merger would bear a legend referring to such transfer restrictions and (iii)
Treasure Mountain's transfer agent would be instructed to enter stop transfer
notations on its records with respect to the shares of Treasure Mountain capital
stock issuable pursuant to the Merger. Such holders also received memoranda
containing detailed information regarding Vyteris, Treasure Mountain and the
Merger.
o Subsequent to the special meeting, Vyteris issued a total of
10,040,076 shares of Vyteris Common Stock and warrants covering an additional
5,020038 shares of Vyteris Common Stock to investors and placement agents in a
private placement of securities (the "Offering") that was consummated
immediately prior to the consummation of the Merger. Each of the investors in
the Offering and each of the placement agents is an accredited investor. Each of
the investors and placement agents executed an agreement in which they
acknowledged, among other things, that (i) the securities issuable pursuant to
the Offering would not, upon
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consummation of the Offering, be registered under the Act and may not be
transferred in the absence of registration under the Act or an effective
exemption from the registration requirements of the Act, (ii) the certificates
representing the shares of capital stock issuable pursuant to the Offering would
bear a legend referring to such transfer restrictions and (iii), in the case of
the investors, the transfer agent would be instructed to enter stop transfer
notations on its records with respect to the shares of capital stock issuable
pursuant to the Offering. In connection with providing such agreements, the
investors and placement agents received a memorandum containing detailed
information regarding Vyteris, Treasure Mountain, the Offering and the Merger.
o Vyteris entered into agreements relating to a working capital
credit facility immediately prior to the consummation of the Merger. In
connection with that facility, Vyteris issued a total of 1,000,000 shares of
Vyteris Common Stock to Spencer Trask Specialty Group, an accredited investor
which was aware of all material aspects of the Offering and the Merger. Spencer
Trask Specialty Group was advised, among other things, that (i) the shares of
Treasure Mountain capital stock issuable pursuant to the Merger would not, upon
consummation of the Merger, be registered under the Act and may not be
transferred in the absence of registration under the Act or an effective
exemption from the registration requirements of the Act, (ii) the certificates
representing the shares of Treasure Mountain capital stock issuable pursuant to
the Merger would bear a legend referring to such transfer restrictions and (iii)
Treasure Mountain's transfer agent would be instructed to enter stop transfer
notations on its records with respect to the shares of Treasure Mountain capital
stock issuable pursuant to the Merger. Spencer Trask Specialty Group received
memoranda containing detailed information regarding Vyteris, Treasure Mountain
and the Merger.
o Similarly, prior to the consummation of the Merger, the holder
of the outstanding Vyteris Series A Convertible Preferred Stock exchanged those
shares for Vyteris Common Stock and warrants. That holder, an accredited
investor, executed an exchange agreement in which it acknowledged that (i) the
shares of Treasure Mountain capital stock issuable pursuant to the Merger would
not, upon consummation of the Merger, be registered under the Act and may not be
transferred in the absence of registration under the Act or an effective
exemption from the registration requirements of the Act, (ii) the certificates
representing the shares of Treasure Mountain capital stock issuable pursuant to
the Merger would bear a legend referring to such transfer restrictions and (iii)
Treasure Mountain's transfer agent would be instructed to enter stop transfer
notations on its records with respect to the shares of Treasure Mountain capital
stock issuable pursuant to the Merger. Such holder had received a copy of the
proxy statement relating to the special meeting containing detailed information
regarding Vyteris, Treasure Mountain and the Merger.
o All communications with Vyteris stockholders regarding the
above-mentioned matters were effected without any general solicitation or public
advertising
ITEM 27. EXHIBITS
2.1 Merger Agreement and Plan of Reorganization, dated as of July 8,
2004, by and among Treasure Mountain Holdings, Inc.("Treasure
Mountain Holdings"), TMH Acquisition Corp. and Vyteris, Inc.
("Vyteris")
2.2 Amendment No. 1, dated as of September 29, 2004, to the Merger
Agreement and Plan of Reorganization, dated as of July 8, 2004,
by and among Treasure Mountain Holdings, TMH Acquisition Corp.
and Vyteris.
2.3 Plan of merger merging Treasure Mountain Holdings into Vyteris
Holdings, Inc. ("Vyteris Holdings")
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3.1 Articles of Incorporation, as amended, of Treasure Mountain
Holdings
3.2 By-laws, as amended, of Treasure Mountain Holdings
3.3 Certificate of Incorporation of Vyteris Holdings
3.4 By-laws, as amended, of Vyteris Holdings
5.1 Opinion of Lowenstein Sandler PC*
5.2 Opinion of Nevada counsel*
10.1 Employment Agreement between Vyteris, Inc. and Vincent De Caprio
10.2 Employment Agreement between Vyteris, Inc. and James Garrison
10.3 Vyteris Holdings Stock Option Plan
10.4 Sublease Agreement between Vyteris, Inc. and Becton Dickinson,
dated November 10, 2000
10.5 License, Development and Distribution Agreement, dated as of
September 20, 2002**
10.6 License and Development Agreement, dated as of September 27,
2004**
10.7 Supply Agreement, dated as of September 27, 2004**
10.8 Registration Rights Agreement, dated as of September 29, 2004
10.9 Securities Purchase Agreement, dated as of September 28, 2004,
between Vyteris, Inc. and Spencer Trask Specialty Group, LLC
10.10 Security Agreement, dated as of September 28, 2004
10.11 Finder's Agreement, dated as of March 31, 2004, between Vyteris,
Inc. and Spencer Trask Ventures, Inc.
10.12 Right of First Refusal Agreement, dated as of March 31, 2004,
between Vyteris, Inc. and Spencer Trask Ventures, Inc.
10.13 Placement Agency Agreement, dated as of March 19, 2004, between
Vyteris, Inc. and Spencer Trask Ventures, Inc.
10.14 Placement Agency Agreement, dated as of June 18, 2004, among
Vyteris, Inc, Spencer Trask Ventures, Inc. and Rodman & Renshaw,
LLC
10.15 Amendment No. 1, dated July 8, 2004, to Placement Agency
Agreement, dated as of June 18, 2004, among Vyteris, Inc,
Spencer Trask Ventures, Inc. and Rodman & Renshaw, LLC
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10.16 Amendment No. 2, dated September 13, 2004, to Placement Agency
Agreement, dated as of June 18, 2004, among Vyteris, Inc,
Spencer Trask Ventures, Inc. and Rodman & Renshaw, LLC
21.1 Subsidiaries of Treasure Mountain
23.1 Consent of Ernst & Young LLP
23.2 Consent of Madsen & Associates, CPA's Inc.
23.3 Consent of Lowenstein Sandler PC (to be included in Exhibit 5.1)
23.4 Consent of Nevada counsel (to be included in Exhibit 5.2)
24.1 Power of Attorney of Treasure Mountain Holdings
24.2 Power of Attorney of Vyteris Holdings
* To be filed by amendment
** To be filed by amendment; subject to a request for confidential
treatment in accordance with Rule 406 of the Securities Act.
ITEM 18. UNDERTAKINGS
(a) Each of the undersigned small business issuers hereby undertakes that it
will:
(1) File, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a) (3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change
in the information in the registration statement; and
notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in the volume and price represent
no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement;
(iii) To include any additional or changed material
information on the plan of distribution;
(2) That, for determining liability under the Securities Act of
1933, treat each such post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities
at that time to be the initial bona fide offering thereof.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
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(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuers pursuant to the foregoing provisions, or
otherwise, the small business issuers have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuers of expenses incurred or paid by a
director, officer or controlling person of the small business issuers in the
successful defense of any action, suit or proceeding) is asserted by such a
director, officer or controlling person in connection with the securities being
registered, the small business issuers 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 Act, and will be governed by the final
adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Fair Lawn, State of New Jersey, on this 12th day of
November, 2004.
TREASURE MOUNTAIN HOLDINGS, INC.
By: /s/ Vincent De Caprio
Vincent de Caprio, President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 12th day of November, 2004.
Name Capacity
- ---- --------
/s/ Vincent De Caprio President and Chief Executive Officer
- ---------------------
Vincent De Caprio
/s/ Paul Citron* Director
- ----------------
Paul Citron
/s/ Donald F. Farley* Director
- ---------------------
Donald F. Farley
/s/ David DiGiacinto* Director
- ---------------------
David DiGiacinto
___________________________ Director
Jack Reich
/s/ Solomon Steiner* Director
- --------------------
Solomon Steiner
/s/ Michael McGuinness Principal Accounting and Financial Officer
- ----------------------
Michael McGuinness
*By: /s/ Michael McGuinness
----------------------
Attorney-in-fact
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Fair Lawn, State of New Jersey, on this 12th day of
November, 2004.
VYTERIS HOLDINGS, INC.
By: /s/ Vincent De Caprio
Vincent De Caprio, President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 12th day of November, 2004.
Name Capacity
- ---- --------
/s/ Vincent De Caprio President and Chief Executive Officer
- ---------------------
Vincent De Caprio
/s/ Paul Citron* Director
- ----------------
Paul Citron
/s/ Donald F. Farley* Director
- ---------------------
Donald F. Farley
/s/ David DiGiacinto* Director
- ---------------------
David DiGiacinto
___________________________ Director
Jack Reich
/s/ Solomon Steiner* Director
- --------------------
Solomon Steiner
/s/ Michael McGuinness Principal Accounting and Financial Officer
- ----------------------
Michael McGuinness
*By: /s/ Michael McGuinness
----------------------
Attorney-in-fact
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